A tale of two shoppers
I suspect most of us have had the experience from time to time - you're looking to buy something a little bit out of the ordinary, and don't really know where to start. Two stories I heard recently neatly illustrate how that can result in both good and bad experiences. One story involves a teetotal friend looking to buy wine for a dinner party. His trip to a specialist vintner was frustrated by a condescending member of staff and resulted in my friend leaving the shop having not made a purchase. In contrast, another friend decided to take up running after being on maternity leave. She visited a running shop, was put at ease by a member of the sales team and left with trainers, clothes and gadgets.
These two stories demonstrate the importance of the customer experience. In the first, a negative experience directly cost sales, in the second a positive experience drove sales. They also serve to underscore the ripple effect these things have - news of good or bad experiences are passed on to a wider social circle.
Particularly at the commodity end of the retail sector, margins can be very tight, and the cost of staff may represent a sizable fraction of the overall costs of the business. Staff training, and standardized processes can help to ensure that customers generally have a positive and consistent experience - but there will always be exceptions. As illustrated above, where those exceptions result in a negative customer experience, it will have a direct impact upon the bottom line.
There are other costs associated with a large workforce that have to be factored in. Lower-paid, lower-skilled workers tend to stay in roles for a shorter time for a variety of reasons. This high turnover of employees means that the investment in training or knowledge transfer activity remains high, while resulting in a constant loss of corporate 'memory' from the organization. Additionally, poor sales of some items may reflect the quality of the sales staff, not the item, causing the business to needlessly invest in new lines. Having advised many businesses in the retail and logistics sectors, we know that other potential costs associated with a low-skilled workforce include issues with poor time-keeping, use/abuse of the sickness absence policy and even theft. Dealing with these issues is time-consuming for HR teams and managers, meaning there is less time and resource available to identify and retain talent in the business and develop training programmes.
The effects of potential lost revenue and lingering brand damage from poor customer experiences combined with increased direct and indirect costs associated with a transient workforce have a disproportionate impact upon already squeezed margins.
Domo Arigato, Mr. Roboto
If the human element of retail operations can be inconsistent and costly, one obvious solution is to reduce the need for staff. In retail, both in the customer-facing aspects of the industry, and in the supply chain, there is a long history of this. DLA Piper has recently published an infographic detailing the evolution of technologies, but it is easy to see the vending machine as the great-grandparent of the self-service checkout, with its Dalek-like cries of 'unexpected item in the bagging area'.
The growth of eCommerce and multi-channel retail means that most of us will frequently buy goods and services without any direct human involvement. Nevertheless, the supply chain to fulfil web orders has traditionally been labor-intensive, with large numbers of warehouse staff, pick & pack workers, long-haul drivers and delivery personnel.
Increasingly, robotic warehouses and automated picking mean that fewer staff are involved in those processes. There are already many proof-of-concept self-driving vehicles, and fully automated highway driving is already available to consumers in the form of Tesla's Model S and Model X vehicles. Self-driving long-haul vehicles will soon be with us. Perhaps surprisingly, last mile delivery - a seemingly more complex problem involving navigating busy cities and suburbs - is even more advanced. Companies such as Starship Technologies are already operating fleets of 90% autonomous delivery robots to undertake to-the-doorstep deliveries.
We are on the cusp of being able to purchase goods, and have them picked, packed and delivered with no human interaction at all.
Dare to be different
Doomsayers might suggest this will mean that retailers will spell the end of all retail jobs. No doubt many positions will be affected, as the supply chain is transformed. But even at the most margin-squeezed end of the retail sector, the cost savings wrought by transformative automation will provide an opportunity to reimagine the retail experience. When everyone can provide a fully-automated low cost retail solution similarly well, the successful players will win business by offering something more and different. The answer to "why do I buy from brand X instead of brand Y" is often the customer experience, which can be heavily influenced by the employees and service level.
Those retailers that today have a large workforce of relatively lower cost staff will be transformed into organizations with a smaller workforce of individually more valuable workers. Inevitably, there will be some redundancies as a result of these restructures, but there will also be opportunities for higher-paid roles. Planning and implementing these processes will keep HR departments busy, but there is yet more they will need to do. Organizations will not be able to sustain the levels of employee turnover if the special character of the business is to be retained. HR departments set up to manage large populations by enforcing relatively rigid employee policies will need to focus more on talent retention, flexibility and innovative approaches to career management and rewards. This harder task will involve upskilling of HR departments and 'rewriting the rule book' of how an organization engages with their workforce.
Running to stay still
The pace of change is accelerating. As new disruptive technologies are launched, and new market entrants demonstrate the value of investing in technology, decisions and commitments made today can rapidly become outdated.
Service providers - whether IT vendors, third party logistics providers, warehouse operators and others - have long dangled the commercial carrot to customers of offering a deeper discount for a longer-term contractual commitment. Where the pace of change is slower, the benefit of that discount is attractive. In a fast-changing market the 'lock-in' cost can be enormous - even a 3-year haulage contract entered into today could easily see lower cost semi- or fully-autonomous vehicles which dramatically reduce transport costs entering into operation. Benchmarking provisions, 'gain share' based innovation mechanisms, or good governance and an aggressive use of change control provisions can help mitigate some of these risks, but there is no substitute for a baked-in commitment to implement these transformative technologies and pass on the commercial benefits to the customer. If your chosen provider has no contractual commitment to implement new cost saving technologies, that longer term contract becomes an obligation to pay a price out of line with the prevailing market standard.
The transformative impact of technology in the retail and logistics sectors will create huge opportunities for the most agile and creative businesses. Already we are seeing a real change of approach from those businesses who are ahead of the curve, with a focus on the best ways to motivate and retain talented staff. From simple things like more flexible working, to more complex share-based tax efficient reward schemes for the highest performers, it is all about attracting and keeping the best of the best. To find out more about how you can start to reshape your business' workforce and avoid the dangers of getting 'locked in' to outdated delivery models, get in touch with your usual DLA Piper contact.
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