Retail Therapy

Strengthen loyalty, accelerate supply chains and improve margins

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Trust. It's a word we typically associate with a family member. Close friend. Good neighbor.

But more and more customers are using the word to describe their relationship with a favorite retailer. In uncertain times, customers are turning to the retailer they know and believe they can count on...for a quality product, dependable service and an experience they will want to repeat.

In fact, this year, 38% of respondents in a recent IBM survey can be described as advocates, almost double the 21% of last year.¹ And by 2020, more than 80% of marketers say they will be focused primarily on earning trust.

Trust means delivering on your promises: getting the product you've promoted to your customers onto your shelf and into their hands. Yet retailers continue to disappoint: The out-of-stock rate for promoted products is around 17%.² And the retail industry loses a staggering $93 billion in sales annually due to not having the right merchandise in stock.³

One reason is that many supply chains are built on systems that are three decades old, tremendously complex and rooted in a push-based philosophy. But that is starting to change as retail operations get smarter.

Consumer advocacy

An IBM Institute for Business Value report, "Consumer advocacy: Building trust in the new economic environment" captures the mindset of shoppers in late 2008 and the eight qualities they most value in retailers.

Smarter supply chains

Consider what a smart supply chain looks like: It seamlessly connects at all points, distributes digital information in real time, and works in a sense-and-respond mode. We have the technology now. And IBM is helping visionary retailers make use of it.

Yansha, a regional Chinese retailer of upscale brands, deployed a first-of-its-kind SOA-based supply chain platform for its 1,800 suppliers, improving lead times from 2.5 days to 4.5 hours.

Max Bahr Holzhandlung GmbH, a pioneer since 1879 in Germany's highly competitive do-it-yourself market, had to meet customer demand for 40,000 products in 80 outlets. With a dynamic inventory solution, more than 90% of replenishment proposals convert to orders without any review.

Metro Group Logistics (Unna) is using RFID and sensor technologies to gain visibility into their supply chain and accelerate the flow of goods from loading dock to store shelf.

Competencies that build trust with advocates differ from competencis that motivate consumers to shift.

According to our survey of 300,000 consumers in September and November 2008, 92% are sacraficing in some area of spending and59% have less discretionary budget than last year. Yet uncertain times have caused advocacy or loyalt to near double from 2007, with consumers relying on retailers they trust.

Smarter Shopping

The first stop for most shopping trips is the Internet: 92.5% of adults said they regularly or occasionally research products online before buying them in a store.⁴ Yet, more than 76% percent of online shoppers said the content is usually insufficient to complete their research and make an online purchase.⁵

Web 2.0 capabilities, with the opportunities for bottom-up information exchange and collaboration, offer a tremendous opportunity to strengthen customer loyalty. Retailers can offer in-depth product information, gain feedback from users, tap into customer thinking for future products, and strengthen relationships through community features such as reviews, blogs and bulletin boards. Smarter systems enable retailers to gather and act on customer data to create and sell products in ways that resonate with their markets.

Moosejaw Mountaineering, a fast-growing retailer, owes much of its success to a fiercely loyal customer base that it cultivated by making its site a hip, go-to destination with rich community features. Moosejaw delivers on the excitement and promise of its online brand with a seamless, positive customer experience that spans mobile devices and stores.

Gewandhaus Gruber, a merchant with a 350-year history of dressmaking and retailing, launched the first fingerprint-identification-based loyalty program that provides sales insights, reduces costs and rewards members.

Mitsokushi, one of Japan's leading retailers, is reaching out to the fast-growing over-65 market with enhanced accessability features on their Web site.

Smarter operations

Many retailers have grown through acquisitions, which can result in complex, siloed systems.

1-800-FLOWERS.COM, the world's largest florist and gift shop, needed better coordination among its 14 brands. IBM helped them build an e-commerce site that will eventually unite all of the brands, allow rapid rollout of new Web sites and features, and facilitate cross-brand selling and information sharing for better customer service. A service-oriented architecture (SOA) helps to bridge the legacy and new systems. In addition, 1-800-FLOWERS.COM has launched "Celebrations," a social networking site to connect people, which supports the brand values of a company created to market and transform events and occasions into celebrations.

What do you think? For the first half of 2009, will your spending increase, decrease or stay the same? Take our poll.

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^{1 Institute for Business Value, "Shopper advocacy in the new economic environment," January 2009}

^{2 GMA Direct Store Delivery Research, June 2002}

^{3 IHL Consulting, 2008 Store Systems Study, January 2008}

^{4 BIG Research, Simultaneous Research Study, March 2007}

^{5 e-Tailing group, Social Shopping Study, November 2007}