Today s Challenges in Specialty Retail: How to Gain Competitive Advantage by Using Business Insight. Compliments of. Authored by Martec

Transcription

1 Today s Challenges in Specialty Retail: How to Gain Competitive Advantage by Using Business Insight Compliments of Authored by Martec

2 TABLE OF CONTENTS I. Introduction...1 II. Executive Overview...1 III. The Problems and Issues Facing Specialty Retailers...2 A. Multiple Channels...3 B. Customer Behavior...3 C. Supply Chain...4 D. Vendor Issues...4 E. Own Brand...5 F. Ranges Making the Right Selections...5 G. Knowledge of the Consumer...6 H. Managing Inventory Levels...6 I. Current IT Solution is Not Empowering Success...6 IV. Solution: Improved Processes and Business Insight...7 A. Start With Plans...8 B. Open to Buy...8 C. Controlling Markdowns and Margin Erosion...9 D. Impacting the Supply Chain...9 E. Building Better Ranges...10 F. Business Insight and Analytics Reporting...10 G. Store Line Tools...11 H. Multi-Channel Retailing...11 I. Integrated Systems...12 V. Summary and Conclusion...12

3 Introduction In the 21st century specialty retailers are competing not only with traditional rivals, but also with multi-national chains with deep pockets, vast scales of economy, and the most advanced technological tools. Therefore, smaller chain store businesses must arm themselves to effectively plan and be able to quickly respond to problems and changes. This paper is intended to show how retailers can succeed by improving their business processes, and utilizing technology available today. Integrated systems using analytics can provide actionable reports and insight into opportunities and trends. Executive Overview Retailers are operating in a more challenging environment than at nearly any point in the past 50 years. Few of these challenges are new, but it is the intensity and speed of change that is the driving force behind the increasing complexities and pressures. Retail has enjoyed a long economic boom cycle fuelled in part by many factors including: The European Union Increasing consumerism Internet commerce and communication Corporate expansion into new markets Improvements in global productivity Low inflation (in most western markets) This boom is coming to a halt in most western markets and many retailers are now feeling the impact of slowing economies. Rising fuel costs, a difficult real estate market, tightening credit, and lowered consumer optimism are all impacting consumer spending. In the US, home improvement, fashion specialty, and even stalwarts such as Wal-Mart, have reported stagnant or decreasing sales over the past year as consumers reduced their spending. The US economic problems and other global economic issues are beginning to be felt in Europe and may continue to pressure consumers and retailers in the near term. As consumers slow spending, retailers will be forced to work harder for growth many will face decreasing sales and profits. Competition now comes from many directions as new global retailers enter new markets. Additional competition comes from existing retailers as they expand their categories to look to increase customer spending. Competition may come from a retailer who does not even have a store, much less locations in your markets. Internet retailing has grown by double digits for much of the last 10 years, taking market share from traditional stores and shopping districts. These changes have impacted the consumer and their shopping behaviour. Loyalty due to location and convenience has decreased. They are educating themselves on product knowledge, pricing, and are exposed to merchandise options they may never have known existed. This new customer is looking for retailers to change with them, and offer new services, ranges, and channels. Additional pressures on retailers include lengthening supply chains as more goods are sourced from distant manufacturers. As retailers seek lower cost goods, countries such as China, India, Indonesia, and some former Soviet republics have replaced local sources for many goods sold today. As the distance increases, so does the lead times required to plan ranges and purchase goods. 1

4 With a slowing economy these pressures will continue to mount potentially driving many retailers out of business. Over the past decade technology has become a vital element to any retailer s plans for growth and success. With the decreasing cost of data storage combined with near universal usage of EPOS solutions, retailers have amassed lots of data. The problem now is how to see thru the clutter and find the key bits of knowledge needed. Standard reports and vast data files have not yielded the desired results, often leading to over analysis and delayed responses. Actionable business intelligence gained through the use of integrated systems and exception reporting enables retailers to make faster and better-informed choices. Effective solutions provide the right information when needed, removing clutter and allowing retailers to focus on reports that are more than just lists of data. Today s IT solutions can facilitate growth, improve inventory performance, increase margins, and raise customer service levels. New solutions can integrate or replace legacy systems to improve performance and enable the retailer to execute winning strategies. Having timely and effective business insight provides competitive advantage to retailers. Knowing what consumers want and don t want, before the competition does, can grow revenues and improve bottom line results. In fashion retailing, early recognition of a negative trend can allow you to cancel on-order or swiftly reduce pricing to minimize future deeper markdowns. In certain categories, such as hard lines, recognizing price sensitivity and quickly reacting to slowing sales can preserve basket size and impact customer retention. The Problems and Issues Facing Specialty Retailers The current retail environment is becoming increasingly unpredictable, economically gloomy and internationally competitive. This is giving rise to fierce competition for market share, putting pressure on costs and profit margins and forcing innovation. Retailers face issues of declining year on year growth as well as a new and rapidly evolving distribution channel the Internet. The top 200 retailers in the world control 30% of all global retail sales and this concentration is increasing. In their efforts to succeed in this tough environment, many retailers in various sectors are introducing new goods and services outside of their traditional lines. To this end, they are trying new formats, store sizes, product ranges and enhanced shopper services. The point is to capture a larger share of the customer s total spending power while that customer is in their store. Over the past few years, this category expansion is impacting the market share of traditional Specialty Stores and is being seen in many sectors. For example: Traditional grocers are adding petrol pumps, high quality prepared meals, greeting cards, and gifts all while improving core grocery assortments. Additionally, most grocers are expanding their product offering into higher margin health and beauty categories. In turn, drug stores are being pressured by this category expansion by grocers and hypermarts. To adequately compete specialty retailers are being forced to examine their services, assortments, and customer loyalty programs to find a viable solution. 2

5 Department Stores are being squeezed by hypermarts, mass merchants and large format specialty retailers who now are offering higher quality fashion and home items, as well with their buying power and expanded category selections. They in turn, are beginning to increase service levels, offer competitively priced own brand fashions, and are looking to build more localized assortments. Shoppers often see the same products in many different branded stores, and perceive little actual difference between retailers. Specialty retailers must find ways to differentiate from the competition through means such as service, store layout and design, use of technology, focused assortments, and pricing. The Problems and Issues Facing Specialty Retailers A. Multiple Channels B. Customer Behavior C. Supply Chain D. Vendor Issues E. Own Brand F. Ranges Making the Right Selections G. Knowledge of the Consumer H. Managing Inventory Levels I. Current IT Solution is Not Empowering Success A. Multiple Channels One important differentiator is the growing usage of the Internet by retailers. The challenge is to create an effective site that provides the same services and brand experience the consumer expects from this retailer. It is a daunting task for retailers to evolve from sites simply providing information to a comprehensive site with informative content on product, promotions, user interaction, and efficient merchandise purchase transactions. E-tailing has grown from nothing to a significant contributor of retail sales in the span of just a few years. With Internet sales growing annually by double digits, retailers must develop their online presence, or possibly risk their very future. More importantly, effective web sites will also increase foot traffic in the traditional stores. Many retailers unfortunately see the same customer shopping in their stores, websites and call centres but are unable to connect the purchase history or drive effective marketing to complement all channels. Leading retailers are learning to integrate their retail web sites with their brick and mortar stores so that both sales channels benefit. B. Customer Behavior Customers are increasingly feeling time constrained, many are also feeling a financial pinch as the economy slows. Various social, economic and demographic changes in the consumer population are causing major changes in: What they buy Consumers have become more selective in their spending, choosing a mix of luxury merchandise and discount merchandise. 3

6 Where they buy Consumers are moving away from traditional mid-priced department and specialty stores to variety stores, hypermarts, or discounters who offer low priced in-stock merchandise of acceptable quality. Luxury retailers are seeing mixed results; those who offer a value for the price are maintaining their business. Retailers who lack understanding of their customer are falling behind. How they buy Consumer focus is on commodities and core needs. Keeping up with fashion trends is becoming less important to many consumers. How much they pay Consumers are now more value conscious than ever before. Saving money on commodity items and purchasing at discounters when possible is becoming more common, yet many consumers are still buying luxury brands and services when they see value. The emergence of the Internet is driving significant changes in consumer behaviour. The control of information gathering has shifted to the customer. Products are researched and prices compared outside of traditional stores. Often this online research occurs outside retail channels, via professional product review websites, customer generated reviews, blogs, and even online social sites. C. Supply Chain On the surface the retail concepts seem simple: buy goods, pay for them, ship them, promote them, sell them, and replenish them. It is the complexities of the supply chain, and the pace of the industry that dictate what suppliers and manufacturers must continuously do to shorten response times and increase efficiency in order to fulfil retailer demands, and still remain profitable. In this current environment to improve supply chain process and profits, retailers are continually striving to lower inventory levels and to reduce the costs of handling merchandise (labour, warehousing, transportation, damages, shortage, etc). At the same time, they try to raise customer service levels. The problem is how to do both at the same time. With current systems, many retailers cannot effectively plan, buy, and allocate lesser amounts of inventory without negatively impacting store in-stock levels or reducing range selection. For example, for many retailers imported product for an August delivery may have been ordered from the manufacturer the previous January. Lead times of six to nine months are common for imported goods. Longer lead times have a direct correlation to decreased forecast accuracy. For example, in catalogue retailing, the forecast error for a size and colour of a style from the time of order to the end of its season can average + or - 40%. Hence the drive to develop shorter supply chains to reduce forecasting error. If a manufacturer can accept purchase orders closer to the time of need, and thereby reduce the retailer s forecast error it, in turn, reduces markdowns and lost sales. D. Vendor Issues As retailers grow in size, they frequently outstrip the capabilities of some of their smaller suppliers. Growth also increases supplier complexity, as new markets are added it becomes more difficult to source local vendors. These issues lead many retailers to source from larger and larger vendors to satisfy the inventory needs of the growing store base. Based on their national and international reach, these vendors offer brand status and additional marketing opportunities to the retailer. These benefits hopefully offset the commonality of assortment with the competition that may also be using these suppliers. 4

7 Quite often vendors are seemingly not as cooperative with smaller specialty retailers as they are with large multi-national tier one accounts. Mid-size specialty retailers have less leverage than larger accounts and must find ways to find favour with their suppliers. Cooperation with merchandise suppliers is often a hit or miss proposition. Some of the largest vendors are often the least reliable in terms of shipping goods on-time and with few substitutions. For retailers, the ability to respond to unexpected demand often requires working with suppliers to re-buy hot selling styles and delay/cancel slow selling styles if possible. Sharing forecasts, purchase plans and sales information is one way to do so but for many retailers system limitations and data integration issues impede many cooperation initiatives. E. Own Brand Working with suppliers of branded merchandise is not the only choice for procuring merchandise. Many retailers have developed extensive programs with private label and own brand goods. Product is manufactured for only that retailer and is typically priced below similar products from manufacturer brands. Most of these own brand products are sourced in Asia and other lower cost markets to help reduce product cost. This extra distance adds shipping time and further distances the buying decision from the time to store. However, this is offset by the potential for higher margins than traditional branded merchandise. While own brand products can offer increased control and margins the retailer carries substantially more risk. Private label goods have little chance for Return to Vendor privileges or potential for vendor markdown or advertising funds. This is further pressure on the merchants to design correct ranges and ensure goods flow into the stores in a timely manner. Trading in own branded goods requires increased insight and planning to ensure success. F. Ranges Making the Right Selections For retailers with multiple stores in multiple markets designing an effective range can be very complicated. As merchants become more specialized and distant from actual customers, they become reliant on reports and vendors for trend and market information. Buyers run the risk of purchasing goods that may work in Paris or London, but may be too fashionable for a customer in rural Spain. Products that sell well in the rural markets may not work in the urban centres. German customers differ in taste from those found in Italy or Portugal. Often the result of poorly received assortments will be an increase in markdowns or downward pressure on gross margins. Customers will shop elsewhere or wait until the merchandise is sufficiently reduced in price to trigger their decision to purchase. Either scenario is problematic for specialty retailers. Retailers also need to focus on the timely delivery of goods to their warehouse and to the stores. Even the right merchandise received too late runs the risk of missing the trend. Slow arriving fashion merchandise often ends up as end of season clearance. Commodity goods received too late may force customers to shop elsewhere to get the desired product when they need it lost sales and lower gross margins are the eventual result. Having transparency in the supply chain increases the retailer s ability to anticipate problems and react before it s too late. Having a clear understanding of product sales and stock levels is only a part of the picture. Being able to connect On-order with sales, inventory, and delivery schedules is very beneficial. For a merchant, time is important being able to efficiently connect vital information provides speed to market and increased reaction ability. The efficient use of time is a competitive advantage in retail. 5

8 G. Knowledge of the Consumer For specialty retailers, it is not always enough to drive turnover by designing ranges for your biggest customers. Slowly, there is an increasing realization that the traditional way of thinking about the customer may be flawed. The customer is always right may not in fact be a valid statement. Today, the informed consumer has placed downward pressure on pricing and gross margins by selecting what to buy and when often based on price comparisons found shopping online. For leading retailers the question is not who are my customers, but which customer groups are profitable. Many retailers have discovered that some of their best customers are the least profitable. Volume alone should not be used to decide on which customer groups the ranges should focus. Additional insight into the behaviour and purchasing patterns of consumer groups is needed to provide adequate input for shaping range and service strategies. Lacking effective insight into ranges and customers creates several issues. Items may sell, but not at full price, or not at the desired rate of sale. Retailers must quickly identify why styles do not sell as planned. Often it s not the product; the pricing may be higher than the consumer is willing to pay. In other instances, it is the wrong product for that customer and will only sell if heavily discounted. In either instance it s up to the merchants to decide when to reduce the price, and by how much. The problem facing retailers is how to link purchases to the customer groupings how to understand who buys what, and at what price. Often, the data is there, but accessing it can be very slow and complicated. H. Managing Inventory Levels In a weakening retail environment companies need to find ways to control spending, reduce expenses, and ensure the investment in inventory is productive. As the single largest investment a retailer makes is the cost of inventory any reduction here is very beneficial to the bottom line. Reducing stock levels is a simple way to improve cash flow and potentially reduce financing costs. However, inventory reductions come with significant risks. Stores can run out of key styles and lightly stocked fixtures can disappoint consumers. Managing inventory levels involves many skills and processes such as merchandise, range, and space planning. Leading retailers use Open-to-Buy (OTB) to manage inventories vs. plan during the season. Planning and OTB combined with effective replenishment & allocation enable retailers ensure a fresh flow of goods to the stores whilst effectively controlling inventory and markdown levels. I. Current IT Solution is Not Empowering Success For many specialty retailers an integrated approach to inventory control is not possible. Outdated legacy systems often cannot support advanced planning and inventory management tools and processes. Modern forecasting and replenishment solutions require extensive data and need to be integrated with core merchandising systems such as inventory, pricing, sales, planning, and SKU files. Multiple integration points are often problematic within IT environments with extensive custom designed solutions and older legacy applications. Reacting to problems is not as effective a solution as a well planned and executed strategy. Price reductions, inventory cuts, and added markdowns only serve to ease the symptoms of core sales problems. These 6

9 activities are reactionary in nature, and do nothing to prevent many of the same problems from occurring again in the future. Outdated technology and aging legacy systems impact the ability of retailers to effectively plan and manage their business. Most larger retailers maintain 2-3 years worth of weekly sales and inventory by store data. Some even maintain five or more years of this data. Daily sales records at the transactional level are held for much shorter times by most three to six months is common, though this too is growing to 12 months or more. As the cost of data storage has fallen, many retailers have expanded their historical data holdings, and are trying to find productive ways to extract wisdom from it. There are numerous IT issues for retailers with outdated systems. The sheer volume of data can often overwhelm many users and processes, causing paralysis and slowing decision-making. Many merchants invest hours each week creating exhaustive reports to recap their business. Often these reports will clash with data from another source as many retailers have multiple sources for key figures such as sales and inventory levels. Lacking clarity in the numbers, the users often begin to design their own analytical tools and reports outside the main system. Decisions that should be made in minutes now stretch to hours. Productivity is restricted and job effectiveness suffers. Buyers and mangers often make instinctive decisions instead of informed choices. Users become frustrated with poorly designed interfaces and limitations on access to needed data. Merchants begin to build environments of their own design and may be limited by the scope of their knowledge in developing effective tools to perform their tasks. Solutions: Improved Processes and Business Insight The single store owner plays multiple roles store manager, buyer, planner, and financial director. While a daunting task, this multi-tasking owner is close to the consumer and has a good understanding of current demand. However, as retailers grow in scale the distance increases between customers and the people making the buying and merchandising decisions. Layers of staff now stand between the buyers and the consumer. Store-line management now focuses on running the stores and has become less involved in merchandise procurement. Their intimate knowledge of local consumer needs and underlying trends is not often shared with teams of centralized buyers and merchandisers. Data flows poorly and is frequently enhanced by each layer to meet their specific needs and goals. Effective business insight relies on integrated systems providing a singular view of all relevant data. Users need quick access to sales, inventory, and other figures without confusion over which numbers are accurate, how to retrieve them, and without a degree in programming. Core analytics should be correct, simple to access, timely. Ad hoc reporting shouldn t require hours of delay while waiting for an overnight batch job to process the request. To that end, true business insight requires effective gathering of data, building of plans and efficient analysis of a variety of Key Performance Indicators (KPIs) to drive success. 7

10 Effective Business Insight Relies on Integrated Systems A. Start With Plans B. Open to Buy C. Controlling Markdowns and Margin Erosion D. Impacting the Supply Chain. E. Building Better Ranges F. Business Insight and Analytics Reporting F. Store Line Tools G. Multi-Channel Retailing H. Integrated Systems I. Summary and Conclusion A. Start With Plans For retail companies to be successful in this climate requires corporate policies that set and deliver performance objectives. To achieve this requires an awareness of and pro-active approach to the marketplace, increased flexibility based on greater information management and supply chain control. All company functions have to act together to deliver the corporate policy and achieve company goals and objectives. A main function of annual financial planning is to establish budgets for payroll, inventory, shortage, operations expenses and other headings. Additionally, these financial plans are used as the basis for creation of lower level store and merchandise plans. Planning is the essential first step in controlling and managing the inventory and the business. As strategic planning becomes more ingrained into the core processes of retailers, many other issues arise. Issues relating to plan ownership, version control, and data inputs become vital to producing optimal plans. Modern software solutions can integrate strategic plans with merchandise plans as well as interact with core merchandising systems such as sales, inventory and purchasing. Merchandise plans encompass projected sales and required stocks to achieve sales targets, margin and markdowns to ensure required profitability. These plans are developed at business level down to the Department or even to the Class level. These merchandise plans are a critical process and impact across the company. From these derive Range Plans and the Open To Buy. Merchandise plans also form the basis for establishing baselines defining success or failure. Merchandise plans should be included in all comparisons of sales and inventory performance on a monthly and weekly basis. Store level financial plans are also created to establish sales and inventory goals as well as labour and controllable expense budgets. These plans should also be reconciled to topside financial plans to ensure continuity throughout the company. Integrated planning solutions allow for efficient production of merchandise plans and facilitate effective inventory and markdown control once the season begins. For larger retailers with separate merchandising and range planning processes, integrated systems are critical. The ability to validate and compare these plans is vital to the creation of sound plans. Legacy and disparate systems often are cumbersome to integrate, causing disruption and loss of accuracy in the planning process. Utilizing ERP systems to eliminate many integration points often solves this problem. B. Open to Buy Fashion retailers and other sellers of seasonal merchandise, such as toys, use Open-To-Buy (OTB) extensively. Some retailers with very stable inventories that don t peak very much tend not to use OTB techniques. Open-To-Buy exists in two forms: The OTB plan produced in advance of the season or year, as part of the merchandise planning process. An in-season or in-year control mechanism updated on a monthly or weekly basis. (Fashion retailers tend to monitor OTB weekly; retailers selling less trendy merchandise tend to do this monthly). 8

11 Difficulties for those with disparate systems often involve the linkage of the OTB to the locked merchandise plans. This is not only an integration issue, but one of concept. The problem with reconciling the merchandise plan with the OTB is the expectation that once completed, plans should not change. Instead the Open to Buy uses a forecast, which can be compared to the planned numbers for future months. The relationship that effectively links the two is not the actual financial plans in Euros, but the percents contained in the merchandise plans. A key aspect of using an OTB is the agreement of the revised forecast between the merchant and their senior merchant (or owner perhaps in a small company). Once they agree what the future might look like, they can then discuss an action plan to impact on-orders, markdowns or even the promotional calendar to reflect their new view of what is to come. For example, if a retailer is not meeting sales plans, they should look to reduce future purchases (where sensible) to maintain the inventory to sale ratio previously planned. The Open-To-Buy, if run properly, can ensure ample merchandise for the consumers while maintaining the integrity of the financial plans. It should help deliver the planned profitability expectations of the company. Additionally, it serves as an early warning if the plans are substantially wrong, allowing senior management to act. By design, the OTB is not a sophisticated forecasting tool, but is vital to manage the actual turnover results to help achieve the goals in the merchandise plans. One of the keys to successfully implementing an Open-To-Buy process is integration to other core merchandising processes and systems. Processes and systems such as purchase order management, merchandise and financial planning, warehouse management, and inventory management should all be linked to the OTB process. C. Controlling Markdowns and Margin Erosion Poorly designed ranges are deadly to fashion retailers. Sales and margins fall, inventory levels tend to rise, and cash flow is eroded. Often tightening inventory levels and lowering weeks of supply can help cash flow, but often negatively impact sales by increasing out of stocks. Part of effective range planning involves determining key styles and classes and building detailed plans for them. Planning these key styles and classifications should insure that you have product to drive sales. Effective range planning at lower levels will ensure having the correct amount of merchandise where, and when needed. Although retailers should expect and plan for a certain level of markdowns, it is important to control these reductions; they directly reduce gross margin and, therefore, profitability. Good merchandise management and use of the OTB can identify problems early, allowing quick reaction to problem stocks. D. Impacting the Supply Chain One of the most important drivers towards supply chain efficiency is sharing data between the partners in the supply chain. It removes the uncertainty that is probably the biggest contributor to the creation of unnecessary mountains of safety stock at each point in the supply chain. The sharing of data needs to be bi-directional so that all parties have complete visibility up and down the supply chain. Retailers need to share information with both manufacturers and product suppliers on what is selling and the current inventory position. From this it becomes possible for the partners to re-forecast likely requirements and align production with customer demand. They can ensure that sufficient inventory is available to fulfil purchase orders without time delays. In a similar way, suppliers need to make retailers aware of what raw materials are available now and what is in the pipeline so that retailers can place purchase orders accordingly. 9

12 Sharing information has been shown to have an additional benefit: it encourages the supply chain partners to act increasingly as if they were one enterprise, working toward the goals of the whole and not the parts. In short, one benefit leads to another. Sharing information with vendors is facilitated by web based portals. Portal technology allows secure access for suppliers to a variety of authorized reports and information. Vendor specific purchase orders, forecasts, plans can all be accessed as well as selling and inventory reports. Portals eliminate worries about software compatibility, timely sharing of data, and the expense of faxing or mailing orders and reports to suppliers. E. Building Better Ranges Providing buyers and merchants with improved access to sales and inventory analysis enables them to spot trends and opportunities for growth. Simplifying reporting by presenting actionable reports and removing clutter enables the merchants to make informed choices and rely less on instinct. Increased knowledge of customer behaviour whether by specific Customer Relationship Management (CRM) applications, or through enhanced usage of existing POS, credit card, and external data will help shape a more effective range strategy. Retailers gain advantage by grouping their customers by type of goods purchased and various socio-economic demographics. By creating customer profiles, retailers not only understand what is being purchased, but what else the various customer groups might purchase. Combining improved range strategies along with effective range review analysis can increase sales, inventory productivity and gross margins. Integrated systems with efficient data warehouses, planning tools, and effective analytical abilities facilitates effective range planning and analysis. F. Business Insight and Analytics Reporting As our ability to store, manipulate, and communicate data has evolved, for many retailers reports have remained as they were in the 1970 s. Traditional reviews such as Sales & Stock, Best Sellers, Daily Flash Sales, Position Sheets, and On-Order reports are no longer sufficient to effectively compete. For all retailers, weekly and monthly performance reviews are essential elements of effective business insight. While this is considered standard practice for most retailers, it is only the beginning. Modern IT solutions offer vast analytic functionality including exception reporting, custom reports, practical ad-hoc analysis capabilities, and most importantly speed. Leading retailers have redesigned traditional reports from merely presenting information to be reviewed into actionable insight. The difference? Actionable reports eliminate content that requires little or no action on the part of the reviewer. For instance, weekly Best Seller reports are common for most retailers. However, what can a merchant actually do with this information? The entire report must be studied to identify potential lost sales, overstocks, excessive markdowns, etc. An actionable report alternative could show the top 10 selling items with low on-hands and no on-order. Another could be slow selling styles with excessive on-hands plus additional merchandise on-order. It s the difference between nice to know and need to know. For specialty retailers, there is a variety of danger signs to watch for when reviewing performance, these include: Unplanned and continual decreases in comp store performance. Decreasing margins (gross and net) vs. plan while maintaining sales rates. Excessive markdown rates further eroding margins. Sustained overages in expense percents compared to plans. This could include: Increases in labour costs wages, benefits, etc. Overspends in store maintenance budgets. Sustained losses in cash investments, etc. Poor inventory sell-through rates vs. plan Excessive amounts of older inventory 10

13 New solutions offer the ability to create or customize your own reports. While virtually all merchandising and financial solutions provide reporting, competitive advantage comes from having actionable reports. These actionable reports enable quick response and provide immediate focus on the key business issues. Speed of response is vital to the mid-size retailer having the right IT solution can provide this edge. G. Store Line Tools Technology has made tremendous impacts on store productivity over the past 20 years. EPOS has greatly improved pricing accuracy, visibility into SKU level inventory records, and dramatically decreased the time required to ring a transaction. The focus is now on supplying store management and staff with valued insight in real time. Time compressed store management need tools that provide them with and key reports via mobile devices, Kiosks, and EPOS terminals to increase productivity and effectiveness. Mobile devices can provide customer service by providing product information, pricing, and links to inventory search, functions. Customers can utilise Kiosks to scan loyalty cards for printing of customized coupons, viewing expanded assortments that can be special ordered, or to print a gift registry. Integrated applications and databases can empower store staff to complete their tasks in less time, with more accuracy. H. Multi-Channel Retailing The consumer now expects brand unity and seamless integration between channels. Customers have the same expectations of their experience with a retailer regardless of contact point. A high service retailer should provide that level of service with every channel. Retailers who trade on price and convenience must offer the same throughout their channels as well. It is the integration of catalogues, call centres, internet sites, and traditional retail stores that provide the complete experience for the consumer. An effective multi-channel strategy should have a single view of the customer across all channels. Regardless of where she shops, the customer s transactions should be visible in any channel when needed. As far as the consumer is concerned, she sees the retailer as a single entity web, catalogue, kiosk, or store it s all the same to her. This view of the brand as a unified company is often stronger in the customer s mind than in the retailer s. An effective multi-channel retail strategy should focus on two main issues to facilitate a strong response. First, be sure to integrate your key systems and processes to present a smooth, seamless experience for the customer. Secondly, customer data must be guarded and secured at every point. Common product files, pricing, payment options and other data are important to ensure a uniform customer experience across each channel. The commonality of this data allows the unification of supply chain such as warehouses and distribution centres with call centres, vendors, buyers, and the store and internet channels. Having the same item file for all channels eliminates confusion on how to ring a returned article back into stock at a store till. For those retailers with customer databases, the ability to recall a non-store transaction eliminates other issues with a return transaction. Store sales associates can recall a customer s original purchase whether online, catalogue or store via the till and quickly complete a return transaction. 11

14 V. Summary and Conclusion I. Integrated Systems Effective business insight has a few core principles when looking at technology requirements. A primary concern is to have an integrated solution with quick and efficient data flow between applications. This core requirement ensures that all systems and users are utilising the same set of data for analytics, planning, allocation, OTB, purchasing, etc. Integrating disparate legacy systems with newer applications can be complicated and time consuming at best. Many businesses and retailers have chosen to implement enterprise wide solutions (ERP) to eliminate much of the integration concerns. ERPs offer efficient integration at the core of their functionality. Merchandise management is connected to finance, to purchasing, to planning, and so on. The effort to change several core systems at one time can be easily offset by the reduced labour to integrate many systems and the related risks entailed. Users typically prefer an ERP type environment as it ensures that commonality in the look and feel of the applications. Training time is reduced and productivity increased as once navigation is understood in one application it is easier to learn the next. Succeeding in a challenging environment takes more than talented buyers and engaged store staff. Over the past decade the customer has evolved in how they shop and competitors have grown in scale and capability. Technology has been a driver of change and a facilitator for success. Retailers must evolve to survive and to grow. Understanding customer behaviour, creating effective plans, quickly spotting trends, and having visibility throughout the supply chain is vital. As discussed above, actionable weekly and monthly analysis is important to review actual performance vs. planned expectations. The objective being to quickly recognize potential problems and issues before they become threats to the company. The advantage of actionable reporting is quick, practical insight into trends both positive and negative. Ignoring or missing warning signs of poor and unwanted performance over time can lead to a risky future. Use of integrated systems and processes is a critical component in driving effective business insight enabling successful retailers to stay ahead of the competition and to grow market share. For IT managers and directors, an ERP greatly simplifies the operational issues. With a single vendor Upgrades are planned and easier to execute. If there are any issues, only one vendor needs to be contacted. Staff need only learn one system you don t need specialist for each application. Data management is simplified. 12

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16 About the Author Martec s core competence is in retailing and supply chain management. We apply best practice business processes, information technology and learning methods to improve retail performance for our clients. Martec International is a leading consulting and training firm, specializing in merchandise management, supply chain management and store operations business processes. With a professional staff comprised of former retail executives and managers, Martec works with leading retailers around the world to improve their business performance. 40 High Street Taunton Somerset TA1 3PN United Kingdom Phone: +44 (0) Fax: +44 (0) sales@martec-international.com Web Site: Copyright 2008 by Martec International Ltd. All rights reserved. No part of this publication may be reproduced, transmitted, transcribed, stored in a retrieval system, nor translated into any human or computer language, in any form or by any means, electronic, mechanical, optical, chemical, manual or otherwise, without the prior written consent of Martec International Ltd, 40 High Street, Taunton, Somerset, TA1 3PN. Microsoft Dynamics is a line of integrated, adaptable business management solutions that enables you and your people to make business decisions with greater confidence. Microsoft Dynamics works like familiar Microsoft software such as Microsoft Office, which means less of a learning curve for your people, so they can get up and running quickly and focus on what s most important. Built to work with Microsoft technologies, it works easily with the systems your company already has implemented. By automating and streamlining financial, customer relationship and supply chain processes, Microsoft Dynamics brings together people, processes and technologies, helping increase the productivity and effectiveness of your business, and helping you drive business success. Worldwide (1) (701) U.S./Canada Toll Free (1) (888)