Posts Tagged ‘The Profit Lab’

2012 Retail Outlook-Part 2: The Age of the Shopper

by Quantum Retail • February 22nd, 2012 • Write a comment »

The new consumer of 2012

What retailers once knew about consumers no longer holds true today. Just as the retail industry has changed, so have consumers with 2012 becoming the age of the shopper. Shoppers now hold all of the power and retailers are forced to comply to win them over. Building trust is an essential component for shaping lasting, meaningful relationships with the new shopper and for gaining their full attention.

Who is the new shopper?

Knowledgeable, empowered, dynamic, smart. The consumer’s of today are technologically savvy and increasingly smarter seeking more and more information than ever before with access to an ample amount of date through a variety of sources: mobile devices, tablets, apps and social media. It’s through these platforms that shoppers are connecting, learning everything about products and brands and seeking and giving advice to friends, family and even strangers on purchase decisions. In fact, millennial Internet users showed a greater reliance on anonymous recommendations and reviews when making purchase decisions according to a study by Bazaarvoice.

Source: www.eMarketer.com

In addition, 42% preferred social networks such as Facebook and Twitter to post and share product, brand or service experiences.

Source: www.eMarketer.com

Why trust matters

Retailers previously thought loyalty and rewards programs were the best means to communicate and connect with consumers. The truth for today’s consumers is that retailers need to redefine their relationships and determine what it means to be loyal to their customers, not the other way around. Anticipating behaviors, attitudes and preferences and engaging with them on their terms and through their outlets are key to winning over the shopper of 2012 and to creating mutual trust. So why does trust matter?

The IBM Institute for Business Value surveyed more than 28,000 consumers from around the world. They discovered that although consumers continuously engage in, critique, promote, and sometimes dismiss a brand, they dedicate their loyalty to only a select few retailers. It all comes down to one factor: trust. Retailers need to listen, become involved with and become valued members of the communities that connect shoppers to one another as well as shoppers and brands together. By immersing their selves into the worlds of the 2012-consumer, retailers have the ability to know everything about a consumer.

Trust is about more than simply understanding customer wants and needs. From privacy concerns to shopping cycles, retailers can evolve their processes demonstrating loyalty to consumers and building trust and transparency. Because trust is the foundation of all relationships, opening up and giving people the opportunity to talk about a brand is going to be the expected norm. Today’s consumers demand trust. Retailers would be wise to deliver on expectations in order to create loyal brand fanatics.

For the love of the customer

Linda Hundt of Sweetie-licious and Dave Ratner of Dave’s Soda and Pet City opened Independent’s Day at Retail’s BIG Show. The two successful retailers discussed creativity and the ability to make customers love you more.

All it takes is a mix of ingenuity, creativity and drive to make customer’s love retailers more, just ask Linda Hundt and Dave Ratner. Hundt is an award-winning baker and entrepreneur who aims to give her customers the most unique retail experience she can offer. She uses pure originality along with her personal experiences and love of her customers and employees to make her bakery a success. She develops loyal customers by offering hugs to patrons and delivering products in personalized packages.

Ratner, another entrepreneur, has made himself spokesperson for his business and is featured in most of the company’s advertising. Ratner applies the same concepts of creativity and drive, just in different ways. For example, when his company has a sale, he will make personalized calls to the appropriate customers letting them know their favorite products are marked down.

Ratner offers some tips to encourage and achieve his mantra—you have to get customers in the door, then you have to make them love you:

Put merchandise on sale that people actually want to buy.
Don’t enforce too many limitations on coupons. Make them worth something to the customer.
Make sure your prices are competitive. Everyone has to have loss leaders.

Learn more about loss leaders and how product strategies can drive value for your
business here>>

It appears as if Ratner learned from the best referencing an anecdote about Walt Disney in which Disney was once asked why he continued to host multimillion-dollar parades in Disney World when he knew people would continue returning to the theme park even without parades. He responded that he did it to make his customers love him more.

It’s a celebration

Consumers are giving retailers so many opportunities to connect with and learn more about them. With so many different outlets and platforms, retailers should be thankful, taking advantage of what lies before them. Accessing technologies, whether it’s video, company websites, social media or mobile, retailers should be celebrating the new role of the customer and all the possibilities it brings.

At the session New Merchandising Strategies for Retailers at NRF’s BIG Show, executives from RiteAid, GlaxoSmithKline and ModCloth focused on six strategies to help drive in-store and online sales by engaging with their customers. Here are their recommendations:

Be relevant, personal and solution oriented. Approach merchandising from the customer’s point of view. Forget SKUs and subclasses and instead group products along lifestyle themes that resonate with shoppers. To add more value retailers should offer personal advice for common human experiences and help solve customer’s problems – even if they are unaware of the problem.
Turn traditional behaviors into digital habits. Take an offline, traditional behavior such as couponing and create a habit for the digital age. Rite Aid aggregates coupon offers from all around the Internet on a special landing page for members of its loyalty program to use.
Coordinate and plan in advance. Work with other departments such as retail merchandising and promotions to coordinate calendars and campaigns. Plan new initiatives upfront and in advance with vendors, also.
Add value to content. GlaxoKleinSmith recommends positioning a discount as a reward for customers that have watched a video or accessed an article, for example. It keeps content fresh and encourages repeat customers.
Use data as information for strategies.When looking at data, ask questions and engage with it beyond product and price, sales and basket spends, and abandonment.
Discover more about turning data into actionable knowledge here>>
Listen to your customers. Train everyone on your team to be customer-oriented in which they constantly listen to and learn from consumers whether it’s via Facebook, in the store or in a survey.

Click here to read the entire entry 6 Strategies to Help Retailers Celebrate the Role of the Customer

Consumers have provided retailers all the tools they need in order to build trusting relationships and brand loyal customers. However, shoppers are continuously changing and, failing to understand them at any given moment, will put retailers even further behind. With that said, once a retailer earns a customer’s trust, that retailer needs to ensure that every channel in a supply chain carries the correct inventory to maintain a high service level.

Learn how Q’s allocation and replenishment capabilities can react to unique customer behavior in real-time across all channels>>

Don’t be afraid to embrace the new age of the shopper—they are giving retailers a chance to be creative and personal. Learn what customers want most, earn their trust and then sell it to them.

Look out for our next post on the tech trends that will define 2012

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2012 Retail Outlook–Part 1: A Retail Story: The Consumer Economy

by Quantum Retail • February 15th, 2012 • Write a comment »

A look forward at 2012: The year of transformation

Income growth, inflation and housing continue to dampen the retail outlook, but employment, consumer credit and consumer confidence help to even the playing field.

Retailers have been at the forefront of recovery from economic headwinds for the past 18 months trying to recreate jobs, instill consumer confidence and spur growth, but 2012 doesn’t find itself completely out of the clear. Retailers still have to deal with continued uncertainties. The National Retail Federation (NRF) gave insight into what will become of the 2012-year predicting the retail industry will grow at a faster rate than other industries, however, at a slightly lower pace than that of 2011. According to NRF, retail industry sales will rise to 3.4% to $2.53 trillion, down from 4.7% in 2011.

Strong holiday sales are not enough to pull retailers from the water

While many retailers saw strong, positive holiday sales in 2011, the momentum gained may not be enough to combat the unexpected slowdown in consumer spending nor the lack of newly created jobs. Matthew Shay, CEO of NRF, outlines a number of factors that contribute to NRF’s 2012 economic forecast:

Consumer confidence continues to rebound from August 2011, but lows remain fragile given the volatile financial market.

Consumer credit expands as leasing standards ease. Along with evolving credit creating a big surge, consumers have the confidence to take on debt.

Employment and the number of hours worked are on the rise and the number of Americans out of work is at its lowest level in three years, which should bolster income and spending. But the prospects for job growth are still inconsistent and ambiguous.

Housing has shown a little more strength in regards to economic reports, but should be taken lightly as some improvements are most likely due to unseasonably mild weather. NRF expects home sales, construction, and affordability to improve in 2012.

Income is predicted to lag consumption on a year-over-year basis as consumers are still confined to modest income growth.

Inflation from agricultural commodities as well as high oil prices put a strain on consumer purchases. NRF predicts inflation to slow down, but rising gas prices will still contribute to lowered spending.

Source: National Retail Federation, Commerce Department

Economic success = global collaboration

“Henry Ford was right. A prosperous economy requires that workers be able to buy the products that they produce. This is as true in a global economy as a national one.”
– John J. Sweeney, former President Emeritus of the AFL-CIO

In his keynote speech “Embracing Our Common Humanity,” former President Bill Clinton spoke about the future of retail in relation to the economy at NRF’s 101^st BIG Show. Clinton spoke about how nations need to respectfully work together in order for the economy to recover fully. Clinton emphasized the need for a system that has shared opportunities and shared responsibilities with the rest of the world in which we all share the misery or share the prosperity.

“We live in a world where all the borders look more like nets than walls” and “we have to share the future; we cannot get away from this world” were prominent messages Clinton conveyed to thousands of retailers at the BIG show. Clinton talked of reducing the corporate tax rate from 35% to be closer to the average rate of other countries – about 24% to 26%, which could generate a net increase in income. Retrofitting buildings to make them more energy efficient in order to keep small businesses successful, investing in the future, and reinventing retail along with ever-changing technology were other opportunities Clinton noted. “We need to look for examples of problem solving from other countries to invest in and protect the future of this world,” Clinton said, making his point by referencing examples of problem solving from Brazil where the country is trying to create new energy sources to meet the needs its growing economy.

It goes without saying that Clinton acknowledges the importance of retail to the nation’s economy, job creation, and consumer confidence citing that retail accounts for close to 20% of GDP and supports one in four US jobs. And despite these economic problems, he spoke with optimism of the future of retail showing the many positives in the world – retail grew by almost 5% in 2011 compared to the overall US economy, which grew by 2%. However, he stated, “I wouldn’t minimize the challenges” before the retail industry today adding that “retail is truly global – much to learn, much to teach.”

Want to know how far we’ve come in the past 12 months? Check out 2011 Retail Analysts in
Review report here>>

Retail revenue: What the weather means for early 2012

RIS News, and analysts Richard Hastings of Global Hunter Securities and Phil Leichliter of J. Philip Group released results on the winners and losers of the 2011 holiday season. Based on same-store sales for December 2011 compared to December 2010.

Top 5 Retailers:

Zumiez                                                         +10%
Ross Stores                                                 +9%
Buckle                                                          +8.9%
Nordstrom                                                +8.7%
TJX                                                               +8%

Bottom 5 Retailers:

Wet Seal                                                      -3.7%
Cato Corp.                                                   -1%
Bon-Ton                                                      -0.7%
Fred’s Inc.                                                   -0.4%
Duckwall-Alco                                          -0.3%

Retailers found December and the holiday season to be a hit-or-miss month. Increased markdowns and promotions in conjunction with unseasonal weather meant sales would go one of two ways for retailers: up or down. According to Hastings, “When the weather failed to conform to seasonally colder temperatures in most areas, the most seasonal category – apparel – went into a volatile tailspin, pulling down prices further.” When the weather was warmer on the East Coast, it brought more people into stores, but in areas such as the Midwest where winters are typically extreme, retailers saw less foot traffic for cold-weather merchandise.

With slow sales came the need for retailers to increase the number of markdowns and promotions throughout December. What was always used to stimulate business – promotions and markdowns – is now a trend that must be recognized by retailers: consumers want a bargain. And the more retailers use promotional activity, the more they will need to do so the same next year to mimic those sale numbers, according to Leichliter. On the other hand, the benefit of increased markdowns for some retailers is the opportunity to clear out inventories, which sets the stage for a healthier beginning to 2012, highlights Leichliter. The players who began the holiday season in solid inventory position will be the winners for 2012 clearing out merchandise and rolling out spring items early to capture warm weather traffic.

Dr. Linda Whitaker, chief scientist at Quantum Retail, shares how to manage markdowns here>>

Weather-related or not, TJM is a prime example of the bargain-obsessed consumer. TJX, which operates TJ Maxx, Marshalls and Home Goods, found itself on the bottom five list in October with a 3% increase in same-store sales, but saw an 8% increase for same-stores in December landing on the top five list. Wet Seal, however, saw a slow start to December due to unseasonal weather making it the leader of the bottom five list with a 3.7% decrease in same-store sales. Given the state of the economy, consumers are not going to make purchases unless there is a need for it. Combine that with the weather and discover that consumers are pulling back on spending especially on outwear sales and apparel which saw weaker-than-expected earnings in January.

Though retailers ended 2011 on a strong note with holiday sales rising 4.1%, the economy is in consumers’ hands and with continued uncertainty over job growth, unfavorable weather, and other global factors, consumer spending will reach a slowdown. Those retailers fortunate enough to start the 2012-year on a good foot have consumer-driven supply chains and profit-seeking inventory platforms to thank for minimizing markdowns while avoiding the carryover of unwanted holiday product. The new frontrunners of 2012 will be retailers that cultivate transformation. After all, “The economic crisis is about way more than the economy,” declared former President Clinton.

Look out for our next post on winning over the empowered shopper of 2012

To learn more about embracing transformation and adapting to the new retail market visit>>

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2011 Retail Analysts in Review – Part 3: Liz Dunn, FBR Capital Markets

by Quantum Retail • December 7th, 2011 • Write a comment »

Liz Dunn, analyst at FBR Capital Markets began her 2011 retail predictions expecting the upside of the year to be significant. She believed stocks could stall and even trade off, but that a lot of 2011 would depend on employment rate increases – when jobs came back, spending would come back. Dunn also stated that retailers should be cautious of cutting back too much on inventories and of the rising price of commodities.

2011 through the eyes of four different retailers

Dunn evaluated 2011 outlooks for four retailers – some struggling and some succeeding:

American Eagle: Caught in the middle of competition while struggling to differentiate

Analysts were critical of American Eagle as the four weeks ended January 29, 2011 and reported total sales decreased by nine percent. Some say a change in management was needed to prove they’re a prime player and not a “broken brand”.

Dunn admitted that turning around AE wouldn’t be easy as retailers all around faced a handful of economic headwinds in 2011 from rising transportation costs, gas prices and commodity prices, unemployment and difficult same-store sales comparisons. The only way for retailers to pick up their game would be to differentiate from the pack. Consumer’s shopping behaviors and patterns constantly change; whether it’s difficult to get people through the doors or if it’s just that customers are not finding the right product, there are ways around it.

As American Eagle continues to face strong competition, their total sales have not been too detrimental. Total sales for the second quarter increased by 4 percent to $676 million compared to $652 million last year. There were no major management changes to attribute for that increase, but a new focus on key item businesses and improved merchandising more than likely played a large part. However, AE recently announced current CEO Jim O’Donnell would be retiring late January 2012 and a replacement has already been selected.

In addition, AE also launched new campaigns and initiatives to give them a competitive advantage. With the rising prices of cotton and the retailer’s love for denim, AE partnered with Cotton Incorporated on “COTTON FROM BLUE TO GREEN®” denim recycling program. The retailer also began engaging heavily in social media with a social photo contest in which nearly 800,000 customers and employees uploaded photos of them wearing AE apparel. The contest, called AE BestShot, was a chance for American Eagle to show just how passionate people are about the brand.

To learn more about how to differentiate as a retailer check out our free whitepapers and reports»

J.C. Penney: Moving forward by shifting with shopper habits

Dunn believed we would see J.C. Penney moving away from their past, including their catalog business, to focus on their future. The retailer planned on closing stores, call centers, and outlets and cutting jobs related to these facilities in order to gain traction for their future. Dunn predicted we would see a lot more of these moves from J.C. Penney as they transitioned their appeal to consumers shifting habits.

The most important thing a retailer should do in this type of situation is to respond to what core customer’s want and need. It takes a proper mix of strategies and technology to keep up with today’s market.

It appears as if J.C. Penney is making moves to differentiate from their past. The company hired a new CEO, former SVP of retail operations at Apple, and began the leap into e-commerce and m-commerce. J.C. Penney has been looking to mirror the ease and convenience of their stores and catalog online at jcp.com and with a new mobile commerce site. They continued to leverage their digital infrastructure and introduced guided navigation and mobile coupons.

The retailer also started to better understand their core customer as well as shoppers changing habits. By closing a string of stores and outlets, they have made themselves available to acquire new brands and compelling assortments necessary to maintain relevance to their consumers. Recent store closings were also executed to aid in increased sales productivity and to manage costs and expenses more tightly. In time, J.C. Penney hopes to be the one-stop-shop for all of their customer’s needs.

Lululemon: Might see stalling growth as competitors beef up their activewear

After having virtually invented the yogawear category in Canada, the company was facing a fresh challenge in the United States as other retailers have looked to cash in on the activewear trend. Dunn stated lululemon’s biggest risk for 2011 was valuation and although the retailer has tapped earnings estimates for at least eight straight quarters, analysts believed they needed to do more than simply beat forecasts; they needed to announce a blockbuster quarter to keep investors contended.

Many retailers, despite their main focus, have sought after a piece of the activewear pie, so to speak, with reporters citing this trend as “lululemon envy”. Retailers, like Gap and Nordstrom, have started to mimic lululemon’s strategy. Gap’s Athleta stores sell yogawear for similar prices and offer free yoga classes – an innovation started by lululemon. Nordstrom went a step further by hiring lululemon alum to create and introduce their new yoga line Zella. Even companies that already dominate in athletic wear are taking it to the next level. The North Face recently announced that they will premiere new running and yoga collections in spring 2012 and Nike now sells capris and crops in a yoga-studio format.

Needless to say, lululemon has started a revolution. It’s not just their product that enables them to have increased revenue of 39 percent in the second quarter of 2011, but it’s the format of their stores, their deep experience and passion of the sports they practice; it’s the complimentary yoga classes and local “ambassadors” that give them a cult-like following and have made them a household name.

Chico’s and Soma: Outlets are an area of growth

Dunn asked Kent A. Kleeberger, EVP, CFO and treasurer of Chico’s, to discuss outlets and outlet strategy and how it would impact the company’s gross margins in 2011.

Kleeberger commented that their outlet strategy was a big driver for the Chico’s brand. Chico’s has continued to experience increased sales with their made for outlet (MFO) products, expanding into additional categories. The retailer planned to grow their MFO product in 2011. Their sister company, White House|Black Market has been doing some novel things in the outlet sector as well, and Soma brands has been mixing in some full-price product with clearance goods. Overall, Kleeberger was looking forward to growth in the sector as well as increased MFO product across all brands in 2011 and beyond.

Chico’s focused their infrastructure investments on opening new stores, primarily for the Chico’s brand and new Soma stores. They began to explore new merchandise opportunities and brand extensions; however, the Chico’s brand spent the majority of 2011 growing the number of WH|BM and Soma boutiques as opposed to outlet stores. Additionally, they increased penetration of the MFO product with the Chico’s brand, but much of their clearance was carried out through their direct-to-customer channel.

The 2011-year saw some stores struggle, but the majority of retailers’ maintained sales and some even achieved record quarters. Despite costly commodities, low unemployment rates and increased competition, retailers found creative, new ways to succeed in the challenging market from taking advantage of brand and product strategies to increasing e-commerce initiatives. Nonetheless, the most important thing a retailer can do is respond to core customer’s changing wants and needs. Next generation technologies need to be implemented to ensure the right product is in the right place at the right time allowing consumers to find what they want when they want it.

Read Dunn’s full report here»

For more information about adapting to the new pace of retail with Quantum Retail’s inventory platform Q visit»

Please note that the information provided above is sourced from public releases and reports and does not include any undisclosed information from or about the retailers named.

Stay posted for next week’s review from Meredith Adler, Barclays Capital

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Hardlines Optimization—Part 2: SKU Rationalization

by Quantum Retail • August 24th, 2011 • Write a comment »

Right now is an extremely important time for retailers to optimize their assortments. This process not only can dramatically increase margin and sales, but can also help localize store-level assortments and increase the efficiency of your customer’s shopping experience. When retailers offer too many choices, it can cause headaches for shoppers and supply chains alike, force unnecessary markdowns, and ultimately will take a toll on margin.

However, going through this process can be a bit daunting and takes careful consideration on your part. Determining the proper breadth and depth of your assortment is not rocket science, but it is not something to take lightly. If you cut the wrong products, you could potentially lose some of your loyal customers if you are not careful.

But all retailers can benefit from going through the process to evaluate the performance of their products and stores. SKU reduction will help you create assortments that are easier to manage, more efficient, and more profitable – this means less stock-outs of the products that are kept in the assortment (depth instead of breadth), tighter focus on product performance, and more flexibility in vendor-level considerations like tray size or pack size choices. Additionally, it can offer a better shopping experience for the customer who may otherwise be distracted by the breadth of fringe products, and make it easier for them to come to a decision.

How is this process typically done?

Most retailers have some concept of store grade by merchandise category based on store sales performance or similar criteria. If grades are ranked from highest to lowest (e.g. A through G where A is the highest volume stores), then a product will be ranged to all grades between A and x. The choice of grade x is based on whether the product is core or is just meant to fill out the assortment – in which case it may only go to the top grades. When assessing overall product performance, a product should be removed from the assortment of grades where it is not meeting business expectations. Absent of a store grade concept, the same principal can apply to individual stores where the rate-of-sale of the product in the store can be used to determine whether it should still be assorted to that store.

What are the dangers of SKU Rationalization?

Cutting certain types of items can sometimes change the customer’s perception of your brand. For example, the danger of removing an image item, like a high-end flat-screen TV, could make your shoppers see you as having inferior technology than your competitor. Though the customer most likely will not buy the most high-end item, they want to compare the biggest and best options and feel as though they made their purchase at a place that has a respectable assortment of that item.

Another danger is that if the decision to remove a product is made solely on that product’s performance, you may be losing a product that helps drive the sales of associated products. Worse, you risk losing a key customer to competition and never regaining their business. It is important to know who is buying the products being removed, and what else they buy.

How do I avoid cutting items that top shoppers really want?

Looking at transactional data (what items sold in the same transaction) or loyalty card information (which customers are associated with the sales of those items and what those customers have spent over the last year) are two means of addressing that question.

Retailers may also make choices about which products they plan to cut from their assortments by briefly discontinuing the product’s replenishment. A good assessment of the choice can be made when a planner looks at how quickly the product stocked out and if any associated product sales slumped in the process. After this analysis, it should be fairly obvious whether or not the item should stay or be removed. Similar tests can be performed in a grouping of stores. Item performance can be analyzed in those stores and similar decisions can be made for like stores, especially those with similar item level performance and demographics.

When is a good time to rationalize SKUs?

For retailer’s that have a concept of season and have items brought in for each season, SKU rationalization should be done as part of pre-season planning. For long-living items, assortment decisions would be made at the start of the item’s life that would then be tweaked after the item starts selling (but the bulk of the decision would have been made upfront).

Which inventory should retailers focus on reducing?

SKU rationalization in many cases is more effective with longer-living merchandise because you can track an item’s progress and make reasonable adjustments. With trendy items, for example, it is more difficult (but not impossible) to base next season’s SKU rationalization on the previous season when the previous season may have been impacted by the performance of particular trends, patterns, or colors (i.e. cases for computers or cell phones).

When determining whether to add or remove SKUs to an assortment, retailers should look at three major factors:

The relative value of each SKU in the assortment
The GMROI of the store itself (or cluster)
The local demand of each store – what shoppers are buying

The reductions or additions should be made in periodic intervals, perhaps weekly. This decision will look at these three factors and assess whether a planner should add one item to this cluster, remove two from another. It’s not a once-a-year, twice-a-year process – it’s constant. This is a big deal. Going through this process on a continuous basis will give visibility to product performance and the success of a reduced assortment.

Where to begin

Your main question: What to send to which store for what reason?

The Top 3 things to consider when beginning the rationalization process:

The direct impact the SKU will have on the store’s performance through its sales contribution
The indirect impact the SKU will have (through halo/cannibalization, i.e. cross-item effects)
The hard-to-measure “image impact” – beyond actual dollars generated by the item or associated items, does the existence of the item in the store impact your customer’s perception of your store

What you should consider when looking for new capabilities

It is important to look for tools that will help you assess the profitability and success of each item at all of your stores. When retailers have a tool that can constantly and automatically monitor the success of their products and make recommendations on the breadth and depth of the assortment at each location, they will make the most of their time and quickly increase margin.

There are new technologies available today that can simplify this process and make it ongoing by creating a strategy for these attributes and applying it to all categories and stores.

In the complex task of SKU rationalization, planners and buyers need the assistance of smart technology that can give visibility to the performance of every product at every store. This kind of technology can quickly pay for itself as it optimizes your offering, reduces inventory, and increases sales.

What to look for in assortment rationalization technology:

A system that continuously monitors business strategies, customer strategies, profitability, service levels, and stock levels
Technology that utilizes the data it takes in to recommend the most profitable assortment for each store across time while constantly taking customer demand into account
The ability to optimize SKU rationalization by recommending like-product attributes for new products
The ability to take in real-time data and automatically recommend inventory need based on local consumer behavior and store performance
The ability to take in real-time sales data to make store cluster (grades) changes

Most software products focused on assortment give retailers the tools to assess item performance and to make removing or adding decisions. Quantum is going a step further by suggesting, by category/store, where ranges should be increased or decreased. The software will then quantify the specific assortment change recommended by suggesting how many items should be dropped or added to determine the final cluster assignment. The planner can then see the impact (a what-if) to sales/profitability/etc when the SKU rationalization is changed. This gives retailers the tools to make intelligent decisions regarding the rationalization – while still leaving the choice in the retailer’s hands.

When retailers optimize their product range based on local store demand, stock outs, and customer behavior, they will quickly become more profitable and better able to compete in today’s retail market.

Look out for next week’s blog on understanding long term forecasting and seasonal profiles.

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Fashion Forward—Part 5: Linking Business Intelligence with Strategic Execution

by Richard Mills • July 14th, 2011 • Write a comment »

In retail today, the sheer amount of consumer shopping data coming into the business is overwhelming with data from every channel, lying in multiple facets of operating systems, crossing each department of your business. Even stores that traditionally carried basics or relied on single allocations per season are dabbling in some form or another with fast fashion because newness is what brings customers into the store, and that newness is what gives retailers a unique edge over the competition. But when you’re exploring quick-turn merchandise, your real-time data is even more important.

It isn’t surprising that these retailers are seeking business intelligence (BI) tools to simplify that data into usable knowledge for more insightful decision-making. Most of these traditional BI tools gather and provide insight and information into achieving business goals, but it’s linking the business intelligence with execution that actually improves performance.

Business complexities

Though BI tools are often the go-to solution for many retailers, even the best tools are not enough to help retailers make optimal decisions. The complexities in retail today require these tools to do more than just give an answer; they need to trigger an action.

Having more than one customer with different needs and wants is just the beginning. There are increasingly more and more channels of customer behavior to understand along with multiple store formats for brick and mortar stores as well as new purchasing outlets: e-commerce, f-commerce, mobile commerce, catalogs, and social media. There is no longer one single way to buy and communicate.

The business complexities don’t stop there – the inventory placement decisions retailers have to make on a daily basis are more daunting than ever. For example, let’s say you have 500 stores with three buys or receipts, multiplied by 10,000 SKUs; you’re looking at 5,000,000 decisions to make each day.

Data proliferation

This complexity breeds data proliferation. The new consumer channels and store formats provide ample amounts of information. There is so much data coming in that retailers are struggling to put it into context for solving a problem and are struggling to keep up with how shoppers are behaving on a daily basis. Therefore, it is essential to understand that historical sales don’t mean as much when behaviors and customer patterns are as erratic as they are today. Retailers need to be able to monitor how their customers are acting now. This means that BI tools need to be able to create and react to shopper insight as quickly as possible.

And when you are dealing with fast fashion you don’t have the liberty of comparing the historical sales data, because the styles and colors of last season are not applicable to the wants of your customers today. You would be shooting yourself in the foot if that were the only data you based your decisions on. You need to utilize real-time demand by transforming it into an action plan for allocating and replenishing your stores.

Failure of traditional tools

BI needs to be actionable and align these actionable decisions with tactical execution, which old systems don’t do. They also don’t give visibility to lost sales; they don’t see the areas where they could have more sales but missed out due to inventory and real demand. Most systems don’t understand product lifecycles, especially in fashion when the demand you’re seeing at the moment isn’t necessarily a true reflection of what you’ll see next week. Lastly, traditional tools remain static instead of dynamic ceasing to learn over time. Instead, they only give a limited picture of the frame of time the user inquires about.

With all that said, in order to make the most of BI, retailers need to have a strategy in place as to how to execute actionable merchandising decisions in the most effective way.

Linking the science of BI with the art of merchandising

In order to link the science of BI to the art of merchandising, retailers need to start asking strategic questions and understanding a number of components. How can that be done? It is critical to define your strategy: what are you trying to do with a product, why are you buying it, and why is it important to your assortment? In other words, determine your product’s role, goal, and operational constraints. Keep in mind that any strategy must be put into a business context and executed in a defined business process that ensures you deliver business value. Continuously analyze behaviors and use it to make predictions.

You also need to imbed the strategy into the technology, not just the process, making everything part of your systems and eliminating the gap. This, in turn, creates visibility of your business context so you know why things are happening especially when they aren’t going right. BI should also provide all the information necessary for decision-making by putting it together and eliminating data choosing.

Better data leads to better decisions

There are principles that should be applied that address and deal with all the issues of today’s retail and add value to BI information. BI data should be:

Real time: or as close to real time as you can get providing a continuous stream of information.

Predictive: in a sense that the insight is used looking forwards, not back.

Business strategy-lead: so that it has business value to maximize profitability or to maintain a certain image—whatever your strategy is, applied to the analytics.

Goal seeking: because the goal is always changing, BI needs to be adaptable, seeking to improve and evolve itself over time.

Actionable for a purpose: not just for general information.

Continuously monitoring product behavior: to better understand that product in relation to store locations and store size profiles.

A shared pool of knowledge: pool knowledge together to be used for collective learning.

Self-improving: must be able to learn because servicing technology defeats the purpose if it involves business user intervention.

Optimizing BI

So now that you have your data, it’s critical to know how to optimize your BI. You can begin with reframing your question: change your business strategy and change the way you look at your problem (i.e. replenishing inventory). Use the insight BI has gathered to predict future demand and then put it in a business context with your strategies to help understand consumer behavior and how it affects business performance. Make sure what you take away from BI is actionable and that you actually deliver results on the answers you gather.

BI is only as good as the questions you ask it. Consider asking new questions: given what you know about your customer, your product, your supply chain, how do you make the most profitable inventory movement and placement decisions, especially when there are at least 5M different decisions to be made every day?

In order to reap the benefits of the results you achieve with BI they must be measurable. If you can’t measure them, how do you know if you were successful? You cannot truly optimize your BI processes unless you can learn and adapt from your mistakes, and imbed them into the execution process, so that when you are faced with a similar situation, you can be certain of the proper way to respond.

Turning BI into automated execution

There are sophisticated new systems that give the user the ability to set up minimum constraints for their product performance that will create alerts when performance falls below those constraints, meaning that they can simplify their time by focusing on the areas of their merchandising process that need attention. The most sophisticated systems available can even use the BI it takes in from SKU/store data, and automatically review the data it needs in order to make decisions and recommendations about what to send, how much to send, and where to send it. This is the most advanced way of integrating BI with inventory execution.

Benefits of BI

BI doesn’t just give retailers the opportunity to realize their problems and create strategies that produce results, but it also leads to a more profitable, better business. BI tools help you sift through the data to see where your real moneymaking opportunities are and give you focus for greater results and better benefits. When BI is executed properly, it leads to significant benefits: increased sales, reduced markdowns, and business growth.

When a retailer can integrate their data with their inventory management processes, they will truly make the most use of both their BI solution and their inventory investment.

Look out for the next blog, on multichannel strategies for retail.

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To read more on BI, check out this post on Busting the BI Myth at: http://quantumretail.com/2010/11/17/busting-the-myths-of-retail-3-business-intelligence-bi

To learn more about Q and it’s constantly learning Qi engine, that links BI with inventory execution, visit: http://quantumretail.com/q-platform/qi-engine

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Competing in UK Retail – Part 2: Creating a catalyst for retail change

by Quantum Retail • June 29th, 2011 • Write a comment »

“I don’t think this is actually about technology. I think this is about business results. I think what retailers need to look for is a partner that can understand their problems, understand their business, and can demonstrably show that they can help deliver the project that they need, deliver their business plan, and help them with their long-term strategy. Although we have the best technology, it’s really only a tool to get you the results, and that’s what Quantum is all about.”

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speaking with Wyndham Albery, VP Customer Strategy, Quantum Retail • June 2011

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Thanks to our audience for joining us today. I am Dan Brown, from Mulberry Marketing in San Francisco, and I am joined with Wyndham Albery, VP of Customer Strategy at Quantum Retail in the UK.

Thanks for having me Dan.

This series is focused on the challenges that UK retailers are facing and what they need to do in order to compete in today’s challenging retail landscape. So Wyndham, is there a theme of what retailers are looking for in technology right now? What problems are they trying to solve?

Well at the moment, the real focus is on improving business performance. The key thing that retailers have at the moment on their agenda is to improve their top-line sales, make sure they can minimize their waste or markdowns, and really manage this profitably because obviously for any retailer, profit is the most important thing they have. So for our customers, it’s really doing all of those things at the same time while supporting their strategic customer offer.

Do retailers need to change their way of thinking to really solve these problems?

Well the old and traditional ways of running retail systems pretty much peaked in the late twentieth Century. So today, those solutions do not really support the complex world and the fast-moving pace of retail. You know today, compared to 20 years ago, you need multichannel, you need to be able to be multi-format, you need to be able to manage a huge number of SKUs and their rapid entry and exit. So, yeah, the world has really changed, not to mention the fact that there is a far more sophisticated consumer out there who is much more aware of the retail tricks, what’s going on, finding what they want. So, I think it’s important for people to understand that they do need new technology. Because the current stuff that’s out there with traditional systems is a bit like using a fax machine today. Yes it works, but it doesn’t really do what you need to do in today’s competitive world.

Why do retailers choose Q over the more traditional solutions?

Well I think it’s pretty simple. It’s really because the Quantum focus is about delivering results. And our customers appreciate that. You know, our goals are really to deliver their business case and measure how we’re doing against it, which they appreciate. Also, we are working to their time frames, which these days in retail is very fast. People need to get projects in and working and delivering results quickly. But of course, that doesn’t make any sense if there isn’t an ROI. And our ROI is pretty quick, you know, usually within the year. So, you know I think that’s why we’re being chosen. Essentially our projects have a fast payback, help our clients change, and move their business forwards. We are not just another IT project. Our customers see us really as someone who can bring in change and get them the payback that they are looking for for their investment.

How have UK retailers like New Look and Marks & Spencer been able to use Q to overcome the challenges they faced?

Ooh good question Dan. Our clients have a customer offer that they need to be able to fulfill. That promise is very important to them. And that promise comes in the form of having a great product, but also making sure that it is available for purchase. However, that doesn’t mean they can just bloat their supply chain with inventory. Or that they can have loads of markdown or waste at the end of the season or at the end of the day. So this balance is really very delicate but very important because it needs to be done these days at the store level. It needs to be done profitably, and really people have to remember that retailers aren’t charities. And nor are they trying to basically fill outlet malls, much to my wife’s desire, she would love it if they were full of interesting products to buy; I personally am trying to get rid of that problem. So you know, in this hard and complex market with very difficult economics, huge constraints on retailers, we are able to help them reduce their inventory, improve their availability to the customer, and really help them keep their customer offer and promise, and help them get to the profitability target they are looking for.

Your client’s vendor partners are also very much affected by Q. What has the vendor response been like for your customers?

Well I actually was talking to one of my clients about that the other day, and the feedback that I got was that their suppliers really appreciated getting forecasted orders that they can actually use. Use to plan, use to smooth their production and reduce the lead times in the supply chain–all of this is incredibly important for them. And when I asked them how ours compared, they said that ours was some of the most accurate that they had ever seen. So yes, it is very, very important for our clients to be able to provide their vendors and their suppliers with accurate forecasts.

That’s excellent. So how are Quantum projects different than those of traditional vendors?

Well we, like most things, have taken a different approach. You know, our projects aren’t just about wiring and a bit of software, our projects are quite different. They are really about bringing change to a retailer and more important than that change even is delivering the results, or the business benefit that the people are looking for. So although we are putting in software in our solution. It is really about measuring where they are today, understanding the business performance they are looking to get, helping them set up the system to do that and their processes and their goals and their targets, and really, turning on the software is probably the easy bit, what becomes interesting is getting them to achieve the change and the results that they are looking for. And we have a very structured methodology of test and control to measure our system against how the current system is doing, and making sure we are moving the whole business forward to achieve their business goals. So yes, for us it isn’t just about a project plan, this is really about a change plan for how they run their entire retail business.

You mentioned business benefit. Can you go into that in a little more detail?

Yeah well it’s a very important part to Quantum, and really our product is all about measuring the value we bring. So with the test and control we understand where their business is now, with the system we are able to set what they want to achieve, and really what we’ve done, for example with New Look, was improve their gross margin by about 4%, and that was through a combination of increasing their full price sales, and decreasing the amount of markdowns they had to take. And that was all about making sure the inventory was in the right place.

Marks & Spencer for example, we are rolling out Q to all of their categories, and again what we have seen is a better availability to capture the full price sales of their product, and minimize the amount of waste that they have to incur, because their product has a very limited shelf life–often as low as between a day and two days–so for them it’s paramount to have that stock where they are going to sell it, otherwise the waste becomes a huge burden on their business. So yes, this is what Quantum is really bringing to our clients, is that change in business performance.

Great. It’s very evident that you have strong customer relationships at Quantum, could you talk a little bit about how you build those relationships?

Great question Dan. Yeah, it’s important to us, very important to us. Because we spend a lot of time with our clients, understanding their problems. And like I said before, it’s all about getting the results that they are looking for. So we haven’t just been wiring in a piece of software, we’ve really been getting under the skin of their problems, what makes them tick, and what they are trying to do. So invariably we find is that we have a very long relationship with our clients, because there is always something else that they want to do, something else that they want us to improve. So we have some great technology and ways of looking at it. So invariably they ask us to either help refine something, or think about something new, so I’ve found that all of my client relationships go on and on, really, and it’s a great relationship that we have because it’s very mutually beneficial. In terms of, our product road map is driven by our customers, we don’t make it up, they tell us what they think is important. And that I think is a great testament to the relationship that we have with our customers.

Fantastic, thank you. Do you have any last advice for retailers that are looking for new technology right now?

Very interesting question Dan, and I hope maybe I have a point of view on this, and I’m not sure it’s the one that you’re expecting. I don’t think this is actually about technology. I think this is about business results. I think what retailers need to look for is a partner that can understand their problems, understand their business, and can demonstrably show that they can help deliver the project that they need, deliver their business plan, and help them with their long-term strategy. Although we have the best technology, it’s really only a tool to get you the results, and that’s what Quantum is all about. And really, I think if you want sexy technology, go to an Apple Store.

Ha ha. True, true. Well thank you very much for joining us Wyndham.

Well I really appreciate you asking me, Dan. And I look forward to seeing you again soon.

And thanks to our audience for listening. Join us next week, when we will be speaking with Caroline Ragouzaridis, Director of Customer Strategy at Quantum Retail.

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Fashion Forward – Part 3: Optimizing Size and Pack (2 of 2)

by Ziad Nejmeldeen • June 22nd, 2011 • 2 Comments »

By Ziad Nejmeldeen, VP of Science, Quantum Retail

Pack Optimization

As previously stated, Pack Optimization refers to finding the optimal configuration of one or more packs that should be utilized for a style-color. This often seeks to balance the pack’s ability to meet store/item demand with the increased handling costs of having too many pack quantities or large quantities of “eaches”, which we will refer to as Loose.

Several U.S. and Canadian retailers have estimated that the handling costs from vendor to DC to store is on the order of $0.25 – $0.50 per pack; this is true whether the pack contains 1 unit or 10. So, we want packs to contain as many units as possible. However, large packs introduce allocation inefficiencies as we are now forced to put a pack into a store to meet the demand for some sizes, even if it means putting in too much inventory of another size. So, we want the packs to contain as few units as possible. By creating a profit function that includes both of these effects, we can find the right pack size that maximizes overall profit.

There are various approaches used to accomplish Pack Optimization; we describe them here in order of complexity.

Single Pack (Bulk): Some retailers choose not to use packs that contain multiple sizes (Ratio Packs), instead relying on Bulk Packs that contain quantities of the same size. In this case, the shape component of the pack is a moot point. However, we still need to determine the volume. In the simplest case, this is a given value (or tight range of values) based on vendor or operational constraints. A more sophisticated approach relies on a data driven exercise to balance the pack’s ability to meet store/sku demand with the increased handling costs of having too many pack quantities.

Single Pack (Ratio): The shape is driven by the optimal size profile associated with the size-range and merchandise area of the item. Identifying the volume is similar to what we described above in the bulk case. The one additional complexity here is that the recommended ratio pack is also dependent on whether bulk or loose will also be utilized. For example, if we do not have bulk or loose, we are more inclined to choose a pack volume that leads to minimal shape distortion; this distortion can occur after the pack volume is multiplied by the size profile and the quantity associated with each size in the pack is rounded to the nearest whole number.

We now describe several different cases that are usually all referred to as “Multiple Packs”.

Multiple Packs (Single Pack in Store Group): The case described here allows a style-color to be ordered in multiple pack configurations, but each configuration is earmarked for a group of stores. In essence, each store group is dealing with the Single Pack case for the style-color, but the style-color can have the pack configuration vary across store groups. This problem is tackled by clustering the store size profiles to create store groups. Each group has an average size profile, and we proceed for each store group using the Single Pack case.

Multiple Packs (Launch vs. Replenishment): An item may have two types of packs that can both go to the same store, but not at the same time. This is often the case when we have one type of pack allocated at the beginning of the season (Launch or Initial pack) and a second, usually smaller, replenishment pack allocated after the item has begun to sell. We may again have operational constraints dictate the sizes of the two packs. Alternatively, we can employ a similar data-driven logic as described in the Single Pack case, but with the Initial (e.g. first 6 weeks) and Replenishment time periods broken out.

Multiple Packs (True Multiple): The most complex scenario allows for multiple pack configurations to exist for an item, with the multiple configurations eligible for allocation to the same store at the same time. Given a range of stores with different volumes and with different size profiles, it is unclear whether we should use packs that a) have the same shapes but different volumes, b) have the same volume but different shapes, or c) something in between. Answering this problem requires running a simulation that assesses packs in combinations. Each combination is measured on both its ability to meet store demand and the handling costs involved. Even the simplest two-pack case can be computationally intensive depending on the number of stores analyzed.

Order Planning/Warehouse Replenishment

Suppose we have completed Size and Pack Optimization, so that we have an entire library of size profiles defined for different size ranges, merchandise areas, and locations. Additionally, we have specified the different pack types (ratio or bulk), have settled on their configurations (shape and volume), and have made a decision on whether or not to allow loose stock. Now comes the problem of cutting a purchase order: How many units of each type of pack should be ordered? How much in loose?

We begin with a pre-season forecast of demand at style-color/store. This forecast can stem from a number of sources; e.g. like-item(s), or a spread-down of a buyer/planner’s chain forecast to store using store weights / volume groups. We can now use our size-profiles to spread the forecast further and arrive at a pre-season estimate of size/store demand.

We can now simulate an allocation to find the quantities of packs and loose that balance the value gained from fulfilling size/store demand (100% loose is best) with the cost of pack handling (100% of largest pack is best). The simulation returns the pack quantities that we wish we had if it was time to allocate today; these quantities constitute our order.

Note that this simulation is a bit more involved if we have both launch and replenishment packs since we will need to separate size/store demand into a launch and replenishment period and evaluate the two separately.

Allocation

At the time of allocation, the pack quantities have been received in the warehouse and are ready for distribution. We can now repeat the same process employed in cutting the purchase order to arrive at an updated size/store demand estimate.

If the initial allocation quantity is pre-determined (e.g. all launch packs, or fixed % of inventory is to be allocated), the allocation problem is a simplified application of the same logic employed when the purchase order was determined; we know what we want to push, we know the size/store demand, and we try to marry the two up as well as we can. On the other hand, if we are also optimizing the initial allocation quantity, the problem is a bit more complex; we must determine the appropriate amount of inventory required in each store to meet expected demand, and the right amount of buffer inventory to meet unexpected demand.

As we continue from initial allocation (before we have observed the item sell) to replenishment (after it begins to sell), we gain some important pieces of information. First, we have observed size/store demand, which we can use to improve our forecast of size/store demand; note that it is at this point that we cease to rely on the size profiles that were so critical in determining the pre-season buy and initial allocation. Second, we have observed the variability (spikiness) of demand within each location; this goes a long way in determining how much buffer inventory we need to capture unexpected demand – the more variable the demand, the more buffer inventory required.

At this point, the remaining packs can be evaluated for the profit we expect them to generate in each store based on the store’s size demand and underlying variability. If we have a combination of both packs and loose available, we can factor in the pack handling costs into the profit calculation (this makes packs more attractive than loose), or we can rely on a pre-set preference for what gets replenished to stores first (e.g. packs, then loose).

Conclusions

It is our sincere hope that the concepts in this blog help to inform and drive improvements in the management of sizes within fashion retail. We conclude by revisiting what we believe to be the three most important ideas related to this topic:

Size Ranges: Grouping products together with disparate size needs under the same size run will lead to a size profile that does not fit any item well, regardless of what care is taken in estimating demand. Use product attributes wisely to create meaningful size ranges and you can avoid this problem.
Multiple Packs: There is a disconnect if you are looking for a pack solution that gives you multiple pack configurations, but you do not possess an ordering/allocation solution that can utilize multiple packs. In this case, consider the feasible alternative of having multiple packs, but with a single pack per store group.
Demand Variability: When replenishing packs in season, it is important that you not only consider the observed demand in each location, but the variability of demand as well. This can change the amount of inventory that is desirable in the store, and you may now prefer replenishing a larger pack to a store in place of either a smaller one or loose stock.

Look out for next week’s blog on the benefit of multiple allocations and hold-back stock next week.

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This Retail Life – Part 4: Quantum CEO Vicki Raport talks about transformational success for retail merchandise optimization

by Quantum Retail • May 4th, 2011 • Write a comment »

“There are a lot of retailers out there who are aggressively moving into the market, to try and figure out how they can be more consumer-driven, how they can optimize their assortments, how they can be hyper-responsive, how they can be more productive, and how they can design into their business everything that they do to be profit-seeking. So if you aren’t thinking about your business that way, one of your competitors is. So I encourage retailers to stop being confined by the way their technology behaves today, and to start thinking about what they need from their technology in the future.”

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speaking with Vicki Raport, CEO Quantum Retail • May 2011

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Thanks to our audience for joining us again this week. I am Dan Brown from Mulberry Marketing, in San Francisco, and I am joined with Vicki Raport, CEO of Quantum Retail.

Thanks for having me Dan.

For the last few weeks in these interviews we’ve been talking about the concept of “new school” vs. “old school” retail. Most of the founders and current employees have come from other retail technology vendors. Would you say people are relieved to get away from the constraints of those other companies?

Well absolutely, I mean, you don’t come to work for a small high-growth company because you want to stay with the constraints of a larger beast. You know, really, when people come to work for Quantum they come for probably three key things:

One is – they want to be part of something that is innovative. You know, both engineers and business people alike have a desire to be creative and to have their work shine as something innovative in the market place, and we think we give everyone the opportunity to do that.

The second thing is that when you come to work at Quantum vs. probably some of our bigger and older rivals, everyone matters. We are still a small enough company that the contributions of everyone in our company makes a difference to our company. And as many of us know, when you are working in ten billion dollar company, it’s hard to feel like, as a single person, what you’re doing makes a difference, and in Quantum, everyone makes a difference.

And last, but certainly not least, is that people who work with Quantum want to be close to the creation of value for the customers, they want to be able to identify the things that they are doing with the ways that they are delivering value in the market place, and we allow people to see those results. We celebrate the wins of our customers as if they are the wins of our individual company. And everybody who contributes to that value is acknowledged. And those things together are things that I don’t think you find very easily in larger companies and certainly people who are doing things the old way.

That’s great, I imagine that some of our listeners are going to want to send you their resumes.

(laughs) Well they can go out on our website and we have a nice little place that they can let us know. We are definitely in growth mode and we are still hiring.

That’s great. But let’s go back to the beginning. Why did the founders of Quantum break off and start their own company – were they fed up?

Well I think that, why people found their own companies really has a lot to do with entrepreneurial spirit, and people wanting to be able to start with their own ideas and bring something unique and innovative into a market place that they have confidence that they can add value in. So from the beginning, the founders of Quantum Retail really understood that in the market today, and certainly when we started the company, retailers were and are facing significant challenges in addressing the complexity of their business and achieving their desired productivity and profitability from their inventory and certainly on their ability to deliver on the customer brand promise in a volatile market.

And to do that they really needed something new. They needed a solution that was easy, intuitive, was not disruptive to their people and processes, and really thought about things in a new way. So when we formed Quantum Retail, we really were thinking about, “how do you add new value into an old market place?” And that was the foundation of why we started the company.

Why was a new school solution necessary?

Well first of all, the technology that most existing ERP solutions and most technologies that have been implemented in the last twenty years at retailers, are probably based on technology and thinking that was at least thirty or forty years old.

And, let’s face it the world has changed. Right, I mean five years ago, who would have thought that Apple would invent this little tablet PC called an iPad and generate a $5 Billion dollar business overnight. I mean, the world is completely different than it was thirty or forty years ago, it’s different than it was twenty years ago, and it’s different than it was ten years ago.

So New School is something that doesn’t happen just once. It happens on an ongoing basis. And what we really have to be looking at is, how do you take the new thinking and new technologies, and go after the hardest problems that are out there in the marketplace. Our expertise is in retail. And we go after those components of retail that represent high value for our customers, and can fundamentally change their ability to be profitable and successful. And existing technology and old ways of thinking, they just don’t offer those capabilities anymore.

And we really felt that we had to create a new future for retail, and you couldn’t start from where you were in the past. You just couldn’t get from there to where we are today.

So how did the founders create the concept for Q, and was it hard starting from the ground up or was that an essential component?

Well the answer is both. It is very hard to start from the ground up, but it is something that we did. We literally, you know, what we came to the party with was our understanding of the retail industry and the pain that retailers faced in utilizing technology and leveraging technology to deliver profitability and value, and we started with no technology.

We had our assets of knowledge in the marketplace, but we really started from the ground up. And that’s very hard, you have to start with a blank sheet of paper, you have to go out and do your own research, you have to have a lot of creativity, and a lot of ability to think outside of the ways that you have historically thought about solving problems, but as I said before, and to use your words, it really was essential. We could not develop our solution to be able to look at data at an atomic level, such a granular level to solve really complex problems like, localizing assortment and seeking profit, and driving to consumer demand.

We couldn’t do that with the existing technology. If we started from that, we wouldn’t have been able to get where we are, so it was absolutely essential that we do that, and it’s really foundational to why retailers are drawn to our technology solutions. We look different, we behave different, and we offer a different set of results which are much better than any of our competitors.

So you mentioned a few, what I would say are great selling points right there. But what has been the biggest selling point of Q for your customers?

Probably the biggest selling point for Q with our customers, is our ability to deliver value quickly in a highly complex business environment, and when I say highly complex business environment, now we’re talking about, all of the formats, and all of the assortments, and all of the geographies, and all of the different verticals, and all of the ways your products behave, and the different markets, and the different channels and the different customer segments, I mean, this is a tremendous amount of complexity.

And to solve that problem using old technology requires multiple solutions, being strung and cobbled together to solve many many problems, whereas Quantum and Q, comes from a holistic perspective and look at the business as a complex operating system and use a single system to solve these overarching complexities.

And really that’s why people choose Quantum. It’s why our first customer went with us. It’s why Guitar Center picked us, because they knew that to solve the different types of problems that they had in their business, they would likely have had to implement three different inventory management and forecasting solutions if they went with some of the old school technology.

That’s great, so it seems like your prospective market is growing pretty quickly – how do you keep pace with the challenge of growth?

Well, it’s not easy, but it’s a good problem to have.

(laughs)

So keeping pace with the challenge of growth starts fundamentally with hiring and retaining good people. Quantum is still very much a family, though we are now over 100 people. We vet our folks very thoroughly, we try to hire people who are experts in their field, whether it’s engineering, or whether it’s retail, or whether it’s technology. And it’s really really important that you have great people who are really motivated.

The second thing is that you have to have good customers. And so, one of the things that we’ve done as we’ve built the company, is we find retailers as clients who are looking for us, and want to stay and be very, very, engaged with us. You know, we don’t hand our solutions off to some third party systems integrator and wish our clients good luck. We are extremely engaged with them. We continue to work with all of our customers actively, even years after they’ve implemented.

So probably the biggest thing for us is, having great people, and having great clients. And that’s what’s allowing us to keep our growth and being successful and profitable, rather than being a constraint to the business.

So where is Quantum headed next, what is your vision for the next few years?

Well certainly, we want to build on the success that we’ve had. So in our view, we have been very successful over the last several years, in landing what I would like to call our anchor clients. What we’ve done is we’ve managed to land some key marquis customers in each of the verticals in retail. We have customers in fashion, we have customers in hard lines, we have a customer in departments and mass, and we have a customer in food retailing.

And these represent the major verticals in retail, and for us, we are now being invited to all the parties, we are being asked to participate in many many of the tier 1 selections, and I believe that having these anchors in all of these verticals will allow us to now aggressively go into these markets and continue to convert retailers to the Quantum way of thinking and to get our solutions and applications up and running and delivering value in more and more retailers.

So, the first is to leverage the success that we’ve had.

The second is that Quantum is always innovating, so our vision is, we really want to become the foundation for twenty-first century transformation, as the leader in merchandise optimization for retail. And what that means is three main things:

First, we need to make sure that we are helping retailers align their capabilities to buy, move, and sell merchandise when and where their customers want to shop and in the most profitable ways. And we’re going to do that by addressing not only how we respond to demand but how we shape demand as well, so we really want to be a holistic solution for merchandise optimization and we are well on our way with our platform and with our solution applications.

The second is that we want to provide this transformation through technology that enhances business decision-making and execution in a way that people want to work. Probably one of the biggest things between old school and new school is that new school technologies are designed around the way that people want to work, whether it’s sitting at a work station, or on a mobile device or an iPad, whether it’s an on-premise deployment, or on-demand SAS solution, we’re always figuring out how do people want to be working with technology and the most productive ways, and that is paramount to our vision.

And then lastly, we want to do this in a way that creates what I would call an enduring platform, and enduring means, that the platform itself and the way that we work with our technology to deliver value has to adapt to the ever-changing needs of our customer, and our customer’s customers. And so, all of that means that Quantum is going to continue to innovate, continue to leverage the assets that we have in the market place, but to continue to bring more and more value to not only our existing customers, but our future customers.

Fantastic. So how has it been leading a startup? It seems like there is a lot of energy there. Is that what makes startups so great?

Um, yep. The things that make startups so great are that you have an opportunity to really make a difference. And you know, the founders of Quantum Retail, and really all of our employees are focused on being entrepreneurs. We are constantly looking at how do we bring something new and address a component of the market that isn’t being addressed.

And that’s why you start businesses, you don’t start businesses just to make money, you don’t start businesses because you are mad at your last employer, you start businesses because you really believe that you have something fundamentally different to bring into the marketplace and that difference has value. And that’s what sits behind Quantum, and that’s why all of the people who founded Quantum are still actively engaged in the company and are very excited about it.

Awesome. So Vicki, are there any other winningest woman awards you can get, or have you won them all now?

(laughs)

Well I might have won them all now, because I think there was actually only one, but we got a lot of airplay out of it for a couple of years. But you know Dan, one of the interesting thing about some of those awards was that those awards weren’t about me. The awards were a recognition of Quantum Retail and Quantum Retail’s success in its early stages of growth and its continued growth.

I mean, when you get awarded a fastest company award, whether it’s a fastest woman-owned company or the fastest company in Minneapolis, or an Inc. 500 company, those are really the success story of our business, that we have been able to build a successful well-run business. My hope is that the future stories aren’t about me as the winningest woman, but they’re a lot more about our clients and their successes and the value that we’ve created.

Fantastic. Any last words of advice for retailers?

Yes. You better start thinking about your business differently, and you better start thinking about how you’re going to optimize your business, and an ERP system isn’t going to do it for you. And there are a lot of retailers out there who are aggressively moving into the market, to try and figure out how they can be more consumer-driven, how they can optimize their assortments, how they can be hyper-responsive, how they can be more productive, and how they can design into their business everything that they do to be profit-seeking.

So if you aren’t thinking about your business that way, one of your competitors is. So I encourage retailers to stop being confined by the way their technology behaves today, and to start thinking about what they need from their technology in the future.

Thanks so much for joining us Vicki!

You’re welcome!

And thanks to everyone for following along with this series. If you’ve missed an episode, you can access them all at The Profit Lab Blog.

Download a PDF of This Retail Life: Changing the Game in Retail»

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This Retail Life – Part 3: Battling the big vendors simply takes a new approach

by Quantum Retail • April 27th, 2011 • Write a comment »

“Some vendors have been working on and gathering more and more solutions that cater to retailers in an end-to-end manner. Examples are solutions coming from folks like Oracle, SAP, SAS, JDA, IBM, Epicor, RedPrairie, Island Pacific, Jesta, and others. But these solutions are mainly just minor variations to the same traditional processes that have been in retail for decades now. They have yet to really achieve the ability to learn from what they “see” and promptly adapt to that with recommendations that will meet the evolving needs of today without the need for user intervention all along the way.”

LISTEN TO PART 3:

speaking with Greg Wilson, Director of Field Strategy at Quantum Retail • April 2011

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Audio Transcript

Thanks to our audience for joining us again this week. I am Dan Brown from Mulberry Marketing, in San Francisco, and I am joined with Greg Wilson, Director of Field Strategies at Quantum Retail.

Thanks for having me Dan.

It sounds like Quantum is continuing its pattern of rapid growth, but I understand there is still some push-back in the market. Why are retailers stubborn when it comes to change?

Well there are really a few reasons that retailers are a bit resistant to change.

One of them is a fear of a something new – a concern of the learning curve of a different approach. They’ve gotten comfortable with processes they’ve created and nurtured over many years, and there’s a level of re-education that’s a part of taking on any new approach. Unfortunately, many of the pitfalls of traditional approaches come directly from dated technology, its constraints, and the old thinking that surrounds it.

Another reason is that some retailers are a bit scared of the term “automated” – they see it as taking the decision making process out of their hands. There really needs to be a certain level of trust established before they’ll consider any form of automation.

And finally, a lot of retailers have made significant investments in technology over recent years and that’s what’s driving their current process. Sometimes they are hesitant to put more money into something new, or something that they could build themselves. We do actually occasionally run into retailers that try to pry information out of us and get details about how we’re solving these problems so they can build it themselves. But ultimately it’s a waste of their time though. To build something with enough capability and sophistication to solve the more challenging problems, it’s incredibly complex. It takes experts in various disciplines of business technology and the science of econometrics and other statistics related to solving the problem. So by the time they just get started in building something, assuming they could even do it, they could already been achieving value from Q.

But the old retail foundations that most retailers are still using make it impossible to change their way of thinking, right?

Well to a large degree that’s true. Traditional systems are generally like a large spreadsheet of data – and the system enables you to enter parameters or rules and calculations on data that you select – they require a significant amount of user input and manipulation, and the only way to enable that, is to set and manage this stuff at higher levels of aggregate. The problem is that this pushes you further and further from the ultimate goal which is localization, or understanding and reacting to what’s happening at each location with each product.

Some vendors have been working on and gathering more and more solutions that cater to retailers in an end-to-end manner. Examples are solutions coming from folks like Oracle, SAP, SAS, JDA, IBM, Epicor, RedPrairie, Island Pacific, Jesta, and others. But these solutions are mainly just minor variations to the same traditional processes that have been in retail for decades now. They have yet to really achieve the ability to learn from what they “see” and promptly adapt to that with recommendations that will meet the evolving needs of today without the need for user intervention all along the way.

The traditional approach is also pretty limited into the scope of what it can address to deal with the really difficult products like big ticket slow-movers, sized merchandise, highly volatile merchandise, seasonal products, short-life products, perishables, pack-constrained products, and heavily promoted items, things that are scarce or vendor-allocated, or have long lead-times.

All of these things require new models and new ways of thinking to address them really well.

So how does Quantum’s “new school” way of thinking differ from that of traditional solutions?

Well, the Q Platform that we’ve built actually enables us to solve the problems that these other vendors mainly talk about solving. It delivers on the business case every time, with proven, measurable results. Quantum has developed the concept of managing by merchandising strategy–determining the role of the product within the customer offering, such as being an image item, a traffic driver, a profit generator or a fringe assortment item, or things like that.

Users aren’t asked to select and ultimately guess at an overwhelming number of forecasting or replenishment algorithms, and to set a slew of difficult parameters around each item. Q takes the strategy and understands the objectives of the product from both a financial and a merchandising perspective and it ensures that every inventory decision that it makes is aligned with achieving those objectives.

The way that customers buy product changes over time and Q adjusts automatically to react to those changes by constantly working to ensure that alignment is maintained throughout the products’ lifecycle. This is much different from having to actively maintain ordering, allocation, and replenishment configurations for every item in every store and manually ensure that the system is set up correctly to do this like other solutions do.

In the process of understanding items, Q considers over 30 dimensions of product behavior. Things like: maximum sales, true historical demand, forecast demand, days between sales, lost sales, days between out of stocks, current inventory position, last stock-out, weeks of supply, percent in stock, etc.

But beyond these typical sales and inventory metrics, Q also understands things like:

When an out of stock happens, an out-of-stock on Monday has different gravity than out-of-stock that happens on Saturday, when you’re looking at things in a weekly level.
Variations in contributing factors like: lead times, lifecycle, and service levels, which have a significant influence on making the right decision.
Variability in sales, such as volatility, lumpiness, lost sales, are very important to understand. And finally, and probably most importantly, are profitability metrics such as gross margin return on inventory investment.

So these capabilities have led to retailers being able to have a high degree of automation with Q using exception management to highlight only those areas where users should be spending their time efficiently and effectively in the system.

Can you talk more in detail about product strategies? Do they change from retailer to retailer?

Yes, absolutely strategies change from retailer to retailer. Often we find people using ineffective strategies such as simple min/max replenishments, or things like that.

What they really need is a true strategy for their products.

So, rather than just setting a target service level which is a guess, usually at some group of stores of what amount of inventory hits a service level that will meet an objective, they really need to define that objective.

For example, “What am I doing in the realm of profitability for a profit generator?” I need to understand how much service allows me to capture sales, but I need to make that subject to some constraints around waste, or potential losses from carrying merchandise. I also need to be considering the volume of sales that I am generating. So profitability might not capture every sale, but it will allow me to avoid waste as a result of not capturing every single sale. So balancing all of these things has been traditionally very difficult because you have to pick a handful of parameters and manually set them at some level that is manageable. But really this evaluation should be happening all the time.

So by enabling Q to operate to this strategy, you know what the goal is, and Q can dynamically set all of the parameters as it understands about the behavior of merchandise to achieve that objective consistently.

We also see a lot of retailers falling into the trap of thinking that it’s all about forecast accuracy. But for a majority of items the value of the forecast is really diminished, if not irrelevant. You’ve got values that are significantly less than one unit, at that point the decision isn’t really about, “is the forecast .04 or .05,” it’s about what is the right inventory decision to achieve that goal given that forecast and the volatility around it.

And other vendors talk about localizing, but they’re all just talk – aren’t they?

Well yeah, they really are. And the reason for that is–because of the complexity of the problem. They are aggregating some of the criteria that is managing their processes up to higher levels to make it easier for the user to manage. But that gets you further and further away from the unique characteristics of the individual products in individual locations, which is really what’s necessary for localization.

What Q does is it enables you to set a high level parameter, but it’s a dynamic parameter that says what your objective is, and by doing that, Q can understand the behavior of each individual store and each individual product, and put that together with your objective so it is constantly achieving that objective at that SKU/store level. And only when you do that are you really achieving localization.

You mentioned that Quantum always performs on the business case, every single time. Can you tell us how that process works. How do you sit down and decide on a proper business case with new clients?

Well first of all, when you meet with Quantum, we don’t shove a big list of clients down your throat. We ask you what your problems and opportunities are – and we help you build and define a strategy for your merchandise. Every item needs to have a role and each role needs to have a goal. And that’s what makes Q so unique, it doesn’t just keep up with demand – it keeps up with each item’s strategy and the objectives of that strategy.

Let’s talk competition. You are often among the final two or three vendors of choice. How do the big vendors compare to you? Are they intimidated by you guys?

I don’t know that the big vendors are intimidated by us, as such, but they are certainly aware of us. And they are aware that there is a new approach available. And more and more retailers are coming around to understand the value of that new approach.

In addition to our system’s adaptive nature, simple and intuitive navigation, ease-of-setup, and the fact that it’s exception-driven, we are able to get in place very quickly.

Implementations happen in fewer than 20 weeks, and the system’s light footprint means a smaller investment. We can actually employ on top of some existing structures and optimize them in some cases whether that be a short term objective or part of a longer term objective.

Our customers have reported fewer than 12 months to reaching a 100 percent ROI in every single case. And this is measured through test and control groups, where we take two groups of stores that are behaving similarly. One of them becomes the test group which we manage with Q, and one is the control group, which continues being managed with existing systems. Taking this approach ensures that the returns we talk about are only possibly a result of utilizing Q.

Being a small company, how does your relationship with the client change the solution’s effectiveness?

Well from the beginning of an engagement with a retailer, we establish a relationship, we become a key component of reviewing and improving their business strategies as they affect the whole of their company. We’re looking at the larger picture – and create a business case that is specific to them – and how much profit they can expect to achieve.

Being a smaller company also allows us to build out our product to the needs of our customers. We have three core products, assortment and range planning, allocation and replenishment, and order planning. And we are always in the process of making these products better, which our current clients get to enjoy – and when they have specific needs of their own, these updates sometimes become a part of the core product.

But we also have the fun of building a strong partnership with our clients, becoming team players – their success ultimately is our success – and we are always looking out for how we can make their business better.

And can you give us a last few words of comfort for retailers looking to make the leap away from their old tech into a “new school” solution?

Yeah, I think probably the most important thing for people to understand is that new technology, even though the process and the underlying mechanics are more complex, new technology is actually easier to use, it pays for itself in months, and it improves over time. You have nothing to lose!

Thanks so much for joining us Greg!

It was good to be here.

Tune in next week when we will be speaking to Vicki Raport, CEO of Quantum Retail.

Download a PDF of This Retail Life: Changing the Game in Retail»

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2011 Retail Analyst Predictions, Part 6: Matthew Fassler, Goldman Sachs

by Quantum Retail • March 23rd, 2011 • 1 Comment »

Matthew Fassler, Goldman Sachs analyst, discusses retail outlook in the specialty sectors.

Best Buy announces strategic growth strategy

According to a Feb. 22 Alacra Pulse article, Fassler had a neutral rating of Best Buy and trimmed his price target to $38 from $39, but said the company announced a series of changes to store opening plans, as well as other minor restructuring moves, that he believes will result in a more streamlined growth strategy and in cost saving.

Fassler also notes that warranties may be helping Best Buy’s profitability where past sales are lacking, saying that Best Buy has not disclosed how much extended warranties contribute to its profits. Consumer electronics retailing is “historically a low-margin business that is dependent on extended warranties for profitability,” he said. “Perhaps extended warranties have become even more valuable to Best Buy recently, as its content businesses — like movies and music — have shrunk.”

The company plans to open 6 to 8 large-format stores in the U.S. and a total of 18 stores in the United Kingdom, Mexico and Canada in fiscal 2012. The International market continues to bring noteworthy prospects for the company along with financial growth for the stakeholders,” said the Alacra Pulse article.

Best Buy also announced it is closing its namesake stores in China and shifting new U.S. store growth to smaller formats instead of its familiar big boxes, said the Wall Street Journal. Best Buy said it would focus on growing in China under another retail format called Five Star that has proven more successful; it disclosed plans to open 40 to 50 additional Five Star stores in 2012.

As a result of the restructuring moves, Best Buy said it would incur charges of $225 million to $245 million over its next two fiscal years, diluting earnings. But it maintained that the moves would eventually result in an annual pre-tax savings of $60 million to $70 million by 2013, according to the Journal.

In today’s cutthroat retail environment, retailers are facing tough issues, not losing sight of the domestic front while expanding globally, restructuring their initiatives to a local focus, aligning with customer needs, and more. Technology Evaluation Center’s P.J. Jakovljevic discusses what retailers can do to stay competitive with Quantum Retail’s Chief Customer Officer, Chris Allan, here »

Radio Shack to put strategic focus on mobile

On a February 22 earnings call, Julian C. Day, Chairman and CEO of Radio Shack, stated that with his plans to retire, there are also significant changes in the market that make it an appropriate time for a leadership transition.

The first area he mentions is mobility, the area of Radio Shack’s business most subject to technological and strategic change. Day stated that they have been able to expand their presence in the mobility sector, moving from two to three carriers nationally, and re-fixturing stores to allow customers to have choice and product comparison. The company’s mobile sales were up 33% in 2010 on top of 25% in 2009.

Other major developments in the mobility area, has been a partnership with Target, in which they operate the postpaid wireless business on their behalf. “We look forward to growing with Target and we believe that partnering with additional high caliber retailers to enable them to get access to the high growth mobility sector, while improving our overall channel economics, makes sound strategic sense,” said Day.

The second major change in the company’s business has been the ongoing reallocation of space in stores for mobility and some signature categories such as power. Day explains that it made sense for them to allocate resources to this category and illustrates just how important the traditional merchant art of picking the right product for the channel can be even in declining segments.

The third and last major change for Radio Shack is the financial strength of the Company. From mid-2006 through mid-2010; Radio Shack built their cash position from less than $200 million to over $900 million.

Fassler noted that it sounds like T-Mobile struggles are part of their gross margin issue, and that it will probably persist. “But putting that aside, how should we think about the gross margin trajectory here?”

“You’re absolutely right, Matt, with the T-Mobile issue, and until we work through all the details on that, it will remain a part of the issue.” Day continued. “I think, our biggest gross margin rate opportunity continues to be, as we get better at driving some of these end products in personal electronics, and in modern home. We need to do a better job on our accessories.”

For the year, Radio Shack reported that gross profit increased $48 million to $2.01 billion, a margin rate of 45%, down 90 basis points on a year-over-year basis. In the quarter, gross profit was most negatively impacted by the disappointing performance in their T-Mobile business.

Mobility is expanding immensely. Along with increasing focus on sales of mobile devices, retailers need to have a plan for mobile commerce in their own business. Check out our Guide to Creating a Plan for Mobile Commerce, E-Commerce, and Social Media »

Office Max and office supply giants could be in a permanent slump

Threats are looming over the office supply giants, leaving analysts divided over whether or not the big three chains — Staples, OfficeMax, and Office Depot, are in a short-term slump or a permanent one.
Fassler expects the stock to fall in the wake of the tough new guidance, said CNN. However, in a research note, Fassler indicates that there is some promise in OfficeMax’s forecast. “Guidance to relatively resilient profitability in the face of lower sales, despite a levered model, does still speak to the profit opportunity at [OfficeMax],” Fassler wrote. Fassler remained neutral on the stock.

In a February note titled “Signs of Paradigm Shift,” Fassler announced that he was cutting the firm’s exposure to office supply stocks due to “secular headwinds to cyclical recovery.”

One of those headwinds is the rise in retail competition — one-stop mass merchants like Wal-Mart, Costco, and Target. Amazon is also an adversary — many of the products sold in the office retailers’ brick and mortar outlets are available online, which enables customers to comparison shop.

The other secular shift isn’t competitive, but behavioral: Paper usage is in decline, said CNN. This affects the contract, or delivery side of the superstores’ business. Staples, OfficeMax, and Office Depot derive about half of their revenues from those operations, which sell in bulk to other companies.

Paper itself isn’t hugely lucrative, but it does drive sales of other products — ink, staples, printers, etc. Consequently, its shrinking usage could pose a big problem for the superstores. In a survey of office supply purchasers at large companies, Goldman Sachs found that nearly half of the respondents expected their paper consumption to drop. Reasons range from environmental concerns to double-sided printing to the advent of mobile technology.

Borders bankruptcy filing puts Barnes & Noble in a good position

As part of the Chapter 11 process, Borders will close 30% of its 642 stores, or about 200 that it identifies as underperforming. The bookseller operated twice that many at its peak in 2003, stated Wall Street Journal’s Market Watch.

The Ann Arbor, Mich. based company listed debt of $1.29 billion and assets of $1.28 billion at the end of 2010 in its bankruptcy filing.

Borders, according to the filing, owes tens of millions of dollars to various publishers, including $41 million to Penguin Putnam, $37 million to Hachette Book Group, and $34 million to Simon & Schuster.

Market Watch noted that by the time Borders embraced e-commerce in recent years, the competition had already established a firm lead. Rival and leading bookseller Barnes & Noble Inc. stands to be a big winner in light of the filing, according to the article.

Fassler upgraded Barnes & Noble to neutral from sell ahead of the filing.

Barnes & Noble shares moved fractionally higher to finish at $18.77, but have still lost more than 11% in the past year.

Home Depot sees continued improvement as Lowe’s moves into transition state

The Home Depot Inc. and Lowe’s Companies Inc. are two similar home renovation retailers that are going in different directions, stated the National Post. While the team at Home Depot has gelled after several years of evolution and is poised for new levels of profitability, Lowe’s is undergoing a transition with many senior executives retiring in recent months.

Fassler, has upgraded Home Depot to “buy” while upping the price target to US$42 from US$37, while downgrading Lowe’s to “neutral” maintaining a US$28 price target.

For Home Depot, Fassler forecasts continued improvement in same-store sales over the next two quarters, thanks to a new focus on home repair, remodeling and maintenance categories and less emphasis on appliances, which faces tough sales comparisons over last year.

As for Lowe’s, the company’s management has undergone substantial shuffling in the past few months, stated the Post.

After Lowe’s most recent analyst meeting, Fassler noted its biggest challenge is introducing truly new and innovative ideas. “There had been too much “redundancy” in the company’s strategy over a number of years,” he said.

What are your strategic goals? Surprisingly many retailers do not have strategic goals for their products. Learn how to build yours and you will dramatically increase your profit. Check out our guide to Creating Product Strategies »

AutoZone’s customer service is their key differentiator

In a March 1 earnings call, William Rhodes, Chairman of the Board, CEO and President, stated that AutoZone is very pleased to announce another very strong quarter of performance, both financially and operationally. “Our earnings per share for the second quarter increased by 35.8%, our best performance since the fourth quarter of fiscal 2003, and our domestic same-store sales increased 7.1%,” he continued. “This marks the ninth consecutive quarter of EPS growth in excess of 20% and the 18th consecutive quarter of double-digit EPS growth.”

Regarding their second quarter results, their Total Auto Parts segment, made up of both Domestic and Mexico businesses, delivered a 10.3% sales increase. Their other businesses, including E-Commerce, were up 11.2%. “There is no question that our industry is experiencing strong growth in both Retail and Commercial sectors, and our competitors have also reported solid growth trends,” stated Rhodes. “However, based on sales data provided to us through NPD, our share of both the Retail and Commercial businesses gained share for the quarter, and according to the detail, we gained share each month of the quarter, November, December, and January.”

Servicing the customer and providing the degree of trustworthy advice continues to be a key point of differentiation in the marketplace, according to Rhodes.

In response to Fassler, William Giles, CFO, EVP of IT, Finance, and Store Development, and Treasurer, agreed that if there were a scenario where their sales growth were to be a bit slower and all the other factors went their way, the incentive comp would remain close to current levels.

How can retailers continue to service their customers better? One way is with a focus on localizing their shopping experience. Download our free guide on The Art of Localizing Inventory »

SOURCES: CNN, Wall Street Journal Market Watch, Alacra Pulse, The National Pulse, Seeking Alpha

Download a PDF of the full series HERE»

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Quantum Retail

Posts Tagged ‘The Profit Lab’

2012 Retail Outlook-Part 2: The Age of the Shopper

The new consumer of 2012

For the love of the customer

2012 Retail Outlook–Part 1: A Retail Story: The Consumer Economy

A look forward at 2012: The year of transformation

Economic success = global collaboration

Retail revenue: What the weather means for early 2012

2011 Retail Analysts in Review – Part 3: Liz Dunn, FBR Capital Markets

2011 through the eyes of four different retailers

Hardlines Optimization—Part 2: SKU Rationalization

Fashion Forward—Part 5: Linking Business Intelligence with Strategic Execution

Business complexities

Data proliferation

Failure of traditional tools

Linking the science of BI with the art of merchandising

Better data leads to better decisions

Optimizing BI

Turning BI into automated execution

Benefits of BI

Competing in UK Retail – Part 2: Creating a catalyst for retail change

Fashion Forward – Part 3: Optimizing Size and Pack (2 of 2)

Pack Optimization

Order Planning/Warehouse Replenishment

Allocation

Conclusions

This Retail Life – Part 4: Quantum CEO Vicki Raport talks about transformational success for retail merchandise optimization

This Retail Life – Part 3: Battling the big vendors simply takes a new approach

2011 Retail Analyst Predictions, Part 6: Matthew Fassler, Goldman Sachs

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Posts Tagged ‘The Profit Lab’

The new consumer of 2012

For the love of the customer

A look forward at 2012: The year of transformation

Economic success = global collaboration

Retail revenue: What the weather means for early 2012

2011 through the eyes of four different retailers

Business complexities

Data proliferation

Failure of traditional tools

Linking the science of BI with the art of merchandising

Better data leads to better decisions

Optimizing BI

Turning BI into automated execution

Benefits of BI

Pack Optimization

Order Planning/Warehouse Replenishment

Allocation

Conclusions

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