Unlocking Retail Success: Tackling Inventory Challenges with Technology and Insight

Survey Findings

15 NSRA.org A recent survey of 200 “senior decision makers” in U.S. retail companies conducted by Coresight Research and Celect found that 43% of respondents chose over-buying as a company challenge and 36% chose under-buying. So as a group a total of 79% had a buying problem. The survey went on to say that those respondents using “manual inventory management processes were more likely to say they were struggling” with issues related to over- or under-buying.

Next Steps

Now that this survey has actually quantified over- and under-buying as a problem what is the next step? Given the vast number of solutions available at the push of a button for almost any problem facing us today I find it inconceivable that so many retailers choose to struggle with an issue that is relatively simple to identify and affordable to remedy. Having invested the last forty years working for forecasting companies that offer automated inventory planning and open-to-buy models along with ongoing consulting by industry experts I can think of no reason why a merchant would not consider outsourcing this function. What else needs to change for retailers to use the correct data to make more informed buying decisions?

Reasons – or Excuses

Common reasons (a.k.a. excuses) I hear for not utilizing an outside company for merchandise planning include:

• Ego
• Lack of accurate data
• Cost

A strong healthy ego or belief in oneself is certainly one major cornerstone of every successful entrepreneur and clearly every independent retailer. However once self-confidence becomes so over-inflated that it is detrimental to the organization it is important that management recognize this and look for an alternative independent outside perspective.

If a company lacks accurate data to develop and maintain a plan either due to deficiencies in the point-of-sale system or lack of understanding of how to use the system (often the case) inventory

Mishaps are Likely to Occur

The easy remedy for this is to invest in a system that will actually provide the data you need after consulting with informed sources then take the time to learn how to use it. The initial “cost” pales in comparison to the money being left on the table due to poor buying decisions resulting from inadequate data or no data at all.

Investing to Fix the Problem

Here’s a question to ponder. If you were struggling with cash flow issues due to past buying mistakes shrinking margins as a result of too many markdowns or out-of-balance inventories hindering the store’s upside volume potential would you be willing to invest a reasonable amount of money to alleviate those issues?

Let me share a typical example that I often encounter. I was approached by a store with a sales volume of just over a million dollars. The margins were fine and the operating expenses were in line with industry norms. The issue was cash flow. When the merchandising data was analyzed the problem was obvious: There was so much old merchandise that the store was losing customers. Most of the operating cash was tied up in the inventory. This problem was caused by buying more merchandise than the store could sell profitably the classic definition of over-buying. Over-buying is the result of either:
1) Not having an adequate merchandise plan with which to make sound buying decisions by classification or
2) Not following the plan.

The store had an average inventory of approximately $800000 @ retail a large percentage being from past seasons. This worked out to be an inventory turnover of 1.25 times annually. Based on the mix of merchandise we determined that an initial turnover goal of 2.7 was achievable and a strategy was put into place to liquidate the old merchandise and begin buying the right amount in the correct classifications.

Look at the Results

After the first year of working with this

Retailer Update

The inventory had been reduced by approximately $430000 @ retail or $215000 @ cost. Store sales started rising as new customers began finding the store through word of mouth and old customers returned. The margins did decrease temporarily due to clearance markdowns needed to move the old inventory.

Ritchie Sayner: The Over-Under of Inventory Buying

If a company lacks accurate data to develop and maintain a plan either due to deficiencies in the point-of-sale system or lack of understanding of how to use the system (often the case) inventory mishaps are likely to occur.

Published in the July/August 2019 issue of Shoe Retailing Today Copyright © 2019 National Shoe Retailers Association Tucson AZ www.nsra.org. All rights reserved.

Industry Insights

His career investing in commercial real estate has given him insight into the struggles of brick-and-mortar retail in the digital shopping age. He is CEO of Shopinride for which he holds two patents linked to in-ride advertising and purchases in autonomous vehicles and believes that driverless technology will rejuvenate the retail industry.

Brand Dynamics

“Young” and new brands in contrast are viral and fun. To illustrate the point he notes that in 1980 Levi Strauss & Co. was a giant; today there are dozens of denim jeans companies.

Multiplicity Mindset

This new “multiplicity” mindset Lewis is convinced has several components.

First is liquidity – within supply chains and organizations. Instead of planning seasonally product managers need to become “demand-pulled” able to anticipate in advance what their customers want.

Second is platforming or creating commerce by leveraging unused assets such as relationships data and space. For example Kohl’s which has more than a thousand stores has invited Amazon to put shops within Kohl’s stores allowing people to order online then go to Kohl’s to pick up an Amazon purchase.

Product

Kohl’s is betting people will stay in stores long enough to see and want one or more additional products and trying to leverage its space with an experience people won’t get elsewhere. In the new mindset small is beautiful. Young people in particular want small intimate human-touch experiences while their elders more likely want the surety of mass-market conformity. Thus “giant” brands give way to a slew of smaller targeted brands that innovate constantly and manage to promote a consumer’s self-esteem.

The “Winning” Model

As Lewis describes the new rules of retail the “winning” model utilizes values-based and user-generated content that gives consumers customization convenience and connectivity. The word “store” may virtually disappear because successful retailers will offer entertainment or active involvement – the purchase will likely become the smallest part of the overall experience in which a destination draws people and makes them want to hang out.

As Lewis reminds listeners malls began in historical perspective with Dwight Eisenhower’s determination to create the superhighway system. Roads enabled people to drive to malls staying for hours because there were things to do. Stores still have a singular advantage as physical places because physical platforms can become venues for great experiences. But retailers must have unique product enabling them to stand out.

“If you can’t give them additional value” Lewis cautions “consumers will look for price and will buy for price. But if you have new stuff it’s added value and they’ll come back to you. Last year 10000 stores closed – but 14000 opened mostly dollar-store types. We’re on a curve at the moment where everything is heading toward ‘free.’ Boomers are downscaling into retirement; they’ll be replaced as consumers by Millennials who have smaller checkbooks. In fact discount stores are growing not declining.”

Keep in mind that dollar stores deal in basic goods. You will have to offer more.

That in itself is not a new imperative for independent retailers. But creating a holistic frictionless experience that includes technology will not be easy or painless. The good news is that experience begins with knowing customers by their first names remembering their birthdays understanding them well enough to make them feel at home offering them products they don’t see everywhere and making their shopping trips fun. In those aspects independents certainly have a head start.

The cash was so much better that the owner could hardly believe the transformation. The line of credit was paid off and the store’s buyers now go to market armed with a solid plan knowing exactly how much to buy when to land it and when to mark it down.

This example is typical of first-year results. Most retailers will end up spending less on inventory and wind up doing more business because the dollars are invested where they are needed most. On average a minimum three-time return-on-investment is typical for every dollar spent.

I see examples such as this all the time. Some businesses choose to take advantage of the help they are offered and regain control of their stores and by extension their lives. Others unfortunately do not – and almost always suffer the consequences. I am often reminded of the old definition of insanity: repeating the same behavior time and time again in anticipation of a more favorable outcome.

Available Technology Will Help

Since roughly 60% of non-grocery items were sold at full price in 2018 the remaining 40% sold at discounted prices resulted in an estimated $300 billion in lost revenues – which makes it easy to deduce that poor buying decisions can be expensive. The good news however as Matt Leonard wrote in Supply Chain Dive earlier this year

Is that with the increased utilization of technology “Specifically better forecasting tools that leverage machine learning [can] help retailers know what to keep in stock and when.”

As trite as it may sound failing to plan is planning to fail. Which one is your decision?

Ritchie Sayner of Advanced Retail Strategies LLC is an affiliate of Management-One a merchandise planning company that incorporates machine learning into its process. His book Retail Revelations: Strategies for Improving Sales Margins and Turnover is available on Amazon. He can be reached through www.advancedretailstrategies.com.

New Mindset

continued from page 23

Sayner continued from page 15

Summary of Retail Inventory Challenges

A survey by Coresight Research and Celect reveals that 79% of U.S. retail decision-makers face challenges with over- or under-buying often exacerbated by manual inventory processes. The article highlights the importance of leveraging technology and external expertise to improve inventory management reduce cash flow issues and enhance retail performance. Retailers are encouraged to adopt a new mindset focusing on accurate data and strategic planning to avoid costly buying mistakes.

“Failing to plan is planning to fail.”

Real-World Examples of Retail Challenges and Solutions

The following examples illustrate how retailers have addressed common challenges related to inventory management and buying decisions as highlighted in the article.

• A mid-sized clothing retailer faced significant cash flow issues due to over-buying with old inventory tying up their operating cash. By implementing an automated inventory planning system they were able to reduce their inventory by $430000 at retail improve cash flow and attract new and returning customers.
• A large department store chain struggled with under-buying leading to frequent stockouts and lost sales opportunities. By outsourcing their merchandise planning to a company using machine learning tools they improved their forecasting accuracy and maintained optimal stock levels resulting in increased sales and customer satisfaction.
• An independent retailer hesitated to invest in advanced inventory management due to cost concerns. However after realizing the potential for a three-time return on investment they adopted a new system that provided accurate data for buying decisions ultimately reducing markdowns and enhancing profit margins.

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