No. 7 July 2014

In 2014, online sales in the United States are forecast to grow about 15 percent in comparison to the 5-percent growth predicted in traditional retail stores sales. This persistent growth of e-commerce reflects an alteration in the purchasing patterns of consumers. And it is making many big-box retailers reconsider business models that focus on real-estate portfolios for the generation of sales.

The result is that many retailers are allocating more of their capital expenditure budgets to the construction of their e-commerce platforms and supply chains rather than expanding their brick-and-mortar stores. For example, Home Depot recently announced that it would invest $1.5 billion this fiscal year in further developing its online store.

What happens when focus is on increasing sales by opening additional units? Big box retailers, including Home Depot, observed that adding more and more stores, each serving a more limited group of households, makes each store less profitable. No wonder Home Depot is increasing its focus on its online platform.

Keeping the big picture in focus, one can’t forget that Home Depot had 2,263 retail stores in the United States, Canada and Mexico at the end of FY 2013, generating 96.5 percent of its total revenue! Online operations generated 3.5 percent of total revenue at the end of FY 2013.

But online sales for FY 2013 grew at a 52.6-percent rate compared to a total net retail sales growth of 5.4 percent. So now you know why Home Depot is investing in online operations to grow future sales and not investing in increasing the number of store locations.

In a similar vein, Kiplinger’s Washington Letter says, “Troubles continue to mount for mid-tier retail chains like Sears, JC Penney, Office Depot, etc., retailers usually found near or in malls.”

Kiplinger’s suggests that mid-tier retailers’ “core customer base is rapidly deserting them. As retirement looms and households shrink for middle-income baby boomers, that group is cutting back on spending, and younger shoppers are not being lured by new products and displays. Other customers are increasingly opting to buy from discounter or upscale stores, squeezing mid-tier sellers from both ends. Intense online price competition hurts, too. Many stores will disappear, and some chains aren’t likely to survive.”

As more stores are shuttered, the big losers will be malls who will “have a harder time finding new tenants. Mall store rents will drop and so will foot traffic. Normally, 10 percent of mall storefronts are empty at any given time, but today it’s 15 percent to 20 percent.” The only “sure bet” to make is that change will continue, in the retail channel and in our industry. You can bet on it.

I bet most of you have never heard of Dave's Soda & Pet City, a seven-store chain based in Agawam, Mass. Ninety-eight percent of the business is pet-related and 2 percent is soda. Since its beginning in 1975, its owner Dave Ratner has built a customer-first business.

Here are a few customer service tips -- some familiar, some not -- Ratner uses every day: “1) When there is a problem, make it no problem. Make returns easy, solve customer problems in a nanosecond, and enable your employees to say, ‘What can we do to make it right?’ 2) Connect with your customers -- it's all about storytelling. 3) Develop emotional ties with your customers. Ratner gives gift cards to pet shelters, which then refer customers to his stores and publicize it. 4) It's not about metrics -- it's about being nice. At Dave's, if you aren't nice, you can't work there. Ratner writes personal thank-you notes on many occasions. 5) Do best what your competition does worst. Dave's focuses on having minimal out-of-stocks because its biggest competitor, Petco, has plenty of those. 6) Personalize everything you do. Dave's has its own brand of dog food, and on the back of the can is a message from Ratner: ‘Thanks for trusting me with the health of the creature you love more than anything in the world.’ 7) Be an expert resource for your customers. 8) Make sure all employees are working as a team. It's like a car with eight cylinders. If they are all good, everything is fine, but just one being down causes a big problem, and too much attention gets paid to that cylinder.”

Why don’t you try one of Ratner’s tips and see if it makes a positive difference in your business?

“When Janet looked at her pay stub, she was pleasantly surprised to learn that her company had deposited more than her normal wages into her bank account.

However, on the next payday, her paycheck was significantly less than what it should have been, and she went to her boss to complain.

‘I’m curious,’ her boss said. ‘Why didn’t you say anything when we overpaid you the other week?’

Janet responded: ‘I was willing to overlook one mistake, but two is pushing it.’”

I wonder what Janet’s boss thinks about her now?