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Allocation Localization: A guide to creating a profitable allocation strategy

by Quantum Retail • May 1st, 2010 • Write a comment »

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:

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

Download this blog as a PDF

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

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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

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

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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

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Retail Synthesization: Turning Data into Actionable Knowledge

by Quantum Retail • 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.

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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

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The truth about size optimization, SKU rationalization and localization

by Quantum Retail • February 4th, 2010 • Write a comment »

Getting the right sizes, colors, styles and quantities to the right location

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.

Optimizing sizes and rationalizing SKUs

In order to optimize sizes and rationalize SKUs at a store level you need an acute awareness of product behavior. It does not make sense to only optimize on size – if a retailer is going to take the time to assess sales and demand at a store-by-store level, they should rationalize SKUs at a local level by using store data.

There are dozens of product behaviors unique to every store. In order to analyze these behaviors and make the most of their efforts, retailers should optimize by style, color, brand, promotion, price, and seasonality at each store. But the complexity of this exercise can become time consuming when a supply chain is vast.

There are however, technologies available that can simplify this process and make it ongoing, creating a strategy for these attributes and applying it to all levels of inventory management, from order planning, allocation, replenishment, forecasting and distribution.

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. The second concept of localization comes from localizing distribution and utilizing vendors that produce products in the 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.
  2. When retailers realize that they cannot optimize sizes and packs unless they have an awareness of store demand, stock outs, and customer behavior at the local level, they quickly become more profitable and able to compete in today’s retail market.

Q – the quickest and most profitable solution for size optimization, SKU rationalization and localization

The Q system continuously monitors business strategies, profitability, service levels, stock levels and 35 different aspects of behavior for every product in every store. Q is so intelligent that it learns from data like stock outs, lost sales, slow movers, lumpy sellers, packs, sizes, colors and styles. It takes the most recent data for each item and automatically recommends inventory movement decisions driving toward your corporate objectives. Plus, it optimizes the way you phase in a new product and phase out another – ensuring that you are always reaching your optimal performance, sales and service levels, giving you the highest return on the inventory you are buying.

CLICK HERE for more information on Q

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RSR Report Says CEO’s Must Take the Lead in Driving Inventory Optimization Decisions

by Dave Landreth • January 27th, 2010 • Write a comment »

From the Retail Systems Research (RSR) report: Precision Inventory Management in the Age of Localization

This RSR report shows that the most successful retailers today have been lead by CEO’s that acknowledge the need to change the way they have previously approached retail. The quickest returns on investment for retailers are the addition of smart technology, solutions that optimize their supply chains, SKUs, store level assortments, products, pricing and markdowns.

Leading retailers embrace strategic changes to their business as a competitive advantage, while laggards wait to make changes until they become mainstream, losing valuable shoppers and shareholders in the process.

The most important decision makers

Organizational Inhibitors

The report states:

“While existing technology infrastructure is the primary internal obstacle, according to survey respondents, the most important tool for overcoming obstacles rests on the shoulders of the executive team. But key differences emerge between winning retailers and their Lagging peers ‐ Winners have rested inventory responsibility squarely on the executives with the most organizational pull, mainly the CEO and CFO, while laggards rely much more on the lead supply chain executive, without the all‐important support from merchandising.“

Looking to Progressive Retailers as merit

First and foremost for progressive executive teams is the realization that CEO’s need to be responsible for a strategy to get their business processes up to the pace of today’s retail environment. RIS news predicts that retail sales will only bounce back by 2.5% in 2010. If executive leaders want to catch up with the few innovative and successful retailers that are gaining speed, despite the tumultuous economy, they need to accept that changes in their business processes are necessary.

Listen to Guitar Center discuss how they adapted to their business challenges HERE »

Top challenges now and moving forward

Consumer buying patterns today have become more unpredictable than ever, making past retail data and current forecasts irrelevant. This means that retailers need to have an intelligent way to understand shopper demand at a store, category and product level.

Some retailers seem to have given up with the belief that there is no better way than how they have been steering their business for the past 20 years, but those that acknowledge the challenges brought up by RSR will seek out the right solutions to create new business strategies and adopt better technologies.

Top Business Challenges and the most relevant technology to face them

Be a leader, not a laggard. Compete for your shoppers, shareholders and employees and catch up to the pace of today’s top retailers.

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Download the Retail Systems Research Report HERE »

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