Sometimes the dictionary tells you everything you need to know. Take retail as a noun. The meaning couldn’t be clearer. But to be thorough let’s visit Webster’s: (n) the sale of commodities or goods in small quantities to ultimate consumers; also: the industry of such selling. Let’s remember these two terms: selling and consumers.
Given such a straightforward definition why does retail prove so difficult in practice? That question is prompted by a recent visit to the Duane Reade store located at the corner of Park Avenue and 34th Street in New York. For non-natives, Duane Reade is a local version of CVS or Boots named after an intersection in Tribeca.
DR is a proximity retailer. (I am indebted to Andrew Wileman and Michael Jary for explicating the concept in their book, Retail Power Plays. I’ll be re-reading it and posting a review in the near future.) The entire strategy rests on the notion that you shouldn’t go very far to find a DR location. In a congested market full of impatient, self-important types, having a store on seemingly every corner is a great advantage in capturing share.
Like the suburban chains, DR is really a convenience store (c-store) with a pharmacy in back. I’d wager more people run in for grocery items, HBAs and OTC medications than to fill a prescription. I certainly did. It was lunch hour and I needed a case of Diet Coke. I expected to grab and go. Then I encountered the line at cash wrap.
A typical snake, the line ran between stanchions and back into the selling aisles. Only two registers were open. Stockkeepers regularly breached the line with case-laden hand trucks. It was slow and potentially dangerous. Eventually a manager appeared and opened a third till. Things did not proceed to move 50% faster.
I’m not sure why there was so much disinterest in taking customer’s money. I believe DR is a union shop. Whether it is or not, the only retail outlet with a workforce as unconcerned about customers is the Murray Hill Post Office just down the block. When I worked for Circuit City the folks at cash wrap were incented to conclude transactions. In those days everyone–from the CEO to the cashier–had a number. That meant we all could make a sale or take the customer’s money. See, there’s those two words again–sale and customer. You have neither if you don’t take the money.
Maybe the folks at DR think time is not valuable. They couldn’t be more wrong. In a 2009 paper by Gad Allon, Awi Federgruen and Margaret Pierson the authors empirically demonstrate that waiting time has a dollar value (about $40 an hour, although other estimates have been as high as $180) and drives customer satisfaction.
Their experiment focused on the fast-food industry (the National Retail Federation counts fast food in the retail sector). In that segment there is a long-standing belief that reductions in waiting time lead to long-term profit increases. The author’s demonstrate the belief is correct and the returns greater than believed.
So why does an urban proximity retailer think customer’s should wait to pay? Why isn’t a store manager circulating constantly, like a shark, looking to snap-up easily available cash? Consumers don’t have one worldview for c-stores and another for McDonald’s. You shop at Duane Reade because it’s across the street, not because the experience is positive. Ultimately you might choose to walk down the block to a competitor.
Last year Walgreen’s spent $1.1 billion to acquire Duane Reade’s 257 locations. That works out to about $4.2 million per store. At $180 an hour each store will pay for itself when they’ve wasted 23,779 hours of customers’ time. Based on the location I visited I think they can do it.