`Myths' of Retail may be Hurting your Business

`Myths' of Retail may be Hurting your Business

BY PATRICIA M. JOHNSON and RICHARD F. OUTCALT
Outcalt & Johnson

In the world of retailing, we are confronted constantly with forecasts and trends about the future. Who will survive, who won't, what does the shopper really want, what will the suppliers do, and so forth. As these forecasts are presented, and then repeated, they become widely accepted as fact.

We believe that some of these "accepted truths" need to be examined, and challenged! In fact, we believe that some of them are really myths.

Myths are beliefs which explain and make sense of the world around us. Myths are especially appealing in times of great change, turbulence, and turmoil because of the powerful appeal and comfort which they offer.

But, danger lurks. If retailers are making management decisions based on assumptions which are in fact myths, they may be myth led!

Don't let your business become a victim of these myths. Join us as we challenge some widespread "truths," and expose them as myths.

MYTH: My Best Customer Is The One Who Buys the Most

Quick now: How would you describe your "best" customer? Many retailers would say their best customers are the ones who represent the greatest percentage of their sales volume. For example, we know a retailer who sells family apparel: men's, women's and children's. Not long ago, if your were to ask him who his best customer is, he would answer that since he sells more men's apparel than women's or children's, his best customers are men.

Upon closer inspection, however, we discovered that his best customers are women, who not only shop for their own clothing, but for the men in their families! So, just because a particular product category is selling best doesn't mean that that is who's buying it.

Out "best customer" must describe our shoppers as people, not the products we sell. Remember: It's not enough to know what's selling: we MUST know "who's buying?"

MYTH: Baby Boomers Are Getting Old

We hear it all the time: The aging Baby Boomers are soon to turn 50. Bring out the signs with larger type and start thinking about ways to accommodate these "old" people! Take heed, Baby Boomers may be aging but they are not getting old. They have yet to behave the way the generation ahead of them behaved at that same age, and there is no indication they are about to start.

Baby Boomers got their basic training in shopping malls. They've grown up shopping at and supporting specialty stores, and they're not suddenly going to shop at department stores simply because their parents did. It's a state of mind and they will not act the way the previous generation did.

Baby Boomers ALWAYS have been unpredictable. They always have enjoyed the limelight, enjoyed the attention their sheer numbers allowed them to command.

They relished the SINKs and DINKs stage of life: Single-Income-No-Kids, Dual-Income-No-Kids. Then they started having families, again in a conspicuous way.

Once their kids are grown and raised, will they become "Empty Nesters" like their parents' generation did? Don't count on it. These aging Baby Boomers will instead become Reborn SINKs and DINKs! It's an attitude!

The danger of believing the myth that Baby Boomers are aging: If you treat them as if they are "over the hill," you will turn them off, and/or miss a big opportunity.

MYTH: Bigger is Better

This is what we call the "Steroid Promise." Its focus is only on growing sales volume, even at a lower margin, higher inventory, higher advertising. It is growth at all costs just to drive sales up. The myth is that with more sales all your problems will go away. This is a common belief which the 1980s "validated," and the 1990s expose with regularity.

To sum up the danger of believing this myth, we offer our Theory of Toos: Too big. Too fast. Too bad!

We believe that BETTER is better. Growth is okay only as long as the balance sheet continues to be strengthened and customer loyalty continues to grow. These are some of the things that make a retailer better, not just bigger.

MYTH: Retailers Can Get Higher Margins

When planning for the next season or for the coming year, some retailers are tempted to project the gross profit margins they attained one or two years ago. "We should be able to get our margins back up," they say confidently.

Those days are history, folks. Margins are being driven down, down, down, more by customers than even the competition. Shoppers increasingly rally around the NPR banner Never Pay Retail!

Competitive influences in lowering margins are not to be ignored, however. Shoppers enjoy the low prices at discounters and membership warehouse clubs, and expect other retailers to match those prices. Those lower prices result from lower operating expenses; a trend you also must attain.

Wal-Mart, of course, is the world's leader in using cost controls as the driver. Wal-Mart's operating expenses as a percent of sales keep declining; right now, they're around 16 percent of sales! Sixteen percent of sales! This means they can have gross margins of just 18 percent and still have a two percent profit! Other retailers struggle mightily to keep competitive.

If you prepare projections which assume higher margins, and then start to spend against those projections, you will create a disastrous domino effect! Cash flow will be immediately reduced, which has an increasingly suffocating effect on the health of the business. The walls will cave in quickly.

However, by recognizing that attaining higher margins is a myth, you will not anticipate gross margin dollars which cannot be attained. Odds are greatly increased that you will survive!

MYTH: Cyber-Shopping Will Dominate Retailing

There is a very popular myth these days. We hear a lot about cyber-shopping, the Internet, Virtual Malls, and the like. Frankly, we believe that, once again, the technology is ahead of the tactics. It will take years for computers to become the "home appliances" the futurists imagine.

Recently, we spoke to a group of 300 systems people from retail organizations. Folks who use computers daily (and knowledgeably!), and who work in retail. We asked them to stand if they owned a home computer. Nearly all 300 rose! We then asked them to remain standing if they had surfed the Internet from home. At least half sat down. When we then asked them to remain standing if they had purchased merchandise over the Internet, only 10 remained standing!

Here's another thought on the myth of the cyber-shopping revolution. Those products which can be sold successfully by computer will tend to be products which men buy. Why is that? Because the majority of computer users are male. As long as computer use continues to be dominated by males, cyberspace will not soon be a hot bed of retail activity. Few men choose to shop, or enjoy shopping. Why would men use the Internet to browse a shopping mall?

MYTH: Good Customer Service Is the Key To Success

Many retailers are quick to assure us that they believe in "good customer service." But "good customer service" for whom? For which customer?

Most retailers assume good customer service is having a friendly, knowledgeable staff available to answer questions and greet people. But every customer is different and requires a certain type of service.

Pat's mother, for example, likes a store with a good reputation, enjoys the relationship type of selling, and prefers sales people who really know their product, and will take time with her. Pat, on the other hand, demands an environment that is sensitive to her time constraints. Like many working mothers, she wants to get in and out of a store as quickly as possible, and needs to be able to shop late evenings and weekends. She likes to make a decision and a transaction on her own, with no fuss and no hassle. Pat's 16 year old daughter, yet another type of customer, prefers a store with a lot of choice, variety of merchandise, and a lively, helpful staff that respects teen-agers as bona fide customers (not potential shoplifters).

So how does one store provide "good customer service" for these three generations of shoppers? Chasing after a one-size-fits-all solution is why so many customers are disappointed.

Once the myth is exposed, however, once each retail organization recognizes that it has several sub-sets of customers, each with their own ideas of what constitutes "good customer service," then you can more effectively serve each customer type.

MYTH: Location, Location, Location

It used to be that there were three rules to success: location, location, location. Now that's ONE of maybe 25 rules. Purely real estate driven location decisions are treacherous today. It's not a matter of traffic counts or how many people live within a one or three-mile radius.

It's more a function of who customers are and what their shopping behaviors are. Retailers need to consider not only demographics but psychographics (attitudes, values, lifestyles). We believe that there is no more "dough" for cookie-cutter rollouts.

Plus, the old "location, location, location" assumes that your customers shop you only be default, based only on "convenience" as measured in miles. Today, "convenience" has more to do with saving time, being in stock, ease of transactions, confidence and trust in the store and its products, sense of personal safety while shopping, and so forth.

By recognizing this as a myth, we remove the excuse of "Gosh, we're just not at the corner of Main & Main." This frees you to concentrate on providing whatever it is that really constitutes "convenience" for your best customers. (And, it could save you from some pricey and long leases.)

Myths are funny things. "It always rains in Seattle" has kept millions of people from moving here. "Lou Gehrig's record will never be broken" probably discouraged thousands of players from even trying.

Might there be myths in your way? Being successful in retailing is tough enough. There is no room for being myth-led!!

Pat Johnson and Richard Outcalt are principals of Outcalt & Johnson Retail Strategists, a consulting team based in Seattle.

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