Failure is not an option PIC(k): a new growth

July 2010
R E P O R T
PIC(k):
a new
growth
channel
Failure
is not an
option
As retail capital expenditure
never been truer than
budgets have moderated in
when it comes to the
recent years, the profes-
retail industry, where
sional installation compa-
the path to prosperity
nies that aid in the store
long has hinged on a
construction and remodel-
well-executed, clearly
ing process are leveraging
defined strategy. While
their expertise to pursue
that basic formula is as
growth opportunities in
relevant today as it has
some nontraditional retail
been at any time in the
channels.
past, what’s changed
Professional installation
companies, also referred
The notion that the more
things change, the more
they stay the same has
Making a difference in store
to as PICs, are the service
are the competitive
circumstances, new
operational imperatives
providers retailers turn to
For three days earlier this year, the state of in-store execution and how to
and dynamics of the
at various stages in the
achieve future success were dissected by senior executives from retail,
marketplace in which
new store construction or
consumer packaged goods and merchandising and marketing services
execution is expected
remodeling process for
companies who gathered in Tampa, Fla., for the annual meeting of the Na-
to occur.
help with build-out, rollout,
tional Association for Retail Marketing Services.
retrofit or maintenance ac-
These are challenging times for many in the retail industry, so the discus-
For retailers and
brand marketers alike,
tivities. Such work often is
sions around execution were particularly interesting as they explored such
a new reality now exists
outsourced, enabling retail-
themes as how to work effectively with large companies, become more
in which it has never
ers to tap into the expertise
relevant and add value in a marketplace where the relentless drive among
been more important to
of PICs and save money.
retailers to improve financial performance ensures constant downward
achieve an absolutely
pressure on labor and resulting execution challenges. To survive and thrive
stellar degree of store
extreme pressure to reduce
in such an environment, those who participated in the event heard from a
level execution. This
costs. By outsourcing
wide range of retail thought leaders, companies who operate merchandis-
despite the fact that the
the store set-up function,
ing and marketing services firms and those who retain their services.
need to deliver finan-
“Retailers are under
retailers do not have to
For newmarketbuilders president Carol Spieckerman, a key way for
cial results has caused
carry the costs associated
service companies to become more relevant is to “be more involved on
retailers to pursue all
with a fixed workforce and
the front end when programs are being conceived, as opposed to simply
manner of initiatives that
can convert fixed costs to
(continued on page 2)
executing on the back end. You will move from being a tactical executor to
(continued on page 4)
create new execution
(continued on page 2)
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July 2010 >1
PIC(k) a new growth channel
Failure is not an option
retailers have had to change and adjust
(continued from page 1)
their approach as acquisitions, bankrupt-
(continued from page 1)
variable costs. The PIC allows this conver-
cies and a shifting of customer traffic has
challenges. Perhaps the most significant
sion to happen without any decrease in
created a new reality in a relatively short
of these is the widespread industry im-
efficiency, effectiveness or expertise, and
period of time,” according to the report.
perative to leverage information technol-
increases the quality of the process,” ac-
ogy to optimize inventory levels.
One of the biggest changes relates to
cording to a new study called “Continuing
the recession and how retailers reacted
to Build the Future of Retail 2010.” The
to it. The report examined actual 2009
study involved 29 PIC members who be-
capital expenditures at 75 publicly traded
long to the National Association for Retail
retailers and determined that 77% of
Marketing Services. It is a follow-up to a
total capital expenditures, or $80.5 billion,
similar study conducted in 2006 called
was spent on new store and remodel-
“PIC – Building Out the Future of Retail.”
ing activities, compared with the 81% in
While the value proposition of PICs
2006. Historically, there has been a close
hasn’t changed, the firms engaged in the
correlation between capital expenditures
study noted shifting market dynamics
and demand for PIC services.
have led to changes in the type of work
Social media can be a retailer’s
best friend or worst enemy,
and which way the pendulum swings
is heavily influenced by
the caliber of in-store execution and
customer experience.
Retailers can’t afford to have, and
don’t want, working capital tied up need-
In addition to a reduced percentage of
being performed in addition to new
dollars directed to new store construction
lessly in inventory levels determined to
areas where growth opportunities are
and remodeling activities in 2009, there
be excessive based on rate of sale or
expanding.
was a material shift in how dollars were
anticipated demand. However, at the
spent when compared with 2006. For
same time, even casual observation of
example, in 2009, 39% of capital expen-
out-of-stock levels in the marketplace
“A market that was defined by rapid retail expansion has receded. The surviving
ditures went toward
suggests operators are over-estimating
new construction,
their demand forecasting and replenish-
compared with 60%
ment capabilities. As a result, inventory
just three years
optimization efforts may help retailers
earlier. Conversely,
impress investors in the short term, while
remodel-related
creating the potential for shopper disap-
capital expenditures,
pointment and new execution challenges
which represented
related to inadequate inventory.
about 21% of the to-
The other major impediment to
tal in 2006, increased
achieving high execution levels is the
to 38% last year.
lack of store labor. While this is a familiar
Retailer capital
challenge, it has been exacerbated by
budgets likely are to
a weak economy that has put pressure
remain constrained
on sales growth and caused retailers to
in coming years,
compensate by either eliminated labor
especially as they
hours or attempting to align labor with
relate to new stores,
functions that directly impact customer
but that doesn’t
service. The bottom line from an execu-
mean PICs won’t
tion standpoint is that CPG companies
have plenty of new
who want something done at retail
opportunities to
increasingly are going to have to do it
pursue elsewhere.
themselves, or, more likely, retain the
Increasingly, PICs
services of a merchandising service or-
have discovered
ganization to perform the work for them.
While efforts to minimize inventory and
that the skill sets
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and capabilities that
(continued on page 4)
Retailing Today
labor costs intensified during the reces (continued on page 3)
July 2010 >2 Failure is not an option
channel merchandising and marketing
inform the world of retailers’ or brands’
(continued from page 2)
initiatives that appeal to a new breed
failings in high-definition glory, cour-
sion, with the result being the creation
of shoppers that have insanely high
tesy of the latest generation of smart
of a more challenging environment
expectations of retailers and zero toler-
phones. In such an environment, those
in which to execute retail programs,
ance for shortcomings. Operating in an
who outperform competitors from an
improved economic conditions aren’t
environment of escalating consumer
execution standpoint can expect to
likely to reverse the trend or happen
expectations is not a new phenomenon
see the beneficial effects of their efforts
anytime soon. Putting aside the day-to-
for retailers. However, the concept of
magnified while the same is true of the
day gyrations of the stock market, the
multichannel operations introduced
shortcomings of inept operators.
longer-term reality is that the outlook
new complexities to retailers just as the
for a U.S. economy is rather bleak due
manner in which humans communicate
executives undoubtedly has felt as
to its dependency on consumer spend-
with one another experiences a dra-
though they were operating in the most
ing to drive growth. Stubbornly high un-
matic shift thanks to social media. So-
challenging of times. What’s different
employment rates, an aging population
cial media can be a retailer’s best friend
about the near-term environment is
past its prime consumption years and
or worst enemy, and which way the
today’s retailers and CPG companies
increased tax rates are all expected to
pendulum swings is heavily influenced
face all of the familiar challenges asso-
serve as headwinds to constrain con-
by the caliber of in-store execution and
ciated with keeping pace with consum-
sumer spending.
customer experience.
ers’ evolving demands while simultane-
It is against this backdrop that retail-
Every generation of retail and CPG
Shoppers who are dissatisfied or
ously dealing with a wide range of new
ers and CPG companies will be looking
even outraged now possess state-of-
pressures and external factors that few
to execute increasingly elaborate multi-
the-art technology that enables them to
imagined even a decade ago. n
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July 2010 >3
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AE: Jeff Lupisella
PM: Joshua Douglas
VER.: 1/2 Page (horizontal)
PIC(k) a new growth channel
Making a difference in store
(continued from page 2)
make them an indispensible, if oftentimes
invisible, component of the retail industry
Bastuba said one of the hardest things
(continued from page 1)
is finding the right people. Nintendo
conducts face-to-face interviews,
a strategic resource,” she said.
The potential for service compa-
background checks and drug screen-
R E P O R T
can be applied in other nontraditional retail
nies to play such an expanded role
ing, followed by a week of training at
settings that also place a high value of
has never been greater, according to
Seattle headquarters and a week spent
speed, execution and expense control.
Spieckerman, because “after years of
with a district supervisor. Then there
doing everything for themselves, retail-
are unannounced visits, monthly con-
in the study noted that they are provid-
For example, PICs that participated
ers have never been more open to us-
ference calls, and an annual meeting to
ing services to hotels and motels, banks,
ing outside providers. However, their
prepare for the holidays. The approach
restaurants, branded store-within-a-store
standards have never been higher,”
has paid off, and one-third of the team
concepts and even doctors’ offices.
she added.
has been with the company for more
Other areas involve kiosk maintenance,
In such an intensely competitive
electronic shelf tag installations, automo-
market and a challenging economy
tive showrooms and waiting areas, sports
that leaves zero margin for error, the
venues, airports and pop-up stores.
stakes simply are too high for retailers
“The ability of get multiple locations
and their trading partners to tolerate
open quickly in a huge variety of retail
anything less than 100% execution.
spaces takes perfect advantage of the
Not surprisingly then, one recurring
PIC value proposition,” according to
view expressed was for companies to
the study. n
be candid about their capabilities.
than 10 years.
“We want the companies
we work with to have their own
relationships with retailers
so they can solve problems
without our involvement,”
Loren Woodbury, HP
“Commit to only what your organiza-
Professional Installation Companies
tion is truly capable of handling and
(Type of work performed)
be upfront about outsourcing,” said
Install graphics/signs
100%
Mary Jo Bastuba, senior national field
execution continue to rise, reducing
Reset/remodel & new store set up
84%
manager with Nintendo of America.
turnover becomes an even greater im-
In-store assembly/installation
80%
“If I am contracting with your team, I
perative. Not only because it improves
Site surveys
80%
need to know that it is your team that is
execution, but because it reduces train-
Install prefab units
76%
going to execute the project.” Nintendo
ing costs. According to Kelly Hampton,
Project merchandising
68%
outsources to third-party firms on those
executive director of merchandising for
General contracting
56%
occasions when broad retail cover-
20th Century Fox Home Entertainment,
Low voltage
52%
age is required, such as new product
the entire process begins with clear
launches, but the company also main-
communication with job applicants.
Warehousing/distribution
44%
tains its own field organization of 150
She suggested companies could do a
people overseen by Bastuba. The orga-
better job of managing applicants’ ex-
nization is comprised of three regions,
pectations so that those who are hired
each of which has five districts with
know upfront what the job entails.
And where they are active…
(Trade class where Professional
Installation Companies operate)
Mass
76%
Drug
64%
Grocery
60%
Home center
60%
Office supply
As expectations around in-store
10 employees per district. Employees
In the case of 20th Century Fox, that
perform display maintenance, regular
means being nimble. “The companies
software updates, stock shelves, cut
we work with have to be flexible and
in new items, ensure planogram and
fast. If I am lucky, I may get six weeks
60%
pricing integrity. “In addition, each of
lead time, but it may be only two
Department store
52%
our representatives is provided with
weeks,” Hampton said. Her situation is
Pet supply
52%
the latest products that they are asked
unique given the nature of the enter-
Convenience
44%
to familiarize themselves with. Product
tainment business and the steady flow
Electronic
36%
education for us is huge,” Bastuba
of new releases. As a result, 20th Cen-
13%
said.
Despite what sounds like a dream
tury Fox and six other major studios
job for a gaming aficionado, and
enables the studios to service stores
Hardware
Source: National Association for Retail Marketing
Services 2010 report: PIC – Continuing to Build
the Future of Retail.
RetailingToday.com
even with high unemployment rates,
Retailing Today
devised a shared services model that
(continued on page 5)
July 2010 >4
Making a difference in store
(continued from page 4)
global technology firm places high ex-
has a legitimate value proposition, is
pectations on the companies it retains
adept at reporting and analytics and is
collectively more effectively than if
to execute in-store programs. It begins
profitable. “We don’t want to work with
each studio were to hire an individual
with a view that merchandising and
anyone who is not the best at what they
firm. The arrangement elminates store
marketing services firms should have
do, and we want you to make money.
level confusion and is preferred by
relationships with the retailers whose
We don’t want you to be profitable at
buyers because it improve execution,
store they will be working in.
our expense, but we do want you to
she said.
The topic of execution dominated
“We want the companies we work
with to have their own relationships with
R E P O R T
be profitable by being efficient,”
Woodbury said.
much of the conversation at the
retailers so they can solve problems
NARMS annual meeting, and in con-
without our involvement,” Woodbury
is easier for a third party, according to
junction with that, several people high-
said. It also is important, especially for
Kelly Baker, EVP sales with Teters Floral
lighted the fact that companies need to
a large company such as HP, that there
Products. After a review of his com-
be realistic about their capabilities to
is a cultural alignment with respect to
pany’s internal team, it was determined
avoid getting in over their heads on a
expense control and quarterly business
that one-third of the budget being
project they will have difficulty execut-
reviews being indispensible. So too is a
spent on in-store service was being
ing. “I have been at this a long time and
willingness to say, “no.”
expended in nonproductive ways and
can tell who can do it now and who will
“We will ask you to do some crazy
Demonstrating efficiency generally
eroding profits. Labor costs tend to
be able to do it eventually. There is a
stuff and if we ask you to do something
outpace margin expansion, because, as
very big difference,” Hampton said.
that doesn’t make any sense, you need
Baker explained, “everyone expects to
to let us know,” Woodbury said.
get paid more even if their job doesn’t
Likewise, Loren Woodbury with
Hewlett-Packard’s consumer market
sales leadership team noted that the
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Other tips for success he offered
included making sure your company
Retailing Today
change. We have found that outsourcing is addictively cheaper.” n
July 2010 >5 R E P O R T
MSO thought leaders
share views
Dan Borschke,
President/CEO of NARMS
QA
&
Turning the corner
The National Association for Retail Marketing Services
recently held its annual meeting in Tampa, Fla.
Association president and CEO Dan Borschke spoke with
RetailingToday.com editor Mike Troy about the outlook
for the industry, emerging challenges and key trends.
MT: Attendance was solid at your annual meeting this year. How would you
characterize the mood of those who participated?
DB: The economy was very challenging in 2009, so people are feeling much more
optimistic about where we are at today compared with a year ago, even though
we are not back to the level we were at five years ago. Business conditions
have definitely improved and our members are confident in their abilities and
feel the services they provide add value to the retail industry.
RetailingToday.com
Retailing Today
(continued on page 7)
July 2010 >6 Turning the corner
(continued from page 6)
MT: What other trends are you seeing beyond the sense
of optimism?
DB: We are seeing a lot of change in the industry as it
relates to ongoing consolidation among companies of
all sizes. Offsetting the consolidation is an increase in
entrepreneurialism, with a lot of smaller companies
starting up. The barriers to entry in the merchandising
and marketing services industry are relatively low, which
makes it easy for people to identify an unmet need and
develop an appropriate offering. As a result, we have seen
new companies emerge that initially are niche oriented or
that approach the business regionally or by focusing on a
specific discipline or scope of work.
MT: Any other trends?
DB: We believe retailers, as well as manufacturers,
increasingly are going to demand that the people coming
into their stores and performing work on their behalf are
certified in some way, shape or form. That’s why NARMS,
along with our partner BDS Marketing, developed CertifyU.
that during the remainder of this year and next year we
will be able to finalize the program so that retailers and
suppliers can be assured that not only individuals are certified, but the companies they work for also have certain
R E P O R T
standards that they meet.
MT: It’s great the market has improved from last year as
you mentioned earlier, but what’s the longer-term
outlook?
DB: I took this job six years ago with a sense of optimism about the future possibilities for this industry. No
one foresaw the economic challenges that disrupted the
marketplace the past few years, which impacted the retail
industry, our members and NARMS. Fortunately, economic
downturns are a temporary phenomenon and eventually
our industry will resume its very favorable growth trajectory driven by the value of the service provided. With
retailers cutting back staff, the only way for them and
their trading partners to continue to do what they need to
do in stores is hire external staff, and that is why NARMS
member companies exist. n
MT: What is CertifyU?
DB: It is a certification program that provides merchandisers, event marketers and others involved in our industry
with a way to demonstrate proficiency and demonstrate
to employers they have put in the extra effort to study for
and pass a test. BDS Marketing developed curriculum for
eight different areas where people can achieve certification. We have seen a lot of interest since the program
was launched in February, but it is not where we would
like it to be yet in terms of participation and endorsement
by leading retailers. Eventually, we would like to get to
a point where a Walmart, Target, Macy’s or Best Buy will
want all of the people performing work in their stores to
be certified.
MT: Where do things stand with the program NARMS was
developing to certify companies?
DB: The downturn in the economy temporarily threw a
wrench in our plans to develop that program, but we continue to move forward with the process and believe the
marketplace will recognize the value associated with an
accreditation process designed specifically for merchandising and marketing services companies. We are hopeful
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Retailing Today
July 2010 >7