NEW YORK, NY--(Marketwired - March 01, 2016) - With most luxury and premium retailers struggling with store results in 2016, the objective and independent New York-based Luxury Institute conducted a confidential, intimate focus group with store managers of multi-brand retailers, premium, and uber-luxury brands. Key findings were validated by 40 managers of premium and luxury stores, and additional insights and observations from multiple team conference calls and store meetings that drive the coaching elements of the Luxury Institute's Luxcelerate high-performance client relationship system supplemented the research.
Store managers' stories and insightful questions make it clear that luxury and premium retail store management today is configured for rigid Industrial Age operational efficiency, rather than highly-adaptive, relationship-building effectiveness. The store manager is the critical human being who holds any retail organization together because results depend on their on-the-ground leadership, as well as the resources and/or obstacles they put before their well-intentioned employers. With the best store managers and associates forced to navigate and sometimes circumvent the overwhelming number of orders they are given from the top, the retail store system is broken, and needs to be reconfigured for the twenty-first century.
Luxury Institute went directly to these veteran managers to tap into their collective wisdom and experience for a few simple yet powerful recommendations for improvement. Brands can produce superior results, even in a weak economic environment, by testing and executing the following recommendations from store managers:
1. Store teams desire to be more relationship-centric and want to be freed from back-office tasks.
Nearly half of a store manager's time is spent conducting back office functions, like sorting out physical inventory, preparing reports that could easily be automated, and responding to an endless stream of emails and calls from corporate headquarters. This leaves little time to engage and build meaningful and productive relationships with associates and clients. In addition, these managers rely all too often on antiquated systems to store and retrieve client data, making it difficult to use this information to improve relationship building.
Innovative brands such as Apple have separated and reconfigured operational and customer-facing functions, allowing store managers and associates to build better relationships with customers. Store managers explain that the client must always come first, whether an associate is assisting a client in the fitting room, or sitting in a quiet, pleasant space communicating with clients. If driving client data collection, conversion, transaction value and retention are the levers that drive sales, then store teams must be focused 100% on the behaviors that achieve these goals. Instead, they have to perform a balancing act, coming out to the floor dirty and sweaty from opening boxes to assist a high-value prospect or their best client.
Deploying teams of highly-skilled and specialized back-of-house experts who execute tasks as needed throughout a local region would maximize operational effectiveness, and free up store managers and associates to maximize relationship-building. In such an environment, store managers explain they would feel very comfortable being held accountable for higher sales. Luxury Institute's experience with luxury retailers show that increasing time on the front-line can dramatically improve sales.
2. Select and maintain the right-sized team to drive superior results.
Luxury Institute was surprised to hear that store managers from these top-tier brands have little or no control in selecting and hiring members of their team. More than 50% of managers said they have zero control over hiring and firing decisions, and none of them reported having total control. These managers revealed that as many as 40% of their in-store employees are disengaged poor-performers, and that despite their lack of authority in selection of associates, they are still held accountable for results. They are especially concerned that corporate makes no special effort to invest in educating managers and associates, or how to select the right people based on values instead of just skills. When probed about right-size staffing, managers felt that if they had the power to increase their staff by 10%, with the right people, and especially at critical times, they could undoubtedly deliver a 25% increase in sales.
3. Better, smarter, and faster ways to manage inventory and client data are needed right now.
In an omnichannel retail world, inventory management and data access are critical to selling. Managers explain that a lack of seamless, real-time inventory tracking is a huge weakness. Out-of stock issues often reduce store sales by 10% to 20% due to lost opportunities. Unlike Nordstrom and other innovative brands, most retailers still lack a system for providing store managers and associates real-time access to inventory data. What's more, only half of the managers say they have a CRM system they like. Many of them have no CRM system at all, and instead rely on point-of-sale data and Excel spreadsheets for the reporting of client metrics. The biggest drawback for store managers is the inability to access client data in a way that identifies opportunities to conduct effective client development. Limited access to data makes it difficult to prepare for meetings, or for their associates to identify opportunities in seconds when they are with clients.
The Luxury Institute's Luxcelerate system implementations confirms that one recurrent obstacle for store managers is the inadequacy of CRM systems and the inefficiency it creates in client relationship building. While data and technology require a client-centric culture in order to be effective, luxury brand's today have no excuse for technological incompetence, foot-dragging, or under-investment. When store managers and associates see that competitors have access to efficient technology, it saps their motivation and produces an adversarial relationship with headquarters staff. If brands fail to invest in optimal relationship-building technology, managers and associates will vote with their feet and go where they can truly flourish as internal entrepreneurs.
4. Teaching fundamentals once a year is great, but what is really needed in stores is coaching on a much more frequent basis.
When asked about training, all managers speak fondly of once-a-year meetings where they receive intense brand and product education, address store challenges, and engage in rich, meaningful dialogue with their colleagues and corporate leaders. They love this process, but they say that once-a-year meetings are wholly insufficient, and that they should be held at least twice a year, or even on a seasonal basis when major changes are underway.
One huge deficiency voiced by all managers is that they have never received any true, evidence-based coaching from their leaders, nor have they been offered appropriate training for effectively coaching their associates. Research shows that six months after an interactive training session, only 10% of trainees are still practicing the skills taught. By contrast, 95% of employees still use best practices when they interact at least once per week with a trained coach.
By generating measured self-awareness within a safe space to evaluate behaviors objectively and to develop joint solutions, evidence-based coaching is the key to making a difference in human performance. It gives managers and associates a nurturing structure to evolve into the highly-productive human beings that they desire to become. Store managers care as deeply about their associates' growth, development, and happiness as much as they do their own. They recognize they need personal coaching from their leaders, and the coaching methodologies to coach their people. If you do nothing else, this one change, done correctly, will produce significant improvement in performance.
5. Use social media and other tools to connect with millennials and drive them to stores.
Millennials are a challenging demographic for luxury brands. While they have about the same income levels as baby boomers did at the same age, they also have far more debt and far less net worth, and when they spend their money they often favor experiences over goods and make their purchases online. Store managers note that they have to strive harder and use better tools to bring millennials into stores, most notably social media.
Millennials often come into stores with photos of products from celebrities and friends that they see on Instagram, Pinterest and other social media, and they want associates to create a similar look for them. Store managers feel there is huge, scalable unleashed potential in the armies of sales associates who can use social media to update clients and inspire prospects, yet headquarters fails to empower them to do so. It is clear that millennials crave connection and relationships with associates who are knowledgeable, empathetic, trustworthy and generous, although little is being done to build those humanistic relationship skills in associates.
Luxury Institute is often told about how much millennials appreciate and respond to personalized emails and thank you cards, but the tools available to facilitate these communications are clumsy or non-existent. Store managers also see huge potential in generating store events just for millennials, but they need the freedom, time, and resources to create them. The loyalty of millennials is up for grabs, but store managers feel that their hands are tied when it comes to innovating and executing strategies to bring them into stores.
6. Empower local innovation since store teams know clients better than anyone else.
Store managers share that they work for their specific brands because they are inspired by the creative vision and values of company founders, creative directors, and other leaders. They also say that being on the front lines allows them to spot opportunities that headquarters cannot. These managers crave the ability to innovate and drive sales at the store level while staying true to the brand's creative vision, but they say that the command-and-control hierarchy within their organization prevents them from executing opportunities. Egos of higher-ups also get in the way of front-line, grass-roots innovation.
Specifically, what these managers want is better communication and collaboration to share best practices with management peers from other store locations. They feel that they have much to share and learn from other store managers, but they lack the implicit or explicit freedom or incentives to do so. They would also like to create local partnerships when it makes sense with non-competitive, like-minded brands to share best practices.
Bureaucracy and rigid management structures that keep ideas in silos stifle store-level innovation. The Luxury Institute has held many store manager workshops where best-practice ideas are offered by very successful managers who have already implemented the practices in their own store, but failed to share them with peers because there was no incentive to do so. Store managers are in the best position to generate actionable insights and to act quickly to drive performance. Even the classic command and control management style of the military recognizes that once a battle begins, the front lines must have the freedom to adapt, improvise, and overcome obstacles. Luxury brands must learn this lesson, too, or face the prospect of business stagnancy.
7. Compensation is fair, but the goals are sometimes not.
Store managers are generally satisfied with their base salary and benefits, but incentive bonuses that can provide 15% to 20% in additional compensation are often based on store and individual targets that are set at what seem to be unrealistically high levels, or dependent upon factors beyond their control.
Managers feel that goals set by corporate often breed frustration and resentment within the team when they are nearly impossible to attain, given all of the uncontrollable factors like a decline in the quantity and quality of tourists, the strong dollar, stock market volatility, or the stunted spending of millennial customers. Managers feel that if they outperform the prior year, especially in tough circumstances, they and their teams should be rewarded fairly. These upbeat professionals were not complaining, but it is clear that they want to make sure they can inspire and retain good people in challenging times, and that their most valued people most often leave for higher compensation.
Change and transformation are inevitable in 2016. Some brands will adapt quickly, some slowly, and many will perish. Applying pressure on employees to do more-of-the-same but harder will not work and only creates friction and inefficiency. Changes that need to be made are structural ones, and it is the store managers on the front lines who will be the leading edge the transformation, more critical to surviving and thriving than ever before. They are the keys to turning retailers into a truly networked, connected, and flourishing organism.
Store managers crave being part of the high-trust workplaces that will become the norm during the coming decade. Their recommendations illuminate critical ways forward for building long-term relationships internally and externally in a humanistic way that demonstrates the expertise, empathy, trust, and generosity that are staples of a successful brand in the twenty-first century.
About Milton Pedraza and Luxury Institute, LLC
Milton Pedraza is the CEO of the Luxury Institute. Over the past 12 years, Milton has established the Luxury Institute, first and foremost, as a high-performance client relationship consulting firm serving more than 1,000 luxury and premium goods and services brands across dozens of categories. The Luxcelerate System has helped brands significantly improve client data collection, conversion, and retention rates. In addition, the Institute has conducted more research with affluent consumers than any other entity in the world.
Milton advises and coaches luxury CEOs and advises the boards of top-tier luxury and premium brands, as well as luxury startups. He is sought after worldwide for his practical, innovative and humanistic insights and recommendations on luxury and is the most quoted global luxury industry expert in leading media and publications.
Milton is also an authority on customer relationship management technologies, analytics, and Big Data. Prior to founding the Luxury Institute, his successful career at Fortune 100 companies included executive roles at Altria, PepsiCo, Colgate, Citigroup and Wyndham Worldwide.
Milton was born in Colombia, raised in the United States, and has lived in several countries. He has conducted business in over 100 countries, and speaks several languages.
For more information and additional insights visit www.LuxuryInstitute.com, or contact Luxury Institute CEO Milton Pedraza directly with questions (mpedraza@luxuryinstitute.com).
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Katherine Sousa
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