Has Rainbow Shops created a compensation model aligned with omnichannel realities?

Jun 13, 2017

Apparel chain Rainbow Shops suspected that not factoring online sales into its store compensation model was creating tension between the brick-and-mortar and online areas of the company. At the Internet Retailer Conference and Expo in Chicago, David Cost, e-commerce and digital marketing executive at Rainbow, discussed what was going wrong and how the retailer was attempting to remedy it.

Mr. Cost detailed a scenario the chain sometimes encounters in which a customer purchases an item from the online store and then returns it to a brick-and-mortar location. Not only does the brick-and-mortar location receive no benefit for the initial sale, but feels punished with a negative sale due to having to take the return.

While Mr. Cost noted that allowing online returns in stores led to an additional in-store sale 60 percent of the time, locations that saw the negative sales on reports were still not happy about it.

“Sales are a major factor in [stores’] compensation, so it doesn’t put them in a cooperative frame of mind,” Mr. Cost said. “We were really concerned with what the store, from the clerk at the register up through the regional manager, were experiencing in terms of how e-commerce was impacting their business.”

To ameliorate the situation, Rainbow decided to note the shipping zip code of each online purchase and apply it to the bonus of the brick-and-mortar Rainbow store that is within a 10-mile radius of that ZIP code.

“That return, even though it’s infrequent, doesn’t feel so bad,” Mr. Cost said.

If the online sale ships to a zip code outside of where Rainbow has a store, the sale remains associated with e-commerce only.

Making the in-store team feel as though they are part of a bigger omnichannel presence has value beyond returns. When visitors to a given store find that a particular item is out-of-stock, store staff has an incentive to point the customer to the website because they can anticipate it contributing to the store’s bonus.

Mr. Cost described the change as being “transformational” in terms of making everyone in the store feel like they’re playing on the same team.

DISCUSSION QUESTIONS: Is there any downside to a compensation model that associates online sales to a brick-and-mortar store within the same zip code? Are there other ways you think retailers should retool brick-and-mortar compensation to account for online sales?

Please practice The RetailWire Golden Rule when submitting your comments.
"All associates in retail need to be pushing in the same direction to make omnichannel work."
"If other retailers would follow suit and offer stores and associates same-ZIP-code sales credits they’d notice an increase in employee retention."
"What’s stunning to me 18 years later is that any unified commerce retailer is still struggling to work this out."

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13 Comments on "Has Rainbow Shops created a compensation model aligned with omnichannel realities?"

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Charles Dimov

Not only is this a brilliant move on Rainbow’s part, it is necessary to make omnichannel retail succeed! All associates in retail need to be pushing in the same direction to make omnichannel work. Yes the technology creates a unified commerce system, but the people make omnichannel a reality.

If store associates know about it, are well trained and have incentives to help customers with omni-orders, then the whole company prospers because the customer’s experience is TRULY SEAMLESS.

Other retailers need to look to Rainbow’s compensation model and create a similar environment in their chain. Great work Rainbow!

Chris Petersen, PhD.

In the eyes of today’s omnichannel customers, there is no “channel” … shopping is a seamless experience between digital and physical.

Far too many stores have been operating in silos because of the historical baggage of systems designed separately for stores’ POS and e-commerce.

Mr. Cost seems to have come up with a pragmatic solution, at least temporarily. It is a start in building the teamwork and acceptance in creating a seamless experience valued by customers.

The future of “hybrid retail” is full of many more permutations. Click-and-collect is projected to grow dramatically. Does the credit for the sale get split? And what about buy online but ship-from-store to home? Retail infrastructure and systems must quickly evolve to tracking customers’ purchases across both place and time.

The future of retail is less about the individual product sold today and more about building customer relationships.

Dave Bruno

Well said, Chris — I agree 100%. Long-term success will only come when we remove all friction from the shopping journey, and credit to Rainbow Shops for recognizing the potential friction inherent in their stores. While zip code attribution may not be a perfect solution, if it alleviates tension and removes friction for the shopper, then this is a great step in the right direction.

Mark Ryski

This is a complicated and emotional issue, but I appreciate Rainbow Shop’s creativity in tackling it. Associating ZIP codes with stores is not a perfect system, but at least there is an attempt to connect online behavior to their physical stores and create financial incentives for staff to service these customers. Compensation is complicated and it will continue to evolve just as everything in retail continues to evolves. As long as retailers carefully consider and value the role store personnel play in serving customers and delivering a great store experience in determining compensation plans, they’ll be on the right track.

Art Suriano

I think this is incredibly smart and other retailers should take notice. Too many retailers have treated their online business as if it were a separate company. I still get annoyed at companies like Staples with online offers only or in-store offers only. It’s the same customer, and that becomes quite frustrating.

Rainbow Shops is taking a step forward in understanding that a consumer is a customer no matter whether they shop online or in-store. If the retailers give the customer a good reason to come into their stores, they will, but they’ll also buy online. Reward the customer for ALL purchases and acknowledge all employees as being part of the team because everyone is involved in making the company successful. Retailers need to find a method that’s right for them, especially when associates earn a sales commission.

Kudos to Rainbow Shops and hopefully other retailers will follow.

Jasmine Glasheen

If other retailers would follow suit and offer stores and associates same-ZIP-code sales credits they’d notice an increase in employee retention. The loss of brick-and-mortar sales with the advent of online shopping is one of the primary reasons stores are finding it harder to recruit and retain good employees.

Brick-and-mortar retailers should also take into account what numbers they’re using as a point of comparison for their associates. It’s discouraging for associates to have their present day numbers compared with those taken before online shopping and the recession. Instead, retailers would be wise to implement intuitive, achievable goals and celebrate when those goals are met.

Alex Senn

I would even go further with this initiative to turn employees into marketers with their own referral link/code. If the employee shares their link and someone buys it, they receive some sort of compensation on behalf of the company. This now makes it entirely a team effort to bring in more sales. Try offering $5 per new customer for each employee. While this may be costly initially, it’s more than likely that $5 will come around with a multiplier effect in the number of sales coming through the doors.

From the first efforts here documented, it seems like a wonderful way to counterbalance the effect of negative sales on the retail store. There must be a way to go beyond, though, which is why I feel giving a referral incentive to each employee would go hand-in-hand here. I do agree that there might need to be some refining for sales that go outside the retail store’s territory, but good on Rainbow for taking care of the employees.

Ben Ball

Hi Alex! Not sure if I have seen you post before — but I like the way you think!

Treating an area or vertical or population segment — pick the right segmentation scheme for your business — as one integrated population to be served through multiple channels is absolutely the future.

As for the downsides, the biggest is that employees in the brick-and-mortar channel begin to depend on the ever-growing online sales to generate their paychecks for them.

With regards to the Rainbow Shops system — I am curious as to why they structured store returns of online purchases as a “negative sale” for the store? If they somehow know that the item was purchased online (and it appears they do) why not have the store account for that return in some “off the store books” system instead of letting it penalize the store?

Lee Kent

This is smart thinking to address the problem today, however it is high time for retail to start thinking about sales in other ways. With more and more sales being done online and more ship-from-stores, pick up in stores and ship from one store to another for sales, the ways that stores are measured needs to be rethought entirely. And that includes making the employee feel like they are part of the same team!

For my 2 cents.

Craig Sundstrom

I admire effort, but … I’m not overly confident this approach is the correct one. The 10 mile limit seems arbitrary, and if they’re going to have an “e-commerce” category, I’m not sure why anything should be adjusted from it (certainly dinging a store for an online return makes no sense).

Omnichannel requires new modes of thinking, and this seems like a rehash of old thinking rather than that something new.

Of course commission-based compensation was never perfect. How do you separate a sale that was truly “earned” from one that just happened to walk thru the door?

James Tenser

Not that I enjoy playing the “old curmudgeon card” (very much), but this problem of store returns attribution goes back to at least 2000 when JCPenney confronted the exact sort of store manager resentment from its pioneering efforts to pursue online sales.

What’s stunning to me 18 years later is that any unified commerce retailer is still struggling to work this out. For goodness sakes, it all comes down to establishing a fair, transparent policy and setting up accounting systems correctly.

That said, Rainbow Shops deserves some props for tackling the issue in an intelligent manner. I’d take the policy a bit further: Why don’t retailers actually credit a store every time it successfully processes a return from an online purchase? Why not also generate a report that tracks new purchases that happen on the same store visits?

Returns are a key part of fulfilling the service promise to the shopper. Treating it as some sort of financial failure is downright spirit-killing.

Sean Wargo

Kudos to Rainbow Shops for working to address the challenges of an Omni-channel world! What I particularly like about this approach is its additional benefit to the issue of show-rooming (shopping in the store but then purchasing online later). By assigning credit to the store for sales within its zip code, Rainbow is better accounting for the fairly common approach to purchases consumers take today. Now sales associates have an incentive to spend time with the consumer knowing a later online purchase can still count. I’d further echo Alex Senn’s idea above with going a step further and linking to a specific associate for commission. As brick and mortar becomes more and more a showroom for browsing consumers, removing the distinction around place of purchase just makes good sense.

Ricardo Belmar
Ricardo Belmar
Retail Transformation Thought Leader, Advisor, & Strategist
5 years 21 days ago

Rainbow has come up with a very creative way to solve a common attribution problem retailers face. The only way to achieve true unified commerce is to break down the attribution silos of yesterday and define new ways to account for sales. This is a step in the right direction, but I think more needs to be done to handle attribution models. The distinction between e-commerce and stores needs to fade away for this to work without dis-incentivising store associates.

An incentive-based model may work here to encourage all associates to do their best to leverage a return opportunity and transform it into an impulse buy. The metric needs to be more about customer lifetime value and customer experience than it is about individual sales.

"All associates in retail need to be pushing in the same direction to make omnichannel work."
"If other retailers would follow suit and offer stores and associates same-ZIP-code sales credits they’d notice an increase in employee retention."
"What’s stunning to me 18 years later is that any unified commerce retailer is still struggling to work this out."

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