Archive for April, 2010

Fashion Innovation Series – Part 3: Replenishment Optimization – Avoiding Markdowns

by Linda Whitaker • April 30th, 2010 • Write a comment »

This is the part 3 of a 4 part series on Fashion Innovation and Optimization. To read part 2 CLICK HERE. Look out for part 4 – Allocation: Seeking profit, a 4-part guide for creating a hold-back strategy

KEY TOPICS IN THIS SERIES:

  1. Size & Pack Optimization
  2. Assortment & Range Planning
  3. In-season Replenishment
  4. Allocation Optimization

You can also follow our 4-part 2010 Retail Outlook series here.

Inventory Execution and Replenishment Optimization

Inventory execution and replenishment optimization should focus on efforts to reduce stock-outs through better replenishment and fulfillment strategies. Some stores are out of stock way too soon in the product lifecycle and others are left with far too much stock at the end, which has to be marked down. These are fundamental errors in the fulfillment operation that retailers cannot afford to make, but they happen all too often. The key operation between the initial buying decision and the final end of line markdown is in inventory execution – managing the supply of goods to minimize out of stocks, lost sales and overstocking.

If markdowns are up – Your Inventory Management system is down

Inventory management systems have helped retailers to improve in this area of inventory imbalance, but the continued use of significant markdowns suggests that things are not getting any better for retailers.

In fact, there are two separate areas where better decision making is required:

  • The initial purchase stage – deciding how much product the retailer needs in total
  • Distribution – how and when to allocate that quantity across stores and channels

Markdowns are often a fix for things that did not go to plan earlier in the product lifecycle, so improvements in product planning and inventory execution to reduce excess inventory will have a marked impact in reducing the need for markdowns and maximizing profit. Many of the mistakes being made at the product planning and inventory execution stages are as the result of simplification – aggregation of data and assumptions across multiple stores – which rides roughshod over the variability of customer profiles and demand from one store to another.

A fashionable downtown store in a major city may need a stock richer in traffic generators and high value image items, whereas an out-of-town store in a low income area may need its mix of products to be higher in value items. Fashion retailers have the added complexity of garment size, which means that they need to have a different mix of sizes too, depending on the stores location.

Most of the technology being deployed today to optimize the productivity of inventory is designed to operate at the end of the product lifecycle and is focused on price. Of course the end of the lifecycle is the time to execute markdown strategies, but in fact the most effective and profitable strategy is one based on the whole of the product life and also focuses on inventory.

Product Lifecycle management

There are three key points in the lifecycle of any product where the retailer needs to make the right decisions in order to control demand, price and profitability.

These are:

  1. The initial buy, including packaging
  2. The re-buying and distribution of the product throughout its lifecycle
  3. The pricing of the product, including markdowns

A holistic approach is recommended for managing the complete lifecycle of a product. There are a few key points that most people can agree upon:

  • Understand customer demand
  • Marry the art of merchandising with the science of execution
  • Learn and build knowledge
  • Track and react to product performance

The key is to understand customer demand at the micro or store/product level. Maximizing profitability depends upon knowing what customers wanted and when, not just what you sold.

Stock smart

Markdown Optimization has become all the rage of retailers and retail technologists, but what is a markdown and how should we optimize it? A simple definition is a reduction in price, or the amount by which a price is reduced. To mark down is to alter price in order to raise demand. At one time retailers called this exercise ‘clearance’ and marked down the price of their goods just once a year, if ever. That was in the annual sale, a time when demand was low and the retailer wanted to clear excess stock in order to make way for new products.

Today markdowns are a continuous process for the retailer. Clearance sales are seldom annual events. They may be seasonal, and in the fastest moving retailers – fashion in particular – the retailer may choose to mark down items literally every week.

5 tips to avoid markdowns:

  1. Determine the role of every product In the overall assortment and at an individual store level. Have the power to execute the inventory allocation process with a strategy necessary to meet that role.
  2. Understand the type of stock needed at every location by building better clusters or achieving store specific inventory allocation.
  3. Optimize inventory execution so that you have optimal stock in higher traffic stores and avoid overstocking lower traffic stores. You need to understand your current and forecasted customer demand at the store level and convert that into the best stock distributions, considering pack constraints.
  4. Follow a fast fashion model where product lifecycles are shorter. Constantly rotating inventory, especially in fashion keeps your store fresh and gives the customer something new to see.
  5. Create a holdback strategy. Do not push all of your inventory at once, wait to see what sells. Release inventory to high traffic or trend leading stores first to get an idea of consumer interest before allocating to all stores. Retailers can also release their assortment online to see what customers are buying – this will allow you to save on production, distribution and purchasing costs because you will have a much more accurate understanding of what products there is demand for and which products will actually be profitable.

A holistic approach

A new holistic approach to retailing integrates merchandising and fulfillment processes while managing and reporting on inventory from the store-level up, in real-time. It provides merchandising plans, goals and strategies that directly drive product fulfillment. This allows the fulfillment process to be driven by a bottoms-up view of item behavior, fused with plans, goals and strategies. Real-time performance analysis enables a rapid response if a product or location is failing to achieve its goals or has the ability to exceed them.

This concept derives trends from relatively short and recent learning to make accurate predictions of future behavior and drive decisions that maximize inventory productivity. It is unlike traditional ’number-crunching‘ approaches that rely on interpreting trends and forecasts based on huge pools of historical data. As a result this method of analysis has the flexibility to respond in real time and at a much finer level of detail (store level) than would conventionally be possible.

Listen >>

Managing Markdowns: Why prevention is better than the optimization cure
Dr. Linda Whitaker, Chief Scientist, Quantum Retail

Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.


Get back in the game

Are you ready to know exactly what your customers are asking for at every location and to have the ability to react as their wants change? If you are looking for a solution that can drive momentum for your business this year, check out the solutions offered by Quantum Retail. Our customers see valuable results in 8 to 12 weeks and our implementation approach gives your team access to the system from early on, so you can manage changes to your processes with ease. Quantum Retail continues to help all of its clients drive positive business value more rapidly than anything seen in retail.

For more information on replenishment, markdown optimization and allocation, visit: http://quantumretail.com/services/markdown-exit-management/

You can also follow our 4-part 2010 Retail Outlook series here.

Unlike

Fashion Innovation Series: Part 2 – Assortment Planning and Range Planning Localization

by Chris Allan • April 25th, 2010 • Write a comment »

This is the part 2 of a 4 part series on Fashion Innovation and Optimization.

KEY TOPICS IN THIS SERIES:

  1. Size & Pack Optimization
  2. Assortment & Range Planning
  3. In-season Replenishment
  4. Allocation Optimization

Look out for part 3 next week, to read part 1 – CLICK HERE. Please engage, start a discussion, or leave a comment if you like this post.

Assortment and Range Planning Localization

Customer behavior has changed…unfortunately retailer processes and systems have not kept up with the pace of that change. The way that stores are assorted needs to change – to reflect how and where the customer now wants to shop and what they want to spend their money on.

Retailers need to focus on changing the way that they plan their assortment and identify opportunities to align their offering with their customers, to drive profitability of every product in every store. To achieve this, retailers need to identify not only the financial objectives for each product in their assortment, but also the merchandise objectives – as these are key to creating a credible offering in the eye of the consumer.

The most important, but over-looked questions for assortment optimization today:

Why is this product in my assortment?

What strategies do I have in place to decide what products to include?

How am I measuring the performance of my assortment on a continuous basis?

How will this product perform in the future?

How am I aligning my assortment with local demand?

When retailers align both the breadth and depth of their merchandise offering with the localized demand of their customers, it increases full price sales and product availability, and ultimately lowers markdown spend.

There are two main areas in planning that retailers should focus right now:

Sku rationalization //

How well is the breadth of the offering aligned to the customer? It is important to identify where you have too many or too few choices for the customer and have the flexibility to execute on those decisions. If you are not doing this, you are creating both markdowns and lost sales. Retailers need to keep this flexibility and continuously monitor the profitability and contribution of each product. This will allow each store to reveal its own patterns and tell the retailer how to best align their SKUs with local demand.

Localizing inventory //

The customer is the most important element of today’s retail strategies. In order to compete in today’s market – retailers of all verticals need to focus on availability and local consumer behaviors. This kind of granular detail cannot be obtained with traditional, data aggregating systems. Retailers need to remove the simplification from their inventory planning process and focus on real-time local demand. This means creating a dynamic inventory plan that is highly reactive to local demand fluctuations, allowing the retailer to be flexible and respond to how their customers are behaving now. This allows the customer to have product available when and where they want it, in the right size, the right color, and the right style at every store and in every channel.

5 Ways to Innovate Assortment Planning

1. Optimizing inventory:

Retailers need to focus on optimizing their assortments and shaping their offering based on both the merchandise and financial objectives of those products. Many retailers are focused on shrinking their offering, but fewer wrong products will not create more sales, it will only frustrate customers. Investing in the right brands and the right products will ultimately bring new energy to the retail market. Understanding exactly where the offering should be contracted or expanded is they key to achieving those goals.

2. Better placing inventory:

Some of the best retailers have not scaled back on their inventory investments, but focused instead on where to place their inventory. Over the last year, ‘flat’ was the new ‘good’, but by putting inventory where there is demand, retailers can increase their sales and profit, while better serving their customers at the same time. Retailers can also hold back inventory to see where it is performing best – and use precision placement of their remaining inventory to increase profit and create fewer markdowns.

3. Increasing availability:

Focusing on which products need to be made available at what locations and when is a difficult task. But when the right products are available, in the right sizes and colors and in the right amounts, stores increase sales and increase customer service levels.

4. Focusing on the intelligent consumer:

The market has shifted with the intelligence of consumers. The economy has further focused the customer on seeking out the highest value for the lowest cost. The environment has also brought to light new values and new criteria that the customer has begun to judge products on. Retailers need to recognize the needs of their customers and give them products that meet these new expectations – and remember, these expectations will continue to change.

5. Focusing on newness:

If a retailer can continually have something new for the customer to see, it will increase the frequency of customer visits and increase turn rates. This is especially important in fashion and consumer electronics, where customers have become increasingly knowledgeable and demanding. If a retailer can keep up with the pace of fashion, they’ll be able to keep their inventory fresh and unique.

LISTEN >>

Learn how to implement better planning practices to manage the breadth of your assortment

Chris Allan, Chief Strategy Officer, Quantum Retail

Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.

You can also follow our 4-part 2010 Retail Outlook series here.

If you’d like to be emailed PDF’s of this series as they come out, make sure to sign up for the email series updates! (we will only send you email for our retail series reports)

Get back in the game

Are you ready to know exactly what your customers are asking for at every location and to have the ability to react as their wants change? If you are looking for a solution that can drive momentum for your business this year, check out the solutions offered by Quantum Retail. Our customers see valuable results in 8 to 12 weeks and our implementation approach gives your team access to the system from early on, so you can manage changes to your processes with ease. Quantum Retail continues to help all of its clients drive positive business value more rapidly than anything seen in retail.

For more information, visit: http://quantumretail.com/services/size-pack-optimization

Download this blog as a PDF.

Unlike

Fashion Innovation Series: Part 1 – Size Optimization & Pack Optimization

by Ziad Nejmeldeen • April 20th, 2010 • Write a comment »

This is the part 1 of a 4 part series on Fashion Innovation and Optimization.

KEY TOPICS IN THIS SERIES:

  1. Size & Pack Optimization
  2. Assortment & Range Planning
  3. In-season Replenishment
  4. Allocation Optimization

You can also follow our 4-part 2010 Retail Outlook series here.

If you’d like to be emailed PDF’s of this series as they come out, make sure to sign up for the email series updates! (we will only send you email for our retail series reports)

In fashion retail, Size and Pack Optimization are key

Local demand changes at every store on a daily basis. Clustering stores together by store size and geography might simplify the process, but is inefficient and does not take into consideration individual store patterns for size, color, style and quantity of local demand and product preference.  Retailers need to monitor the changing demand at every store to align their assortment in the way that is most profitable and aligned to their strategic objectives.

It sounds like a no-brainer, but when supply chains become complex, retailers cannot keep up with store level demand and will send the same amounts of every product to similar store types. However, localization of store level assortments and order plans is proven to increase availability, full price sales and customer satisfaction. It is also proven to reduce overall inventory, wastage and markdowns which all erode margin.

Understanding how a product will sell through its entire life on a location by location basis – is essential for:

  1. Meeting sku/store demand: i.e. avoiding missed sales opportunities
  2. Reducing sku/store over-allocations: which would otherwise be dealt with through markdowns
  3. Minimizing handling costs: as the inventory makes its way from vendor to warehouse (where applicable) to store
  4. Reducing Markdowns: by having the appropriate level of inventory and the best assortment possible

The initial assumption of the product assortment is an important part of the process. Retailers need to know what is selling where and why, they need a strategy and goal for why that product is in their assortment and they need to make sure they can  continuously re-evaluate how they expect the product to sell – in real time. This enables retailers to understand which stores will offer the greatest potential for full price sales – and appropriately decide what inventory is best and where.

When they can pinpoint the demand at their stores – they will cut distribution costs and decrease lost sales. With the ability to assign specific pack sizes will also help retailers get the exact amount of inventory to every store and reduce markdowns.

Get the right product in the right place and fulfill based on product performance //

The objective is clear: get the right product in the right place to start with – then fulfill based on how products are really performing at each store – giving the product the best chance to sell at full price and identify when and where markdowns are truly necessary.

Size, pack and prepack innovation for progressive retailers

Size Optimization uses historical sales and inventory data at the size/store level to infer historical demand, and then aggregates demand across groups of items and/or locations. Items are grouped according to the size run, attributes of interest, or merchandise classification that they share. This aggregated demand, when normalized across the sizes that compose a size-run, yields a Size Profile. These size profiles can be used pre-season to impact the size buy for the chain, or in-season to impact store-specific size allocations.

Prepack Optimization refers to the pre-determination of  prepacks that contain fixed quantities of each size in the size run. Like size profiles, prepacks can be defined for groups of products where the grouping is defined by size run, specific attributes, or a common merchandise classification. Unlike size profiles, prepacks are not store-specific – a given pre-pack can be allocated to several stores, if not the entire chain.

In the most trivial cases, Prepack Optimization can be considered a by-product of Size Optimization. Suppose that we want an n-pack solution, have designated that each store should only receive one type of pack, and have pre-determined the approximate number of units in a pack. Then, we can cluster store-level size profiles into n clusters, and use each cluster size profile to determine the optimal cluster pack by multiplying the size profile by the pre-determined number of units and rounding the resulting size units to the nearest whole number.

However, pack optimization becomes more interesting when each pack in a solution can go to all stores, or when the pack quantity range is broad, thereby requiring optimization of the units in the pack. In these cases, you need more sophisticated approaches to obtaining the optimized packs – approaches that utilize historical store/size demand, allocation quantities, and pack handling costs.

Localizing sizes and packs and rationalizing SKUs:

In order to optimize sizes and rationalize SKUs at a local store level you need an acute awareness of product behavior. There are dozens of product behaviors unique to every store. In order to analyze these behaviors, retailers should optimize by style, color, brand, promotion, price, and seasonality at each store.

The concept of localization works on two levels:

  1. Retailers can look at the unique behaviors of every product – to determine each stores’ selling patterns for size, color, style, quantity, brand, season, etc. With this understanding, a retailer can plan orders on a store-by-store basis to deliver the right amount of the products that customers are buying at each location, allowing the retailer to achieve the highest turn rates, reduce inventory to the appropriate levels, reduce over stocking and stock outs and ultimately increase margin.
  2. The second concept of localization comes from localizing distribution, optimizing routes, re-locating product in the most optimal way, or utilizing vendors that are in a short vicinity of each store.

Size Optimization Overview:

Size Optimization refers to finding the optimal ratio of sizes to carry for given product in a given store. After segmenting products by Size Run (e.g. XS – XL vs. 2-16) and attributes of interest (e.g. Shape, Color, Fabric), the optimal ratio is found by looking at historic demand, which incorporates actual and lost sales. Size profiles for each group of products are computed at the store level, where enough data exists. A number of Quality Assurance steps are applied to the final output to capture and correct for any exceptions. The client can use the size profiles to both impact the size buy pre-season and the store-level allocation in-season.

Pack Optimization Overview:

Pre-Pack Configuration Optimization refers to finding the optimal configurations and sizes for a combination of packs. Optimality is defined in terms of maximizing an objective function that includes handling costs, lost sales, and markdowns (or wastage).  Pack Optimization involves choosing packs such that the increased profit from sales increase and waste reduction more than offsets any increase to handling costs.

Implications of changing pack size:

As the pack size decreases:

  • Handling Costs Increase: we are ordering roughly the same quantity as before, but doing so with more packs. Assuming a given cost per pack (typically 30p), we can compute the increased cost.
  • Sales Increase: greater sales are achieved by allocating more units to a store where the pack size restriction was previously a barrier.

Ultimately, you can arrive at combinations of packs that work well together to meet store/size demand and minimize handling costs without excessive over-allocation of sizes.

Get back in the game

Are you ready this year to know exactly what your customers are asking for at every location and to have the ability to react as their wants change? If you are looking for a solution that can drive momentum for your business this year, check out the solutions offered by Quantum Retail. Our customers see valuable results in 8 to 12 weeks, and our implementation approach gives your team access to the system from the beginning, so you can manage changes to your processes with ease. Quantum Retail continues to help all of its clients drive positive business value more rapidly than anything seen in retail.

For more information, visit: http://quantumretail.com/services/size-pack-optimization

Download this blog as a PDF.

2 people like this post.
Unlike

Retail Synthesization: Turning Data into Actionable Knowledge

by Blake Weihrauch • April 13th, 2010 • Write a comment »

This series will outline retail trends, innovation and best practices for retailers in 2010. To view part 3 click here. Look for the full 2010 Retail Outlook Review next week. Please engage! What are your thoughts and strategies for retail process integration?

Making sense of Retail data management

Retailers today have much better visibility into what is happening at the store level, however much of this data never gets turned into actionable knowledge. Retailers need to start tapping into the hidden value that is locked in the massive amounts of data that retailers have stored from decade’s worth of history. The most common remark made by tier one retailers is along the lines of, “Our company has spent millions of dollars and years gathering and storing data, but what we lack is the ability to gain any real value or competitive advantage from our efforts.”

The problem lies in the way that retailers have tried to use their giant data cache(s) to derive value. Until now all retail data initiatives have sought to either “analyze” or “optimize” data and some initiatives have been aimed at doing both. To meet the changing demand of today’s retail customers, analyzing and optimizing data are simply not sufficient any longer. There is a third component to this exercise that must occur: Data Synthesization.

To take action – you must react to the data immediately

To understand the difference between these past data initiatives so that we can take advantage of the emerging opportunity of “data synthesization,” let’s look at where it all began.

Retail begins data analysis initiatives

During the late 70’s retailers began storing massive amounts of data. They used tapes, punch cards, reel-to-reel devices and eventually disk arrays to capture all aspects of their business. By the early to mid 80’s consulting firms began to promise large returns from conducting “data analysis” initiatives. These events did provide some return and provided some logical analysis of the history contained within the stored data.

Most of these exercises provided a “rear view mirror” of where the retailer had been, but offered very little intuitive capabilities about where the business might be headed. By the end of the 80’s and into the early 90’s retailers had begun to do a new form of analysis referred to as data mining which is a process of taking a deeper look at a broader range of historical data. Some retailers were so pleased with their efforts that they branded their initiatives as “Business Intelligence.” However, many were still trying to find the value hidden within the transactional archives of their historic data.

Tools for retail optimization

By the mid 90’s, companies had begun to add algorithms and insightful predictions to their business intelligence initiatives. This gave them the ability to predict what the future might look like through the use of “what if” scenarios. These activities and solutions came to be known as “Optimization Tools.” Unlike data analysis, optimization attempted to align the trend components of the past with the perfect or “optimal” plan for the future. This innovation carried through to pricing/promotions, assortment planning, merchandise planning, supply chain planning, visual merchandising, financial planning and all aspects of managing a retail company. But optimization was done in silos within the business or within specific business units, meaning the intelligence was segmented.

Taking action

There are additional short-comings to analyzing and optimizing the data. To start, neither analysis nor optimization was designed to force a retailer to take action. Both data management processes are delivered as a set of “best case” scenarios that require additional manual effort before any value is realized.

Second, customer trends are dynamic and happen on an hourly, daily, and weekly basis in real-time. Retailers and software providers alike realized that to truly “Optimize” any part of a company required an understanding of behavior at a SKU/store level in real-time.

A new era of data management

Currently, analysis and optimization both rely on a full refresh of data (usually 2 years or more worth of data). Refreshing the business intelligence tools or rerunning the optimization tools are massive time commitment for most retailers, thus reducing the value of the solution because the processes simply take too much time. As retailers and software providers struggle with these challenges today, a new era of data management has evolved. To achieve true localization at a SKU/store level, data must be synthesized.

Data Synthesization

Data “Synthesization” is the future of retail data management.

Synthesization (sin·thuh·si·zay·shun) is defined as: (noun) the action of combining or causing to combine into a whole

In retail data management, the term synthesization translates to “Pulling together relevant data points in order to provide an actionable/executable plan based upon the business objectives of any group within the business.”

In the book, “The Adversity Paradox” (p. 18-19) by J. Barry Griswell and Bob Jennings, the authors discuss the importance of this step in achieving business success:

With such a profusion of information, the business savvy need a superior ability to sort and prioritize data, especially in today’s environment of information overload. Information comes at us faster than ever before, and it’s available twenty-four hours a day. Plus, it arrives in greater quantities, and in many cases in ways we can’t control: Between e-mail and text messaging, it’s not at all uncommon for even the average person to receive between fifty and one hundred messages per day.

Messaging alone can easily bog people down in a morass of data. With so much information cluttering the brain, we can easily turn into nothing more than data collectors. Thus an ability to sift, sort, prioritize, store, discard, and stitch together information sets the business savvy apart from others.

Synthesizing is exactly this process. It is the process of turning the data we receive into salient information. In the February, 2006 issue of the Harvard Business Review, Harvard Professor Howard Gardner writes about The Synthesizing Leader. Gardner states,

“The ability to decide which data to heed, which to ignore, and how to organize and communicate information will be among the most important traits of business executives in this century.”

For example, consider the numerous departments within a given retailer (finance, planning, merchandising, supply chain/logistics, marketing, customer service, etc.). There are data points that are relevant to multiple groups (simultaneously), but there is a far larger set of data points that are unique to the role of specific operational teams within a given retailer. Data synthesization intuitively connects data points within a retail organization. This allows each department to address their specific goals/business objectives while considering the larger goal of the retailer as a whole.

Let’s take financial planning and merchandise planning for example, these functions can synthesize the buying process while still considering assortment planning and supply chain/logistics. Visual merchandising and marketing can synthesize with ad/promo planning and store operations to execute on a regional advertising campaign. Another major advancement with synthesization is that everything happens in real time and the software solutions learn from every data point (a form of artificial intelligence). This ensures that activity at a SKU/Store level is considered in decisions that are made at all levels of the organization.

Lastly, synthesization creates an actionable/executable to-do list that retailers execute in order to achieve a goal or objective.

Retail’s common goal

Globally, all retailers have a common goal: Using their data to intuitively meet customer demand at a localized level.

Data synthesization is a good place to start. A majority of retailers already have the data points required to achieve synthesization. Best of all, synthesization projects typically yield measurable returns in as little as 8 to 10 weeks by leveraging the past investments that a retailer has made in data analysis and optimization. In many cases, synthesization projects can be considered a way to achieve additional ROI from previous initiatives.

Real-time execution is your competitive advantage

With the complexity and extent of data that most retailers have, it’s time to look at how to turn your data into execution. It’s also time to realize which data sets are relevant for today’s market. With the dramatic shifts in our economy and in consumer buying habits, the most relevant data retailers have to forecast and plan their strategies – is real-time data. Knowing what your customers are doing and having the power to execute on their behavior immediately – will give your business an extreme competitive advantage.

To learn more about how Quantum achieves data synthesization CLICK HERE.

To learn how data synthesization relates to your specific organization, CONTACT US.

Get back in the game

Are you ready to know exactly what your customers are asking for at every location and to have the ability to react as their wants change? If you are looking for a solution that can drive momentum for your business this year, check out the solutions offered by Quantum Retail. Our customers see valuable results in 8 to 12 weeks and our implementation approach gives your team access to the system from early on, so you can manage changes to your processes with ease. Quantum Retail continues to help all of its clients drive positive business value more rapidly than anything seen in retail.

Download this blog as a PDF

Check out our resource library HERE

2 people like this post.
Unlike

Customer Centricity: Adapting to the new consumer

by Mike Hrabe • April 6th, 2010 • Write a comment »

2010 Retail Outlook Review Series – Part 3

This series will outline retail trends, innovation and best practices for retailers in 2010. To view part 2 click here. Look for Part 4 next week. Please engage! What are your thoughts and strategies for the new retail market?

It’s a whole new ballgame for retail

“It is going to be mano a mano, not based on square footage and capital. It’s based on execution, differentiation, knowing your target customer … and fighting for every one of them.”

- Glenn Murphy, Chief Executive, Gap

The recession has brutally changed retailing. It has exposed and eliminated retailers that took consumer spend and loyalty for granted and rewarded others who have a defined strategy to maintain and grow marketshare. Retailers are competing in an era in which consumers have more information, more choices and more channels than ever before. The pace of change is increasing exponentially. Keeping up will require new and modern answers to the complex questions of our time.

What we see now are two kinds of retailers:

1. Retailers that survived the recession

2. Retailers that are thriving because of the recession

Retailers that have survived – are realizing that in order to regain lost ground, lost sales and lost customer loyalty – they need to quickly transform their processes, their strategies, their pricing and their marketing.

Retailers that are thriving – were able to cope with the changes in their customer’s shopping habits and adapt quickly. These retailers had a strategic model in place that allowed them to respond to consumer behavior – but they need to take new steps to maintain what is sure to be a short lived advantage.

Customer-centric

The customer has always been at the center of retail, but the concern for the individual customer has faded out. It’s not logical anymore as a retailer to look at what consumers were doing in the past. It’s all about now. What are your customers doing today? What are they buying? What are they not buying? How much are they buying? How often are they buying? Are they buying it at the same place? These trends have changed.

Retailers can generalize no more. Today is all about the individual. And if you don’t have what they need when they come in your store or search your website, chances are they won’t be back. And that’s not all, they want to see something new, something fresh, something green, and they want it for less and they want it now.


The market is asking new questions

Today’s new market is asking retailers some very difficult questions – questions that their existing processes and tools do not have the answer to.

  • How do you regain brand loyalty?
  • How are you doing more with less?
  • How will you protect your market share?
  • How will you align your business strategies with today’s customer?
  • How quickly can you react to the pace of change?
  • How do you plan to fulfill the local demands of your stores?
  • How do you plan to meet the needs of new channels?
  • How will you meet the challenge of internationalization?
  • How do you manage 1,000 stores like they are your only one?
  • And mostly, Where’s your sense of urgency?

Consumer mindsets have done a 180

Because the recession caused many loyal customers to seek out lower prices and better value, many brands may have lost long-time customers. Shoppers have become more intelligent about what they are buying and they are buying less of it. Frugality in a recession changes long-term habits, not just short term ones. Customers now know that they can survive off of less, they know where they can cut corners, and they have now learned exactly where to go to find the best deal.

How much has consumer behavior changed?

Retail Forward ShopperScape reports that seventy-two percent of all shoppers recently indicated that their shopping behavior has changed significantly or somewhat as a result of the economic environment, and only 7% have made no changes at all (Figure 1).

The New Consumer Behavior Paradigm: Permanent or Fleeting?

Will your shoppers return? If they have deserted you during the recession, you need to lure them back. However, you may need to change your branding to the tune of the new shopper.

The WPP Group discusses a new report that identifies a shift in shopping behavior and the need for retailers and suppliers to adapt to more conscious, practical consumerism.

New shopping behavior data and demographic trends indicate that an enduring shift has taken place as a result of the recent economic downturn. Retailers and suppliers will need to adapt to consumers’ new shopping behaviors to succeed in today’s evolved marketplace and during the post-recession recovery, according to a new report from PricewaterhouseCoopers LLP (PwC) and Retail Forward, a Kantar Retail company, entitled The New Consumer Behavior Paradigm: Permanent or Fleeting?

As outlined in the report, shoppers will be more deliberate and purposeful in their spending, as conspicuous consumption will give way to more conscious or practical consumerism. Rampant deal-seeking will be replaced by more purchase selectivity and the use of shopping techniques and tools discovered during the recession. Additionally, the affluent segment of Generation X and the young Generation Y will lead spending in the recovery.

The report states that companies need to recognize that there will not be a wholesale return to a pre-recession shopping mode and will need to adapt to changed shopping behaviors and patterns to win in today’s marketplace.

Where do we go from here?

Portrait of the New Consumer: Smart and Scared

Mike Duff, from BNET Retail reported the following from The AlixPartners Consumer Sentiment Index study, which queried about 7,700 U.S. consumers on what they buy and where they buy it. Consumers were asked about 63 factors in five major attributes – Access, Experience, Price, Product and Service – that influence their purchasing decisions at 135 retailers.

1. A new shopper emerges. Consumers have become sharper and better educated about the products they buy and where those are available. Previously, consumers ranked time as their most precious commodity, but now they are willing to drive the extra mile to get a product at a better price.

2. Shoppers search for “good enough.” Just a few years ago, shoppers wanted to purchase the best product in a category. Now they are more likely to accept good-enough products. Consumers won’t rebound quickly from trading down because many have been satisfied with their bargains.

3. Consumers continue their flight to value. In every retail sector, and at every price tier, value is far more important than brand loyalty in purchase behavior. A decade ago, service ranked before price in consumer purchasing decisions. Today, service is the least important attribute in every one of the 16 categories in the study. The danger retailers face is that, if they bungle the price/product balance, their customers may look for a better value elsewhere and never come back.

4. Winners and losers pop up in every retail category. Bargain prices aren’t a guarantee of success and a luxury orientation need not be the kiss of death. Luxury retailers can succeed but they must strike a balance by offering a unique experience – including product, atmosphere, and service – that can offset higher prices in the consumer value judgment.

5. Consumers are pickier: Just 15 of the 135 stores in the study met or exceeded customer expectations. According to AlixPartners, the shares of those 15 stores rose twice as fast as the Dow.

Read the full report HERE.

A greener shift in U.S. consumerism

Yes, a recession causes consumers to spend less and reevaluate their spending, but at the same time the recession occurred, a green revolution occurred as well. Looking at the big picture, what we’re really talking about is a giant shift in U.S. consumerism akin to a second coming of the Consumer Revolution! What has occurred over the last year and a half is recession mentality spending, coupled with an onslaught of environmental concerns. So not only are shoppers looking for a better price, they’re also looking for greener, cleaner, sustainable, ethical, efficient, lower impact products.

Greentailing is officially ‘in’

Kathy Grannis, NRF spokesperson discusses the bigger picture of what is now being dubbed “greentailing.”

Everywhere you turn there’s another sustainable project in the works or an eco-friendly fashion line being launched. Greentailing is officially “in” and we are all realizing that you can be green and more profitable at the same time.  One of our clients is reducing waste on their perishable products while making sure their customer sevice levels remain high…surely you can’t be more green and profitable than that, can you??

In addition to reducing their greenhouse gas emissions, reducing energy levels in their stores or eliminating plastic bag usage, many retailers are finding other creative, sustainable projects to undertake.

Gap has partnered with Cotton Inc. in a new, exciting campaign, “Recycle Your Blues”, which encourages shoppers to bring in their old Gap denim in exchange for 30 percent off their next denim purchase at Gap, GapKids or babyGap. The two-week program began March 5 and ended the 14th. Talk about a great reason to shop!

Fast-fashion retailer H&M recently launched its first fully-sustainable clothing line, The Garden Collection. The 80-piece collection hit stores March 25 in a special section of the store and will also include a special shopping bag with a Garden Collection logo.

Target’s new eco-friendly skincare line, One, hit stores nationwide March 1 and offers 28 different product options including lip balms, body butters, solid shampoo bars and bath fizzers. One products come in recyclable, plastic-free packaging.

A few other retailers worth mentioning who are making huge strides in energy reduction and other sustainable efforts:

Kohl’s was recently named 2010 Energy Star Partner of the Year for its commitment to energy management and reductions in greenhouse gas emissions.

With a goal of cutting energy use by 20 percent by 2015, The Home Depot is well on its way having already reduced energy levels 16 percent since 2004. The energy the company has saved so far could power 203,000 homes for one year!

Office Depot is seeking Leadership in Energy and Environmental Design for Commercial Interiors certification for all of its new locations starting in June. Office Depot anticipates 14 new stores will eventually qualify as LEED-certified by the US Green Building Council.

These forward-thinking retailers, and many others throughout the world, continue to find unique ways to do their part to save the earth for future generations of shoppers.

Read the full article HERE

Retailers need to recognize the needs of their customers and give them products that meet these new expectations – and remember, these expectations will continue to change quickly and without notice.  Those poised to recognize and react to this extreme volitility will have the advantage.

Customer-centricity + greentailing = Localization

The current state of the economy has driven the desire to understand the needs of the market at a lower level of granularity. It has caused a need to create local assortments and inventory fulfillment that reacts to local needs. Most retailers’ existing processes and systems were developed to meet the needs of the average, not the individual. In order to increase demand in today’s markets, the next step for retailers is to take on the challenge of localization.

Localization also comes from localizing distribution and utilizing vendors that produce products in a short vicinity of each store. This type of localization is most easily applied to fresh foods and markets – where customers prefer to support their local farmers and local brands.

Best practice now consists of removing the simplifications from the inventory planning process and instead focusing on real-time local demand and the individual product-location-consumer relationship. Retailers need to create an agile inventory plan that is highly reactive to local demand fluctuations, allowing the retailer to be flexible and respond to how their customers are behaving now. This allows the customer to have product availability when and where they want it.

A leveled playing field

In a Financial Times article, Glenn Murphy, chief executive of Gap, discusses the new ‘roll up your sleeves’ challenges facing retail today.

“There will be some Kohl’s [department] stores that will open, and there will be a few more Forever 21s [fashion stores] … but by our crystal ball and the work we’ve done on the next five years its pretty much a level playing field.

“It is going to be mano a mano, not based on square footage and capital. It’s based on execution, differentiation, knowing your target customer … and fighting for every one of them.”

Mr Murphy, who previously headed Shoppers Drug Mart, Canada’s biggest drugstore chain, delivered a frank assessment of the shortcomings he identified when he arrived, including an “almost criminal” weakness in ensuring return on invested capital, and lack of cost awareness.

“It had been a culture that didn’t necessarily embrace really rolling-up-of-sleeves work that needs to get done inside a really great company,” he said.

You need new answers

It takes the proper mix of science, retail intelligence and merchandising art in order to ensure that every store in a supply chain carries the right inventory, while maintaining a high service level and market share. There is a new market and and a new consumer.  If they are to continue to survive and eventually thrive retailers will need to respond to the demands of the consumer in all channels at all times and ALWAYS with the right answer.  It will be a lot of fun watching the retail market evolve over the next few years…without question this rabbit hole goes a lot deeper than we can even imagine!

Get back in the game

Are you ready this year to know exactly what your customers are asking for at every location and in every channel? Are you ready to have the ability to react the instant their wants change? If you are looking for a solution that can drive momentum for your business this year, check out the solutions offered by Quantum Retail. Our customers see valuable results in 8 to 12 weeks, and our implementation approach gives your team access to the system from the beginning, so you can manage changes to your processes, promotions, products and performance with ease. Create profitability in every tier of planning, forecasting, distribution, allocation and replenishment. Quantum Retail continues to help all of its clients drive positive business value more rapidly than anything seen in retail.

For more information on Quantum Retail solutions, visit: http://quantumretail.com/solutions

Get resources on how to adapt to the challenges of today’s retail market HERE »

Download this blog as a PDF

2 people like this post.
Unlike