Workforce Management. Retail Strategies Utilizing Improved Forecasting Methodology. Executive Summary 2. Strategic Planning 3

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1 Retail Strategies Utilizing Improved Forecasting Methodology Executive Summary 2 Strategic Planning 3 Increased Accountability 4 Labor Scheduling 5 Bonus and Compensation 6 Merchandising 6 Marketing 7 Conclusion 7 info@atlasworkforce.com Telephone: (901)

2 Executive Summary In the highly competitive and ever changing world of retail, companies must achieve a delicate balance between top-line sales and bottom-line expense control. The ability to accurately forecast sales trends, customer flow, and market demands is essential to maintaining a competitive edge in the marketplace. Utilizing sophisticated forecasting technology helps achieve this edge and improve financial performance while balancing top-line and bottom-line objectives. Many retailers use some form of forecasting methodology within their supply chain to predict demand and provide replenishment to their stores. However, functional areas such as Strategic Planning, Operations, Merchandising, Marketing and Compensation can benefit from improved forecasting technology. This improved ability to forecast future events not only benefits the company s top-line growth, but also addresses risk, aids in planning and improves bottom-line performance. Page 2 of 7

3 Strategic Planning Proper forecasting is essential to, and provides the foundation for, a good strategic planning methodology. Many retailers use the previous year s actual sales as the starting point for strategic planning, and then layer growth expectation across the board to achieve financial goals. While sufficient to create a basic strategic plan, this methodology does not provide the means to effectively identify and address risk in the plan. This can cause substantial headaches as the company struggles to achieve their financial goals, many times forcing substantial cost reductions to achieve EBIT. Using an accurate forecasting strategy creates a base-line sales forecast that can be adjusted with the company s anticipated sales initiatives, events, and sales objectives. All functional areas can use this sales forecast to plan company expenses and identify areas requiring additional strategic objectives to reach the company s desired financial goals. This allows every functional area to work from the same starting plan. Having a base-line forecast of expectations to compare to the plan will help identify any areas or times of plan risk. These can be addressed with additional sales strategies and objectives or cost reduction initiatives. Accurate forecasting in planning also provides the ability to monitor how actuals are trending to forecast and plan weekto-week, so that adjustments and latest estimates can be made long before the end of the quarter. Better weekly plan management helps achieve quarterly financial goals. Page 3 of 7

4 Increased Accountability Many retailers can not properly address specific areas of both good and bad performance across their chain. Field is addressed as a group when evaluating sales performance, without being able to call out the top performers or coach the under performing markets. An accurate forecasting system provides detailed sales goals by market or management hierarchy. This leads to increased accountability for sales. A base expectation can be set for each field manager that rolls up to the total company plan. This allows Senior to focus on top performers as well as quickly identify areas requiring coaching or intervention. Additionally, having an accurate measure of performance to the sales forecast allows Senior to better manage total company goals by identifying markets that are not achieving goals and markets that are making up the shortfall. This allows for more detailed and focused strategies to improve execution and achieve company sales goals. Page 4 of 7

5 Labor Scheduling Store labor is the largest controllable expense for most retailers. Labor scheduling and workforce management are areas that can receive the biggest benefit from accurate forecasting. Many retailers employ some form of labor model and scheduling methodology. However a good model and scheduler are only as good as the forecast they are based upon. Even if an appropriate amount of total labor is run, that labor is not always in the correct place hour-to-hour, day-to-day, week-to-week and store-to-store. Implementing an accurate forecast ensures that labor can be optimized throughout the week to specific customer service goals. Having an accurate forecast leads to reduced employee downtime, increased productivity, increased average ticket, and improved customer service. Improved forecasting also leads to developing forwardlooking staffing models. Having an accurate forecast, combined with a good labor model is essential in determining the number of full-time and part-time employees required to achieve customer service standards. This allows for better and more flexible staffing mix models to provide better coverage during sales peaks, improve customer service and improve employee morale while reducing turnover. It also allows Human Resources and field operations more lead-time to recruit and hire qualified store staff. Page 5 of 7

6 Bonus and Compensation An effective compensation or bonus program requires creating realistic and achievable goals that provide confidence to bonus eligible employees while achieving company growth initiatives and expectations. The foundation for a good bonus or compensation program is similar to the strategy of increased accountability and requires a similar forecast approach for success. Utilizing an accurate forecast as the base line of bonus targets provides increased buy-in, defendability of targets, improved execution and less need for adjustments. Merchandising A retailer s merchandising department can use quality forecasting for two main areas; planning category sales and predicting demand spikes. Merchandising s category sales forecast is an excellent starting point for strategic planning. Creating an accurate category sales plan provides Merchandisers a tool to address trends and issues in their category and identify shortfalls to their plan. This can be used during line reviews or category updates to strengthen offerings and ensure that financial objectives are met. It can help identify category trends to determine life cycle factors and aide in decision-making. An accurate sales forecast helps predict spikes in category sales. Anticipating spikes can ensure that line reviews and store category updates are performed at appropriate times to maximize coverage and inventory. It can also be used to help shorten the purchasing cycle and improve inventory levels across stores and distribution centers. Page 6 of 7

7 Marketing Measuring the effectiveness of marketing campaigns and initiatives relies on the ability to accurately forecast a base line expectation. To properly measure a marketing campaign, you must know the expected results without it. Providing an accurate forecast by market or ADI can help the Marketing department focus campaigns in areas where they are the most successful, and focus on Marketing strategies that produce the best results. An accurate forecast identifies areas with new or increased competition. It also helps identify other factors that may adversely affect sales, so that strategies can be developed to address shortfalls and counter competition. It provides Marketing a focused path of offense and defense to specific markets and areas of external pressure. Conclusion There are a wide variety of uses for accurate forecasting within a retail organization that can improve top-line sales as well as bottom-line EBIT. While most retailers have utilized accurate forecasting within their supply chain, there is substantial opportunity to provide accurate forecasting models to Finance, Operations, Merchandising, Marketing and Human Resources. This strategy will provide tools to improve financial performance, address risk, improve customer service, increase accountability and improve execution, focus product offerings and inventory levels, and measure and implement productive marketing strategies. For more information on forecasting strategies, contact: ATLAS WORKFORCE MANAGEMENT LLC (901) sales@atlasworkforce.com Page 7 of 7