Has the recession and the rise of the Internet damaged customer service in UK retailing?

The KPMG/Ipsos Retail Think Tank (‘the RTT’) met in October to consider the impact that the recession and the rise of multichannel retailing has had on the quality of customer service in the UK and the wider retail offer, and to identify how retailers can improve the experience they provide to customers.

The roots of decline and impact of the recession

The RTT believes that there has been a steady deterioration in overall customer service standards over the last decade.  The fixation of the City and retail financiers with short term profitability, share prices and shareholder value, shifted the business focus for some retailers away from the service they offered to their customers.

“The transformation from ‘not a real industry’, to a finance page favourite started to shift the focus of the industry’s leaders towards the City and away from the customer,” comments Martin Hayward, Founder of Hayward Strategy and Futures. “Efficiency improvements became crucial to keep the share price momentum, and the customers didn’t seem to notice and just kept on spending because they seemed to have ever more money to spend – albeit increasingly due to mounting debt.”

This past willingness by consumers to spend, regardless of the service received, meant that retailers could make deep cuts into resource levels and not suffer a fall in sales as a consequence.

Neil Saunders, Managing Director of Conlumino, explains: “Some retailers like Tesco ran their business on a short term basis which has stored up long term problems.  While they successfully addressed the issue of maintaining profitability, they fell behind the competition by ignoring long term issues like store dilapidations, which have now begun to negatively impact on the brand and customers’ shopping experience.  By contrast John Lewis took a very long term view and made improvements in their stores and other channels like their website before they were needed.  By making this investment they aimed to ‘future proof’ their business and stay ahead of their competitors.”

However, consumer acceptance of poor service has reversed over the course of the protracted recession, which has damaged consumer confidence and prompted a more conservative approach to their spending.  Retailers now have to reconsider the genuine importance of customer service or lose custom.

Helen Dickinson, Outgoing Head of Retail at KPMG, notes: “The current low growth environment, where customers’ disposable incomes are being squeezed, has changed the way we shop.  Consumers are more powerful and informed as technology has democratized the flow of information, more value conscious and more willing to crossover between channels, brands and price ranges.”

At the same time the combination of the sudden downturn, declining sales volumes, rising costs and the need to invest in online platforms has eroded retailers’ profit margins, putting pressure on their businesses.  Neil Saunders, Managing Director at Conlumino, comments: “The reaction to this pressure has been enormously varied: some retailers have cut costs and pared back spending in an attempt to bolster profits; others have been more expansionary and looked to growth to help them through tough times.”

The RTT notes that retailers’ split responses have led to more polarised service levels  developing within the sector, with some retailers investing heavily in their service offering, and others cutting back on staff and outsourcing some aspects of customer service to the likes of call centres and logistics companies. Whilst helping to protect the bottom line, these actions, together with the likes of narrowing ranges, have damaged customer service and the retail offer, the RTT believes.

However, David McCorquodale, UK Head of Retail at KPMG, warns: “Outsourcing elements like delivery of goods and customer call centres may save money, but it is a risky business.  A customer could have a great experience in store but if the delivery service isn’t up to scratch, then this negative experience will ruin their perception of the brand.  If you run your own supply chain, it might cost more but you’ll have more control.”

“Retail offer deterioration is inevitable whenever there is a sustained margin squeeze,” explains Mark Teale, Head of Retail Research at CBRE. “At the end of the day, the quality of what can be offered to consumers is determined by what households are willing to pay. Price inflation may be low but value for money dilution and service dilution – the great hidden inflation – is always crouching in the wings during recession. However cleverly disguised, cost pressures inevitably drive many retailers (and manufacturers) to surreptitiously downgrade the quality of what they are selling and their overall offer.”

The sector has also responded to the fall in demand by cutting the number of people it employs. The cuts were particularly severe in 2011, when any hope of a swift recovery disappeared. Inevitably this has impacted on the ability to assist on the shop floor, though cuts have also been made at head offices.  “Given that staff are retailers’ biggest cost, it is natural that they will look there for savings – whether through reducing headcounts, reducing spending on training or squeezing pay,” says Vicky Redwood, Chief UK Economist at Capital Economics.  “All can have adverse effects on service in the sector, with the latter likely to affect staff morale and the ability to attract skilled staff.”

Figures show that the retail sector has cut jobs fairly aggressively over the past few years. Whereas employment in the economy as a whole is now broadly back to its pre-recession peak, employment in the distribution sector is 212,000 or 4.2% lower than it was at its peak at the start of 2008.

However, staff remain vital to a retailer’s success.  The RTT stresses that retailers need to invest in their staff and offer long term, rewarding careers in order to attract staff who care about the business and will subsequently try hard to offer a good service to customers.  “If staff have their working hours cut and they are asked to do more and more for less and less, then it’s not surprising that happy and smiley faces become harder to find,” says Nick Bubb.  “A demoralised workforce, worried about job cuts or store closures, won’t go the extra mile for customers, even if they are told by their harassed managers to watch out for “mystery shoppers” sent from Head Office.”

Improvement in service is now imperative

The RTT warns that it is now vital that service standards are improved.  “The retail sector has lost a lot of the intimacy between customers and staff that for a long time was the basis of customer loyalty and satisfaction,” says Mark Teale of CBRE. “Staff turnover is high, salaries are low, and the sector is probably less appealing to job-seekers than in the past.”

The need for better service goes hand-in-hand with providing better value for money.  Neil Saunders of Conlumino says: “When times are more constrained the importance of service to consumers actually increases. Many want additional advice about products to ensure they are buying the right thing. The internet too, makes service much more important in store; it’s a key differentiator to what’s available online. It is, therefore, something of a challenge that at the very time retailers would ideally like to cut back, service is actually more important than ever.”

Retailers are increasingly aware that providing a good service can offer a competitive edge over their rivals. Tim Denison, Director of Retail Intelligence at Ipsos, says: “Social networking and the proliferation of price comparison websites have acted as a great price leveler, leaving retailers with product and service to differentiate their offer.”

Rise of online shopping means a new approach is required

The RTT believes that the rise of multichannel retailing means that retailers must fundamentally change their approach to customer service.  “The changing retail landscape and the integration of online shopping means that quality service is not just about having the right numbers of staff in store at the right times of day,” comments Richard Lowe of Barclays. “It is about offering a seamless experience and a consistent level of service across multiple platforms.”

In direct contrast to what is happening on the high street, retailers have focused on upping their game online.  Independent retail analyst Nick Bubb explains: “These days shopping is almost as much about “clicks” as it is about “bricks” and the quality of service in online shopping, as opposed to High Street stores, is becoming an increasingly important aspect of the multi-channel process. And here retailers have a much better story to tell, because service has improved significantly, via next day delivery, order by 9pm at night and guaranteed delivery slots.”

The rapid adoption of social media by customers also means that bad service reviews spread rapidly through online communities and can inflict real damage to a brand. Richard Lowe of Barclays warns: “Get it wrong and, in today’s multi-media world, it is easier than ever for consumers to express their views to a wide audience. This in turn creates a feedback loop on a product or brand. As more people post reviews, more people read them and, in turn, they give their own feedback which is picked up by a new group of consumers.”

Retailers’ approach to business and service measurements must be up to scratch

The RTT warns that the retail sector is prone to using short term metrics to measure success and advises that a wholesale shift in attitude is needed. This is a generational problem.  Modern retailers need to reduce their reliance on out of date metrics and instead place more importance on tangential, holistic, measures like customer lifetime satisfaction.  “Retailers need to assess profit in a completely different way,” says Helen Dickinson of KPMG.  “They need to invest in the customer over the long term.  While a customer might not make a purchase every trip, if they enjoy their experience in the store then they are likely to come back and visit the store in the future.  Good service can really build long term loyalty in the brand.  If they don’t do this their ability to be profitable in the future will be undermined, so they need to start thinking about it.”

Another common practice is to rely too heavily on customer service KPIs from the likes of mystery shopping programmes that only measure service dimensions that retailers think are right for their customers.  Instead the RTT believes retailers should consider the need to continually assess and review what aspects of service are those that the customer values the most from them and then provide excellence service in these areas. It is not the case that one service approach should fit all. The approach taken to customer service needs to reflect the retailer’s strategy.

Tim Denison of Ipsos says: “So for the likes of Zara, where the offer and strategy is geared on fast turnaround of fashion merchandise, the service approach is geared at maintaining full product rails and personal service takes more of a back seat. In Apple, though the product remains the star, the strategy is to encourage customers to self-try and experience, with staff on hand to help as and when called upon. The service models are very different from one another, but just as effective in providing a strong and sustainable retail offer without compromising service.

“Taking a ‘test and learn’ approach – testing new service initiatives in hot house stores and observing or asking customers for their reactions, before rolling the successful ones out can help retailers to re-evaluate service touchpoints.”

The RTT propose a number of initiatives that retailers should actively consider to improve the retail offer:

– Build and maintain greater product knowledge and expertise on the shop floor by developing closer relationships with the manufacturers of the products being sold.  Richard Lowe of Barclays says: “Manufacturers would be delighted to train retailers’ staff about their product.  It will help them to explain the features of the product to customers and answer the important questions that help close a sale.”

– Recruit the right staff for the business.  Martin Hayward of Hayward Strategy and Futures explains: “Retailers need to think the type of career plan they offer to their employees.  We’re currently struggling with high youth unemployment levels – surely this is the opportunity for retailers to recruit the best and the brightest and invest in them so they stay with the business and work their way up.”  Neil Saunders of Conlumino adds: “Retailers need to work to change the perception of their industry.  There’s snobbery around retail which says it’s an easy job – actually it isn’t.  It’s difficult to listen to customers in a busy environment and give constructive advice.”

– Reduce staff churn and focus on retention.  Retailers spend large amounts of money training staff which is all lost if the employees leave.  Tim Denison of Ipsos suggests: “Staff incentive schemes can help motivate staff and are all part of turning ‘just a job’ into a job that people like doing.”

– Lead from the top. David McCorquodale of KPMG advises: “’In a smaller business the cultures of brand values and good customer service come through very strongly and are driven by the management.  This is harder to do in a larger business, but is possible.  Talented store managers and regional managers can really inspire their team, which often translates through into better results.”

– Put customer service as high on the agenda as increasing sales volumes. The two are closely linked.

Conclusion

The Group agrees that the recession has acted as a catalyst to declining customer service levels as falling sales have put sustained pressure on retailers’ margins.  However, it is now crucial to the health of the sector that retailers refocus their energies and improve their retail service offer to meet customers’ needs.

Retailers must understand what aspects of service their target customer really values and then place these at the heart of their business.   The RTT is at pains to point out that the shop floor team remains at the heart of service excellence and that head offices that undervalue or underestimate the skills and demands needed amongst those at the front line of service do so at their peril.

Vicky Redwood of Capital Economics acknowledges that retailers like John Lewis, which have worked hard to maintain and improve their customer service and have built an excellent reputation on their commitment to putting the customer first, are benefitting disproportionately from increased sales as a result.

The Group also concludes that retailers should take a wider, long term view of customer service and aim to provide a consistent, high quality, service to shoppers across the many different channels they use to buy goods.  By providing satisfaction and meeting customers’ needs they are likely to build loyalty and create much needed differentiation from competitors.

Part II: In detail – Individual views of the RTT members

Helen Dickinson, Partner at KPMG:

Indeed it is true that the current low growth environment, where customers’ disposable incomes are being squeezed, has changed the way we shop.  Consumers are more powerful and informed as technology has democratized the flow of information, more value conscious and more willing to crossover between channels, brands and price ranges.

The customer journey to the ultimate buying decision is therefore more complex than ever but this has heightened, rather than reduced, the need for excellent customer service in order to differentiate the offering.

Service is all encompassing across that journey, and much broader than staff interaction.  It’s the embodiment of every aspect of the proposition from store environment, ease of use of the website, product availability through to returns policies and after sales service.

However, the people aspect cannot be ignored.  Every time we talk, email, meet or chat on the phone with a member of staff, it adds to our experience with the retailer, our attitude towards it and, ultimately, whether we come back.

It is highly ironic, then, that staff with so much power are often paid disproportionately little attention by management.  Often relatively poorly paid, subject to stringent performance management measures that could inadvertently trigger undesirable behaviours, and receiving relatively little investment from an HR perspective.

The better performing retailers are those who ensure their recruitment and training policies bring in people with appropriate skills, and actively work to refresh and update these skills in the workforce.  They are also reducing their reliance on quantitative targets and focusing on more qualitative targets.

The constantly changing consumer means that the retailer needs to continually assess and review what aspects of its service are those that the customer values most.  Providing excellent service in these areas enables the retailer to differentiate and counter the price/transparency threat that the internet has facilitated.

The use of CRM, advanced data mining, and customised and superior service offerings should be seen as a top priority.  Taking the right actions from the insight gained is a major differentiator between the best in class retailers and their lower performing counterparts.

‪Quality service (people related or otherwise) drives loyalty and loyalty is engendered through the customer experience.  It is a critical aspect of commercial success, especially in, not despite, the current climate.

Tim Denison, Director of Retail Intelligence at Ipsos Retail Performance:

It’s a conundrum.  On the one hand, retailers have cut costs where they can to remain competitive in the recession and one obvious place to have looked and acted has been on labour costs. (Store labour costs typically represent 10-15% of total sales). On the other hand, research shows that more customers are making conscious decisions about where to shop based on their expectations for good service.  A mistake that all too many retailers are making, based on my wanderings up and down the high street, is in asking their store teams to increase their service levels and customer-facing activities with less resource. The risk is that stores end up doing everything moderately well, nothing exceptionally well and lose their focus.  Another mistake that head office management is making is in relying too heavily on customer service KPIs from mystery shopping programmes that only measure service dimensions that they think are right for their customers.

It needn’t be like that.  Good service needn’t be symptomatic of having more staff on the shop floor. It’s more a matter of having a service model that is commensurate with the products or services sold, aligned with the business strategy and store operations model and focuses on aspects of service that genuinely impact on customer behaviour. So for the likes of Zara, where the offer and strategy is geared on fast turnaround of fashion merchandise, the service approach is geared at maintaining full product rails and personal service takes more of a back seat. In Apple, though the product remains the star, the strategy is to encourage customers to self-try and experience, with staff on hand to help as and when called upon. The service models are very different from one another, not as resource intense as some, but just as effective in providing a strong and sustainable retail offer without compromising service. Results are achieved when customer service makes for a better retail experience.

In today’s ever-changing world, retailers would be well advised to continually re-appraise what aspects of service make for a better experience, rather than simply be satisfied by seeing improvements to long-standing, conventional metrics.  Taking a ‘test and learn’ approach – testing new service initiatives in hot house stores and observing / asking customers for their reactions, before rolling the successful ones out – is one such approach that is gaining popularity and helping retailers to re-evaluate service touchpoints.

Neil Saunders, Managing Director at Conlumino:

We know for certain that the downturn and the rise of the internet have both put pressure on retail businesses, especially those whose configuration was born in the pre-online era. The reaction to this pressure has been enormously varied: some retailers have cut costs and pared back spending in an attempt to bolster profits; others have been more expansionary and looked to growth to help them through tough times. This multitude of responses has created a very polarised situation as far as retail service is concerned.

No article on service would be complete without a mention of the John Lewis Partnership. It stands as an example of a retailer that, despite recessionary pressures, has stuck to its core principles in terms of providing a good experience for the customer. Investment has been made in both stores and Partners to maintain the high standards of service for which it is renowned. Equally, those service standards have also been extended to online with an increase of delivery options and investment in systems to make the process of ordering and delivery easier for the customer.

That said, even John Lewis has not been immune to issues like online price comparison. Over recent years it has moved its Never Knowingly Undersold policy from being solely about price to being concerned with price and service. So, if you can get a television cheaper elsewhere but it does not include a guarantee, this is taken into account when refunding the difference between the John Lewis and the competitor price. As debated as it was at the time, such a move is prudent and economically necessary.

At the other end of the scale a company like Tesco is now struggling to get its service proposition right: stores, staff, merchandising and other aspects of the service-scape are just not up to scratch. Admittedly, Tesco is putting in investment to remedy these areas but there is no doubt that a curtailment of spending in the past is now causing a headache.

That Tesco is suffering because of its service problems is revealing: it tells us that service does matter to consumers and that, in this highly competitive retail environment, if they feel one store is up to scratch, they will simply go elsewhere.

The caveat to all of this is, of course, positioning. A dirt cheap retailer focused solely on price can probably get away with poor service; if only because that’s not what differentiates it from the rest of the market. However, for most other retailers service is part of the value equation; its absence, or deterioration, has the potential to erode loyalty and sales over the longer term.

When times are more constrained the importance of service to consumers actually increases. Many want additional advice about products to ensure they are buying the right thing; many feel that in spending their hard-earned, and often limited, cash they are entitled to a positive engagement with shop floor staff. The internet too, makes service much more important in store; it’s a key differentiator to what’s available online. It is, therefore, something of a challenge that at the very time retailers would ideally like to cut back, service is actually more important than ever.

Richard Lowe, Head of Retail and Wholesale at Barclays:

Retailing is all about the customer but, the combination of recession and the internet has changed the way those customers shop, increasing pressure on retailers to deliver more for less.

The good news is that despite the downturn and pressures on pricing, retailers are still serious about good customer service. Many see it as one of the last remaining differentiators and they are acutely aware that quality of service is closely linked to brand loyalty. Those retailers which consistently impress their customers with first class service will see shoppers coming back time and again and make the decision to shop elsewhere that little bit harder.

The changing retail landscape and the integration of online shopping means that quality service is not just about having the right numbers of staff in store at the right times of day. It is about offering a seamless experience and a consistent level of service across multiple platforms.

Online is all about the simplicity of the experience – how many clicks does it take to make a purchase? Can consumers talk to someone if they need advice? And with more and more buyers browsing online before hitting the high street, retailers should consider organising stock in the same way online as it is in store so it is easy to find once a shopper steps across the threshold. It is not about simply delivering goods anymore; it is about delivering the whole retail experience.

Get it wrong and, in today’s multi-media world, it is easier than ever for consumers to express their views to a wide audience. This in turn creates a feedback loop on a product or brand. As more people post reviews, more people read them and, in turn, they give their own feedback which is picked up by a new group of consumers.

Even when customer service slips, canny retailers can still turn a negative experience into a positive one by ensuring shoppers are left talking about how helpful a store has been rather than how unhelpful when an item is not in stock or it’s not met their expectations.

Good service is integral to retail so in these straightened times it has become even more important to invest in staff and technology to maintain and improve the shopping experience for the consumer.

Mark Teale, Head of Retail Research at CBRE:

Retail offer deterioration is inevitable whenever there is a sustained margin squeeze. At the end of the day, the quality of what can be offered to consumers is determined by what households are willing to pay. Price inflation may be low but value for money dilution and service dilution – the great hidden inflation – is always crouching in the wings during recession. However cleverly disguised, cost pressures inevitably drive many retailers (and manufacturers) to surreptitiously downgrade the quality of what they are selling and their overall offer when times are hard (and even sometimes when times are good!).

Recession focuses consumer attention much more closely on price. Consumers currently have the whip-hand. The longer the recessionary attrition goes on, the further down the ‘value’ road the retail sector will be driven. And the further down the value road we go, the greater the pressure on margins. It is no coincidence that ‘pound’ shops and discount stores of one kind or another are proliferating now: indeed, pound shops are one of the very few areas of retail where expansion activity remains exceptionally buoyant.  Literally hundreds of new value/discount branches have been opened over the last 3-4 years. Many hundreds more are in the pipeline. ‘Value’ is king and will remain so as long as household incomes remain under pressure.

The Internet is meanwhile making a difficult situation even worse. It is imposing huge costs on the retail sector, at the worst possible time, both through the margin-destroying impact of price comparison (the real game-changer) and because of the eye-watering cost of Internet customer acquisition and retention. The underlying problem for the retail sector is that the Internet does not increase the size of the retail cake; it merely – at very substantial cost – moves the market share slices around. And it is retailers – not consumers – that are having to pick-up the bulk of the tab.

For many retailers the Internet will end up loss-making or at best a marginal profitability play: i.e. the cost of losing a customer will be greater than the cost of using store sales to subsidise the retention (or acquisition) of a customer via the Internet. The margin is still diluted, but not by as much as if the customer is lost altogether: a multi-channel driven margin dilution. Some retailers (Next and JLP are obvious examples), will win out regardless. But for many the Internet is – and will remain – a loss-leader simply because it is not a competitive avenue for customer acquisition or retention.

Vicky Redwood, Retail Economist at Capital Economics Ltd:

The recession should not have been unambiguously bad for service levels in retail. In theory, as competition heats up, retailers should be forced to step up their efforts on all fronts in order to maintain or win market share – meaning that they should focus on using more than just price to retain customer loyalty.

Nonetheless, it is natural for firms to cut back on costs during a recession – particularly one as deep as this – and the ongoing pressures on margins from internet price comparison (and rising commodity prices) will have compounded this. The squeeze on consumers’ real pay has also made them more focused on value and perhaps more willing to tolerate reduced service in return for lower prices.

Given that staff is retailers’ biggest cost, it is natural that they will look there for savings – whether through reducing headcounts, reducing spending on training or squeezing pay. All can have adverse effects on service in the sector, with the latter likely to affect staff morale and the ability to attract skilled staff.

Indeed, the retail sector has cut jobs fairly aggressively over the past few years. As this chart illustrates, whereas employment in the economy as a whole is now broadly back to its pre-recession peak, employment in the distribution sector is 212,000 or 4.2% lower than it was at its peak at the start of 2008. This is despite the fact that retail sales have actually held up surprisingly well compared to other parts of the economy during the recession.

The fact that sales have been doing so well at stores whose selling point is good customer service (the obvious example being John Lewis) could be indicative of a deterioration in service levels across the rest of the high street. Meanwhile, small firms have been hit particularly hard by the recession, in part due to the lack of finance, and small firms arguably provide a more tailored customer service.

Of course, service is not just about the quantity and quality of staff. Consumers’ perception about the level of service received could have increased as a result of retailers’ continued investment in their multi-channel offer and the increasing options open to them when it comes to how they shop.

Meanwhile, price competitiveness does not have to come at the expense of lower service. The challenge is for retailers to achieve both in order to differentiate themselves. And as some retailers have found out, it may even be prudent to accept some drop in revenues by refusing to join in aggressive price discounting in order to protect the brand – and therefore preserve the retailer’s longer-run prospects.

Nick Bubb, Retail Analyst:

At a time when top-line sales and gross margins are under pressure, many retailers have sought to prop up bottom-line performance by cutting operating costs. And not all these costs have been in shop staff, as retailers have found a surprising amount of room for economies in all sorts of expenses, ranging from Head Office functions to the wonderfully-entitled area of “indirect procurement”. But the claim that none of this cost-cutting has affected front-line service to customers often rings a little hollow, not least as the standard of customer service at a few retailers left a little to be desired in the first place. And many customers tend to vote with their feet by shopping elsewhere rather than answer “exit surveys”.

If staff have their working hours cut or full-time work effectively becomes part-time work and they are asked to do more and more for less and less, then it’s not surprising that happy and smiley faces become harder to find. A demoralised workforce, worried about job cuts or store closures, won’t go the extra mile for customers, even if they are told by their harassed managers to watch out for “mystery shoppers” sent from Head Office. As an aside, it is interesting that companies close to bankruptcy often find that “shrinkage” goes up as well.

Of course, one solution is to take staff out of the equation altogether by the use of self-checkout tills…At one level, this can be a blessing to customers who don’t want to queue up behind other people and want to minimise human interaction, for example in food stores, but this is harder in fashion retailing and many customers find the technology unreliable and confusing.

It may be no coincidence, however, that one retailer having a very good recession is the John Lewis Partnership, which has always taken a benevolent attitude to staff welfare and whose mutual ownership model gives employees the perfect motivation to help customers by giving good advice. By contrast, it is harder to find staff to offer assistance in the average DIY store.

But these days shopping is almost as much about “clicks” as it is about “bricks” and the quality of service in online shopping, as opposed to High Street stores, is becoming an increasingly important aspect of the multi-channel process. And here retailers have a much better story to tell, because service has improved significantly, via next day delivery, order by 9pm at night and guaranteed delivery slots. This still places an onus on retailers to employ polite and diligent home delivery staff, and efficient staff to organise “click and collect” orders, but at least these staff are not expected by consumers to have a mass of product knowledge!

Martin Hayward, Founder of Hayward Strategy and Futures:

When was the last time you bought something from someone who knew more about what you were buying than you did?

It was probably some time ago.

There has been a steady deterioration in retail service that in many ways pre-dates both the recession and the advent of internet retailing, and was probably born in the ‘boom that wasn’t’ years that we’re now paying the price for.

The rapid increases in consumer expenditure that were witnessed throughout the 1990’s and early 2000’s contributed to the coming of age of the retail sector as a seriously important constituent of the world economy, and significant consolidation took place in the sector to exploit the new found capital to generate economies of scale. Retailer CEO’s became stars, and shareholders enjoyed relatively steady gains on their investments. This transformation from ‘not a real industry’, to a finance page favourite started to shift the focus of the industry’s leaders towards the City and away from the customer. Efficiency improvements became crucial to keep the share price momentum, and the customers didn’t seem to notice and just kept on spending because they seemed to have ever more money to spend – albeit increasingly due to mounting debt.

The feedback loop that should have started to indicate that the reducing quality of service was impacting on consumer spend was partially obscured by the tidal wave of consumer debt. During this period the banks started to brick up their service positions in branches, self-scan tills arrived in supermarkets, visible store managers started to disappear and good sales staff became harder to find or hang on to due to the other employment opportunities provided by the booming economy.

Add to this an education system that was failing to provide many of the obvious employees for the sector with a sound basic education (“The government’s education record is woeful with too many teenagers leaving school without enough basic education to cope on a shop floor. Standards are still woefully low in too many schools. Employers like us … are often left to pick up the pieces” : Sir Stuart Rose), unprecedented levels of immigration providing a seemingly endless supply of cheap if not native labour and the seeds of a growing gulf between what customers would like and what was being offered began to grow. It is rare to be served by the same employee twice in many retail outlets today.

Technology also began to become a crutch for bad service – being told to ‘look on the website’ when already in store is a bizarre way to build customer relationships.

We now find ourselves in a time where the retail sector has lost a lot of the intimacy between customers and staff that for a long time was the basis of customer loyalty and satisfaction. Staff turnover is high, salaries are low, and the sector is probably less appealing to job-seekers than in the past. Those that have spotted the issues have done well e.g. John Lewis, and those that got too carried away with the quest for efficiency find themselves with some big issues e.g. Tesco. 

Ends

Date Published: 1/17/2013 1:05 PM