Growth through
Customer Facing Talent
By Chris Donnelly
The way retailers interact with customers in person, online
or in call centers plays a key role in their success. Learn why
scaling up great customer-facing capabilities matters.
Most retailers today desperately seek reliable
expansion strategies, but only a few will find
ways to spur the growth they need. Facing
little to no revenue uplift, increasing global
competition and agile digital attackers, retailers
need different tactics to generate profitable
growth. One proven but underutilized approach
focuses on boosting a retailer’s customerfacing sales performance—how your employees
interact with and treat shoppers in person,
online or via call centers. Experience suggests
that this approach can produce compelling
benefits: a 1% increase in sales has more
impact on the bottom line than a 1% change
in any other income statement line item.
2
While the case for investing to increase
customer-facing performance is strong, the
dynamics can be slippery. Today, companies
often find themselves throwing good money
after bad because—for a variety of reasons—
things just don’t click as expected. The
reason? Unless retailers develop a holistic
set of front-line investments tied closely to
the needs of specific customer segments,
much of this spending could actually
end up eroding their competitiveness.
Over-stored, under-serviced
Recently, an investment analyst report on retailing characterized the industry as an “overstored
but under-serviced” world. Few would argue with the first part of that assessment. However,
the notion of it being under-serviced goes against the many sizable investments in people and
technology that leading retailers have recently made.
Over the past year or so, the heads of a number of leading
retailers shared their investment plans for their front-line
operations. Doug McMillon, the president and CEO of Wal-Mart,
recently laid out a three-pronged plan: become a customerdriven company; invest in Wal-Mart’s people; and position
the firm as a leader in innovation and technology.1 And Mike
McNamara, the chief information officer (CIO) of Tesco, Britain’s
largest supermarket chain, listed the company’s current and
future investments in technology to support its staff. Innovations
included using smartwatches to help with stock control. Tesco is
also introducing robots to do simple tasks.2
All of these ideas make sense. They point to a growing
belief among retailers that investing in customer-facing
talent to support pay levels, technology innovations,
training and recruitment will result in improved sales and
profits. To understand why this might not happen, it’s
helpful to look behind some of these assumptions.
Payback for more pay?
Not all retailers are created equal when it comes to the ability to
pay customer-facing employees. In 2013, for example, a Business
Insider article3 compared Costco’s labor cost model to that of WalMart and Sam’s Club, and then compared their respective sales per
square foot (sq. ft.). On average, Costco generates more sales per
sq. ft.—$814 versus $586 at Sam’s Club. Later that year, Bloomberg
View published, “Why Wal-Mart will never pay like Costco.”4
The writer noted the differences between the two companies’
respective customer demographics and business models: WalMart, for example, carries 108,000 stock-keeping units (SKUs),
while Costco has only about 4,000. Because Costco’s model
requires less labor, the company could achieve better productivity
and is thus able to pay its employees higher wages. Rather than
seek to achieve wage parity with higher-end players, companies
that depend on low-skill, low-cost labor should instead investigate
the benefits of automating as much as possible.
When viewing a broad set of US retailer earnings before
interest, taxes, depreciation and amortization (EBITDA) figures
in relation to customer-facing wages, no clear correlation
exists between the wages a company pays and its overall
business performance (Figure 1).
Figure 1: No correlation between wage rates and earnings
Hourly wage rate versus LTM EDITDA for US retailers
EBITDA
35
MK
30
Coach
25
L Brands
20
15
10
5
0
VSS
Zara
Fos
UO
Gap
JCw BBBY
Car
Wson
UA
M
DSWAT
P1I
RS
Chi
A&F
Exp
BLK
Gue DSG
LB
Saks Fifth Avenue
BT
AH EB
Sta
Gym
BCBG
OD
Aero
OM
AA
PS
-5
Aero
-10
8.0
H&M
HD
SW
Dil
Low
Nor
NM
RH
KS
Tal
WS
8.5
9.0
9.5
10.0
10.5
11.0
11.5
12.0
12.5
Hourly wage rate
Source: Accenture analysis of Glass Door and CapIQ data
3
Worse, the economics of paying front-line staff another dollar
or so an hour can quickly escalate into hundreds of millions or
even billions in new annual costs. Based on a $15 billion retailer,
calculations suggest that raising the store workforce’s pay by
$1.50 an hour would increase total wages, social security and
pension costs by about $140 million. Figure 2 shows the sales
uplift required to hold either the operating profit or operating
margin constant.
In early 2015, Wal-Mart announced a new initiative to improve
customer service that raised its minimum wage to $9 an hour,
introduced a six-month training program and gave employees
more flexible work schedules.5 While such a move might help
the retailer to attract better workers and ultimately drive sales
higher than the additional costs it generates, less expensive
options for boosting frontline performance do exist. For instance,
Sainsbury’s, a UK based retailer, recently gave its workers the
“fifty pence challenge.” The idea behind it is simple: encourage
every customer to spend an additional 50p during each shopping
trip between now and the year-end. The supermarket chain
processes 24 million transactions per week, so the extra 50p
would roughly generate an extra $400 million during the period.
Technology’s ticklish tendencies
Another increasingly popular path for many retailers involves
investing in sales floor technologies. The 2014 RSR Research
survey, “What’s in store for stores,” shows that 59% of retailers
say they are employing in-store technologies to “Make our
employees ‘smarter’ and better informed,” up from 47% in 2013.
Mike McNamara, CIO of Tesco, has spoken about the technology
revolution that is taking place in retailing.6 “Five years ago my
job was all about productivity—the background of retailing,
focused on the efficiency of the operation. Things are very
different today. Productivity remains important, but today it’s
all about investing in technology that is put in the hands of our
colleagues and customers.”
Similar spending is taking place across the retail landscape.
Grocery chains
Grocers are making investments in customer and employee
apps that highlight the ingredients and sources of food, with
recommendations on electronic shelf tags similar to those
provided by the TripAdvisor website.
Apparel
Apparel shops and department stores now have “magic mirrors”
that customers can use to try on clothing virtually.
Electronics, home improvement and luxury brands
In these segments, retailers are making investments in
guided selling and item “clienteling” tools that can help the
salesperson integrate, say, the purchase of an entertainment
center into the customer’s living room using 3D techniques.
Figure 2: Case example: uplift required to compensate for a $1.50 across-the-board pay raise.
Percentage sales uplift required to:
Maintain current operating profit (£)
Maintain current operating margin (%)
Source: Accenture Analysis
4
3.8
4.6
While retailers are investing more in customer-facing
technologies, two key issues continue to challenge
many companies:
Costs and scale complexity
As advanced store technologies proliferate, the law of
big numbers often works against retailer efforts to justify
investments across their entire chains of stores. One home
improvement player recently considered a cloud-based solution
for guided selling for its sales and service operations (i.e., staff
in stores and in the contact centers). However, the pricing model
for the selected software-as-a-service (SaaS) solution charged
on a per-user basis. Consequently, the costs did not justify the
investment, even when strong upside potential existed.
Speed of Change
Speed is a double-edged sword in today’s retail environment.
Some new ideas and uses of technology are real game changers,
but will shortly mature into the “table stakes” that every retailer
needs (or disappear entirely). As a result, companies need to
place their technology bets soon, since competitors—particularly
online players—move very quickly even though uncertainty
levels are high. Google Glass offers a cautionary example of
the accelerated pace of change among new technologies. It
did not exist at scale a year ago, and the company has already
suspended sales of the original version as it reassesses the
technology’s design.
The trials of training and recruitment
When customers walk into the store, the retail salesperson needs
to determine exactly where they are in their purchase journeys
and then provide the help they need to move on to the next
stage. This challenge is more complex today given all of the new
channels and choices available to shoppers—the path to purchase
may not end when the customer walks out of the store without
buying anything. Consequently, sales associates need access to
a single view of customer data and a technology platform that
can identify where shoppers are in their purchase journeys as
soon as they enter a store. Sales associates themselves need to
know how to move a customer along on his or her journey.
Training
Achieving this level of performance is usually a challenge, given
the costs associated with training and development. A grocer’s
labor force does not have much slack time in terms of working
hours. Therefore, to train them, the company could require
them to stay extra hours and pay them overtime, or cover for
them during working hours. Given that grocers typically employ
large staffs, these costs can quickly skyrocket. For instance, to
train the 200,000 workers of a major European supermarket
company who on average earn $15 an hour excluding benefits,
the cost for one hour of training could total $6 million.
Recruiting
Many retailers are re-thinking their recruitment approaches
when hiring frontline staff. Take specialty apparel and/or luxury
brand retailers. Players in these more exclusive segments often
seek recruits endowed with the art of storytelling, which requires
a change in HR assessments of individuals and the questions
they might ask.
In grocery home delivery, the value of drivers and contact
center staff has become increasingly important because of
the customer-facing roles they play. Consequently, traditional
grocers that are entering the home delivery market are including
new dimensions in their recruitment processes.
5
Facing customers
With the possible exception of low-cost commodity players, retailers worldwide need to think
harder about the experiences that customers have in their stores. Employees play a critical role
in this equation, becoming the literal “face” of the company when interacting with customers.
And since the vast majority of retail sales still take place in stores, investing to improve this
pivotal customer interaction makes compelling bottom-line sense.
While research and personal experience offer compelling
evidence that having top customer-facing talent can
significantly drive sales, “bottling” that capability and
distributing it company-wide remains a major challenge.
Now, however, retailers can employ advanced technologies and
training techniques to improve scalability. Done right, scaling
up best-practice customer handling capabilities can generate
high sales and margins, providing the seed money to fund more
investments and offer higher wages.
6
Bottling success
Research and experience show that top customer-facing talent
can drive sales. Significantly. The problem comes in “bottling”
it and spreading it throughout an organization. Most retailers
invest in some combination of additional wages, recruitment,
training and/or technology, but all too often in isolation. Now
they can use advanced technologies, recruiting and training
techniques to improve scalability. Done right, the perfect cocktail
can generate high sales and margins, providing the seed money
to fund more investments and offer higher wages—the proverbial
virtuous circle.
References
1 Walmart, News & Views, “Walmart CEO Outlines Company’s
Future: Being Customer Driven, Investing in its People, Leading at
the Forefront of Innovation and Technology”, June 6, 2014
2 Retail Week Tech & Ecomm Summit: Wearables and robots only
five years away, says Tesco’s Mike McNamara - 17 September,
2014 | By Rebecca Thomson
3 http://www.businessinsider.com/costco-ceo-supportsminimum-wage-hike-2013-3
4 http://www.bloombergview.com/articles/2013-08-27/whywalmart-will-never-pay-like-costco
5 http://www.businessinsider.com/wal-marts-newstrategy-2015-2
6 Retail Week Tech & Ecomm Summit: Wearables and robots only
five years away, says Tesco’s Mike McNamara - 17 September,
2014 | By Rebecca Thomson
7
Contact the author
About Accenture
Chris Donnelly
[email protected]
Accenture is a global management consulting, technology
services and outsourcing company, with more than 323,000
people serving clients in more than 120 countries. Combining
unparalleled experience, comprehensive capabilities across all
industries and business functions, and extensive research on the
world’s most successful companies, Accenture collaborates with
clients to help them become high-performance businesses and
governments. The company generated net revenues of US$30.0
billion for the fiscal year ended Aug. 31, 2014. Its home page is
www.accenture.com.
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