Q&A with Eric Olafson, CEO, Tomax

While most technology companies are pushing efficiencies and solutions that take costs out of the retail business, Tomax is reinforcing that retail is ultimately won and lost on the selling floor and advising its retail customers to focus on metrics around average ticket sizes and conversion rates.

Retail TouchPoints recently connected with Tomax CEO Eric Olafson to learn more about the concept of Customer Experience Architecture, and also to get his insights on how traditional retailers can learn from the service retail sector.

An early proponent of thin-client solution delivery in retail, Olafson also offered a unique spin on how hosted models have helped deliver bottom-line benefits to the company’s roster of more than 100 retail chains.

Retail TouchPoints: There is a lot of emphasis on execution management and workforce optimization as retailers look to increase efficiency during this challenging business climate. Are you seeing more demand for those kinds of solutions? What are some of the paybacks you’ve seen from retailers implementing workforce applications?

Eric Olafson: You don’t need precise measuring equipment to appreciate retailers are significantly affected by this economy. What’s very interesting to us is the rising demand in workforce products. I can’t really calibrate this to other periods in any real accurate way, but I think that people are acutely aware there are a finite number of customers visiting their stores. Consider the specialty segment, which has been so ravaged in terms of top line. If you look at the ShopperTrak data from December, depending on the area of the country, retail mall traffic declined about 20-25%, but sales only decreased approximately 8%. Clearly specialty retail is the most affected in these economic conditions -- they’re getting to the point of ‘what moves the needle’ is what happens when a customer comes into our store.

A lot of these retailers are gathering their managers together in varying forms of pep talks about what to do to get through these times, because anxiety runs rampant through all levels of these organizations. Every retailer is facilitating some sort of psychological support process with its workforce. But CEOs know that they are wrong to assume that they are powerless to control the outcome of their stores, operating results, top line and profit.

In a mall store, data shows 66% of the people that come into the store don’t buy. In comparison, in a standalone store, the percentage is more like 50%. Given these numbers, average ticket sizes and conversion rates are at the forefront of the minds of every specialty retailer. Advanced software is not necessary to reduce work costs in retail: retailers have reached a point where so much staff has been cut that they are now cutting into the actual bone of the organization. We can cite retailers who are adding staff back into their stores and payroll back into their business as a very deliberate effort to improve service and sales – with significant results. In the midst of a very bad economy, people are generally interested in doing everything they do better, but here in particular, controlling that average transaction and looking at that selling opportunity with the customer and conversion rates are just critical factors.
RTP: Because expansion is kind of nonexistent in this environment, it speaks to the need for customer centricity. What are some of the steps you’ve seen your clients take to become more customer centric?

Olafson: Specialty retail has been deeply affected. Interestingly, I think the average person looks at retail and thinks about specialty retail and the mall stores. To a lesser degree they might consider mass merchants and supermarkets. But there’s another realm of retail out there that is vast in comparison, the service retail sector. During this time of economic concern, people are actually getting their hair cut, they are going to the gym (maybe not all together as regularly as they might but they are looking after their health), on diets, renting movies, and changing the oil in their cars, putting new tires on their cars. If you think about the various software companies that are out there doing their thing, primarily we think about software in retail as serving the cash and carry retail economy. But there’s another economy out there—hair salons, automotive quick service (oil change, tire), health clubs, you name it, that is representative of this other economy, so we just call it service retail. It’s kind of given us an idea of how to approach customer service.

In service retail, everything they do is characterized by high touch customer interaction. These types of retailers typically have a greet process, followed by a determination of specific services/offerings. Services/offerings are delivered with checkpoints at which the customer would be involved in some type of an acceptance process, then there is the finalization of the transaction. We’ve described this as mapping a customer experience very specifically to that customer for that retailer along the subtleties and nuances that they would want to have in order to maximize the benefit of the experience.

We’ve come up with CXA: Customer Experience Architecture. If you took a traditional cash register product (POS application) and divided it into two parts, one being the settlement, security and integrity of the core transaction, which is something that is a durable, iconic fundamental need of a POS application and then you had also separately an area of application content that’s defined around the selling experience and how you want to interact with the customer, how that experience will occur on devices (e.g., mobile phone PDA, in-store kiosk, POS workstation) and where you provide an unfettered flexibility allowing retailer to determine the exact customer experience and associated support (e.g., with questions, upselling, other information from other sources).

It is sort of the antithesis of current POS software. People talk about POS remarkably as the ‘moment of truth,’ and yet most POS software fundamentally does the same thing. Customers put stuff on the checkout area, someone scans it, it is tendered and the customer is on his/her way. What some people call the ‘moment of truth’ is the moment some customers just want to get over and out the door. It’s hard to call typical POS software something that’s even remotely involved with an upsell process. I think we can get past the notion of buy a shirt, recommend a tie.

There’s some feeble stuff happening even in POS software that might be alleged to be contributing to upselling, but it’s not at all in the realm of this idea of an engineered sales process with the various support. That’s just an example of what we’re doing to help retail chains adapt to their customer requirement in a much more specific way, which various remarkably, for a health club to a fitness salon, etc. It turns out that this is not so unique just to the service retail economy. Everyone cares about the customer experience.

RTP: Best Buy’s Geek Squad being the most visible example, more retailers are trying to develop service businesses, is that relevant to what you’re speaking of? Or are you thinking more of the point of service where there is true selling opportunity?

Olafson: Geek Squad is indicative of what retailers try to do, which is realizing there is a service element that comes into the equation at the very same time that pricing is paramount. I don’t know whether most traditional retailers can remake themselves into service businesses, but if you consider a tire store, there’s a process involved in working with the counter and determining what your tires might be, and there’s multiple points within that conversation where the tire guy can make recommendations that typically take the form of good/better/best.

I think retailers are shopping for the analog in their business that gives them a more methodical way to get in front of their customer at the right time, before the sale, with either good/better/best logic, or other forms of upselling, like making sure they’re aware of promotions that are happening in the store right now. Some retailers are limited in what they can do because they don’t have interactions with the customers.

Believe it or not, one of the examples I gave you of a retailer adding staff to their store, adding to payroll in an effort to improve service and sales, was a supermarket retailer. People don’t think about supermarket retailers as being customer service-oriented. It’s a fairly anonymous transaction. You walk in, do what you do, go to the checkout, and you go. I was quite surprised at this one retailer’s effort. But when you get into the details, it turned out to be simple things, like maybe it’s good to have sufficient staff in the floral department on Valentine’s Day. This type of logic applies to situations, areas of the store and times of day, over the course of a week, in view of events and holidays, which starts to add up to something that can be revealed to the customer as a meaningful indication of improved customer service.

RTP: There’s more about SaaS models and hosted delivery of software, which is something that you have been advocating for years. Are you seeing any retailers catching up with the paybacks of that model?

Olafson: SaaS models and hosted delivery provides significant payback – most retailers interested in our offering seek Tomax out for that very reason. Our customers have reported to the market having significant advantages in terms of total cost of ownership, driven by our ability to provide full product hosting services.

SaaS matters but it is more important the retailer can abstract costs holistically. Outsourcing payroll or a piece of time collection may be a good thing, but what ‘moves the needle’ is if I can make a wholesale transformation to managing a distributed computing environment and multiple applications. If I can migrate from multiple solution systems and distributed architecture to a centralized architecture like the Retail.net solution run by Tomax, that’s where there’s big bang for the buck. Part of it is offering the solution in a SaaS model, but part of it is making sure that the outsourcing covers enough of the retailer’s plumbing and infrastructure that it actually is financially a genuine paradigm shift.