The Theme at NRF: Retailers Face Challenges of Change
By Kathleen DesMarteau
The importance of innovation, change and reinvention - it's not a new theme for the apparel business but one that rang out with renewed intensity at the National Retail Federation's (NRF) annual convention and expo this past January in New York, NY.
The mantra for change at the event revolved around three major areas: 1) the need for an all-new focus on the consumer; 2) the need for internal change within retail and apparel companies to propel consumer-centric strategies; and 3) the need for operational changes to boost efficiency and streamline the supply chain in a retail world in which Wal-Mart has raised the bar for performance.
Putting the Consumer First
While there was an underlying "buzz" at the convention that 2003 is the "year of the store," the more pressing issue to emerge was the need to pay more attention to the consumer. Speaker after speaker at the event returned to the consumer as holding the power to make or break today's retailers, many of whom are reeling from the down economy.
Angela Selden, managing partner with Accenture, describing JCPenney Co. as a "turnaround star" of 2002, emphasized that the retailer's turnaround strategy placed the "individual at the center of everything," with a focus first on the end consumer and secondly on the leaders of JCPenney, who had to embrace the consumer-centric approach to enact dramatic change and execute on it.
Dave Bolen, executive vice president of JoAnn Stores, a retailer serving the $27 billion craft and home sewing industry, also said the consumer was at the heart of a major organizational restructuring at JoAnn last year.
And in a presentation entitled "Last Store Standing: The Rules Have Changed, Are You Prepared to Change with Them?," Paul Charron, chairman and CEO of Liz Claiborne, said the No. 1 characteristic of firms that will prevail is "superior understanding of the consumer."
But what are some tangible solutions for tackling this quest for the consumer's nod of approval and his or her shopping dollars? Let's assume your organization has determined that the consumer comes first and is the No. 1 priority. Now what?
Retailers and apparel firms at NRF spoke of undertaking an internal evolution within their corporations to propel the success of their consumer-oriented strategies.
At JoAnn Stores, for instance, the company wrote a brand new job description for the position of merchandise manager, and changed its organizational structure so that this manager was at the heart of the newly customer-focused company. The firm also created a vendor portal to share POS data with its suppliers, improve the just-in-time flow of its imports from Asia and integrate its vendor community from a global perspective, Bolen said.
While the changes are paying off, Bolen noted, there have been pains with the gains. For one thing, the company's level of employee turnover during the transition exceeded 30 percent. Bolen and other executives at NRF stressed that change can present more "people challenges" than technology challenges. Finding people who could change their thinking was a major challenge for JoAnn Fabrics, Bolen explained.
Charron also pointed to the importance of infusing a business with new people and new ideas. In particular, the leader of Liz Claiborne noted that a company's leadership cannot lean on "out-of-date assumptions that prevent the ability to adapt to new information."
Technology suppliers to the retail industry also addressed the need to connect with the consumer. QRS Corp., for instance, has launched a Retail Intelligence Services (RIS) division to conduct grass-roots, in-store research on the "softer side" of the consumer's shopping experience as well as to provide analytical reporting on such factors as pricing, said Gladys Lau, director of product marketing.
Symbol Technologies is offering a new breed of mobile devices to enable retail personnel to scan UPC tags at the shopping rack or shelf, where consumers are making their buying decisions. This capability enables store associates to make shopping suggestions as well as to accept credit card payments on the spot. Symbol also is promoting scanning devices that can "talk" to the retailer's back-office systems to find garments in sizes or colors that the consumer wants but that may not be available in a particular store. Without having to pick up the telephone, a store sales associate can use this type of device to search for the garment at another store location or somewhere in the supply chain, said Symbol's Marianne McKeown O'Brien, vice president of general merchandise and retail vertical marketing.
DigitalThink, a provider of e-learning solutions, also brought to the table new offerings designed to help retailers improve customer service. Todd Clyde, vice president of consulting for DigitalThink, said jokingly that 2003 isn't so much the "year of the store" as the "year of backlash against technology," as retailers focus more investment on developing their employees, reducing attrition and in turn, improving the consumer's in-store experience. DigitalThink's training tools can be tailored to retailers who need employees to "stand for their brand," and to be knowledgeable enough about the company and its products to instigate "consultative discussions" with the consumer, Clyde explained.
Brickstream demonstrated its unique take on customer relationship management (CRM) with its system for tracking consumer movement through the retail store. Using cameras positioned throughout a store, the firm's technology creates a sophisticated "bread crumb" trail of each consumer's path, said Zoher Karu, director of product management. The cameras do not pick up consumers' faces, so the tracking is anonymous. Brickstream's solution takes this video footage, converts it into "customer track data," aggregates it and breaks it down in many different ways. For instance, the system can measure the average speed at which consumers walked through a certain area of a store, or how long they spent in a department or in a particular merchandise area. This information can help retailers determine whether store displays and signage are working to capture the consumer's attention, or if the store layout should be changed for a better flow.
Beyond these capabilities, Brickstream can be used to automatically alert sales personnel or a manager if a check-out line becomes more than "X" consumers long. Or perhaps a consumer has been browsing the bridal department for "X" minutes unattended? Brickstream can make sure someone is paged to come and offer help, said Karu.
The Quest for Efficient Operations
While the pursuit of the consumer was a dominating theme at NRF, the importance of operational efficiency was a close second.
In particular, new approaches to merchandise optimization continued to be one of the hottest areas of discussion. Just as retailers and apparel firms were encouraged to change their organizational structures, dramatically if needed, to better focus on the consumer, they also were pushed to throw aside some traditional merchandising strategies in favor of new approaches.
"Managing to markdown budgets has to become a thing of the past," said Stephen Granovsky, president of the consulting firm Karabus Management, at an NRF workshop sponsored by merchandise optimization software vendor ProfitLogic.
The morning-long workshop included a lively "interactive markdown game," in which a standing-room-only crowd of NRF attendees competed in teams to achieve the most profitable outcome in a hypothetical markdown situation. They used ProfitLogic's software tool to help in their decisions. Much excitement was generated by the game. Participants were perched in football-like huddles around laptop computers, cheering loudly as their results were projected onto a large screen. In fact, the exercise ran over into the time slot planned for another session.
The consensus among merchandise optimization software providers at NRF was that chain-wide and store-wide markdown tactics should be traded in for store-specific or at least region-specific approaches. Amy Mains, vice president of retail sales consulting for i2 Technologies, explained the reasoning behind this prescribed change with this analogy: A fur-trimmed jean jacket may need to be marked down to a considerably lower price in the South earlier in the winter selling season than it would need to be marked down in the Northeast, where consumers may be willing to pay a higher price for outerwear later in the winter.
Why the sense of urgency to gravitate away from chain-wide merchandising strategies? Peter Charness, chief product officer and senior vice president of marketing for JDA Software Group, observed that for retailers to achieve above-average performance, "there's nowhere else to go. . Chain-based decisions produce average results."
The quest for improved collaboration between retailers and apparel vendors also was a major subject of interest at NRF. JDA's Charness described two stages of collaboration: 1) the sharing of POS data and 2) the sharing of sales forecasts. He also pointed to a new trend toward the sharing of order projections, noting that the apparel industry has yet to embrace this level of collaboration.
Tying the need for collaboration back to merchandise optimization, Charness noted that the biggest benefit to be had from an integrated merchandise optimization strategy is supply chain collaboration, including improved forecasting and replenishment. Supply chain collaboration offers an attractive alternative to the retailer saying, "Time for another negotiation Mr. Vendor," Charness said.
Joseph Fabrizio, senior vice president and director of stores for Boscov's Department Stores, said data integrity continues to be a hurdle that hinders supply chain efficiency. For instance, often purchase order (PO) and advance ship notice (ASN) data does not match, or the UPC tags on products contain inaccurate data (i.e., a blue sweater's UPC tag says it's a red silk blouse). But rather than always charging back vendors for such problems, Boscov's has opted to work with its vendors to solve them, such as by sending its distribution personnel to vendors' distribution centers to work on the issues, Fabrizio explained.
This approach, combined with a markdown strategy that also involves getting input from vendors, has helped Boscov's raise its margins so far this year over those of 2002. To implement the most successful solutions, there must be a focus on people, processes and systems, concluded Fabrizio.
Kathleen DesMarteau is editor in chief of Apparel, and may be reached at tel.: 203-312-0600 or e-mail: firstname.lastname@example.org.
Editor's Note: For more on the latest approaches and technologies for merchandise optimization, see this issue's "Apparel Solutions" feature on merchandising, planning and allocation.