Friday, October 10, 2003

MODEL: A Tale of Two Retailers

Posted from Rotterdam

When you think of retail you think of inventory. Shelves full of product. Pyramids of products in a large POS display. End caps that prompt the consumer to impulsively add another item to their basket. However, this is not the only model. An Intel Premier Provider in The Netherlands recently contrasted his approach with the model of the typical storefront.

Touring a competitor's site with at least 50 display laptops, kiosks, shelves and staff, he asked me what I thought. I liked the variety of products but no one from the store greeted us. No one asked us if we needed help. No one noticed as we left without buying a single thing.

In my associate's store, as soon as you walk in, you are greeted. Layout is open and office like with a few limited product displays. Sit down at a desk and the sales rep will help design a system for you. No idle staff.

Both are consumer and small business retail, but they are two very different models.

One model is a self serve cafeteria and the other is a corner deli. Less headcount reduces sales expense, less inventory reduces required working capital, fewer returns lower G&A, and less square footage lowers rent and lease overhead. The financials are very different too, with high inventory turns, high margins and low SG&A.

Success in the traditional model is driven by traffic, conversion rates and average order size. Computer retailers struggle most with conversion rates; that is, turning traffic into customers. Unlike great retailers like Wal Mart and Costco who convert 99% of traffic into buying customers, computer stores struggle to maintain even 50% conversion rates.

Success in the customer service retail model is driven by market awareness, targeted traffic and customer service. Marketing efforts need to be directed at bringing active consumers into the store. The sales message is "When you are ready to buy, we will help you get exactly what you need." With active traffic, conversion rates above 90% are achievable. Customer satisfaction, interaction and support will add value by increasing loyalty and targeted traffic.

The Netherlands businessman is proud that he has remained in business while his larger traditional competitors have failed. (However there are always new ones to take their place.)

Scott@ChannelVentures.com

Posted from Rotterdam



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