Today marks 17 years since I founded Enhanced Retail Solutions (ERS). I would like to thank all our employees, partners and clients around the globe that have enabled our success. Our number one asset is our people- we are blessed with an incredible and talented team. While I’m usually a forward-looking person, it’s times like this that I stop and reflect on the journey. In 2002 there was no Google. When I needed to learn how to code, I hit all the book stores and libraries to get the info I needed. Excel was really the only BI tool and the first ERS computer was super-fast with a 386 processor and 32 MB of ram. It took an hour to process SKU-store data from a 600-store chain. Fast forward to now: We have multiple development teams around the world and our servers do the same job in just a few seconds.

Look at the changes in the retail landscape. The emergence of ecommerce, changing consumer expectations, shopping options and delivery methods. Yet you know what has not changed? The fundamentals of staying in business. Yes, it is harder and more complex, but more data is available and better tools to make use of that data are a commodity now. Data Scientist is now another hat that buyers, planners, distributors and brand managers must wear.

The buyer-supplier relationship has evolved as well. Expectations to improve inventory productivity while increasing sales and profit are far higher, especially for traditional brick & mortar stores (what’s left of them). Amazon and Walmart have created a high stakes business model with the intention to serve the consumer as quickly, easily and cost-effectively as possible. That raises the stakes for everyone else. A retailer must either be everything to everyone or find a very specific niche. It’s bred a lot of innovation in some very old categories- look what Dollar Shave Club and Harry’s have done to shaving.

Meanwhile, many suppliers are feeling the squeeze- especially those without a strong brand of their own. There are high penalties for not performing at retail- and I’m not just talking about chargebacks. Manufacturers are expected to provide financial support to help a retailer markdown product that didn’t sell, regardless of the reason. Additionally, more retailers are bypassing manufacturers all together, designing their own products and working directly with factories.

Conversely, there are retailers embracing tighter collaboration with their suppliers- relying more on VMI (vendor managed inventory) which has proven to reduce risk, increase sales and improve inventory productivity. Some very savvy manufacturers have created their own brands and invested heavily to promote them and create loyal followers (thanks to celebrities and social media). Many are becoming retailers themselves- like shoemaker Skechers. It blurs the line between retailer, manufacturer, and licensor. This intense level of competition for the consumer’s dollar creates an even greater reason to watch the numbers carefully- especially those that can indicate inventory buildup. Whoever can do that the most efficiently will win in the long run.

Retail analytics is now a requirement for everyone involved. Whether you work at a department store, digitally native distributor, or anywhere in between you need to track product performance, forecast, allocate inventory, assort a line and more. You need a disciplined planning process and a multitude of data points to do that and make the best decisions possible. Since the bulk of capital investment is inventory, we’ll spend a lot of time talking about it.

Our goal 17 years ago remains the same today- help manufacturers and retailers determine the optimal assortment and inventory flow over time. We get better at it every year as we blend new technologies with our expertise to deliver best in class solutions. I can only imagine what the next 17 years will bring.

And speaking of our expertise: In honor of our 17^th anniversary, enjoy a FREE copy of our Retail Primer through the end of July. Use Promo Code 17TH _ANN at checkout. https://www.enhancedretailsolutions.com/product/enhanced-retail-solutions-retail-primer/

 

In the world of planning, most of us analyze our business and forecast using weekly sales and inventory data. In most cases that makes sense. But recently we’ve had a growing number of clients asking us for the ability to analyze their business by day. They tend to be web-driven retailers where the assortment changes at a faster pace than traditional brick & mortar, or suppliers that want more up to date information on selling and inventory levels. We believe the key reason for this is the need for speed. The faster they can react, the faster they can please the customer and beat their competitors. As the adage goes, time is money. Technically savvy retailers like Walmart have provided suppliers with daily data for several years now- but building that discipline into the planning process requires a great deal of bandwidth (human and technical).

Getting an early read on new items-especially high-velocity items- can jump-start the production process. For branded product, it can give one retailer an edge over another if they get their orders in first. There are also interesting trends to watch, like when during the week certain products are sold. For high volume items adapting the shipping schedule can save money on freight and handling.

But many organizations’ planning teams are run very lean and there’s only so many hours in the day. Most prepare sales reports at the beginning of the week for management and don’t get to the planning part of their job until later in the week. By that time, inventory levels may have dramatically changed. Having the ability to see exactly where you are in sales and inventory on any given day gets you that much closer to optimizing inventory productivity. It also reveals shortfalls in inventory levels that would never be seen if only looking at weekly data. For example, an item could have sold out on Monday morning and not get replenished until Thursday or Friday. Yet when looking at the data the following Monday, you would have no idea. You would see a beginning and ending on hand. How much business was lost Monday-Wednesday of that week?

As mentioned earlier, looking at data daily requires an additional level of focus. It’s not easy- collecting data daily and making it easily accessible requires a good deal of consistency and automation. Ensuring all data points are available and aligned – both inventory and sales – are required. We have been able to do this for several clients and the payoff has been well worth it. We’ve built a series of exception and highlight reporting to help those retailers and suppliers find actionable opportunities that would otherwise go unnoticed. With BI solutions commoditized at this point, what sets them apart is their ability to provide interpretation of the data. I’ve seen very few that do that. They are good at visualizing and twisting and turning the data but still rely on the user’s expertise to make heads or tails of the data. That’s why we went one step further and baked our expertise into RetailNarrative – a solution that uses augmented intelligence to mine the data and provide the user with actionable opportunities and liabilities they would most likely never find on their own.

As you think about your planning process it is worth considering how mining and analyzing daily data might give you a competitive advantage.

As the holiday season comes to an end it’s a good time to reflect on what worked- and didn’t in your 2018 assortment. Studying the business by item- the productivity versus the investment made in each- cost, space, resources to manage, etc. can help determine what earns another year in the assortment. This process is commonly referred to as SKU Rationalization or Optimization. It has even more relevance today for retailers extending their assortments to compete online. It can be a gut-wrenching experience, especially if there is a pride of ownership. While we don’t think the process should be completely devoid of emotion, it should be based on unbiased results. Those results should be taken with a grain of salt. I learned a hard lesson in my buying days of cutting too much out of the assortment.  Your assortment must serve several purposes- tell your story, entertain, fill your customer’s needs and make money. Finding that balance between optimal inventory and not missing sales is a key goal.

Most people think rationalization applies only to replenishment or continuing items, but there is value in studying the entire assortment- including fashion- to uncover trends which can aid design and category planning. And it’s not just for retailers. We recommend manufacturers conduct an analysis on their lines as well. They need to understand the relationship between costs- design, production, warehousing and shipping- and profit generated. In the case of drop shipping, it can be very risky, especially without a firm commitment from the retailer.

There are a variety of methodologies and formats that can be used to conduct SKU rationalization. For more complex rationalization with large assortments or extremely high or low velocities, we use a multitude of factors and more advanced algorithms. However, even a simple analysis can yield great insights. Most of our simple rationalizations are based on sell-through for a fixed period of time- usually launch of an item, that enables us to compare apples to apples.

The following 6 steps can be used to conduct a simple SKU rationalization analysis. To view the full example with additional content and images click here.

1.      Determine which statistics to include: The KPI’s chosen for the analysis should be based on the retail philosophy. For example, if the goal is to sell as many units as possible without regard to profit, then sell through % and units sold are key. If selling less but making more profit is the goal then profit dollars and gross margin return on inventory should be included. In most cases, a combination of the variables will be used. Make a chart of the key statistics for determining performance and then weight the importance of each. This will be helpful when determining a composite ranking of performance that weights the statistics based on your retail philosophy.

2.      Establish a baseline: The baseline could be a specific level of performance you deem as acceptable, and compare actuals against that, or use the actuals to derive average performance for each category. Because some items may have shipped at different times, we generally like to look at the first 6-8 full weeks of selling (Sell through %) for items planned to sell for at least 6 months. For fast fashion first 4 weeks of selling may be more appropriate.

3.      Create quartiles based on the average performance: Quartiles are helpful because they provide a simple way to group similar performing items together and provide a sliding scale of how good or bad an item is. Determine performance for each item for the first 4-8 weeks of its life, then determine the average against all the items. Create the quartiles from that (Excel can do it for you).

4.      Assign items to a quartile: Now sort each item into its respective quartile. The top quartile represents the best performance. Be mindful of the overall performance- it is possible that even the top quartile was not acceptable, or that the bottom quartile was still excellent.

5.      Generate a category analysis: The category analysis is a roll-up of the items into their respective categories. It shows how many items fall into each quartile and helps determine the percentage of the assortment that worked well and did not. We may assume that any performance except for the 4th quartile is acceptable. That would mean 4th quartile items do not continue. Of course, you can make your own assumptions based on your business.

6.      Visualize and Interpret the results: Now it’s time to clean up the analysis and make it presentable. Depending on how many items you have in each category this can get tricky. Try to create a simple template with 4 big boxes in it- one for each quartile. Then put the name and/or an image of each item into the respective quartile. This might draw out what items have in common- and that may have driven (or not driven) business. For example, maybe everything in the 4th quartile was a certain color or silhouette. Design teams can find this very useful. The count of items that were acceptable is important- and helps you define that relationship between the number of items and the productivity you are trying to achieve.

To view a full example with images and more detailed explanation please click here. If you have questions about SKU Rationalization or would like templates please visit our website and contact us at www.enhancedretailsolutions.com.

Black Friday and Cyber Monday have come and gone but the holiday selling season is far from over. The commentators have put their musings and predictions out there. Consumers will have the final word. The (so-called) impeding death of malls and stodgy chains will be further discussed. So, what’s a retailer to do? Was their holiday fate set several months ago when they planned it? Maybe, but it’s all about execution. Retail is hard work but built on the simplest of principles that are so often forgotten. That’s why I want to focus on the 2 most important- customer service and making sure inventory is turned quickly and appropriately.

It’s a war out there and there is no room for anything but exceptional service. This applies both in-store and on-line. The customer has so many choices and few tolerate mediocre experiences for the sake of getting the perfect item. A recent experience at Walmart.com proves poor customer service isn’t limited to brick and mortar. A holiday gift for our kids ordered 2 weeks ago still hasn’t arrived even though we’ve been given 2 specific delivery windows. They wasted our time- 2 days of “must be home to sign” and 7 calls to Walmart customer care. Our experience was that they could care less. Poorly trained call centers, lack of communication/visibility and too many cooks in the kitchen highlighted how Amazon will continue to beat them with their effective distribution formula. And this wasn’t the first time we had a problem with Walmart drop ship fulfillment (Walmart, please call us to see our Drop Ship Tracker software!). In fairness to Walmart, other items in the order that they had in their DC’s arrived very quickly.

On the other side of the spectrum, a truly wonderful experience can remind us why making a physical visit to a store can provide entertainment and be more fulfilling than just clicking a few buttons. At a recent trip to the mall- this one alive and well- I found associates in just about every store I walked into upbeat, eager to help and caring. I could tell some coaching had taken place. I got the shoes I needed and other items that I didn’t.

Now to inventory. Making the sale requires having what the customer wants when they want it and where they want it. During my store management days, I learned first hand how foot traffic and the velocity of sales changes so dramatically during the holiday. I think a good analogy is the ERS Star Loop- which is based on a concept created by USAF Colonel John Boyd. According to Boyd, decision making occurs in a recurring cycle of observe-orient-decide-act. An entity that can process this cycle quickly, observing and reacting to unfolding events more rapidly than an opponent, can thereby “get inside” the opponent’s decision cycle and gain the advantage. I know it’s an extreme example, but it holds true for retail. The holiday season is a microcosm of inventory flow at the lowest level. We work months in advance to plan our receipt flow just right. But during the holiday season, every day and in many cases every hour equals a week or month. Whoever can react to the consumer’s needs the quickest wins. A key is constantly replenishing stock through the day and monitoring what’s happening on the other side of the mall.

Suppliers play a key role as well. They should be studying sales and inventory at a greater frequency and seeing if they can provide support to quicken the pace of the decision loop. Those suppliers who are willing to put in the extra effort usually are rewarded with additional sales and become a more trusted advisor of the buyer. VMI (vendor managed inventory) can be a major advantage for retailers, especially at holiday. With the supplier constantly monitoring sales and using smart systems to check stock positions they can write orders every day. Depending on how fast they can move inventory through their fulfillment process the more benefit it brings.

So, the next few weeks will reveal the winners and losers and the commentators will come back with their post season “I told you so’s”. As for me, I’ll be stuck in a loop of constantly thinking about new analogy’s to compare retail to.