Servicescape refers to the non-human elements of the environment in which service encounters occur. A firm’s servicescape varies depending upon the industry, competitive intensity, and market positioning. The analysis here is on the impact of Covid-19 on retail businesses.
Till the third week of March 2020, one could visit a store at least twice to buy fruits and vegetables and other groceries sold by the same vendor. Basket of purchase included certain pre-determined items and a lot of impulsive purchases based on freshness, the attractiveness of price, and bundling. Shopping used to be an experience. Servicescape design was to entice and engage the customer for co-creating higher value.
After lockdown due to Covid, social distancing of minimum one-metre has become the norm. Typically, an outlet selling fruits and vegetables as a standalone unit occupies anywhere between 600 and 900 square feet. Most of the time, the stock turnover would be a maximum of five days. There are two refrigerators and one cooler, which occupy a floor equivalent of 10 per cent of available space.
The cash-counter arrangement occupies about 90 sq.ft with about two or three counters. There are specific ranges where stocking will be like a honeycomb, and particular categories will have to be at floor level. A few items will be on shelves. Aisle and movement space will be limited.
The stocks’ value on a stock turnover of five days will be around ₹22.5 lakh and, on an average, ₹4.5 lakh per day. There is a 20 per cent wastage of goods due to improper ordering, inventory turn, and nature of the material. The sale value would be ₹3.6 lakh. Some are low-value items with daily turnover, while others may turn over a week to 10 days. If we take the average value of buy size at ₹300 per person, it may have to bill about 1,200 transactions in a day. If one assumes six hours of busy sale window during the day and evening, the shop must serve 200 persons per hour. Overall in a day, a store is open for about 14 hours.
When the store enforces social distancing, there is a need for streamlining the entry into the store. Stores limit entry at any point of time to about six shoppers maximum. A batch of six takes about 10 minutes to complete, and the service rate is 60 customers per hour. This service rate will leave a back order of 140 persons during peak hours of shopping.
Key initiatives
To overcome customer experience challenges and improve profitability, retail stores will have to take certain initiatives.
Implementation of social distancing at shops and public places is likely to be the new norm. The revival of commerce at the bottom of the pyramid will happen by allowing small shops to operate. There may be certain conditions that the local administration may enforce as we progress.
Such directions are potential limiting factors in terms of operations and cost. Such practices would include the use of alcohol-based sanitisers for all shoppers as they enter the servicescape area and insist on using personal protection equipment (PPEs).
The payment method moves towards encouraging shoppers to use phone app-based payments or credit cards enabled with wi-fi transactions by swiping without a PIN requirement. This arrangement reduces physical contact.
The best way is to improve operating efficiency by the shoppers so that they protect the profit margin and negotiate specific costs to be passed on to buyers as they get a better value of service. Shops that make changes in servicescape visible would succeed in the long run. A shop must book shoppers’ time slots using a phone app for those who want to experience direct buying for impulsive purchases. This arrangement is complicated because there is a considerable number of shoppers in a locality. There is an opportunity for a shopper to approach an aggregator for an application.
The app can provide 60 appointments in a busy hour. Shopping appointments must be rigorous. If there is “no show” in a window of 30 minutes, the shop must cancel the appointment. For the viability of the shop, another 840 shoppers per day will have to transact. Hyper-local will support this demand for order delivery to the customers. For the convenience of all shoppers, this purchase must be planned and executed during non-peak hours, which could be early morning or late in the evening.
Second, order and line fulfilment will be an issue. A customer must be willing to take backorder. This backorder increases the cost of a transaction by additional service and processing of returns.
The other issue that is likely to arise is quality. Customer expectation versus service gap could be a severe operation issue, especially when a customer buys comparatively high-value F&V items like broccoli, apples, pomegranate, and imported fruits.
This requirement has reverse flow as well or to be provided with write-offs. Another critical aspect is the hyper-local delivery costs. The issue is with shoppers who make small-ticket frequent purchases. Shoppers must also include loyalty like monthly delivery charges.
Customer experience will take a beating in a new environment. Impulsive purchases may be off from the buying pattern. Inspecting quality and buying will not be possible for all, and online shoppers may have to rely on the judgment of order picker on quality. The app must trigger the shopper to visit three times out of ten purchases from the shop to fulfil the customer engagement factor. Stores must encourage big-ticket buying for stocks, which may require early liquidation at deep discounts.
This practice would release space and improve the customer experience. An umbrella brand through an auction site online may be created by shoppers in a community to optimise realization and value to bulk shoppers. Some of the operational changes that may be required include layout changes, pre-weighed, and packed assorted items by way of kitting and delivery options.
Thus, shops will implement servicescape design and practice of service operations afresh, ensuring social distancing and safety to customers. At the same time, retail formats must survive at the current level of activity and must be willing to tweak the business model with hyper-local and active customer engagements.
The writer is Professor, IFMR GSB, Krea University