Stores shop for winning ideas

As sales growth staggers, analysts warn that retailers will have to compete even harder on customer service and innovation.

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ByParija B. Kavilanz, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- The year 2008 won't be a stellar one for retailers, but analysts say merchants can still chart profitable growth in a downbeat sales environment if they cozy up to their customers like never before.

"This isn't the year that retailers will knock the ball out the park in terms of sales," said Love Goel, chairman and CEO of Growth Ventures Group, a specialty retail private equity firm.

"It's even more important for retailers [this year] to build customer loyalty so that when the economy does come back, they'll be in a good position to quickly gain market share," he said.

Goel sees a recessionary environment this year as both consumers and businesses cut back on spending after a difficult 2007.

S&P senior retail analyst Marie Driscoll anticipates a similar outcome, led by a "very weakened consumer" in the first half of the year.

Still, Goel and other experts smell opportunity for retailers amid the challenges.

They suggest five key areas for retailers to focus on in 2008.

Serve the customer better than ever before. The retailer that offers superior customer service will hold on to its shoppers even when spending starts to slow down in 2008, said Russ Jones, director with turnaround advisory firm AlixPartners.

"When people start taking various retailers off their list of shopping destinations, you want to make sure that your store remains on the list," Jones said. He said service is also defined by the experience.

"How a person feels after they shop at a store is extremely important too," said Jones. In the Best Buy (BBY, Fortune 500) versus Circuit City (CC, Fortune 500) matchup, Jones said Best Buy does a much better job convincing customers that they've picked the right shop for the right product and experience.

Among the department store chains, Jones singled out high-end seller Nordstrom (JWN, Fortune 500) for its superior shopping experience.

"You are treated well when you enter that store. You don't feel anxious and you don't mind paying higher prices for shopping there," Jones said.

Customer loyalty is priceless, said Bonnie Carlson, president of the Promotion Marketing Association (PMA), which represents the $300 billion marketing industry.

"Retailers have to do a much better job ensuring that customers make return trips to their stores," she said.

Carlson said loyalty programs, such as Macy's Star Rewards program tied to its store credit card, let the retailer offer targeted discounts and coupons based on what shoppers are buying and how frequently.

"Loyalty programs allow retailers to really understand their consumers' behavior and move away from a generic discount model," said Goel.

Open up the shopping box. Retailers have to develop a multi-channel shopping experience that extends beyond setting up a Web site, said Goel.

One good example of multi-channel innovation is the "buy-at-home-and-pick-up- in-store" option, he said.

Wal-Mart (WMT, Fortune 500), the world's largest retailer, last year launched its site-to-store service that allows shoppers to order their item on its Web site and have it delivered to their nearest Wal-Mart store without paying a shipping charge.

Circuit City rebranded its "24-24 pick-up guarantee" service in 2005, which basically ensures customers that if their items are ordered online and are not available for pick up at a local store within 24 minutes, then the retailer will reward the shoppers with a $24 gift card.

This kind of service lets retailers reduce their inventory costs and cut down on store clutter, Goel said.

Fix the staffing conundrum. Because retailers experience a lot of turnover, PMA's Carlson said companies have to do a much better job in regularly training their staff.

Many big chain stores, including Wal-Mart, have tweaked their staffing model by adding more employees in stores later in the week on Friday, Saturday and Sunday, when store traffic is typically heavier than earlier in the week.

Carlson said retailers are missing the mark on customer service by doing this. "If I get poor service in a store any time during the week, that impacts my loyalty to that store down the road," she said.

Sell solutions and not just products. Goel said there's a two-part advantage to this. Services are another source of sales. By being higher-margin, they also boost retailers profits.

"Services like installation and repair typically have a 200 to 300 percent profit margin for retailers," said Goel.

Electronics retailers already figured this out. Best Buy launched its Geek Squad services unit in 2002 and Circuit City responded by launching its competing Firedog service in 2006.

But there's no reason other retailers, such as office supply and furniture sellers, can't emulate Best Buy's example, said Goel.

As demand grows for prepared foods, Goel said this opens up a huge opportunity in the services arena for grocery sellers.

"Some grocery sellers like Byerly's already have a drive-thru set up. You order your groceries and dinner from the office, and pick it up at the drive-thru," Goel said.

"There's real opportunity for new models like this across retailing," he said.

Many retailers have been operating the same concept for the past 30 years even though consumers today shop differently because of vastly different lifestyles.

"If retailers want to keep growing their market share, they have to respond to a changing customer," Goel said. To top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.