Retaling Revolution
By Joseph Kays
Selling things used to be so simple. Stiff-collared merchants displayed their wares on counters, stood by the door to dis- courage shoplifters and lowered prices when a product didn't sell.
Today, retailing is a $2 trillion-a-year business in the United States. Since World War II, retailers have moved from Main Street to the mall and from mom-and-pop ownership to multinational corporations.
Buffeted by increasing competition from catalogs and home shopping television, and bracing for even more competition as the electronic mall on the Internet expands, traditional stores are struggling to maximize profits, minimize overhead and still maintain their niche with personal attention.
"There has been a major power shift toward retailing," says Barton Weitz, J.C. Penney Eminent Scholar in Retail Management at UF and director of the College of Business Admin- istration's Center for Retailing Education and Research. "As retailers have merged or expanded to become national and international conglomerates, they have become bigger than their suppliers."
UF is uniquely positioned to study the dramatic changes occurring in this business that employs more than 20 million Americans, thanks to a visionary alumnus and a commitment to attracting top-notch scholars.
"Historically, retailing was not viewed by business schools as an area that offered much opportunity for research or many good career opportunities," Weitz says.
About 10 years ago, David Miller, a 1951 alumnus of the UF business college who was then vice chairman of J.C. Penney, recognized that the retailing industry was going through dramatic changes and that colleges and universities were not putting out graduates trained to respond to these changes.
By convincing J.C. Penney to establish an eminent scholar chair in retailing, Miller helped to elevate the discipline, Weitz says, and that helped to get students interested in working in the retail field, and faculty interested in studying it.
"Most people don't perceive the excitement that takes place in a retail store," Miller says. "I felt it was important to expose young people to retailing as a career option."
Since then, many more retailing giants have supported the UF center, including Home Depot, Beall's, Wal-Mart, Burdines and Eckerd.
UF's retailing center is one of only four of its kind in the country and it has become a place where store executives come to find solutions to their problems.
"One of my jobs is to try to connect the theoretical interests of our faculty with the retailers' problems," Weitz says. "I spend a lot of time with executives who are looking for help on everything from pricing to human resources to theft."
Sticky Fingers
Sociology Professor Richard Hollinger has a pretty good handle on who steals what from America's stores. For five years now, he has surveyed more than 400 retail stores around the country to determine the level of shoplifting and employee theft.
Probably the most surprising finding of Hollinger's National Retail Security Survey (NRSS) is that employees steal more than customers. But, employees also catch more than 60 percent of shoplifters and turn in 40 percent of their dishonest coworkers.
Read Hayes, president of Loss Prevention Specialists, a Winter Park-based retail security consultant that helped to establish the NRSS, says the industry benefits from an independent assessment of retail theft.
"When we, as consultants, go to talk to prospective clients, it's nice to be able to show them that the seriousness of retail theft is not just speculative wives' tales," says Hayes, a 1981 UF graduate. "Through UF we are able to provide solid basic research by skilled, credible scientists."
While many companies are turning to high-tech loss prevention devices to catch sticky-fingered customers, they are also looking deeper into prospective employees' backgrounds to try to determine whether they are likely to steal from the company.
"There is much more emphasis on a greater variety of pre-employment screening strategies," Hollinger says. "Employers are looking beyond just criminal records to drug tests, credit histories, driving records, just about any barometer they can get their hands on to get a sense of whether a potential employee is predisposed to violate somebody's rules."
But Hollinger adds that since the average retail employee stays in a job less than a year, companies "tend to just hope for the best" after they make a hiring decision, instead focusing their attention on monitoring products.
Electronic Article Surveillance (EAS) is the hottest trend in loss prevention, Hollinger says. It is dominated by two big players, Deerfield Beach, Fla.-based Sensormatic and Checkpoint Systems in New Jersey.
Sensormatic -- whose unrestricted grant to UF funded the NRSS -- is the industry leader in the manufacture of acousto-magnetic (ACM) tags, in which a piece of metal inside the tag emits a detectable vibration if it is exposed to a certain frequency.
Typically seen as a plastic device attached to apparel in large department stores, the hard versions of ACM tags are labor intensive in the sense that they must be applied and removed in the store, but they work well with the wider door openings common to mall stores. Smaller, disposable ACM tags that don't have to be removed are in widespread use in such retail settings as music and hardware stores.
Checkpoint employs a radio frequency (RF) tag, which is basically just a miniature antenna. These smaller, more flexible tags are what you typically see in health and beauty stores. When the clerk places the item on the pad at the counter, it shorts a capacitor in the tag, making it unresponsive to the frequency being broadcast by the pass-through devices by the door.
While ACM tags have fewer false alarms and are better suited to metallic products, from CDs and audio/video tapes to tools, RF tags are smaller, cheaper and easier to attach, so they can be used on items where it would not be cost effective to apply an ACM tag.
Hollinger says a trend toward applying EAS tags during the manufacturing or packaging process could decide the future of source tagging.
"The biggest limitation on all of these systems to date has been that they are very labor intensive to install for the retailer," Hollinger says. "As the technology improves, retailers are starting to demand that manufacturers incorporate source tags into their products, and in return the retailers are promising to display that product more prominently, even exclusively in some cases."
Going, Going, Gone!
Retailers have long viewed clearance markdowns as a "necessary evil," but a UF marketing professor says that, done right, systematically lowering prices can lead to even greater profits.
"Rather than viewing markdowns as a necessary evil, retail managers should view them as a strategic opportunity," says Murali Mantrala.
"The key to maximizing profit is to offer the right price at the time that a particular type of customer walks into the store," Mantrala continues. "Some people never buy things until they go on clearance, while other people wouldn't be caught dead around the clearance racks."
Mantrala has developed a computer program that combines a complicated mathematical algorithm with an experienced buyer's predictions about customer demand to crunch point-of-sale data and come up with an optimum pricing and inventory plan.
Mantrala says the program, called MARK, "uses what the retail buyer already knows but computes many more scenarios of what could happen under different pricing strategies."
In an experiment involving sales of men's shorts at a well-known department store, Mantrala found that expected profits applying MARK to determine prices were nearly 50 percent higher than using an automatic markdown system.
In another experiment, buyers at the Body Shop clothing store chain headquartered in Jacksonville compared their planned markdowns on different items to the MARK program's. MARK resulted in higher profits in every case. MARK also recommended earlier and deeper markdowns than the buyers had planned in several instances.
MARK also allows buyers to better predict how much of a product to order to maximize profit, Mantrala says.
"Typically, the initial stock is procured based on the initial price, with markdowns used to make sure all the stock is cleared out by season's end," Mantrala says. "What often seems to be missed by buyers is the fact that the optimal opening inventory depends on the entire pricing policy during the season."
The Eyes Have It
When it comes to selling things, it's all in the eyes, says UF marketing Professor Chris Janiszewski.
During the past five years, Janiszewski has employed a host of techniques to measure how people make decisions based on what they see in telephone yellow pages, catalogs, department stores and management meetings.
"My interest has always been in unconscious influences on your attention," Janiszewski says. "It's not a matter of manipulating the customer, but in figuring out how people instinctively search for information, so you can organize a display in an `easy to access' format."
Through research that has included tracking test subjects' eyes as they are exposed to catalog pages and comparing layouts with known catalog sales, Janiszewski has come to the conclusion that reducing distractions around an item leads to the most sales.
"You have degrees of peripheral vision, like the rings on a bull's eye," Janiszewski says. "As you walk through a store or page through a catalog, you are unconsciously calculating how many more things there are to see. The more there are, the less attention you will devote to any one of them, and it is the attention that gets the sale."
Impulse purchases, in which the customer is not specifically planning to buy a product, depend on three activities, Janiszewski says -- the display must capture the customer's attention, the products must be viewed long enough to encourage consideration, and the products must appeal to the customer.
Getting and keeping a customer's attention, he continues, requires two information-gathering systems -- an exploratory search and a goal-directed search.
An exploratory search occurs as customers walk through a store or page through a catalog, letting their eyes move naturally from display to display, from item to item.
The trick is to get the customers to focus on a particular item long enough for them to shift to a goal-directed search, where they start collecting specific information like size, color and price.
"All shopping trips are a combination of these two activities," Janiszewski says. "A successful merchandise manager is able to exploit the shift from exploratory search to goal-directed search by using display to capture customer attention, with the hope that some of the merchandise will be interesting enough to promote a goal-directed search."
To do that, Janiszewski says, managers or catalog designers need to decrease or eliminate competing demand on customer attention.
"More isolation, not more size, is the key to longer attention," he says. "Display or catalog designers are often tempted to add more products to a presentation to create more forceful displays, but this only increases demand on customers' attention, and results in them spending less time on each item."
Product display is particularly important in the $60 billion-a-year catalog industry, where one catalog page can cost $170,000 to produce and mail to 12 million customers.
"If you apply my research literally, you would only have one item on a catalog page, and that's not practical," Janiszewski says. "So the trick in catalog design is to select the items you want to sell on a page and then to arrange these items so each has the greatest opportunity to sell successfully."
Ultimately, Janiszewski would like to get a major catalog retailer to conduct an empirical test of his engineered magazine against a traditionally designed magazine.
"I'd like to run the same merchandise in two differently designed catalogs and compare the sales data," he says. "I think I could design a more effective selling tool."
Interact 'Til You Drop
Imagine you've got a fancy cocktail party to go to and you haven't got a thing to wear. Way back in the 1990s you might have trudged out to your local mall in search of a dress.
But this is the 21st century and these days you do all your shopping from your personal monitor (combination television, computer monitor and telephone).
Your personal electronic shopper knows what you like, how much you want to spend and what you already have.
After asking you a few questions, the shopper searches thousands of electronic stores before settling on several hundred dresses you might like. Then, it displays images of you in several of the dresses, you select the one you like, the shopper suggests some accessories, transmits your credit card number and arranges for the dress to be delivered in two days.
Welcome to the world of interactive home shopping (IHS).
Although only in its infancy, there are already 10,000 retail home pages on the Internet, and annual sales estimates by the year 2000 range from $5 billion to $300 billion.
"Right now you only have access to goods through catalogs or where your car can take you," says marketing Professor Joe Alba. "IHS can take you across the country or around the world to find the things you want."
Alba, fellow marketing Professor John Lynch and a host of their colleagues in the College of Business Administration recently completed a detailed study of the future of interactive home shopping.
"Demographic and cultural trends are highly supportive of an `electronic culture,'" the researchers report. "Future generations of consumers will be increasingly comfortable with computers."
But whether IHS will do to malls what malls did to downtown stores depends on whether it is able to overcome its inability to provide "sensory" information about products.
"Clearly, shopping on current Internet home pages is not IHS," the researchers say. "In our view, current Internet retailing is an unwieldy collection of electronic catalogs, at best. IHS will gain a significant share of retail sales only if it offers shoppers an environment that is superior to traditional stores and catalogs."
The researchers say catalog retailers like Lands' End are in the best position to enter the IHS market since they have not already invested in stores and they have strong distribution and customer database management systems.
Joseph W. Alba
Professor, Department of Marketing, (352) 392-0161,
albaj@dale.cba.ufl.edu
Richard C. Hollinger
Associate Professor, Department of Sociology, (352) 392-2497,
rhollin@soc.ufl.edu
Christopher A. Janiszewski
Associate Professor, Department of Marketing, (352) 392-0161,
chrisj@dale.cba.ufl.edu
Murali K. Mantrala
Associate Professor, Department of Marketing, (352) 392-0161,
mantrala@dale.cba.ufl.edu
Barton A. Weitz
Eminent Scholar and Chair, Department of Marketing, (352) 392-7166,
bweitz@dale.cba.ufl.edu