The Death and Rebirth of Retail Customer Service: An insider’s perspective on the upcoming collapse

Part I: Background

Retailers across the country are finally acknowledging their inevitable destiny. The precarious balance between competitive pricing, profit, and customer service is at its tipping point. Sides are being drawn, business models are being revised, and retailers are sending a clear message to their customers… “The party is about to end”. Customer demands for convenience, low prices, and top-notch customer service have pushed retailers to their breaking point. Something has to give…and that which will emerge over the next 12 to 18 months will shape the framework for nothing less than a new paradigm in retail operations.

Retailers are eager to make a change, analyzing profit margins and emerging consumer trends all while maintaining an ever-watchful eye on their competition for a cue. Unlike the trend toward total customer satisfaction in the mid 1990’s, the direction now is not all about them. In fact, it’s anti-them. It’s about the fundamental ability to survive in today’s complex marketplace of Internet retailers, wholesale clubs, mega-discount stores, and consumer-to-consumer auction sites.

It’s The Internet, Stupid.

The sudden emergence of the Internet-as-retailer played a particularly important role. The Internet business model missed it’s important transformative years. Instead, it emerged on the scene in the late 1990’s like a child on a sugar-high, and has remained there ever since, out of control and relentlessly searching for its place in the world marketplace. Business models with entirely uncertain outcomes were tested with millions of investor dollars. This was new territory. Successful strategies were tested by trial and error, and as we are well aware today, many strategies with their faithful investors failed to pass the longevity test. Many businesses, once far removed from the fast-paced and rapidly evolving world of technology, found themselves forced into a position too tempting to overlook, and too dangerous to dismiss.

This was especially true in the retail sector. Businesses scrambled to establish their position in the virtual world. Just how would they utilize this new ubiquitous tool to enhance their business? In the early stages, many businesses saw the Internet mainly as a promotional vehicle. It was a way to reach out to new consumers. The media-centric nature of the Internet provided new opportunities in advertising and marketing. However, it was not long before retailers began to see more significant and far-reaching implications of this new medium. The Internet was not seen merely as a supplement to their business, but as a business in and of itself. The relative success of Amazon.com (relative because the company had yet to make a dime of profit) was ample motivation for many retailers to give it a try.

The retail business model provided essentially the same advantages for all retailers. The online store required less people to operate, no or little property to purchase, no buildings to construct. Processes were able to become highly automated and streamlined, requiring fewer and fewer employees between customer and product sales. This lower overhead would allow the retailer to sell it’s product at a lower price point, at least low enough to compensate for the added consumer-cost of shipping. Early on, the advantage of online shopping for consumers was that of convenience, not of price. At this time, in the late 1990’s, online shopping was still seen as a niche market. Consumers were unfamiliar with the technology, and concerns over credit card fraud, shipping problems, and lack of personal interaction created reluctance among buyers. Additionally, most households were still connecting via slow dial-up connections, which essentially nullified the convenience factor.

In just a few years, as high-speed connections became more widespread and consumer confidence regarding online security began increasing, Internet sales began to make a significant impact on the retail sector. Online activity was increasing each year in both number of users and total sales generated. Most retailers, with the major exception of Amazon.com, maintained both an online presence as well as a physical presence. “Bricks and Clicks” proved to be a major factor in the decline of customer service.

The Beginning of the End

Actually, the breakdown had started several years before. Many retailers accepted short-term losses in their online businesses to increase brand awareness and build their overall customer base by tapping into a niche market that preferred the ease of online shopping over traditional brick and mortar shopping. Hopes were that the increased brand visibility combined with the increase in their customer base would lead to an eventual profit-making business. The war was waged on the most dangerous piece of the marketing mix: price. In a battle to win over customers, online retailers began providing deep discounts, often resulting in per sale net-losses. Competition among online retailers forced prices even lower.

Soon, the choice to abandon an Internet presence became less and less viable as increases in competition and visibility grew. Businesses lacking an online presence were seen as antiquated and as resistors in embracing new technology. Sites like Wal-mart and Bath & Body Works once used the Internet solely as a promotional and reference tool to drive their in-store business, while sites like Target.com and BarnesandNoble.com used the Internet as a direct sales vehicle. Today most retail sites, including Wal-mart and Bath & Body Works, have begun using their sites for direct-to-consumer sales.

The onset of the Internet as a direct sales vehicle initially caused a great deal of confusion and anger among customers. On one side, the price disparities between online and in-store pricing seemed unfair to the in-store shopper. On the other side, online shoppers beganto feel they were being duped by bait-and-switch type tactics because advertised online discounts were frequently offset by the costs of shipping.
Suddenly, businesses were competing not only against rival companies, but also against their own brick-and-mortar operations. Consequently, in store prices dropped to compete with their own online prices, and policies regarding shipping costs were relaxed or eliminated. Profit margins continued to shrink and companies were forced to offset these profit-margin decreases by other reductions.


Next Up….

Part II: Where are the Employees?: Current Realities