There Is a Secret to Profitability in The Online Age and You Probably Already Know It

On a recent shopping trip (an infrequent event for me) to Downtown Summerlin for dress slacks I visited Macy’s and Dillard’s. My perception prior to the trip was that these two retailers were very similar. Indeed, in terms of store layout, selection, and price they were. However, the similarities stopped there. I find the department store practice of grouping product by brand frustrating. I was looking for dress slacks that fit properly and were well made, I’m not a brand shopper. At Macy’s I wandered around searching for quality product in my size. There were no employees around to assist me. Finding a product line that looked appealing, I found the sizes out of order. After trying them on I proceeded to the register where the sole employee in the area was ringing up someone’s purchase. There was an exchange involved and it was taking some time…understandable but my presence was not acknowledged by the clerk. Eventually I was able to complete my purchase and went to Dillard’s to see what I might find there.

As I started looking through the first rack, a clerk asked if I needed help. When I explained what I was looking for she escorted me to two other areas that had options available to me. All the products I saw were arranged by size. After making my selections, the purchases were rung up quickly by the smiling employee.

The contrast in experiences at these two major retailers reflects dramatic differences in management at the department, store, regional, or corporate level. The description I offered is subjective and qualitative. A challenge of management is how to capture a representative sample of customer experiences and quantify them. Even if current financial performance is strong, a declining trend in customer satisfaction does not bode well for future financial performance.

The relationship between customer experience, employee morale, and corporate profitability is a symbiotic one. Although we’ve all heard “the customer is always right,” “our employees are our most important asset,” and “our fiduciary responsibility is to our shareholders;” we run the risk of chasing our tail if we think any one of these stakeholders is not as important as the others. Fail to take care of any one of them and the others will suffer.

Returning to the example of Dillard’s and Macy’s, think about how management’s choice of metrics may impact their understanding of their current state and the actions required to improve overall business performance. Macy’s is going to show excellent sales per employee compared to Dillard’s (at least in the short term). With no data on customer satisfaction, they will see a good profitability picture and maintain their lower staffing level. However, customers will be reluctant to return and sales will decline. Dillard’s higher employee count will result in lower sales per employee and lower overall profitability. Without customer satisfaction metrics Dillard’s may well reduce staff and emulate Macy’s.

There is another factor at play here. Online retailers (including Macy’s and Dillard’s themselves) are putting pressure on brick and mortar stores. As sales shift from physical stores to online purchases, costs at physical stores become a target for cuts. Does this suggest that reducing staff in stores is a smart move? Here are some questions that must be asked:

  • Why do some people still choose to shop at physical stores?
  • Do the shoppers at physical stores still go home and purchase online?
  • Does the physical shopping experience impact where buyers go to purchase online?
  • How can a retailer use the in-store experience to capture greater online market share?
  • If there is no loyalty gained by a better in-store experience, should retailers shut down their physical stores entirely?
  • Alternatively, should retailers charge a fee for being offered the opportunity to see, touch, and try on products in a store environment with that fee being rebated (and possibly a discount added) for purchasing either in store or online with that retailer?

While retailers are closing many of their physical locations, Amazon has just purchased a grocery store chain. It remains to be seen where Amazon is heading with this strategy. Physical stores will not disappear entirely. Who will win as technology dramatically changes the retail world? Part of that answer is also clear…the businesses that provide the greatest value in the eyes of the customer.

Here is the bottom line…if you want to build a successful business, you must have current and reliable information about customer satisfaction.