Retailers world-wide are losing $818 billion annually due to inventory distortion the combined cost of out-of-stocks and lost sales, and overstocks that retailers must discount deeply to sell. IHL Group THE NEW INVENTORY IMPERATIVES 3 Steps To Meeting Consumer Demand With Optimized Multichannel Inventory Management Forward-thinking retailers are accessing new inventory strategies in order to meet the challenging demands of today s connected consumers. Item-level RFID and distributed order management tools are two advanced technologies that support this goal. Additionally, the availability of in-store mobile empowers store associates to deliver faster, more accurate service and ensures seamless cross-channel integration. Updated inventory strategies also will eliminate some of the annual losses felt from out-of-stocks and overstocks. Retailers worldwide are losing $818 billion annually due to inventory distortion the combined cost of out-of-stocks and lost sales, and overstocks that retailers must discount deeply to sell, according to the 2nd Annual Inventory Distortion Study released May 2012 by IHL Group. The disconnect may lie between retailers outdated inventory systems and customers more complex, Source: 2012 Tyco/IHL Group Inventory Distortion Study omni-channel shopping preferences. Traditional inventory models and new customer behaviors aren t compatible. Many of these system segments require a refresh with newer technologies designed to meet the omni-channel shopper s needs. One key way merchants can delight customers is by offering the same merchandise at the same price across channels. Currently, less than 18% of surveyed retailers offer the same SKUs across channels, according to The State of the Retail Supply Chain study,co-developed by the Retail Industry LeadersAssociation (RILA). 2
60% of multichannel shoppers said customer service was their top store-level priority, followed by multichannel integration (52%). Boston Retail Partners INVENTORY EFFICIENCIES BOOST CUSTOMER SERVICE Excellent customer service always has been essential to retailers and is now a top priority for the multichannel shopper, according to Ken Morris, Principle, Boston Retail Partners. Morris reported that 60% of multichannel shoppers responding to BRP s 13th annual POS study said customer service was their top store-level priority, followed by multichannel integration (52%). In contrast, in the same study, only 37% of retailers saw cross-channel integration as very important to their customers. This gap underscores the opportunity for retailers to readjust their inventory systems with customer-centric fulfillment processes that best serve this evolving, multichannel customer. In a similar contrast, just over half (58%) of consumer goods manufacturers and retail companies rank order efficiency as a key strategic area, according to Aberdeen Group s recent Omni-Channel Retail Experience report. In fact, only 32% of companies share up-to-date order management and execution information across channels, and even fewer (27%) possess processes for up-to-date fulfillment planning across all channels. Shoppers don t experience retailers revenue loss from inventory distortion directly, of course, but do experience its unfortunate effect on retail customer service. Crosschannel shoppers have an unforgiving view of the offending retailer, especially concerning out-of-stocks related to items purchased online for delivery in store: In this kiss of death scenario, 60% of respondents in the IHL study said they would never shop at that store again. And with the power of social media, hundreds of thousands of potential customers may learn of the event by the next day. 3
While merchants realize the need for visibility and interactivity as essential to providing a seamless experience within channels, that integration presents challenges, primarily for cross-channel orders and fulfillment. Those retail services and their current omni-channel maturity levels, as provided in the BRP study, are shown here: RILA also emphasized the challenges of serving multiple channels, such as variations in shipment size, order filling processes, delivery methods and related issues, according to its Retail Supply Chain report. Multichannel retailers inconsistent SKU mix compounds this problem: Less than 18% of the companies RILA researched offered the same SKUs across channels. The new retail inventory imperative is to create a seamless customer experience, despite the fulfillment channel order size, origin or delivery preference. Multichannel fulfillment is all about retailers having the supply chain operations and processes to fulfill the traditional store orders at the same time as individual customer orders, according to Casey Chroust, EVP of Retail Operations for RILA. Macy s, Inc., for example, emphasizes multichannel integration at both Macy s and Bloomingdale s. According to Macy s web site, the integration helps create a 360-degree view of the customer to better serve her needs across channels. This in turn drives sales in both stores and online. According to the site s Innovation page, online sales (Macys.com and Bloomingdales.com combined) have grown significantly, and with the addition of new distribution centers, free shipping on orders over $50, and international shipping, Macy s expects the dramatic growth trend to continue. 4
Saks is using solutions from Oracle to enable a vision of one customer/one product/one inventory, through a seamless set of business processes supported by proven technology tools. Saks Fifth Avenue also is implementing an omni-channel approach as it builds its next-generation retail environment: Saks is using solutions from Oracle to enable a vision of one customer/one product/one inventory, through a seamless set of business processes supported by proven technology tools, according to a company press release. Relatively smaller retailers also are onboard: Aritzia, a 50-chain Canadian women s apparel store, has implemented a supply chain execution solution from RedPrairie to offer an omni-channel buy-anywhere, fulfill-anywhere business model to its customers. As dozens of retailers of various sizes address or contemplate the new imperatives for multichannel inventory optimization, the related challenges multiply as consumers embrace even newer digital technologies for shopping and buying. Now is the time to push forward. The following three steps open the way to a fundamental implementation framework. 5
Retailers are committed to merchandise preorder, localization of store inventory and in-store pickup. National Retail Federation 3 STEPS TO OPTIMIZING MULTICHANNEL INVENTORY MANAGEMENT Today s potentially complex and multifaceted approach to multichannel inventory optimization is condensed here into three basic concepts: 1) new inventory strategies, 2) targeted technology solutions, and 3) the power of in-store mobility. STEP 1: Assess Current And Future Inventory Strategies Retailers responding to NRF s Retail Horizons study noted their plans for three distinct strategic inventory optimization initiatives: merchandise preorder (approximately 76% vs. 50% today); localization of store inventory (43% of retailers, compared to 23% today); and in-store pickup (37% vs. 27% today). A fourth approach, direct-to-consumer fulfillment, includes three fulfillment options: integrated, dedicated and hybrid. Merchandise Pre-Order is a trending fulfillment strategy that can benefit both shoppers and retailers. Shoppers can gain access to a potentially popular item that might sell out on the first day of release. Many retailers offer a coupon or other incentives to customers who preorder. For the retailer, preorders guarantee a certain number of items sold and, in many cases, prevent the customer from buying the item at a competitor s store. Merchandise preorder is a win-win for inventory management, according to the NRF study, which revealed that 71% of retail respondents either plan to implement this strategy by the end of 2013, or currently have it in place. Localization of Store Inventory: In an effort to reach shoppers in the most one-on-one method possible, retailers are localizing inventory based on their knowledge of customers in a region or particular store. This strategy not only requires the sophistication to collect and assess customer data, but the multichannel fulfillment capabilities to deliver localized inventory when and where customers want it including direct-from-store shipping. 6
Macy s has customized its merchandise mix by region, city and even store level, based on a detailed profile of the customer and what she needs. Localization is a key component of Macy s strategic formula for continued growth and success, according to Macy s web site. With My Macy s, the chain has customized its merchandise mix by region, city and even store level, based on a detailed profile of the customer and what she needs. The strategy calls for approximately 15% of merchandise specifically to be chosen for customers who shop a particular store, an innovative idea that s now being adopted by other leading-edge retailers. My Macy s was launched in 2008 at 20 test locations, with results from those sites outpacing other stores by 2.5% in same-store sales, according to the web site. In 2009, all of Macy s top 12 sales growth markets encompassed the initial My Macy s pilot districts. My Macy s then rolled out across all Macy s stores. [Retailers] need a legitimate local presence with a credible curation of inventory to match, noted Nikki Baird, Managing Partner, RSR, in a recent blog post. That can t be done without on-the-ground input from a local store. But they also need visibility and access to that inventory from across the chain. It s very difficult to promise a product to ship from store if you don t really have a good idea of what that store is buying and stocking. And the pressure on inventory isn t going to stop financially speaking, no one wants to carry a shred of inventory more than what is needed. But when you match that up with a localization strategy, you find that it stretches your inventory pretty thin a lot of SKUs without a lot of depth behind them. And that increases your risk of stock-outs. Throw in demand coming from unexpected channels, like when your store suddenly becomes a fulfillment point for online demand, and the problem grows even more complex. Personally, I think this is going to become an even bigger issue in the future. Localization is one of the few extremely effective ways for store-based retailers to compete with the rapidly growing e-commerce giants, said Sean Deale, Retail Industry Analyst at RetailNet Group. In his article entitled 5 Ways Chain Retailers are Localizing Their Stores, Deale said retailers including ShopKo, Trader Joe s, Walgreens and Walmart have incorporated a range of interesting localization strategies. A number of retailers, including ShopKo, Trader Joe s, Walgreens and Walmart have incorporated a range of localization strategies. 7
91% of consumers said they would take advantage of in-store pickup if it were available. Sterling Commerce In-Store Pickup: Order online and pickup in-store is a major priority, with 91% of consumer respondents saying they would take advantage of this option if it were available, according to a survey conducted by Sterling Commerce. Conversely, 54% of retailers said they didn t offer this service, and 29% of those do not plan to offer it. In-store pickup and returns is an absolute necessity to differentiate store assets versus online-only retailers, said RILA s Chroust. There s no more disappointing customer experience than a failed in-store pickup. If a customer actually drives to a location to receive an item and it s not there, that is one of the worst failures a retailer can have. Direct-to-Consumer Fulfillment: Direct-to-consumer delivery is gaining momentum as the fastest growing retail segment, according to the RILA report: More than 85% of respondents noted that direct-to-consumer fulfillment will command greater attention in the future. As the volume of direct fulfillment activity grows, direct channels have become more strategic. This approach s various fulfillment options and issues include: 1. Integrated Fulfillment: Retailers can utilize existing facilities to leverage inventories across channels. Items then are segmented during shipping activity; 2. Dedicated Fulfillment: Independent fulfillment centers are developed and categorized by selling channel. Operations within each center are tailored based on specific order profiles, frequencies and value-added service requirements of each channel or customer type; and 3. Hybrid Methods: A combination of integrated and dedicated fulfillment centers, hybrid strategies allow retailers to build their own models. For example, merchants can have separate inventories for retail replenishment and consumer-direct orders in a single facility, according to the RILA report. Once retailers determine the best strategic approaches for optimizing their multichannel fulfillment, next they must consider the various solution technologies that serve these strategies. 8
STEP 2: Choose The Best Inventory Management Solution Billions of (RFID) tags on apparel items are expected in supply chain and in-store environments across the world over the next few years, including more than 1.5 billion by the end of 2012 alone. Michael Liard, VDC Research While a variety of solutions serve the purpose of improving inventory optimization, two stand out most recently as up-and-coming and innovative: RFID and Distributed Order Management. Other solutions that help improve inventory management should not be ignored: merchandise planning; allocation; markdown and space optimization; predictive analysis; and sales forecasting. RFID: RFID reveals a more accurate picture of in-stock quantities at each store, and is ideal for multichannel retailers. It also can be used by associates to find a product within a store and prepare it for pickup providing faster search speeds and higher success rates. As retailers and brands announce new RFID deployments for the visibility and accuracy it offers, the real story about RFID in retail is the benefits of RFID in item-level tagging, stated Michael Liard, Director of RFID for VDC Research. Based on current trends in activity, VDC is forecasting a significant acceleration of the uptake of item-level RFID adoption in retail over the next three to five years, he said in his May 2012 Research Brief. The end result is billions of tags on apparel items expected in supply chain and in-store environments across the world over the next few years, including more than 1.5 billion by the end of 2012 alone. Bloomingdale s, Dillard s, Gap, Macy s, JCPenney, New Balance, Saks Fifth Avenue and Walmart are among the retailers and brands active in item-level RFID. A study released February 2012 by VICS Item-Level RFID Initiative reported that item-level RFID may be creating a competitive advantage for early adopters by giving them better inventory accuracy, visibility and insight, enabling them to improve in-stock positions and increase sales. It also reported that the technology now can drive improvements several orders of magnitude better than current standard methods, according to the report. The study indicated that most major apparel and footwear retailers will adopt RFID technology in some part of their businesses within the next three to five years if recent momentum continues. 9
Distributed Order Management gives retailers the ability to capture, manage and optimize orders, regardless of origin. Retail Industry Leaders Association The market for RFID transponders, readers, software and services will generate $70.5 billion from 2012 to the end of 2017, according to ABI Research. Retail is one of the three most valuable sectors that account for 60% of accumulated revenue over the next five years. Efficiency and improved operational capability are the overriding goals behind this adoption. Retail growth is driven by the proven returns that item-level tagging can deliver. Stock is less likely to get lost, shop floors are better stocked, and the ordering process will get smarter. Retail in particular is set to experience very strong growth, noted John Devlin, ABI Group Director. In fact, it will become the single largest RFID sector by 2015. Distributed Order Management: DOM software gives retailers the ability to capture, manage and optimize orders, regardless of origin, whether computer, retail store, kiosk or mobile phone, according to the Retail Supply Chain from RILA. After order capture, the DOM system identifies the fulfillment facility or channel that best serves the customer and the retailer. Automated selection is based on inventory availability, cost of delivery, order processing capacity, customer requirements and other related factors, the report noted. The chart below shows the top four strengths of DOM capabilities and their ranking, as reported in the RILA study: CAPABILITY RANK Provides global real-time visibility of inventory and orders 1 Enhances fulfillment work flexibility and integration 2 Supports multi site sourcing and merge-in-transit for individual orders 3 Supports order tracking, modification and cancellations through order cycle 4 Enables enterprise-wide optimization of order fulfillment 5 "The Strength of DOM Capabilities" - RILA 10
STEP 3: Seize The Power Of In-store Mobility More savvy retailers are looking at mobile POS in a holistic way to reach consumers in the store effectively. Scott Drobner, Motorola Solutions Tablets and smartphones allow merchants to improve inventory and supply chain efficiencies and maximize the in-store customer experience. As a result, more retailers are testing and implementing mobile point-of-sale (POS), according to the recent Mobile POS Study from Motorola Solutions. The study noted a dramatic reduction in desktop PC investments, largely due to the growth of mobile devices in enterprise environments, and to retailers wanting to create an interactive, cross-channel environment in brick-and-mortar locations, according to Scott Drobner, Director of Business and Market Intelligence for Motorola Solutions. More savvy retailers are looking at mobile POS in a holistic way to reach consumers in the store effectively, Drobner said. Shoppers are looking for technology to simplify and enhance the customer experience. Many of the solutions we re seeing in mobile commerce are focused on improving that experience. 11
Most specialty stores (73%) said they ll be arming their store associates with mobile devices. Greg Buzek IHL Group Retailers leverage mobile to empower customers and store associates, as well as achieve seamless cross-channel integration and business intelligence, according to Drobner. For example, Saks Fifth Avenue is piloting a mobile POS application for the ipad. This in-store mobile technology arms sales associates with item and inventory information in real time, allowing them to provide a higher standard of customer service. Mobile printers also help streamline cross-channel integration, enhance the in-store mobile experience and increase customer satisfaction by improving accuracy and speeding process efficiency. Retailers can increase efficiencies using mobile label printers in the back of store for on-demand inventory labeling or real-time price management on the retail sales floor. They can streamline front-end payment processing, invoice and receipt printing, increasing customer satisfaction by reducing checkout wait times. More retailers are shifting their marketing budgets to mobile devices to place inventory control in the hands of in-store employees, said Gary Buzek, President of IHL. He reported that large retailers specifically are putting money into mobile for associates, consumer mobile apps and cross-channel integrations. In fact, based on IHL analysis, most (73%) of specialty stores said they ll be arming their store associates with mobile devices, Buzek reported. By adding mobile technology to physical stores, store managers and associates have access to real-time inventory, and can provide shoppers with accurate inventory information. 12
With the three steps outlined in this white paper, retailers can consider the best approaches to multichannel inventory implementation for their organizations. CONCLUSION: PLANNING THE NEXT STEPS As retail executives continue to focus on multichannel integration, future plans underscore their determination to be better equipped to cope with the realities of the new marketplace, characterized by consumers increasing reliance on technology to support their shopping and purchasing decisions. With the three steps outlined in this white paper, retailers can consider the best approaches to multichannel inventory implementation for their organizations then start to plan the next steps that harness the industry s new inventory imperatives. 13
ABOUT RETAIL TOUCHPOINTS 411 State Route 17 South Suite 410 Hasbrouck Heights, NJ 07604 Phone: 201.257.8528 Fax: 201.426.0181 Retail TouchPoints is an online publishing network for retail executives, with content focused on optimizing the customer experience across all channels. The Retail TouchPoints network is comprised of a weekly newsletter, category-specific blogs, special reports, web seminars, exclusive benchmark research, and a content-rich web site featuring daily news updates and multimedia interviews at www.retailtouchpoints.com. The Retail TouchPoints team also interacts with social media communities via Facebook, Twitter and LinkedIn. ABOUT ZEBRA TECHNOLOGIES Zebra Technologies Corporation 333 Corporate Woods Parkway Vernon Hills, IL 60061-3109 USA Phone: +1 847 634 6700 Toll-Free: +1 800 268 1736 Z A global leader respected for innovation and reliability, Zebra Technologies Corporation (NASDAQ: ZBRA) offers technologies that give a virtual voice to an organization s assets, people and transactions, enabling organizations to unlock greater business value. The company s extensive portfolio of marking and printing technologies, including RFID and real-time location solutions, illuminates mission-critical information to help customers take smarter business actions. For more information about Zebra s solutions, visit www.zebra.com. 14