29 Apr Why Retail Businesses Fail Part 8: The World's Best Retail Strategy
Harrods Success Strategy
Harrods is one of the most successful retailers of all times. In January 2011, despite the global economic downturn, the retailer's sales were in the region of £ 1bn. What is it that makes Harrods more successful than most retail organizations?
Harrods success can be attributed to the following three factors:
1. Good store design.
2. Attractive visual merchandise display.
3. Effective loss prevention strategy.
Harrods' store design is in a class of its own. It is unique, innovative and clever. One important element of their store design is the concept of the stores inside stores. The store is designed in such a way that as customers move from one department to the other, it gives the feeling of moving from one store to the next in a shopping center. Whoever conceived that design concept provided Harrods with a huge competitive advantage over it competitors.
Harrods' visual merchandise displays are as attractive and inviting as merchandise displays can get. As customers enter one designer outlet to another, they observe a completely different display representative of that designer. It is as if the designers themselves went into Harrods to arrange the displays.
Store design and visual merchandise displays need to serve four objectives:
1. Attract potential customers as they pass by the store.
2. Entice those potential customers to enter into the store.
3. Maintain their interest while they are in the store.
4. Persuade them to buy.
I believe Harrods' ability to effectively utilize these four principals in their store design and visual merchandise displays has been responsible for its phenomenal success.
In his book "Blink", author Malcolm Gladwell introduced the concept of think without thinking. "Blink" is the type of thinking process that occurs in the blink of an eye.
In his first book "Tipping Point", Mr. Gladwell introduced the concept of the tipping point where little things make a huge difference.
As one walked around Harrods it was evident that their success does not derive from their 'Made in China' products, that can be found in most stores in the UK. Their success derives from their ability to apply the principles from "Blink" and the "Tipping Point" to their store design and visual merchandise displays.
Harrods success stems from little things making a big difference like having lots of store associates within easy reach of every customer and extra use use of mannequins.
Why do people buy? We all buy for divers reasons. The human thought process is complex and irrational. Even though we try to rationalize our actions based on artificial environmental factors, the reality is we all do things for the same three reasons:
The ability to design a store or create visual merchandising displays that incorporated all these elements is one of the determining factors for the success of Harrods and many of the world's most successful retailers.
The key factor to Harrods' success though is its ability to remain profitable. Profit is king in business. In retail the formula for making profit is to increase sales and reduce shrinkage.
Increasing sales requires good store design and attractive visual merchandising. Reducing shrinkage requires an effective loss prevention strategy.
This is what Harrods and the most successful retailers have over the rest of the retail industry, their ability to simultaneously increase sales and reduce shrinkage. Most retailers know how to increase sales however, when it comes to reducing their shrinkage, they are challenged.
Getting these two right is the fundamental principle of retail success. No retailer can succeed without simultaneously increasing sales and reducing shrinkage.
Why do shrinkage reduction or loss prevention measures fail in most retail organizations?
They fail for the following reasons:
• Lack of understanding of the subject.
• Senior management failure to prioritize.
• Outsourcing loss prevention without a mechanism for accountability.
• Inexperience loss prevention managers.
• Ineffective use of loss prevention technology.
Harrods is the first retail store that I have ever entered that has no visible blind spots. I am not saying that there are absolutely no blind spots as I managed to spot a few. However, the difference with other stores is that they are not visible to unprofessional eyes.
Anyone deciding to shoplift in Harrods would have to be:
• A professional shoplifter or part of an organized retail crime syndicate.
• Really brave.
• Really stupid.
Products are displayed in such a manner that each department looks wide open. Store staff can stand in one end of a department and have a clear view of the entire department.
Then there is CCTV in every corner of the store; in addition to store assistants buzzing like bees, making it difficult for anyone who might intend to shoplift.
I am not saying that that it is impossible to shoplift from Harrods because shoplifting prevention requires the implementation of a combination of strategies. However, by designing their store in the way that they did, displaying their products in the manner that they are displayed and taking other loss prevention measures, Harrods has drastically reduced the possibility of shoplifting.
To increase sales yet fail to reduce profit draining activities is false economy. Many retailers feel loss prevention is something that they could do if they had the resources. The reality is: it is something that they can not afford not to do because no retailer can become profitable without implementing effective loss prevention measures.
90 to 95% of retail loss prevention department managers are ex-service personnel. As a result of their law enforcement background, they take the law enforcement approach to their work. They focus mainly on arresting shoplifters and dishonest employees.
While it is true that shoplifting and employee theft are liable for almost 70% of retail shrinkage they are not the sole cause of shrinkage. Furthermore, shoplifting and employee dishonesty can not be tackled by solely arresting individuals. Preventative measures such as good store design and visual merchandise displays, as I mentioned in the case of Harrods, are required to make any preventative measure effective.
However, due to the fact that the majority of retail loss prevention managers know little to nothing about store design and visual merchandising, they are unable to incorporate those aspects into their loss prevention strategies. Here is the reason why most loss prevention measures fail, resulting in the failure of most retail organizations.
The average retail makes a 1% net profit out of each dollar and the average industry shrinkage percentage is 2.6%. This means that shrinkage is almost three times the average retailer's profit margin. By reducing retail shrinkage to 50% – from 2.6 cents to 1.3 cents, a retailer could have more than double his profits: from 1 cent to 2.3 cents. (Crosset Company newsletter, June 2010).
Some retailers outsource their loss prevention department to outside contractors. As laudable as this may seem, it is a seriously flawed idea because retailers are incapacitated of clearly articulating their expected output.
When a job is outsourced, there is usually an expected outcome. However, if the retailer outsourcing the job can not articulate their expected output, it is difficult to hold the contractor accountable.
The ineffective use of loss prevention technology is another reason for the failure of most retail loss prevention measures. Prior to purchasing loss prevention technologies, the following questions need to be answered:
• What problem (s) will the technology solve?
• What are the functionalities of the technology?
• What policies and procedures need to be modified to accommodate the new technology?
• Is the technology future proof?
To increase sales without simultaneously combing profit draining activities is false economy. Wal-Mart founder Sam Walton once described retail shrinkage as a "profit killer". He was right. High shrinkage is responsible for the death of many retail organizations.