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Saturday, October 10, 2015

The Cure For Out Of Stocks

Let’s start with the “disease”! Once deemed incurable and just treatable, out of stocks and overstocks for retailers have always been a big hairy problem. If you do not have the right mix of product or specifically the style, size and color as in the case of footwear and apparel you pretty much lose the sale, add unneeded cost and in many cases lose the customer too! How bad is this “disease”? IHL’s President, Greg Buzek, discussed key points of the inventory distortion study in a recent webinar titled, “Inventory Distortion ― Retail's $800 Billion Global Problem.” The key points included:
·        Out-of-Stocks make up 56% of the $818 Billion figure, or $456.3 Billion.
·        Overstocks account for the remaining 44%, or $362.1 Billion.
·        Worldwide, nearly $1.5 trillion of merchandise annually is in an overstock position that creates a loss in revenue.

“The study defined out-of-stocks as any situation wherein a consumer enters a retail setting with the intent to buy a specific item and does not find the item. Overstocks were defined as any situation wherein a retailer has on hand more stock of a particular item than is supported by current demand.”
These are massive numbers for loss of sale and bloated inventory. With all the advancements in planning and replenishment systems why is this not getting better? The answer is, you can have the greatest algorithms in the world but if your data is wrong so are your predictions. People manually counting items in the supply chain take too much time; it is too expensive and is also fraught with error.  Meaning it does not work. Technology does have an answer and it is item-level RFID. This “medicine” today is best used in the apparel and footwear retail segments because of the physics associated with these products (no liquids and limited metals) along with the product complexity of style, size and color.  The return on investment is the big question that is circling around and requires close examination before diving in. Undertaking item-level RFID has a common perception of being too expensive due to the cost of RFID tags. Also, then there are the other costs which includes software, hardware, services, store fit-up, process changes and training. Some retailers are hesitating to raise Item-Level RFID in their budgeted spending priorities.   “Let someone else sort this out and I will jump in when tags get down to five cents.” Lack of concrete information about the benefits and fear of the complexity are the main reasons for this non-action decision for item-level RFID.

Let’s review more about the extended problems that being out of stock is actually causing today versus just a few years ago. The average established retail enterprise wide real-time inventory accuracy is sixty to eighty percent for products in the store. The omni-channel model in retail is now the widely commonly discussed strategy and includes implementation models such as:  ship-to-store for pick –up and click – ship from store for next day or even same day delivery.  When you accept these measured in-supply chain and in-store inventory accuracy numbers and multiply them across a chain, retailers are hemorrhaging profit, losing customers and might not even know it.

Below is a chart from a recent Retail Systems Research (RSR) study showing retailers ratings of importance versus the actually visibility of inventory information forget it is only really sixty to eighty percent accurate at the store. What you see is huge chasms between what retailers now believe they need and view as important to what they actually have visibility of.

What this means is that on average a retailer’s current ability to know what is in stock and on a shelf is at best a fair approximation. It has been cited by a number of sources that the consumers biggest gripe with retailers is out of stock, not can I check out with a store associate using a tablet POS.
If a retailer wants to reduce over and out of stocks the only credible answer is to employ item-level RFID solutions. A retailer must ask themselves the question can they afford lost sales, excess inventory and potential loss of customers. The answers and hard facts are out there with those retailers that have deployed item-level RFID technology and those solution providers that have successfully assisted retailers to achieve dramatic results in sales lifts removing out of stocks, shrink reduction as well as inventory reductions.  

In any “technology adoption curve” there are always the innovators, early adopters, early majority, late majority and laggards. If you are in either the late majority or laggard categories you will be at a significant disadvantage to your competitors who did choose to begin the process of implementing item-level RFID in 2013-2014

Friday, October 24, 2014

Nothing New Under The Sun!

Ecclesiastes 1:9 (NIV) What has been will be again, what has been done will be done again; there is nothing new under the sun. This has always been for me a very interesting quote from the Bible. What does this have to do with retail you ask? Retail was forever a service business not a product business. A change occurred somewhere shortly after WWII with the huge economic boom that followed and the commoditization of retail in the form of lower product prices over service. Everyone can now be “rich”! At least that was the dream.

The switch from service to product was subtle and took a number of years to fully catch on. It was a race for who could get big enough to control product price. In retail the focus until late has always been about operational optimization in the form of product costs vs price sold. Nothing about customers or service was focused on because the value proposition was the lowest price. Hence retailers like Wal-Mart grew to be gigantic and the good old great service companies I remember like Sears became a shadow of what they once were or gone. The problem is most companies followed this model which they were in many ways forced to and found themselves in a death spiral. We know who they are, JC Penney, Sears, Kmart, Montgomery Wards, Circuit City, Borders and soon to be Barnes and Noble for example.

Barnes and Noble is a very interesting study. They did it all you might say, online, in store experience (remember Starbucks), customer service/brand loyalty and even gadgets like Nook! One word, gives us that answer, Amazon. It took 10 years or so but with the advent of electronic books easily downloaded at a great price along with Amazon’s personalized and convenient way to purchase, market share then moved away from Barnes and Noble like a vacuum. But what about omni-channel, mobile, customer experience theory that many retailers are being told to go run off and do? Would mobile phone applications or tablets for the store employee have stopped the flow of red ink? What was it Barnes and Noble should or could have done differently? Were they just collateral damage from a market change unable to re-invent themselves?

There is no simple answer to this question and no silver bullet to the problem. The answer does lie in understanding your customers and doing something that makes them feel good about spending money with you on a regular basis. How do you do it? First you are not going to out “Amazon” Amazon and the fight for lower product prices is a non-starter. What does Amazon have? I can tell you from my point of view. It is selection (you name it they have it), reviews and trusted advice, convenience (one button shopping a great 2 day free delivery on most items) and many other things such as movies, tablet devices, etc. Amazon’s Prime is very sticky!  

You must think like a customer. Why buy from you? Why would I go to a store to purchase anything? The biggest reason is I want it now. That means you better have inventory that I can see and acquire on-line and quickly get into my hands without a hassle. The shopping experience is a very social thing and still very sticky as well. I am motivated by many things when it comes to shopping. The Brand, are you in or out? The location, is it convenient and clustered with other stores/brands I go to? Are your products unique and satisfying to me and my social network? Do you know me and treat me special when in your stores? Do you give me preferential treatment (This is a big one)? Do you give me deals or services that let me know you are thinking about me? If you do these well, then you can give me all of these neat things for my phone and on the web but not before.

Technology is critical to execute in such a fashion. You must have real-time operational access to all this customer information for delivering that great service at that glorious point of impact. Remember you are selling a service the generation of revenue from the sales of an item is just a by-product.  Focus on how you can provide a unique and differentiated experience and then look how technology can serve you.

Monday, December 30, 2013

The Time Has Finally Arrived! Top Five Retail Technology Predictions for 2014

Item level RFID
Where I see the real driver of need for RFID item level tagging is with serving the demanding omni-channel requirements. How are you going to be customer focused providing great experiences with an inventory accuracy of 60 to 80%? I see many opportunities for retailers to turn well-meaning customer serving initiatives into customer satisfaction issues. You must have near 100% accuracy of your inventory if you are expecting to source from your stores for your omni-channel experience. If you say you have it in the store and I drive over to get it and you do not have it in your hand waiting for me you are toast! Even more if you offer same day delivery to combat online competition you must deliver and on time. This need for knowing real-time what you have and very specifically where it is may be one of the biggest underpinnings of being a successful retailer in this new customer-centric world. The technology is here and has been proven.

In-store tracking
The idea is that tracking in a store is no different than what happens when you are on the internet and using Google analytics. Your IP address is exposed, used and analyzed for all sorts of things that you know and don’t know about. What if a retailer could connect you and all of your personal shopping data? You could opt-in or out at your convenience. You now become a valuable customer walking around the store not a series of numbers. What if you had a trusted relationship with this retailer allowing the retailer to offer you direct promotions based on your particular wants and desires? The retailer could even begin to map your travels in their store and better understand where and what you spend your time doing. Apple and a number of other retailers are doing this very successfully using a number of different technologies.

Customer analytics
We have all talked about CRM and “big data” ad nauseam. What I believe most will agree it is not size of the data it is the quality of the data and what you do with it. What if as a customer you could also share your likes and dislikes with a trusted retailer that cooperatively helps the retailer provide the best service and offers. It is the combination of many different kinds of data, but ultimately providing relevant and valuable experiences that makes all the difference. Retailers will stop stocking the items they think customers might want and start stocking the items customers do want. This can only happen if they are armed with as much information as possible about those customers. This view of the customer can only come from merging the buying and selling processes into a single, fully integrated cycle. By collecting customer data at multiple touch points and including salespeople, demographics, and POS figures in that collection process, everything from what initially captures a customer’s attention to what prompts them to make the final transaction can be discovered if you have that trusted relationship. This technology is also ready and you will see lots of it a NRF 2014.

Mobile – personal offers
Now that you have the mechanisms to know what you have and where, stocking what customers want to buy and knowing where your customers are in your store you can unleash the customer analytics to provide the right offer at the right time and at the right place. This is where the smartphone will shine as a selling tool if done well. Many companies are now making offers on smartphones, but doing it so you make significant improvements in customer retention and basket size has been a problem. Having all these pieces will enable the retailer to finally measure their marketing investments much more precisely giving insight to making the appropriate investments. These systems are in place and we will see solid results from progressive retailers in 2014.

Replacement of the Mag Stripe
As we have seen recently at Target our credit card technology in the US is out of step with the rest of the world. We are too vulnerable to theft and I believe real actions will be taken either because of liability or force by the government. There are many different approaches out there, but this will be significantly pared down in 2014. This will be a hot one to watch!