Retail, shopping & leisure

Toyota transfers process knowledge to retailers

On the surface Wal-Mart isn’t usually thought of as an innovator but its ‘cross-docking’ system has been fundamental to the firm’s success. The system, whereby goods from a supplier’s truck pass directly onto store delivery trucks, is a process innovation that could easily have been learnt from the automotive industry, so it’s perhaps no surprise to hear that the Advanced Logistics Division of Toyota is teaching Japanese retailers about ‘Kaizen’ or continuous improvement. For example, you might think that it would be quicker for supermarkets to cut and wrap cabbages in batches. However, Toyota’s fresh eye found that it was actually faster to perform the operation individually because this removed the need for separate storage spaces and transport. Kaizen teams have also studied everything from the location of shopping trolleys, cash registers and high turnover items. This is a great idea and ties in with a number of theories which suggest that breakthrough thinking usually comes from people fresh to an industry or from companies operating in other fields.
Ref: Nikkei Weekly (Japan) 6 February 2006, ‘Toyota exports “kaizen” to retail industry’
Search words: Toyota, retail, kaizen, evolution, improvement

Cost-to-serve on-line

More than 33% of US households now spend online, so why do some products make money while others struggle to turn a profit? According to an article in Strategy + Business magazine this is because ‘e-tailers’ fail to recognise that the cost-to-serve varies enormously by product sector. For example, selling bags and suitcases is relatively straightforward online because bags tend to come in one or two sizes and one or two colours. Bags are also relatively immune from the vagaries of fashion and product life cycles are therefore relatively long. The cost-to-serve is thus relatively low. Compare this to shoes. Most shoes come in a bewildering number of sizes, colours and styles and product life-span is relatively short. Consumers also tend to make numerous returns. Thus the cost-to-serve in shoes is relatively high. Another example is toys – unlike books, toys are highly seasonal and demand is hugely unpredictable, which can leave retailers with vast amounts of unsold stock (which, as recently discovered, can’t be returned as unsold goods). So what’s the solution? First e-tailers need to pick the right sectors and then adjust their business models accordingly. This might include pricing delivery by geographic location or putting the least popular products online (which strangely seems to work). Another trick is to recognise that the online model itself may be changing. For example, companies like Wal-Mart now see the Internet not as a delivery mechanism but as an information source. Customers are increasingly checking out products and ordering online for a pick-up at their local Wal-Mart store.
Ref: Strategy + Business (US) 28 February 2006, ‘The Hidden Cost of Clicks’, T. Laseter, E. Rabinovitch, A. Huang See also The Last Mile to Nowhere: Flaws & Fallacies in Internet Home Delivery Schemes by T. Laseter, P.Houston and M. Turner, Strategy + Business 3rd QTR 2000 (thanks Greg too).
Search words: cost to serve, Internet, e-business, e-commerce, business models

When there’s no going back

If you’ve bought clothes from The Limited in the US since 1999, chances are you’re on a database containing information about who you are and what you’ve bought. In theory data like this helps stores to align products and offers with customers needs but it could also be used to track returns. Once upon a time stores like Mark & Spencer used to pride themselves on their no-questions-asked refunds and returns policy but these days more and more shops are treating customers as guilty until proved innocent. The problem, in the US at least, is that more and more people (primarily women) are bringing stuff back because it doesn’t fit or because they’ve ‘changed their minds’ (they no longer want it). But is this really a customer problem? Surely if stores had proper changing facilities or if designers made products that fitted properly this would be much less of a problem? Then again perhaps this problem is linked to customers being always in a hurry or a lack of clear labelling. The issue has also been linked to debt in the sense that more people are buying things on impulse that they can’t afford - and then returning them using the store as a form of short-term credit.
Ref: Financial Times (UK) 25 February 2006, ‘Going back on returns’, S. Tang
Links: Gap introduce fitting rooms made for twos and threes.
Search words: customer service, clothes, retail, credit

New retail ideas from Japan

Department stores in Japan are testing smart tags that allow shoppers to interrogate products and to check availability in real-time. Information includes whether or not a particular size or colour is in stock or how a product is made or worn. There is obviously some concern that flashing screens could disrupt the ambience and atmosphere of high-end stores like Mitsukoshi, so in most cases these smart tag readers and LCD monitors are hidden in changing rooms. Also in Japan, Kaldi Coffee Farm is experiencing rapid growth, partly due to its focus on women. The chain of 80 coffee and speciality food stores, which has trebled in size over the past four years, has a workforce that is 95% female. This helps sales assistants to respond more effectively to female shoppers – but this focus runs much deeper than customer service. Sales staff are intimately involved in the product development process and go abroad regularly to study other retailers. One final nice touch is that sales staff give away freshly brewed cups of coffee at the store entrance and encourage customers to take the coffee inside while they browse.
Ref: Nikkei Weekly (Japan) 30 January 2006, ‘Department stores testing systems on front lines’ and The Nikkei Weekly, 30 January 2006, ‘Food importer focuses on women’, K. Endo.
Search words: smart tags, RFID, customer service, women

The high cost of low prices

It’s rather strange that in a society where the customer is king and where business success is celebrated, Wal-Mart stands accused of offering prices that are too low due to a business model that’s too efficient. In the UK, supermarket giant Tesco is suffering much the same fate and is being accused of pandering to nobody except its customers and its shareholders. (Interestingly, while the top four supermarkets in the UK hold about 70-80% of the market, just two companies hold roughly the same share in Australia and so far nobody is complaining). Part of the problem in the US and UK is that these are oligopalistic companies and their buying power and low prices are destroying smaller retailers – which is in turn destroying the cohesion of local communities. But customers are free to shop anywhere they want and anti-supermarket attitudes probably reveal more about us and where society (and government) is heading than most of us would like to admit. We pay lip service to ethical concerns about the treatment of factory workers in China and worry about climate change but we still park our four-wheel drives in the car park at Tesco and buy trolley loads of jeans at £4 a pair. Equally, we moan about the closure of the local butcher but we choose not to shop there – either because the prices are too high, the quality is too low or it’s too inconvenient.
Ref: The Economist (UK) 25 February 2006, ‘The behemoth from Bentonville’ Also see Spiked Online (UK) 16 March 2006, ‘Who’s afraid of Supermarkets’, N. Davenport , Wal-Mart: The Face of Twenty-First-Century Capitalism by N. Lichtenstein, and The Wal-Mart Effect: How the World’s Most Powerful Company Really Works – and How It’s transforming the American Economy by C. Fishman.
Search words: Wal-Mart, Tesco, size, supermarkets, success