This is the part 4 of a 4 part series on Fashion Innovation and Optimization. To read parts 1-3 CLICK HERE. Look out for the full report on Fashion Innovation and Optimization next week.
KEY TOPICS IN THIS SERIES:
- Size & Pack Optimization
- Assortment & Range Planning
- In-season Replenishment
- Allocation Optimization
Localization
The term localization is arguably the hottest word in retail merchandising today. Getting the products to the store that the local market wants, in the right quantity, in the right color, in the right size and priced to sell it at the highest possible margin is the Holy Grail of any retailer merchandiser. Adding constraints such as price elasticity, markdowns, supply chain, knowledgeable customers is one thing but when a merchant is constrained by her own internal systems; that’s another problem entirely.
In many cases current enterprise systems and business processes are what constrain retailers from taking advantage of business opportunities. Allocation is an under-appreciated aspect of most fashion businesses today and as such, it’s constraining the work that’s being done getting an assortment localized and priced to perfection. It’s a little bit like pushing a golf ball through a garden hose. There is no such thing as a perfect plan or a perfect forecast and the closer the time-frame to an actual launch of a season of merchandise, the more accurate that plan and/or forecast is going to be. So, why is allocation the merchant’s step-child?
Today, every initiative has to show rapid, significant return on investment. If the current operating model is too restrictive the cost can outweigh the short term benefits and fail to deliver that return on investment. Allocation improvements have the potential to quickly add to the bottom line of any retailer but especially those seeking better performance by localizing assortments.
Creating an allocation strategy
Retail is complex and it gets more complex every day. A changing economic environment, a better educated consumer, global expansion and, as mentioned, localization challenges are at the heart of this complexity. We can’t eliminate these challenges, but we can embrace them and simplify the processes and the way solutions are delivered.
Allocation decisions are the last chance to get breadth and depth of the assortment right. The risks are obvious, too much inventory hurts your margins and too little hurts sales. How can we improve on the process to minimize the risk.
5 tips to creating an allocation strategy
1. Don’t cluster your stores
This one has perplexed me for years. All this talk of localization assumes that stores need to be managed individually. It’s common for two stores to be of similar size, volume, and be only a mile or two apart and yet have drastically different customers shopping them which changes their size ratios, color ratios, and basic performance on thousands of items. So, why would anyone still cluster stores together, even at a class or department level? Instinctively, you know that clustering and localization are mutually exclusive.
2. Don’t forget to hold back
Not every decision can be made on profitability alone. Sometimes, your store has to look great first. It’s why the presentation quantity is so often the leading driver in an initial allocation decision. But, above having a nice presentation or complete offering of size, why allocate significantly above that? It’s important to cover the expected sales initially but anything above the store’s demand until it can be replenished could be better served somewhere else.
The knowledge of even a day’s or a weekend’s performance by SKU should be enough to re-evaluate the expected demand of an item. Use it! If a store’s lead time is less than a week including the allocation process, why allocate it multiple weeks’ supply?
3. Don’t allocate too far in advance
Tied closely with the recommendation above, there’s no reason to pre-allocate merchandise and stick to it. Often in order to properly order to expected demand by size, a pre-allocation is a good idea when preparing a production run or order, but once that happens there is no need to stick to it. Stores change constantly so let them and allocate just before the product goes out.
4. Use more than just history
Most allocation systems only have one tool to perform future sales expectations, past sales. Don’t be constrained by this methodology. There is a lot more to it than just how a past item sold. When it sold, how much of it was pre-markdown, how did stock-outs affect the would-be performance of an item. Was it different by store or are you looking only at aggregated sales? Knowing what sales “would have likely been” at a store/SKU/day level can critically empower future allocation decisions.
5. Is there really such a thing as a like item?
Nobody seems to argue that the consumer is constantly changing. Fickle customers tastes change from season to season and often times even more often than that. So, why do we seem to all perform the same function when allocating, that of finding an item in the past that most describes the item I have now? Using attributes, detailed store performance, price sensitivity, store attributes, and demand is much more likely to generate a more accurate outcome than copying last year’s performance. Wash, rinse, repeat? I don’t think so.
Don’t overlook allocation
As an industry we have all embraced the idea that localization, in general, will generate positive results. The obvious place to generate localized offerings is in assortment planning and knowledgeable buying but don’t forget about allocation. The benefits there can be just as large, and more than likely more quickly achieved than any other merchandising process.
Learn how to improve allocation further:
We will be starting a 15-week series on improving allocation. To receive email updates as the series comes out SIGN UP HERE.
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 Quantum Retail’s allocation solutions, visit:
http://quantumretail.com/solutions/allocation-replenishment/introduction/
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