Articles

Written by: By Prasad Putta, General Manager, Checkpoint Systems

In our current economic environment, retailers are facing the perfect storm — some might even say the 100-year storm. Consider the confluence of these factors:

• The current economic environment makes it more difficult to attract and retain customers;
• Consumers are shopping less, making it more critical than ever that the right merchandise is on the shelf when the customer is ready to buy;
• In the face of higher capital costs, retailers are facing increasing pressure to cut inventory costs and introduce more efficiency into their operations;
• Over the past decade, merchandise assortments have grown wider with greater variety — adding SKU complexity;
• Supply chains continue to become more complex as retailers outsource private label manufacturing and logistics operations;
• Shrink increases in difficult economic times.

In short, the traditional success factors of reducing cost, optimizing inventory, improving shelf availability and increasing sales and margins are more challenging than ever.

How bad are things?
Retail margins continue to face downward pressures as a weak market forces pricing concessions across almost every segment. As consumers shop less, the risk of being out-of-stock on an item that the consumer is looking for grows.

Yet retailers lack accurate insight into the perpetual inventory in their stores, which means the out-of-stock risk is very real. Consider the results of a Harvard Business School study that found, when surveying 3,000 SKUs at a major retailer, that 65% of the time the reported perpetual inventory was inaccurate. Yet retailers make re-stock decisions every day based on that incorrect inventory system, leading to costly overstocks or out-of-stocks in the store.

What causes such a serious variation between reported and actual figures that ultimately leads to shelf availability issues? Merchandise may be mis-shelved, so although it may be in the store, it is not available for sale because consumers can't find it. Merchandise may also be left in the fitting room after being tried on but not purchased. In other cases, inventory is somewhere in the back room, but it can't be located so it can't be brought out to the selling floor when needed.

Shrink also impacts shelf availability issues. All told, internal (employee) and external theft, errors, damage and other causes of shrink -- according to the Global Retail Theft Barometer (GRTB) report, cost retailers $104 billion worldwide in 2008 and is expected to rise.

As a result of all of these factors, many retailers are out of stock and don't know it. This is a critical problem; a recent AMR study found that 70% of shoppers will shop for an out-of-stock item at a competitor's store or website. Clearly, retailers lose real revenue as a result of lost sales due to out-of-stocks, and to the extent that they can prevent out-of-stocks, retailers will see a measurable increase in revenue. One retail executive stated that he believes his company can increase sales by 1% for every 2% increase in shelf availability.

A new approach to an old problem
Fortunately, new approaches such as radio frequency identification (RFID)-based merchandise visibility solutions enable retailers to gain accurate insight into their supply chains and operations, helping to reduce out-of-stocks, control shrink and improve revenue and profits in the process.

How does real-time merchandise visibility from source to store work? RFID tags are applied directly to merchandise at the point of manufacture. These tags are read throughout the supply chain, as merchandise moves from manufacturing facility to distribution center to store. As tagged merchandise passes through a portal or is scanned by a hand-held reader, information about the garment's location is captured by RFID software, verified against expected quantities and descriptions, and fed into a retailer's inventory management system for real-time insight and action. All of this information is then used to error-proof the supply chain, optimize inventory levels, alert store personnel when merchandise must be re-stocked, and automatically reorder when in-store quantities are too low. As a result, retailers can better manage inventory to meet customer demand, ensuring adequate stock levels without the need to carry excessive inventory.

A merchandise visibility approach improves margins and sales by optimizing inventory. Specifically, it enables a retailer to ensure adequate inventory to avoid out-of-stocks, while at the same time reducing excess inventory that leads to costly markdowns. It also offers retailers the following benefits:

• Gain visibility into merchandise movement throughout the supply chain, improving accountability and efficiency of outsourced operations;
• Improve merchandise replenishment with real-time visibility into merchandise location within the store, whether in the back room or out on the selling floor;
• Reduce store operations costs by improving operational and labor efficiencies, decreasing nonworking inventory and reducing safety stock and working capital;
• Enhance customers' shopping experiences by better understanding buying patterns and ensuring merchandise is available for purchase at the right place and time;
• Reduce the risk of theft by gaining a better understanding of operations and potential sources of loss;
• Streamline operations by reducing the number of garments per delivery, speeding re-orders of fast moving items and automating many shipping and receiving operations at factories, distribution centers and stores.
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With a high-resolution visibility solution leveraging RFID, retailers can also gain never-before possible insights about buying behaviors. For example, using RFID, retailers can track apparel into fitting rooms, and compare that with purchases. With this information, a "conversion rate" can be calculated to derive the percent of purchases relative to the number of times a particular garment SKU is tried on.

Garments with low conversation rates warrant further investigation by the retailer. Perhaps the fit is wrong for most people, or the material was not of high enough quality, or there is not enough variety of styles or colors. This provides retailers with a new level of detail that they have never had before, and much better insight than sales data alone.

Retailer streamlines with merchandise visibility
With over 70 million garments sourced annually from more than 400 suppliers and distributed to 34 consolidation hubs throughout Asia and Europe, Charles Vögele's supply chain operations presents a logistical challenge for the retailer. The $1.3-billion retailer with over 850 stores throughout Europe is the first retailer to deploy RFID at the item level from source to store. To date, its stores in Slovenia are the first stores with the system in place.

Charles Vögele is streamlining its supply chain by applying RFID tags to individual pieces of apparel merchandise at point of manufacture, and reading the tags throughout the logistics operations and into the store. Once at the store, it has improved operations and increased shelf availability by tracking item-level merchandise throughout the facility into the back room, on the sales floor, in fitting rooms and at point of sale.

The benefits of merchandise visibility extend into Charles Vögele's stores as well, enabling store associates to gain an accurate view of merchandise on the sales floor and in the back room, and to re-stock faster and more efficiently than the previous manual processes. Now, Charles Vögele can ensure that its most popular lines are always in stock and on display, available for customers to view, try on and purchase. In addition, the retailer can now optimize inventory replenishment and minimize shipping errors, reducing out-of-stocks and on-hand inventory, while at the same time improving sales.

Conclusion
More than ever, retailers need complete visibility, from source to store. They need to collaborate with their suppliers around the globe, and gain deep visibility into the status of their orders. Merchandise visibility enhances the entire retail operation, starting at the beginning of the supply chain — the manufacturer — and continuing all the way into the store and onto the sales floor. By gaining insight into the movement and availability of merchandise, retailers can ensure adequate on-shelf inventory to prevent out-of-stocks, without over-stocking the store and being forced to mark-down merchandise at season end. This enables the retailer to operate in a leaner, just-in-time fashion to reduce excess inventory while improving shelf availability, sales and the consumer experience. Improving in-store operations also enhances the customer shopping experience, leading to increased revenue and margin performance for the retailer. In the fast-moving fashion industry, responding to the expectations of customers can often mean the difference between success and failure.

While no one is happy about this challenging retail environment, it is refreshing to know that there are some answers. Merchandise visibility provides retailers with valuable insight into their operations across the entire retail value chain -- from manufacturing through distribution and retail stores, while providing real-time views into merchandise levels and operations. As a result, retailers can optimize operations to meet key business needs and enhance their top- and bottom-line performance.




About The Author
Prasad Putta is General Manager, Merchandise Visibility Solutions, at Checkpoint Systems (www.checkpointsystems.com), a leading manufacturer and provider of end to end solutions in shrink management, merchandise visibility, and apparel labeling solutions.