The Future of Store Management - With Cathy Hotka and Julian Mills

Welcome to the Retail Rundown, your go-to weekly podcast where RETHINK Retail teams up with industry experts to discuss the news and trends defining the world of retail.

Since the pandemic began, 72% of 800 large retailers said they are now trying to work in a more agile way.

In this episode, we are joined by guests Cathy Hotka and Julian Mills as we discuss what it means to be an agile store. We also examine some of the biggest pressures facing retailers when it comes to operational agility and why is it so difficult for some retailers to make quick shifts.

Cathy is a celebrated industry thought leader and the Principal at Cathy Hotka & Associates. Prior to that, she served as the VP of Information Technology at the National Retail Federation, where she created the NRF CIO Council and NRFtech, which have changed the way CIOs converse. Cathy also oversees the Store Operations Council and hosts numerous events.

Julian is the CEO of Quorso, an Agile Stores management app. Prior to joining Quorso, Julian was a Partner at McKinsey & Co and a turnaround executive at Christie’s.

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Hosted by Julia Raymond Hare
Written and produced by Gabriella Bock
Edited by Trenton Waller
Social media by Madison Freeland

 

 

TRANSCRIPTION

Julia Raymond Hare:
Hello, Retail Rundown listeners. I’m your host, Julia Raymond Hare. And today we are joined by guests Cathy Hotka and Julian Mills. Cathy is a celebrated industry thought leader and the principal at Cathy Hotka & Associates. And prior to that, she served as the VP of Information Technology at the National Retail Federation, which we all know and love, where she created NRF’s CIO Council and NRFtech, which have changed the way CIOs converse. And she also oversees the Store Operations Council and hosts numerous events, including the event coming up next NRF 2022.

Julia Raymond Hare:
Julian is the CEO of Quorso. They’re an agile stores management app. And prior to joining Quorso, Julian was a partner at McKinsey & Co., and a turnaround executive at Christie’s. Cathy, Julian, thank you for joining the Retail Rundown.

Julian Mills:
Thank you very much, Julia.

Cathy Hotka:
Thanks for having us.

Julia Raymond Hare:
Happy to have you both. Today we’re going to talk a little bit about store management because we just released a report called Retailers Reflect the Future of Store Management. We had over 10 thought leaders contributing to that report from the industry. And it really is sparking some conversation, because if there’s one key aspect that COVID pandemic told us, it’s that retailers have to be ready for anything. And I would say that by and large they did deliver.

Julia Raymond Hare:
And on the episode we had last week, we discussed the importance of an agile supply chain. And as consumers are now returning back to stores, I wanted to bring our guests on today to talk about another area that could use an agile overhaul. And that is the stores themselves.

Julia Raymond Hare:
So by now a lot of retailers, they have the curbside, they have BOPUS, but when the wave of the pandemic hit over a year ago, state mandates for limited physical contact brought retailers with inflexible infrastructures to their knees, and we saw that. So since then, we’re hearing a lot about retailers becoming more agile. Bain & Company did a huge survey and they found that 72% of 800 large retailers said they’re trying to work in a more agile way. And that was a survey done after the pandemic started.

Julia Raymond Hare:
So we’re going to hop into this. Julian, I’ll let you take it away first as an expert in agility with store management, what does this look like? Is it a one-size-fits-all endeavor?

Julian Mills:
So first of all, who wouldn’t want agile stores? In itself, it’s kind of good. And I think what’s happened during the pandemic is it’s accelerated a trend that was happening anyway, which is for stores to become Swiss Army knives. A store is no longer a place where you just go to do shopping. It’s a place where you may do in-store picking and packing. You’ve got curbside BOPIS returns, et cetera.

Julian Mills:
And yet as those have grown, still 95% of transactions, according to targets, still touch the store in some way. So there’s just a lot more going on in-store. And that means the store teams have to respond in a different way. They have to be much more nimble at responding to changing needs. They need to be better at reading local good characteristics, et cetera. And that’s really what the agile stores movement is about. How do we support operations for this increasingly multifunctional store?

Cathy Hotka:
Yeah, I would completely agree with all of that. And I would add that it’s amazing how well retail did with their executives at home, working in matrixed teams, in some cases with people they hadn’t met before, to put together the changes that we saw. There was one big box chain that stood up curbside across their entire enterprise in seven days. So this meant real estate, legal, operations, HR, all of the various pieces working together to do this, complete with having the signage made and everything.

Cathy Hotka:
And we’re finding out that the store, which used to be reviled, the retail apocalypse myth and all of that, now is the touchpoint for the brand. It’s the brand palace. And it’s all about the people and the way that the store associate works with customers.

Julian Mills:
Yeah. And Cathy, if I could just build on that. I so agree with you. I think what’s interesting is we’re now seeing the second wave of that play out, which is headlines full of hardworking store staff who are leaving their jobs because they’re just exhausted. And so the agile stores movement, I think, is, in a sense, an attempt to make that new world sustainable. How do we create an operating model that works for stores when they’re under that kind of pressure and when they have all those different tasks be required of them?

Cathy Hotka:
That’s a sore point because there are so many of them. And one of the things we discovered during the early days of the pandemic was that the communications tools that retail companies had to talk with associates were inadequate. They were getting all kinds of different advice. We’re open until 10. No, we’re open until nine. No, we’re closing. We’re only closing in this county. We’re not closing in that county. The onslaught of various messages was pretty overwhelming, and that’s one of the first things that stores had to do was update their communications tools so that there was one version of the truth.

Julian Mills:
Cathy, I totally agree with you. As you know, our philosophy is very much there’s way too much that stores are being asked to do anyway. So in a sense, sit, put a plug into the data that stores collect, and from that come up with the top three or four things for each store to do each day. They can’t do everything, so you’ve got to prioritize. And what you need to switch your attention to is help them actually do them, and measure whether those work, and then celebrate them for going above and beyond to actually drive performance. So I couldn’t agree with you more about the need to prioritize and slim down work and simplify for those people.

Julia Raymond Hare:
Yes. And Cathy, to your point, Ron Thurston, the VP of INTERMIX and the author of Retail Pride, mentioned how the hardest part was some of that communications because things, especially in the U.S. being geographically large, the mandates changed so often. And so that just made it extra hard for retailers.

Julia Raymond Hare:
And a guest on the show the other day said they were listening to Scott Galloway and he said, “Retail should be called one million ways to screw something up.” Because like you mentioned, there’s operations, there’s legal, there’s management, all involved with just rolling out something like curbside, which to us seems so simple, but it takes so much that we don’t see behind the scenes.

Cathy Hotka:
And we’re relying on people who don’t make a heck of a lot of money. So part of what we have to do with the store associates is to keep them engaged, keep them excited, and recognize them for the amazing things that they’re doing.

Julian Mills:
Yeah. I totally agree. The other thing that we see in our data is the things that each store needs to focus on are different. So actually 80% of the problems that are going on in any particular store are unique to that store. And so these kinds of blanket communications going out there are just noise. They’re just distracting people, they’re tiring people. Actually what you need is something that’s more customized to the needs of that individual store. And if you do that, you can actually make life a lot easier for people. You can take away a lot of unneeded work and you can improve performance.

Julia Raymond Hare:
And Julian, that was what stood out to me when I first started meeting you on LinkedIn and you said you were doing a big study and the results were to come. And that study was over 3,000 stores, right? That’s a huge sample.

Julian Mills:
Yeah, it was. What we called missions, 22,000 missions. So 22,000 actions taken by individual store managers to drive performance.

Julia Raymond Hare:
Right. And what you found is there really is no one-size-fits-all because there are so many different variables that are being juggled. And do you guys think… I mean, in the report, our team analyzed the retailers over the past year and we gave a shout out to Target, Best Buy, and Nordstrom for the work they were able to do in rolling out new services quickly, and really just being there for people during this hard time. Why do you think those three retailers stood out? Are there any that you would add to that list?

Julian Mills:
I think there are a lot of retailers that are trying to do this at the moment. I think Target is doing an amazing job. I think in Europe, Tesco is doing a lot. I hear Home Depot’s doing a certain amount in this space. But I think most retailers we speak to have the same kind of vision. Everyone’s reacting to the same problems. They’re all living the same experience. So I don’t think many people have cracked it, but I think there’s an awful lot of people who are leading the way.

Cathy Hotka:
Gee, we’ve seen some interesting things. Chico’s is making all kinds of money because they’re doing clienteling, basically. They’re sitting down with the customer maybe before hours, maybe after-hours offering that person a curated selection of merchandise. And customers love this. And there are a lot of companies that have adopted new ways of doing things. There a teen wear chain that when people had to wait in line six feet apart, they would use that as an opportunity to upsell.

Julia Raymond Hare:
Perfect.

Cathy Hotka:
Right? They had an associate go out and say, “Hey, we’ve got this new thing. Do you want to take a look at it?” So companies have been really flexible and interesting and they’ve come up with new lines of business during this.

Julia Raymond Hare:
Mm-hmm (affirmative). That’s super creative. And I’ve also liked how Sephora just totally got rid of the lines in some of their biggest, busiest stores. I remember being in New York and they were coming up to you with the iPad and letting you check out without queuing at all, which was amazing.

Cathy Hotka:
Well, that’s part of the technology investment. Pretending like it’s 1989 and thinking of IT as a cost center is so not going to have you succeed. Companies are investing in technology and they’re reaping the benefits.

Julia Raymond Hare:
Mm-hmm (affirmative).

Julian Mills:
To that point, Julia, it’s such an exciting time to be in retail technology, because I think the big retailers pretty much ever, apart from apparel, are steaming ahead. And they’ve seen tremendous dividends from embracing technology over the last year or so. And they’re now saying, well, what’s next? What do we need to do to be ready in 10 years’ time? So I echo everything you say.

Julia Raymond Hare:
Yep, yep. And Cathy, we had Jeff Roster, he’s a retired analyst, but he’s still active in the space, he has done podcasts. And he was saying the percentage of investment in technology that’s related directly to innovation is still pretty low and it needs to increase. And so I think that’s something a lot of retailers are facing. It’s a tight-margin industry, so that’s tough.

Julia Raymond Hare:
But when you think about operations. Operations people in retail are some of the busiest people. Even outside of their industry, being retail, they are just always going full speed ahead. And why do you think… Is that part of the reason that it’s so hard to change a bit of that culture where it’s a bit top-down in communications from HQ to each store?

Cathy Hotka:
It’s interesting you say that. And Jeff Roster is one of my oldest and closest friends.

Julia Raymond Hare:
Oh, okay, good.

Cathy Hotka:
Roster the king of the soundbite. He’s awesome. I think one of the things that we found during the pandemic was you have to trust your associates. I think before, there was not a level of trust. People thought that they were poorly paid, quick to quit, not terribly important. Basically their job was to fold that shirt and put it in a bag.

Cathy Hotka:
We found out that that’s not the role of the associate. The associate is the face of the brand. And we had retail companies listening to what district managers were saying and field managers were saying. We found a new way to do X. And all of a sudden, not only were entire… across the enterprise these innovations were being adopted, but those people were being celebrated and getting bonused and getting recognition. So you have to trust your associates. The companies that we’ve all talked about during this have invested in technology. Because you have to. And it pays off.

Julian Mills:
Cathy, I agree with you. I love the analogy someone said to me once, retail’s been like infantry battalions marching in this way. There’s been a general who said, “Go do this,” and it’s been about getting a thousand people to do the same thing at nine o’clock on a Monday morning. And actually, what we’re seeing now as stores become more multifunctional and there’s more demands on them, it is evolving more to kind of special forces. You need more engaged squads of people who can problem solve issues on the ground.

Julian Mills:
And by the way, that’s also a much more engaging job for people. There are millions of hardworking people doing amazingly important jobs in stores and we’re making their jobs better, I hope, at the same time.

Cathy Hotka:
I think one of the pieces about the agile store is the ability to be flexible and to make changes. So, yes, we always did it this one way, but store associates and store managers stepped up and said, “Well, we don’t have to do it that way. We can do it this way.” And the ability of chains to absorb this kind of rapid change has been pretty remarkable. Honestly, I thought I was going to be disappointed in retail during the pandemic. They really stood up. They got the job done in most cases.

Julia Raymond Hare:
When Cathy was talking about trusting your associates, part of that trust is built through this additional communication that was necessary to succeed during the pandemic that we talked about at the beginning of the episode. And the reason I was so intrigued by, Julian, what you guys are doing at Quorso, and this is part of my background too, is analytics. So hearing that you guys actually have a way for store associates to send that information back is huge, because you hear all the time about in B2B settings, the feedback loops and whatever. But in retail, the feedback loops have been a little bit more organic, so to speak. And this kind of creates a process for that.

Julian Mills:
Julia, thank you for that. So one of the great joys I have is every week I get to read some of the thousands of actions that great store managers are taking every day to try and improve performance in thousands of stores. And it’s amazing the ingenuity some of them are showing.

Julian Mills:
So for example, there’s a lot of people at the moment, a lot of retailers who have stock problems. They just can’t get the supply. And when you look at how individual store managers are solving those problems, how they are adjusting the display or coaching their store teams to advocate alternative products. It’s really amazing. It’s really exciting. And by the way, they’re driving amazing results.

Julian Mills:
So we’re seeing, on average, a good store manager is claiming back about 60% of the sales that would otherwise be lost when a product’s out of stock. So a bad store manager loses all of it. There’s no cat food, they don’t get anything. A good store manager gets 60% of that back through some other means. And I think that’s why we should be investing in store teams because these people can make such a difference on the ground.

Julia Raymond Hare:
Mm-hmm (affirmative). And when you say they’re creative, you’re seeing some of the feedback that they’re putting into the system. Have any stood out to you? Like any stories that stood out to you?

Julian Mills:
Yeah. Look, a lot of it’s around seven or eight themes. But there are basic things around fixing signage, or coaching staff to do things, or having a member of staff at a quiet time stand outside the store and usher people in, where you’re allowed to do that. There are lots of things that people are doing because they’ve had to be more entrepreneurial and more engaged during a pandemic.

Julian Mills:
And I think it’s unleashed this, in a sense, this spirit of entrepreneurship within good store managers. They’re still sticking to the standard. So they’re not running village shops. This is proper organized activity. But they are able to drive additional sales around the margin by doing this.

Julia Raymond Hare:
Sure, sure. And just taking a little bit step back. Do you guys, knowing what we know now, do you buy into the notion that stores have to be experiences and they have to be destinations and all transactions are eventually going to occur online, if not already, for customers?

Cathy Hotka:
There are brand palaces, there are flagship stores that show you what the potential is for that brand. But a lot of stores are stores. There’s merchandise in there and you go get it. What’s interesting is that a lot of retail companies were forced during all of this to look at the store from the customer’s point of view. Is it off-putting? Is it complicated? People prize frictionless selling these days. And folks had to look at this from the customer’s point of view, and that has changed a lot of things.

Julian Mills:
Yeah. I agree with Cathy. Julia, obviously there are stores that are vital for communicating the brand, but I also think stores play an important societal role. So I was speaking to a bunch of checkout staff during the pandemic and they said, “Actually one of the things that’s happened is a lot more people just come in to us and chat. Because they can’t speak to anyone else. And so it’s making us all slower and our shifts longer, but actually it’s a really important piece of day-to-day contact for people.” And I think in our quest for efficiency, we sometimes underestimate that kind of thing. Does that resonate?

Cathy Hotka:
Oh, completely. Completely. I always laugh when I see these stories about robots in retail and you can do automatic checkout and it’s terribly impersonal. I don’t think people are necessarily looking for extreme levels of efficiency. If I can have a nice conversation with the person behind the pharmacy counter at my CVS, that makes my day. I think a lot of people feel the same.

Julia Raymond Hare:
Yep. And we can see that with Walmart removing their contract with the robotics company about six months or so ago. It could have been longer, it’s been a while. But they did that for a reason. And part of the reason is that robots do tend to scare away customers a little bit. And I was watching something the other day and they said by and large, all of the retailers that they’ve worked with and done studies with, the human elements always create a great sales lift compared to maybe in-store technology that retailers spend a ton of money on for the consumers to interact with, smart mirrors, all those things.

Julia Raymond Hare:
Although I think the technology will get there eventually. Snapchat bought up some other AR companies and they’re working really hard to roll out some really new exciting services for retailers. So I do think there’s an element that will eventually be amazing. Are there any technologies that you guys are most excited about as we are halfway through 2021?

Julian Mills:
Obviously Quorso.

Julia Raymond Hare:
Well, yeah. That’s a little biased, but yeah.

Julian Mills:
Seriously, I think anything around data analytics is just so interesting at the moment, because it’s so much cheaper too, than doing anything with cameras or drones or robots or anything like that. It’s so much cheaper. And by the way, you’re always on. So I personally think anything in that space is super interesting at the moment.

Cathy Hotka:
I’m going to second that. We have so much data that we don’t get the biggest benefit from. There’s so much to be learned, and analytics and really smart use of all that data, particularly data from inside the store is very, very important. And the smart guys will make new revenue because of it.

Julian Mills:
And Julia, it’s a really interesting question. You think how much data and how good at using data the econ teams are most big retailers and the marketing teams, et cetera. The supply chain teams, even. The stores are kind of… they’re playing catch up here. And so I agree with Cathy. That’s why it’s a really interesting opportunity because there’s so much focus on stores [inaudible 00:30:06].

Julia Raymond Hare:
And do you think stores will eventually mimic in a lot of ways an e-commerce site, right? Because they will be more connected and they will be plugged into the larger ecosystem.

Julian Mills:
Yeah. I think that’s exactly right. You should be able to know within an hour whether changing the display on something, or updating a floor stack or something like that, or changing your [inaudible 00:30:32] schedule, you should be able to know almost instantaneously whether that’s working or not. And by the way, the right answer for your store might be different from the right answer for another 20 stores. And so I just think that that change, that kind of local experimentation, that local test and learn, is going to transform retail.

Cathy Hotka:
And remember the bad old days where you go into a store and they didn’t have the merchandise you wanted and the person behind the counter would say, “Try our other store 10 miles away. Maybe they have it.”

Julia Raymond Hare:
Yeah. Yep. And then you’d have to drive across town and go hunting for that item. Yep.

Cathy Hotka:
And they don’t have it.

Julia Raymond Hare:
Oh my gosh. So much has changed. It’s amazing. It’s exciting and sometimes it’s even scary, but I think it’s more exciting than scary.

Julia Raymond Hare:
Well, this was a great conversation, you guys. If you’re listening, go ahead and take a look at the report. This is on rethink.industries and it is called Retailers Reflect the Future of Stores: Management for 2021 & Beyond. And Julian, where can they find the information on the humongous study that you guys did? I think you said that’s in a…

Julian Mills:
Yeah, sure. So quorso.com. Q-U-O-R-S-O dot com. It’s on our website.

Julia Raymond Hare:
Great. Excellent. And then Cathy, if our listeners want to get in touch with you, what’s the best way to do that?

Cathy Hotka:
So it’s Cathy with a C. It’s www.cathyhotka.com.

Julia Raymond Hare:
Wonderful. Perfect. Well, thank you both for joining and I hope to have you on the show again in the future.

Julian Mills:
Thank you.

Cathy Hotka:
Thanks, Julia.

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