Tackling the Complexities of Merchandising and Allocation Planning

By Deena M. Amato-McCoy — May 25, 2011

A recovering economy is prompting optimistic retailers to expand consumer touchpoints and, as a result, enterprise-wide assortments. However, this expansion is challenging apparel companies to deliver the “right merchandise, at the right place and right time.” By integrating analytical demand forecasting processes across the enterprise, chains can more accurately allocate merchandise, avoid markdowns and make a stronger impact on their bottom line.

The apparel industry is historically complex due to the large number of SKUs retailers carry, and the attention that must be paid to specific merchandise colors and sizes. The Great Recession aggravated an already fragile model as chains switched to leaner assortments in response to lower consumer spending. Even with reduced inventories however, many companies still faced high levels of excess merchandise that could only be moved and depleted with deep markdowns.

As the economy begins to rebound, the industry is slowly ramping up assortments and giving shoppers more choices. For many, trend-setting styles, or fast-fashion, top their shopping lists. While they attract shoppers, these pieces have very short lifecycles. And due to constant assortment updates, retailers must be agile when exploiting this merchandise.

“When this inventory dies, it dies fast,” said Max Ma, CEO for 7thOnline, a New York City-based provider of assortment planning software. “When retailers are left with stale inventory, it erodes margins and takes up space that should be occupied by better performing product.”

Weak merchandising planning = lost sales
These factors are only intensified as retailers expand their multi-channel strategies. The addition of channels, whether they are e-commerce, mobile or even call centers, helps retailers connect with shoppers in more ways. However, they also add pressure on apparel companies to step up their game in delivering merchandise when and how their shoppers want it. This task is hardest for chains that still support manual processes and legacy systems, as well as those that conduct forecasting and merchandising operations within disparate or siloed organizational divisions.
 
“Too many chains are weak when it comes to accurate merchandise planning,” says Malcom Buxton, president and CEO for JustEnough Software, a Durham, N.C.-based provider of demand-driven solutions. “Many chains still use manual or basic systems that don’t scale. These only amplify weaknesses, and results are often detrimental to business.”

Consider the toll poor planning takes on a retailer with 100 stores and an average retail price of $50. If one customer cannot find their size or preferred color, the retailer loses $50, and possibly even pushes a once-loyal shopper into the hands of a competitor. “But when you multiply that over 100 stores, the company is now subject to $1.5 million in lost sales,” said Moris Chemtov, president at Jesta I.S., a Quebec-based company that provides enterprise solutions.
    
Bob’s Stores puts an end to stockpiling inventory
Successful merchandise planning requires a predictive demand forecasting strategy. With visibility into customer demand patterns and real-time sales performance from all channels, retailers can be more proactive in managing the right amount of product through the supply chain and into their business channels.
 
Bob’s Stores, Meriden, Conn., learned this lesson right before the recession took hold. The 34-store chain used to stockpile inventory, a practice that was costly and reduced turns. Once the Great Recession really set in however, the chain was faced with rising raw materials costs, low consumer spending and dwindling wholesale orders.

To make matters worse, the chain used a basic legacy system and Excel spreadsheets to manually calculate safety stock. This not only made inventory orders inaccurate, it often produced higher levels of safety stock that tied up capital in non-moving inventory.

“The only way to compete was to lower our on-hand merchandise and better manage inventory to match consumer demand,” said Victor D’Amato, Bob’s vice president of planning and analysis.

The chain added a cloud-based demand management system from JustEnough Software. The solution generates inventory forecasts based on pre-established factors, including existing safety stock levels, service levels and shopper demand. The technology has helped the chain reduce its holding stock by 16 percent, and in-store stock levels by 9 percent. Based on positive results, the solution now manages the chain’s enterprise-wide forecasting and replenishment.

Adopting a centralized analytical platform at DOTS
Analytics is especially important when fast-fashion is a core component of a chain’s merchandise. With a second quarter just as important as its holiday season, Glenwillow, Ohio-based DOTS knows how important it is to manage its short-lived merchandise. By transitioning its store and inventory processes to a centralized analytical platform, Dots is making more accurate store plans chainwide and executing them at the store level through allocation.

“We used an aging allocation system, but when we shifted to a size-selling model, our previous allocation solution was too cumbersome to manage,” said Tiina Kaljot, divisional vice president, planning and allocation for the 411-store chain. “Store-level forecasting was the biggest challenge for us in the planning process. This requires historic data, but if it is not available, we rely on trend direction.”

The chain is transitioning to a platform from MID Retail, based in Indianapolis, Ind. which automates store forecasting and helps the chain create better allocation plans. “The solution allows more visibility into our merchandise and demand at store level,” she said. “We have more methodologies available to analyze our business and execute accurate store plans.”

The company went live with store forecasting and allocation in May 2010. DOTS is currently the beta site for the company’s assortment planning. “We are trying to get planning and allocation on a single platform,” she reported. “We should have all components including assortment and chain planning running on the MID Retail platform in 2012.”

Carhartt fine-tunes its merchandising mix
Dearborn, Mich.-based Carhartt is also fine-tuning its merchandising mix with the help of planning and forecasting applications from Atlanta-based Predictix. The company, which sells its work wear through retail partners as well as through three company-owned retail stores, wanted a better handle on shopper demand. By implementing Predictix’s platform, the company will gain insight into demand throughout its client base at both the store and SKU level.

The chain planned to go live with the solution in May, and the company will initially utilize the solution’s financial planning, merchandise planning, demand planning and assortment planning modules.

“By analyzing this information, we are able to analyze trends and do a better job of diving into style and SKU levels, and then, based on movement information, target assortments to specific locations,” said Jeff Gragg, the company’s senior vice president and CIO. “The end goal is to become a category management partner with the retailer, to help drive revenue and profitability.”

Taking the project one step further, the company plans to integrate the solution within its SAP platform, which is currently being installed. When the platform is live in the fourth quarter of 2012, Carhartt will begin integrating the functionality of Predictix. The combination will deliver the company “more inventory visibility, and it will let us more accurately address consumer needs and demands,” Gragg said.

Deena M. Amato-McCoy is a New-York based Apparel contributing writer who specializes in retail technology.


Multi-channel retailing may be putting apparel companies in the hot seat to deliver optimal assortments, but smart consumer devices are upping the ante even further. 
 
Consumers are more educated than ever before, and the new omni-shopper is using a variety of channels, such as the web (via personal computer or mobile phone), a traditional store, even the call center, to educate herself about merchandise, create a shopping plan, execute a purchase and procure goods. And many times, she is using her laptop, smart phone or tablet to make a purchase.
 
While this opens up the retailer to new avenues to stay connected to the shopper, it also puts them in the hot seat to make inventory available at her fingertips when she is ready to hit that “purchase order” icon or app — a struggle for many chains.
 
In fact, 23 percent of retailers reported that multiple channels make it difficult to forecast demand, according to “Crystal Ball 2.0 — The State of Retail Demand Forecasting,” a benchmark report from Retail Systems Research, Miami.
 
“This new retailing landscape is forcing apparel companies to consider whether demand for product is coming from stores or the web, and how both avenues are impacting their inventory as a whole,” said Mark Carter, executive vice president of Multidev Technologies, a Montreal-based provider of a retail management solution. “Given that web sales are less predictable, retailers need to learn how to deliver sufficient inventory to cover demand from multiple channels without becoming over-inventoried.”
 
Besides having an online strategy that is well integrated within inventory processes, solutions that provide cross-channel visibility to the entire enterprise’s inventory are paramount to effective inventory management. Retailers are also taking a closer look at defining the online customer vs. the brick-and-mortar customer in order to tailor assortments and promotions to these specific customers’ needs. 
 
“Retailers must take a more integrated, customer-centric view when planning their inventory,” said Marc Chriqui, president for Raymark, a Montreal-based provider of enterprise solutions. “This requires planners and buyers to look at sales trends, as well as more detailed information including consumer demographics, cross-channel buying patterns, shopping and even weather trends to better inform their inventory management decisions.”
 
Mobile shoppers are also always one click away from finding an alternative item — or retailer — while shopping in store. As retailers begin to gain insight into their inventory and where it is within the enterprise, “they can serve shoppers their merchandise exactly when they want it,” explained David Dorf, senior director of technical strategy for Oracle, Redwood Shores, Calif.
 
One way Oracle is helping chains better create this “always on, endless aisle” is through its new application that integrates retailers to Google. “Retailers use the solution to export inventory information to the search engine. When shoppers are using their mobile device to hunt for merchandise on Google, they can see inventory on a store-by-store basis, and learn exactly which store has the items they want,” he said. The application has been available for six months.


Tackling the Complexities of Merchandising and Allocation Planning

— May 20, 2011

A recovering economy is prompting optimistic retailers to expand consumer touchpoints and, as a result, enterprise-wide assortments. However, this expansion is challenging apparel companies to deliver the “right merchandise, at the right place and right time.” By integrating analytical demand forecasting processes across the enterprise, chains can more accurately allocate merchandise, avoid markdowns and make a stronger impact on their bottom line.
 
The apparel industry is historically complex due to the large number of SKUs retailers carry, and the attention that must be paid to specific merchandise colors and sizes. The Great Recession aggravated an already fragile model as chains switched to leaner assortments in response to lower consumer spending. Even with reduced inventories however, many companies still faced high levels of excess merchandise that could only be moved and depleted with deep markdowns.
 
As the economy begins to rebound, the industry is slowly ramping up assortments and giving shoppers more choices. Trend-setting styles, or fast-fashion, top many consumers’ shopping lists. While they attract shoppers, these pieces have very short lifecycles. And due to constant assortment updates, retailers must be agile when exploiting this merchandise.
 
“When this inventory dies, it dies fast,” said Max Ma, CEO for 7thOnline, a New York City-based provider of assortment planning software. “When retailers are left with stale inventory, it erodes margins and takes up space that should be occupied by better performing product.”
 
Weak merchandising planning = lost sales
These factors are only intensified as retailers expand their multi-channel strategies. The addition of channels, whether they are e-commerce, mobile or even call centers, helps retailers connect with shoppers in more ways. However, they also add pressure on apparel companies to step up their game in delivering merchandise when and how their shoppers want it. This task is hardest for chains that still support manual processes and legacy systems, as well as those that conduct forecasting and merchandising operations within disparate or siloed organizational divisions. 
 
“Too many chains are weak when it comes to accurate merchandise planning,” says Malcolm Buxton, president and CEO for JustEnough Software, a Durham, N.C.-based provider of demand-driven solutions. “Many chains still use manual or basic systems that don’t scale. These only amplify weaknesses, and results are often detrimental to business.”
 
Consider the toll poor planning takes on a retailer with 100 stores and an average retail price of $50. If one customer cannot find their size or preferred color, the retailer loses $50, and possibly even pushes a once-loyal shopper into the hands of a competitor. “But when you multiply that over 100 stores, the company is now subject to $1.5 million in lost sales,” said Moris Chemtov, president at Jesta I.S., a Quebec-based company that provides enterprise solutions.
           
Bob’s Stores puts an end to stockpiling inventory
Successful merchandise planning requires a predictive demand forecasting strategy. With visibility into customer demand patterns and real-time sales performance from all channels, retailers can be more proactive in managing the right amount of product through the supply chain and into their business channels.  
 
Bob’s Stores, Meriden, Conn., learned this lesson right before the recession took hold. The 34-store chain used to stockpile inventory, a practice that was costly and reduced turns. Once the Great Recession really set in however, the chain was faced with rising raw materials costs, low consumer spending and dwindling wholesale orders.
 
To make matters worse, the chain used a basic legacy system and Excel spreadsheets to manually calculate safety stock. This not only made inventory orders inaccurate, it often produced higher levels of safety stock that tied up capital in non-moving inventory.
 
“The only way to compete was to lower our on-hand merchandise and better manage inventory to match consumer demand,” said Victor D’Amato, Bob’s vice president of planning and analysis.
 
The chain added a cloud-based demand management system from JustEnough Software. The solution generates inventory forecasts based on pre-established factors, including existing safety stock levels, service levels and shopper demand. The technology has helped the chain reduce its holding stock by 16 percent, and in-store stock levels by 9 percent. Based on positive results, the solution now manages the chain’s enterprise-wide forecasting and replenishment.
 
Adopting a centralized analytical platform at DOTS
Analytics is especially important when fast-fashion is a core component of a chain’s merchandise.With a second quarter just as important as its holiday season, Glenwillow, Ohio-based DOTS knows how important it is to manage its short-lived merchandise. By transitioning its store and inventory processes to a centralized analytical platform, DOTS is making more accurate store plans chainwide and executing them at the store level through allocation.
 
“We used an aging allocation system, but when we shifted to a size-selling model, our previous allocation solution was too cumbersome to manage,” said Tiina Kaljot, divisional vice president, planning and allocation for the 411-store chain. “Store-level forecasting was the biggest challenge for us in the planning process. This requires historic data, but if it is not available, we rely on trend direction.”
 
The chain is transitioning to a platform from MID Retail, based in Indianapolis, which automates store forecasting and helps the chain create better allocation plans. “The solution allows more visibility into our merchandise and demand at store level,” she said. “We have more methodologies available to analyze our business and execute accurate store plans.”
 
The company went live with store forecasting and allocation in May 2010. DOTS is currently the beta site for the company’s assortment planning. “We are trying to get planning and allocation on a single platform,” she reported. “We should have all components including assortment and chain planning running on the MID Retail platform in 2012.”
 
Carhartt fine-tunes its merchandising mix
Dearborn, Mich.-based Carhartt is also fine-tuning its merchandising mix with the help of planning and forecasting applications from Atlanta-based Predictix. The company, which sells its work wear through retail partners as well as through three company-owned retail stores, wanted a better handle on shopper demand. By implementing Predictix’s platform, the company will gain insight into demand throughout its client base at both the store and SKU level.
 
The chain planned to go live with the solution in May, and the company will initially utilize the solution’s financial planning, merchandise planning, demand planning and assortment planning modules.
 
“By analyzing this information, we are able to analyze trends and do a better job of diving into style and SKU levels, and then, based on movement information, target assortments to specific locations,” said Jeff Gragg, the company’s senior vice president and CIO. “The end goal is to become a category management partner with the retailer, to help drive revenue and profitability.”
 
Taking the project one step further, the company plans to integrate the solution within its SAP platform, which is currently being installed. When the platform is live in the fourth quarter of 2012, Carhartt will begin integrating the functionality of Predictix. The combination will deliver the company “more inventory visibility, and it will let us more accurately address consumer needs and demands,” Gragg said.
 
Deena M. Amato-McCoy is a New-York based Apparel contributing writer who specializes in retail technology.

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