Analytics

Moneyball for Retail

YG_moneyball_FINAL imageThere’s a new way to grow profits and hit it out of the park with consumers, employees and shareholders. It’s “Moneyball for Retail” – finding market inefficiencies to gain a competitive advantage.

In Major League Baseball, team owners want to win games. In retail, executives want to grow sales and profits. Both want to achieve these goals without breaking the bank, and the best-managed franchises in each have one fundamental principle in common: identify, develop, and reward the right players.

Whether baseball teams are winning or not, their ongoing costs continue to escalate. To keep the franchise operating at a high level, management needs to be aware that the most expensive players aren’t always the best fit for the team. The same holds for retail stores: operational costs are escalating regardless of store success, and executives need to schedule the right people in the right places to generate profits with the fewest additional costs.

And just as iconic baseball dynasties have come and gone, so have seemingly invincible retail giants. The survivors are the ones that continue to win.

The Playing Field

The playing field today is challenging and it’s only getting more so. As in pro sports, brick-and-mortar (B&M) retailers are being attacked from many flanks. Here’s a scorecard:

1. Technological Innovation

While a source of great potential for some, new technology has been a major threat to the B&Ms that are unwilling to adapt. Borders, Tower Records, Circuit City, Blockbuster Video: all victims of tech’s ongoing encroachment on physical retail, and all warning beacons for those still stuck in the quicksand of a 20th Century business model.

2. Product Parity

Product parity is the new reality. Internet sales are a large and growing channel, and high-quality, low-cost product is now available to all retailers.

3. Maturing Infrastructure

Past models of retail B&M growth are no longer practical. Capital for new stores is scarce, geographic expansion and growth has its limits in the US; and other forms of growth (like brand extensions) offer a perilous combination of diminishing returns and heightened competition.

4. Consumer Control

With near-ubiquitous mobile technology, the modern customer can check an item’s price against a competitor’s, find a nearby store to visit instead, or even purchase the item online, all while standing in the aisles of your store.

5. Traffic Slowdowns

Store visits are flat or declining. The shopping experience isn’t the entertaining diversion it once was, and the American consumer’s leisure time and disposable income are being diverted elsewhere.

6. Workforce Shifts

Good labor isn’t cheap, and it’s likely to become even less so. Retailers must operate under the constant challenges of federally mandated, part-time worker benefits and a higher minimum wage. Hourly employee wages are one of the few ‘variable costs’ in retail, so cutting wages, hours and benefits has been a major cost-savings initiative.

7. Decentralized Structure

Managing B&Ms has become a real challenge. With hundreds or thousands of stores spread geographically across the US (and internationally), and tens of thousands of employees with high turnover rates … just running an online store seems a heck of a lot simpler.

The Playbook

So what do we, as an industry, do with our existing retail stores?

The overall business objectives for B&Ms remain the same: ideally, by leveraging current investments. To do this without spending more on marketing, we need more and larger transactions from the customers already visiting our stores. The key, just as in baseball’s widely accepted ‘Sabremetrics’ philosophy — the underlying basis of “Moneyball” — lies with an advanced statistical performance measure of our people:

Labor productivity is the single most important driver of the amount and size of transactions from our existing foot traffic.

Here’s the good news: a difficult economy means that quality personnel is more available. Higher wages and benefits make attracting better talent easier. The challenge is to make sure employees are engaged and operating at a highly productive level through every hour of every shift.

The Stats

What retailers need is to use a nontraditional set of unifying metrics to pinpoint which stores (and which sales team members) are capturing the most value from each customer. Where many businesses fall short is in effectively analyzing a mountain of raw data and disseminating the (often problematic) findings through a decentralized network of managers and frontline associates across stores.

Only with accurate visibility into sales staff productivity can managers and executives plan and align resources against customer opportunities and begin to capitalize on revenue growth. Labor and hours should be assigned based on accurate goals that have been generated through dramatically simplified data.

Retail Moneyball

Billy Beane, the long-time general manager of the Oakland Athletics, revolutionized the way managers think about baseball because he was able to see the game through an entirely new lens of, at the time, unconventional player statistics that went against the traditional key metrics on which player performance is judged. In effect, he found the value in previously undervalued assets. Retailers must likewise be willing to adopt a more progressive view of how to manage their human capital.

As an industry, we continue to sink considerable assets into our stores, but the results are not improving. There is value to be mined from the investments that have already been made in physical retail, and it lies within the labor force.

Statistically evaluating and strategically deploying our talent is a better way to consistently ‘win’ in retail. Employing this system – and rewarding and recognizing team members for their real contributions — will have all kinds of positive side effects on our workforce and company brand. Associates will be excited about coming to work each day. They will feel urgency around each customer interaction. They’ll be motivated to interact with customers and ‘solve the whole problem’ during each and every store visit. They’ll view sales work with a new ‘game mentality’ — with points and scores that get everyone focused on winning for the team. They’ll have a clear career path with defined checkpoints for success along the way.

Many successful B&M retailers, ranging from Staples, Advance Auto Parts, DXL and Delias are applying retail Moneyball to proactively grow in a systematic, scalable, and sustainable way across every level of their organization; they are activating their large human capital investments to drive incremental value.

Once you see opportunity to measure performance and reward your sales staff accordingly through a new “Moneyball” lens, it’s impossible to go back.

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