THE OMNICHANNEL HOLIDAY CHALLENGE WITH STORE INVENTORY AND FORECASTING

Holiday shoppers have just a few more days to get their shopping done. Do they order online and get it shipped? Do they order online and then pick up in store? Or do they go into a store hoping to walk out with the items they want to purchase? Retailers have the challenge of meeting all of these needs, many of them using store inventories as distribution centers to handle online purchases, whether shipping it to the customer’s home or having it available so they can pick up the item in the store.

An online customer who is having their products shipped does not care which store or warehouse handles their purchase. A shopper in the store or on the way to a store does – they expect the item to be available on the shelf. Retailers are using different strategies to manage these needs. Some, such as Target, are holding inventories back from online purchasers in order to keep inventory on the shelf for their in-store shoppers. In Target’s example, an online shopper may try to go online and buy or reserve an item in store but are unable to do so. Other retailers, like Toys ‘R Us, have a “first-come, first-served” strategy. The big challenge is for retailers to determine, by product and by store, how to divvy up the store’s stock, and need to forecast in-store purchases to try to have the right amount of inventory on the shelves.

 

Tracking item-store inventories as real time as possible is the best way for these retailers to make these forecasts. Retailers without inventory systems who can keep up with purchases are having to keep extra available in the store and not online, in order to avoid the mistake of selling the same item to two customers around the same time.

Source: Chicago Tribune.com, Wall St. Journal

IT’s DAYS OF SUPPLY INSTEAD OF WEEKS OF SUPPLY FOR DIY RETAILERS LIKE HOME DEPOT

While the DIY retail segment is currently booming – Home Depot is targeting a 15% sales growth by 2018 – their strategies for inventory in their stores is changing. “Get comfortable with days of inventory, not weeks,” Tom Shortt, Home Depot’s senior vice president of supply chain, says is the message going out to stores. 

Rather than filling its warehouse stores with inventory, Home Depot wants fewer items on its shelves and wants those items within customers’ reach. Online shopping is making retailers think of better ways to profitably serve online shoppers and have inventory in stores, as well. They need to decide if they will ship to consumers from a distribution center or store.

WalMart and Target have also made changes to in-store inventory levels. WalMart’s inventory levels rose slower than sales, helping to improve their gross profit margins in the first quarter.  Boosting sales and stocking less items increase the percentage of cash they get back from the amount they invest in inventory. The strategy is to put less inventory in the stores and replenish more frequently based on demand instead of a forecast.

Home Depot’s strategy is called “Project Sync” which includes such changes as seeing suppliers send 2 trucks five days a week, versus 5 trucks 2 times per week.

Monitoring the return on invested inventory capital and tracking consumer demand closely in order to manage inventory and replenish based on demand can only be accomplished with frequent analysis of POS data in stores, looking at SKU-Store sales and on hands, trending days of supply and sales to stock ratios.

Source: Wall St. Journal

TAKEAWAYS FROM ACCELERATED ANALYTICS’ GS1 CONNECT 2016 SESSION: ‘The Importance and Value of Data Sharing – Using Point-of-Sale Data to Deliver Outstanding Customer Experiences’

I had the opportunity to lead this session last week and came back with some takeaways that I wanted to share, as I feel they are reflective of the state of retail today and how retailers and vendors are using point-of-sale data to manage their business in this time of OMNI-channel, customer-experience driven retail.

Customers want a single-vision of brands and be able to have a consistent, complete and winning experience every time they shop, in whatever channel they shop in. To ensure products are available when and where the customer shops, retailers need real-time inventory visibility, a seamless order management system and the ability to deliver. Retailers and brands realize they need to work together to have both a single view of the customer and a single view of their data in order to be successful.

Some interesting, yet not surprising, statistics were gathered from the retailers and vendors represented in the room. When asked about managing their POS data week to week, 66% were using POS data that was not provided via an EDI 852 file, eliminating their ability to automate the collection and processing of the data electronically, and instead having to work with multiple sources and formats of data. This process of data management and then trying to create usable reports to have meaningful partnership conversations between retailer and vendor is extremely time consuming: 83% of the retailers in the room spend 11-50+ hours per week managing and processing their POS data. More staggering was 95% of the vendors in the session were spending 11-50+ hours per week: 30% spending 11-20 hours, 40% spending 25-50 hours and 25% over 50 hours per week!

The good news is over half of the attendees in the room felt they are getting better at managing and using POS data each week, but 30% still admit to ‘Barely Using’ their POS data. Recognizing that heavy resources are needed to use POS data, especially on the vendor side, is making vendors ask, “Do we build an in-house solution to manage this, or outsource it?” CLICK HERE for an infographic detailing the pros and cons of each, and the differences in resource and financial investment.

Based on the time and effort being made by most of those represented, it is clear that POS data sharing is important for effective collaboration between retailers and vendors to “get it right for the customer”. POS data can be used to not just track units sold overall, but can give product/store level details on out-of-stocks, weeks of supply, sell thru %, average sales, geographic trends, inventory investment and lost sales opportunities. CLICK HERE for our industry sell thru % guidelines infographic.

We need to do everything we can to exceed our customers’ expectations and deliver an outstanding experience for them when they come across our brand. Sharing POS data and then using it to partner together to analyze it will help shape the customers’ experiences and give us inventory visibility and fulfillment across channels to meet customer expectations.

Want to learn more? Contact Jennifer@AcceleratedAnalytics.com to start a conversation. CLICK HERE to download whitepapers on analyzing POS data like a pro.

- Jennifer Freyer, Director of Sales and Marketing, Accelerated Analytics

WARM WEATHER HELPS HOME DEPOT SALES RISE ALMOST 10% IN 4TH QUARTER, AS HOME PRICES INCREASE AND DEMAND FOR NEW HOME CONSTRUCTION STARTS 2016 WITH SLOW GROWTH

The Home Depot’s fourth-quarter sales included an 8.9% sales increase in US stores that have been open for at least one year. This is despite the challenges facing the rest of the retail industry. Sales were strong the entire quarter, but warm weather in December brought in a sales spike – Home Depot attributes $100 million in sales growth to the milder weather. High sales were seen for power washers and pressure-treated lumber by homeowners building decks.

Home prices also rose in December, showing the strongest gains since July 2014. The Home Price Index showed a rise of 5.2% in the 12 months ending in December, versus a 5.2% in November. The national median sale price for a home in December was $213,800, 8.2% from the previous year. There is a limited inventory of homes for sale, and demand for new homes is likely to drive more new construction and help keep a ceiling on the rising home prices, although January 2016 was a slow start for new home construction for the year.

Accelerated Analytics helps Home Depot vendors, such as WM Barr, Hillman Group, Alexandria Molding, and CPG Building Products to manage their sales and inventory data to drive results. Our vendors use our analytical measures, such as sell through, inventory shortages, out of stocks, weeks of supply and consumer purchasing trends, to take quick actions to ensure they are optimizing inventory and growing sales.

Source: Wall St. Journal

NORDSTOM IS RANKED FAVORITE RETAILER IN RECENT SURVEY

A survey of over 5,700 consumers found that Nordstrom ranked first among retailers in customer satisfaction. It specifically ranked highest scores for atmosphere, checkout speed and finding the correct size/product the customer was looking for. One in five customers surveyed indicated they were dissatisfied in general with their fashion retail experience across all retailers. 40% of these customers indicated that the sales experience was very important to them, and that less than half of them were approached by a sales associate, which was key to their satisfaction. Nordstrom’s sales associates assisted customers the most and received the highest satisfaction scores.

Coming in behind Nordstrom were Marshalls, H&M, Ross, Kohl’s and Macy’s.

With merchandise selection and ease of finding items and size selection the top of customers’ needs, retailers and vendors recognize the importance of partnering to share point of sale and inventory data in order to optimize store assortments. Many vendors, such as Brahmin Leather, Anastasia Beaute and The Sak, utilize Accelerated Analytics to monitor and act on inventory levels and customer buying patterns in Nordstrom and other retailers to maximize their effectiveness in this area.

Source: Chain Store Age

Increase Sales by Managing Out of Stock Inventory

What is an out of stock?

A retail out of stock is when the inventory available on the shelf is either zero, or depending on the product category, when the inventory available for sale is less than the typical job lot quantity.   Conceptually an out of stock is not difficult to understand and therefore one might assume it would be fairly easy to monitor inventory and avoid an out of stock.  In reality however, out of stocks average 8% and much higher on promoted items. 

Why are out of stocks important?

Out of stocks are important for two reasons: (1) lost sales and (2) lost customers.   If your product is not available the obvious result is lost revenue.  We recently studied the average out of stock for two customers for a 52 week period and found a clothing manufacture of basics averages $1,669 per week in lost dollars sold at a major department store.  A consumer products company we studied averages $1,835 per week in lost dollars sold at a major DIY retailer.   Neither of these figures may raise any alarm bells on a week to week basis; however when you total the lost dollars due to out of stocks for a full year, the loss is 7.5% and 8.2% of sales respectively.  In a retail environment where low single digit comp store growth is typical, increasing sales 7% to 8% based on simply managing inventory better has the potential to make a large impact.   Even more compelling, these figures are for one of the many retailers these brands work with so the opportunity can be multiplied several times.  The bottom line: Out of Stock stores are costing your business a significant amount of sales.   The second impact of out of stocks is lost customers.  Studies show a consumer confronted with an out of stock product will substitute for another product at the same store.   What if that consumer decides the other product is the same or even better quality than your product?  Will they purchase your product the next time they are in the store or will they stick with the substitution?   A simple out of stock could cost you a customer and the repeat sales you might have otherwise enjoyed. 

Fixing Stock Out of Stock Issues

A multistep process is required to fix out of stock issues and increase sales.   The steps in the process are outlined in Figure 1 below.  

Calculate Dollars Lost to Stock Outs

Change in any organization rarely occurs until there is a financial incentive to invest in a solution.  In order to motivate the manufacturer and the retailer to invest into solving out of stock issues we recommend starting by calculating the dollars lost to stock outs.    The initial benchmarking can be accomplished through a fairly straightforward process.   An example is provided in Figure 2 below.    The analysis will require either four or eight weeks of sales in units and dollars, ending units on hand, and the unit retail price.  The decision to use four or eight weeks of sales for the analysis depends on the rate of sale of the products being analyzed.   If the products are fast moving, four weeks of sales should be sufficient, if the products are slow moving eight weeks of sales will yield a more accurate result.   The example below includes sales for both periods.    The data should be at UPC/SKU and store grain.  In order to identify the out of stock issues driving lost sales two filters should be applied to the data.  First, a minimum sales activity filter should be applied to make the estimate as conservative as possible.  A good rule of thumb is to apply a filter requiring an average of one unit sold per week over the period.  If your products have a high rate of sale then you can increase the average.  The second filter is used to limit the data to rows with OH = 0.  After applying the filters calculate the average weekly units sold over the sales period you selected.  E.g. total units sold / count of weeks.  The average weekly units sold is used for calculating the lost dollars sold since we are assuming in this example the store would have sold that number of units had it not been out of stock.  To calculate the estimated lost dollars sold multiple the average weekly units sold by the unit price. 

Although the analysis is fairly straightforward it has proven to be a reliable benchmark for quantifying the dollars lost on out of stocks.  Keep in mind in our example the lost dollars is for one week but it is often more compelling to repeat the analysis for additional weeks so a trend can be established. 

Identify Where to Focus

The next step in the process to fix out of stock issues is to review the lost dollars sold report and identify where to focus for the largest potential impact.  A good starting point is to sum the lost dollars by store and then analyze the stores on a percent contribution to the total lost dollars sold.   This will help to identify stores which are having the largest inventory issues.  You can also sum the lost dollars by item to identify which items are having the largest impact on out of stocks.   As you study the results look to see if there is a pattern to the lost dollars.  Is there a group of stores or items which are having a disproportionate impact on lost dollars?  If specific items are having a large impact on the total lost dollars this many indicate a fill rate problem or a promotion which created unexpected demand.  This should be further analyzed to ensure the root cause is identified.   The goal is to identify a subset of stores and/or SKU’s which are having a disproportionate impact on out of stocks.   Our experience shows retailers prefer to trouble shoot problems and develop new processes using a subset of stores and SKU’s for a pilot before agreeing to a broader adoption.   As we move forward in the process we will use this subset to craft the plan to improve inventory management and sales. 

Identify Data Gaps

A common problem encountered with managing out of stocks is a gap in the data available from the retailer.   The most common two gaps are the lack of units on order and week grain data instead of daily data.    Units on order are a very important data point as you move forward to creating a process to manage inventory more effectively.  When you have identified an out of stock, or an item that has less than the desired weeks of supply, the next question you need to answer is does the retailer know about the issue and have they placed an order.   If the answer is yes, then you simply need to ensure the order size is sufficient and then continue to monitor the on hand to ensure the inventory has been placed on the shelf.  If the answer is no, then you will need to work with the buyer to suggest an order quantity which will fix the issue.  The second gap in data for managing out of stocks is week grain instead of day grain data.  Week grain data provides a week ending sales and on hand value which means the out of stock could have been impacting sales for several days before you even receive the data.  When you add the time it takes to recommend an order and ship the product the problem only gets worse.   Some retailers have the ability to transmit daily sales and inventory which will greatly improve the visibility and ability to react quickly to an out of stock.   If your retailer does not provide units on order and daily data you should explore the benefits of closing these gaps with them.  The lost dollars sold report created earlier in the process is a good tool to put a financial impact on the table for discussion.  

Create a Monitoring Process

Creating a process to monitor inventory proactively is critical to reducing out of stocks.   All good processes need tools, and in this case the essential tool is an out of stock monitoring report.  An example can be seen in Figure 3.   The out of stock monitoring report should include the ending on hand units and inventory weeks of supply.  The OH value can be used to identify out of stocks which require immediate attention.  The inventory weeks of supply can assist in getting out in front of a stock out before it occurs.   We add a column for minimum inventory quantity on hand so that each individual store and SKU can be set uniquely if desired.  If that level of detail is not required you can simply fill the minimum quantity on hand at a SKU level across the board.  The minimum quantity on hand value should take into consideration the lead time necessary to process a new order and ship the product as well as job lot quantity if that applies to your business.     The recommended order quantity then is simply a function of minimum quantity OH – current OH.   If the inventory weeks of supply is below the total time it takes to process and ship an order to the store that indicates a possible future out of stock which should be addressed before it becomes an issue.    After the out of stock monitoring report is ready for use the organization should identify who will run the report, the day and time the report will be run, and the specific actions to be taken based on the report findings.  The actions should be arrived at based on a conversation with the retail buyer. 

Collaborate with the Retail Buyer

There is very little benefit in creating out of stock reports and monitoring processes if the buyer is unwilling to accept and process a recommended order.  Some buyers are quite happy to collaborate with a vendor to better manage inventory.  However, our experience indicates buyers frequently need some convincing, and may even need to get buy-in from other people on their team, in order to collaborate with a vendor on inventory management.   This is where the tools which have been developed will be useful.   Create a business plan which starts with the lost dollars sold for a 13 to 26 week period as a way to highlight the financial impact of out of stocks.  Add a discussion on the long term impact stock outs may have on product substitution and possibly even causing the customer to shop at a competitor.   Use the subset of stores and/or SKU’s identified in the first step in our process to recommend a limited pilot for active inventory monitoring and include a detailed explanation of the tools and processes which will be used to manage the pilot and make order recommendations.   Include a forecast estimating the increase in sales which can be expected to result from the pilot by referencing the lost dollars sold report created earlier.  Be conservative with the forecast and propose that 70%-80% of the lost dollars on the report may be capture in new sales.  Work with the buyer to understand the steps involved in processing a recommended order as well as the people who are involved in the process and any deadlines which may impact the plan.  If there were gaps in the data as discussed earlier in this article have a discussion with the retailer about closing those gaps through a more rich set of data sent on a daily basis.   Finally, agree on the duration of the pilot, how the performance will be measured and what the rollout plan will look like after the pilot is successfully completed. 

Execute and Adjust the Plan

The tools for proactively monitoring out of stocks are now in place and you have an agreement with the buyer for a pilot.  Now it’s time to execute the plan.    Up to this point the planning process may have been directed primarily by the sales and account management team.  It’s important to connect with your production and supply chain teams to inform them about new orders that will be coming which are above the historical rate of sale.  After all, if the pilot goes as planned and sales are increased by several percentage points, you will need to ensure there is sufficient inventory ready to ship to keep your fill rate high.  We have seen many pilots successfully identify retail stock outs and retail orders placed only to be short shipped due to lack of inventory. 

Conclusion

Addressing retail out of stocks has the potential to increase sales by several percentage points.  The data analysis is manageable with the right tools in place and the benefits will accrue to both the retailer and the manufacturer.  It’s a classic win-win.  If you would like to explore how Accelerated Analytics can help your company address retail out of stocks simply complete our information request form. 

Additional reading on retail out of stocks

Reducing Out of Stocks

How Much are Out of Stocks Costing You?

Reducing Retail Stock Outs

How Much Do Retail Out of Stocks Cost?

Calculating the Cost of Out of Stocks

NRF SURVEY REVEALS INVENTORY SHRINK IS A $44 BILLION PROBLEM FOR RETAILERS

Inventory shrink, or the loss of product due to shoplifting, employee and vendor theft and administrative errors, costs retailers billions of dollars. The NRF and the University of Florida provided survey results this week stating that in 2014 inventory shrink averaged 1.38% of retail sales, or $44 billion.

Shoplifting accounted for 38% of the loss, followed by 34.5% in employee theft. The rest consisted of 16.5% administrative errors, 6.8% vendor fraud or error and 6.1% unknown loss.

While grocery chains have the highest shrink rate, home center/hardware/lumber/garden reported average shrinkage of 1.09%.

Tracking inventory effectively is key to managing shrink. Actual and accurate inventory counts eliminates the over/under counting in the results. Verifying product delivered is what was ordered and is accurately described in systems is also paramount – if an expected-sized item was not available, and the vendor ships a different size, but that difference is not noted, a retailer can end up with a surplus of one size, a shortage of another, and a dent in their inventory valuation. Inventory measurements should be looked at in both units and dollars. A retailer could be 99.5% accurate in dollars but only 94% accurate in units.

Shrink-related data is stored in different applications such as POS/point of sale, inventory, receiving and store applications. Having the ability to obtain reports that combine point of sale and inventory data in a timely fashion is imperative to take action quickly before the data becomes outdated.

Accelerated Analytics is a comprehensive service for collecting, analyzing and reporting on POS point of sale and inventory data, to increase sales, optimize inventory, recognize inventory shrink and respond faster to this information.

Source: Chain Store Age, ProSales

FOSSIL GROUP EXECUTIVE MOVES TO VERA BRADLEY, INC., AS CMO

Vera Bradley, Inc., has hired Theresa Palermo from Fossil to be its new Chief Marketing Officer. Ms. Palermo will start at Vera Bradley on June 22.

"Theresa comes to Vera Bradley with an accomplished retail marketing background," said Vera Bradley CEO Robert Wallstrom. "She has a terrific blend of creative and analytical skills and a solid track record of building brands, engaging consumers, and driving sales through designing and executing comprehensive marketing programs. Marketing is a key focus for Vera Bradley as we work to create excitement around our brand and introduce consumers to our myriad of new products. We are anxious for Theresa to get started." 

As CMO, Palermo will be responsible for marketing strategies and initiatives that build brand awareness and revenue growth across all of Vera Bradley’s product channels.

Palermo was VP, Global Marketing and PR for Fossil Group. Prior to Fossil, she held key marketing roles with Collective Brands, The Timberland Company and the J.Jill Group.

Vera Bradley, Inc. designs women’s handbags and accessories, luggage and travel items, eyewear, stationery, gifts and baby products.

Both Fossil Group and Vera Bradley, Inc. are customers of Accelerated Analytics, using their POS and Inventory analytics and reporting tools to manage stock levels, store performance, sell thru and sales activity.

Source: Retailing Today 

Demand Driven Planning in 2013

The availability of retail point of sale data over the past several years has created the opportunity for vendors to gain a detailed understanding of consumer demand at the retail point of sale.  Actual consumer demand at the retail point of sale presents a more accurate and timely picture of how your SKU’s are selling than retailer forecast advice or even retail purchase orders.  So why don’t all vendors collect EDI 852 or retail POS data from their customers and use it for creating forecasts and managing sales?  There seem to be several myths holding vendors back….

Myth #1: Collecting and analyzing EDI 852 / retail POS data is expensive and complex.  In a few limited cases like Home Depot and Menards it is true that the simple process of collecting the data has some expense.  Home Depot EDI 852 for example must be collected using a VAN so there are data transmission charges.  Menards charges a vendor to purchase a RSA SecurID.   But most retailers make EDI 852 or retail POS data available for free and even when there is a fee the benefits exceed the expenses.   Extracting the data, matching to item catalog details and store details does require some expertise but there are many SaaS applications now like Accelerated Analytics which will outsource the technical requirements for an affordable monthly fee.  By monitoring the consumer demand and inventory on hand at a SKU / store level of detail a vendor can proactively work with the retail replenishment manager to avoid out of stocks.  Every sale you get that would have been lost due to an empty shelf is returning value and paying for the expense of collecting and using the EDI 852 data.  How many lost sales do you need to recover a monthly data management fee that is typically less than $2,000?   At a chain like Home Depot with roughly 1900 stores in the USA the answer is not very many.

Myth #2:  My buyer won’t accept replenishment recommendations.  We hear this all the time – “I realize I could probably increase my in stock rate using EDI 852 / POS data but my retail customer uses automated replenishment or has a fixed open to buy plan so my recommendations fall on deaf ears”.  Several things are at work with this myth.  First, most vendors are operating on an assumption that if they talked to their buyer, they would discover is inaccurate.  I’ve talked to buyers at many retailers and I get a consistent answer – if the vendor can quantify the problem and provide an accurate order recommendation I will take it into consideration.  Second, the vendor has to demonstrate a competency in using the data for basic tasks like sales monitoring before they try to recommend orders.  I’ve seen countless examples of a vendor providing sales reporting and value to a buyer who then gains confidence the vendor can get the demand forecast right.  Finally, you have to start off slow.  Start with your highest turn products at your A volume stores and calculate the lost dollars sold for an 8 week period.  Then go to your buyer with a summary of your findings and actions to improve in stock and quantify the sales opportunity for both of you.  Make conservative recommendations to increase the WOS by one week so you gain back some sales but avoid loading the store with inventory and dropping your GMROI.  They have the same goal as you – to sell more product!

Every vendor that sells a product through a retail store should invest into analyzing retail point of sale data and using it for creating detailed action plans.  The data acquisition and reporting costs are very low when you consider them as a percentage of your retail sales and the upside benefits of increased sales, better assortment planning, and optimal inventory on hand are huge by comparison.  Let’s make 2013 the year that all vendors make the investment.  

Reducing Out of Stocks

Probably three of the ugliest words for a retailer or vendor are -- out of stock. Each and every time an out of stock (OOS) occurs, the retailer, vendor, and consumer lose. Revenues go down, profitability goes down, consumer frustration rises. This is not a news flash, one can find a wealth of OSS research with a simple Google search.  And worse yet, "thought leaders" have been writing articles and funding research for decades to quantify the magnitude of the problem, diagnose root causes, and create solutions. The net benefit of all this work... drum-roll please.... average OSS rates are holding steady at about 8% to 10% (double for promoted items) and have not changed much in the last 17 years, according to GMA/FMI/CIES/VICS.

Why is reducing out of stocks and improving self-availability such a hard issue to tackle? Didn't someone tell us all that barcodes, ECR, VMI, RFID, CPFR, and new POS software would fix all of these issues and usher in the age of the 99.999999% efficient supply chain?

The fact is, most vendors are blind to actual consumer demand at POS. At a recent conference, I asked 5 large vendors and 3 small vendors if they knew their in-stock percentage at a store level for their retail customers. It seemed like a logical question, because they were all describing 7 figure investments they had just made into trade promotion software.  Certainly if you are going to run a BOGO, you want consumers to actually see product on the shelf when they arrive at the store. The answer for all eight vendors was-- NO! They have, at best, delayed visibility (usually 3 weeks) into what is happening at a store level, and in many cases, the only visibility they have, is chain-wide monthly scorecards the retailer sends showing their grade on in-stock %.

This reminds me of coaching my 9 year-old son's baseball team.  While they want to do all the cool and difficult things like turn a double-play, the game is won and lost on the most basic elements, like running as hard and fast as you can down the first base line and then 10 feet through the bag.

Reducing out of of stock's is a complex problem, with many moving parts and multiple parties that have to execute in harmony or the entire system breaks down. But, you cannot manage and improve what you are not measuring. And it's hard to believe a vendor is making an effort to reduce OSS if they are not measuring on-hand at their retail customers. If you are a vendor dependent on a retailer maintaining good self-avaiablity to grow your sales, then you need to proactively manage in-stock. That means, if your retailer makes POS activity available at midnight Sunday, your team should be taking action by 11:00 am Monday morning. Not just loading data into a spreadsheet,  so they can start the analysis process. Or worse yet, not even receiving the data.

Next Article: Increasing Sales By Managing Out of Stock Inventory

Store Level Merchandising Analysis Using EDI 852

The following is a step by step process to aid replenishment vendors in identifying stores on an item level basis, that are losing sales due to inventory stock outs or inventory that is present but unavailable for sale.  Such unavailable inventory may include lost or damaged items or items on the shelf but not available to the customer for any of a variety of reasons.  This process assumes that the vendor is receiving accurate and detailed EDI 852 Product Activity Data (or POS data via Retail Link or Partners Online, etc) on no less than a weekly basis from their retailing partners.  This article will focus on identifying and addressing underachieving stores. 

Step 1
The vendor will calculate average weekly sales velocity (Avg WS) at an item level across all stores.  This is best calculated using the most recent twenty-six weeks of sales.  Thus, for a given item, the calculation would be:

            Sum(last 26 wks. unit sales) = Avg WS
                               26

Step 2
Calculate the average item sales velocity (Avg WS) for each item for all stores for the last ten weeks of sales.  For each item, look at the last ten weeks of unit sales at the store level and separate the items by store into five categories.  For ease of identification, label these categories A-E.  The categories are as follows:

A.  Most recent two weeks of sales.

• Stores with sales in the last two weeks for any given item will fall into this category

B.  Most recent four weeks of sales.

• Stores with no sales in the last four weeks for any given item will fall into this category

C.  Most recent six weeks of sales.

• Stores with no sales in the last six weeks for any given item will fall into this category

D.  Most recent eight weeks of sales.

• Stores with no sales in the last eight  weeks for any given item will fall into this category

E.  Most recent ten weeks of sales.

• Stores with no sales in the last ten weeks for any given item will fall into this category

The total percentage of sales of any given item for a given category can be accurately calculated by dividing the number of stores per item in any category by total stores (TS). 

            Total Stores in a Category  = % each category is of the total
                         (TS)

This percentage calculation is a better, more accurate way to judge relative performance of each category than by comparing unit sales.

Identifying & Addressing Underperforming Stores
The remaining article focuses on underperforming stores, that is, stores that fall into categories D or E.  Now that you know how many stores are in categories D or E, go back to the list of items and the last 10 weeks of sales, and identify what store numbers are present in the bottom two categories and not in any of the other categories. These stores are stores with no sales in the past 8-10 weeks.  Pull the current inventory on hand for each store.

Out of Stock Stores
Stores with no sales and zero inventory on hand are most likely out of stock stores.  Vendors will want to identify the last week that a given store recorded a sale for a given item in categories D-E.  The vendor can then estimate lost sales by unit for that item/store combination by multiplying the number of weeks since the last sale by the average weekly sales (Avg WS) calculated in Step 1.

            (Avg WS) *[Sum(weeks w/o sales)] = Lost sales by unit due to stock-out (LU)

Lost sales by unit (LU) can also be multiplied by the price of the item to determine lost sales in terms of revenue (LR).

            (LU) * (price of given item) = LR

Inventory stock-out problems are typically due to one of two things: Inaccurate inventory replenishment reorder points or inventory availability issues on part of vendor.  If that item was out of stock due to high reorder quantity, then a vendor can contact the replenishment manager at the retailer responsible for the underperforming store(s) and suggest changing the inventory replenishment set point, using lost revenue (LR) as the rationale for the recommendation.  This exercise can be performed for all item/store combinations that had few or no unit sales for an 8-10 week period (categories D-E) and showed no inventory on hand.

Stores with Inventory on Hand, But No Sales
Some of the stores are going to reflect no unit sales in the past 8-10 weeks, but still have on hand inventory. This typically indicates inventory which is misplaced, lost, stolen or stock on the shelf, but out of view of the customer for whatever reason.  It may also include damaged inventory and inventory otherwise unavailable for sale.  In this case, the vendor would contact the retailer and investigate the problem.  The inventory replenishment system from the retailer will not release an order for new merchandise until the vendor visits the store directly or contacts the store manager to investigate the problem and demonstrate that the product is not available for sale.  It is useful, when contacting the store manager, to know the date of the last unit sold.  This date, and the average weekly unit sales (Avg WS) calculated in Step 1, will indicate to the store manager when a sale should have occurred.  That is, if, on average, a given item is sold every other week, and 8-10 weeks have passed at a given store without a sale despite recorded inventory on hand, this is indicative of a problem, since 4-5 units should have been sold during that timeframe. 

Business Rationale for Store Level Merchandising Analysis
Conducting a store level merchandising analysis can be a time consuming effort for a vendor.  Many vendors have trouble rationalizing the expense, especially vendors with very good in-stock rates.  But, even a vendor with an in-stock rate of 98.5%, still has 1.5% of stores out of stock.  In a typical 3,000 store chain, this could represent as many as 45 stores out of stock.  If those stores averaged just one unit sold per week, that translates to as many as 2,340 units of lost sales per year.  Since this represents only a single item, and out of stock stores typically are out of multiple items and average significantly more than one unit sold per week per item, this vendor is looking at hundreds of thousands, or potentially, millions of dollars of lost revenue (LR) per year, despite a very high in-stock rate of 98.5%.

Resources:   Whitepapers on SKU Sales Analysis, Store Analysis, Out of Stock Analysis and SKU Forecasting are available.  http://www.acceleratedanalytics.com/download-whitepapers/

Poor Weather Causes Out of Stocks

According to the WSJ, the snowstorms that blanketed much of the country in the past week caught apparel retailers in short-sleeves.

Most clothing chains have very little winter clothing left on their racks, the result of tightly managed inventories and better-than-expected holiday sales.

But, with nearly 70% of the country covered in snow, store shelves are mismatched to the weather: filled with new spring fashions that frigid customers aren't in the mood to buy. The lack of appropriate dress could cost retailers some momentum after improved holiday and January sales periods, said analysts.

An employee at a Gap store in downtown Washington, D.C., said the store had been sold out of cold-weather hats, scarves and gloves for over a month.

Macy's Inc. said, it’s My Macy's merchandise localization program, which lets buyers modify merchandise assortments based on local needs, helped it avoid shortages. A spokesman said Thursday, that the department store chain planned for fresh flows of coats, gloves and hats in February and March in cold-weather markets. "Macy's continues to have ample supplies of cold-weather merchandise," the spokesman said.

This is an interesting example of how using EDI 852 and analyzing POS data may have been able to help avoid out of stocks. Although the fashion supply chain tends to have long lead times, if retailers and vendors had been more closely watching the weather and local demand signals, they may have been able to either reallocate inventory between warehouses and stores, or perhaps place additional orders.

How much do retail out of stocks cost?

A recent RIS article  titled, “How Much Are Out-of-Stocks Costing You? Much More Than You Might Think”, By Greg Buzek, provides more evidence that retail out of stocks are costing vendors huge lost sales.  Buzek quantifies the scope of the loss; “A retailer that invested in completely fixing its out-of-stock problem, would gain a solid competitive edge. The average retailer could increase same store sales 3.7%, by converting all perceived out-of-stocks into transactions. Specialty soft goods could have the biggest potential win: solving out-of-stocks would boost their same-store sales 7.1%, while department stores would see a 4.2% jump.”

The good news is we have seen dramatic improvements in in-stock performance by active store and item level analysis.  The methodology is pretty straightforward:

1. Determine the lead time from order to product arriving at a store.  Let’s say this averages 2 weeks.  This is your minimum on hand weeks supply to avoid a stock out.
2. Next calculate the average weekly sales velocity for each item, and each store.  Yes, you must know the average sales velocity for each peg or shelf position.
3. Calculate the weeks supply on hand for each item and store by dividing the current on hand inventory by the average sales velocity.
4. Filter the results to show only those items with less than the 2 weeks supply on hand.  These are the stores you need to make sure you place an order immediately to avoid a stock out.

This type of analysis is not hard to do, but if you don’t have the proper tools it can be very time consuming.  But, it’s well worth the effort.  If you can improve your in stock performance by even 2%, you stand to gain significant sales.

Next Article: Increasing Sales By Managing Out of Stock Inventory

Avoiding Out of stocks

Brrr, it’s cold outside. I live in south Florida and we have been experiencing record low temps for well over ten days now. Last night it got down to 28 degrees at my house! I know-28 degrees would be a welcome heat wave for many places in the US right now, but down here this is a record cold. The cold temps have resulted in stock outs of space heaters at Home Depot stores in central Florida. "The majority, if not all, Home Depot stores in Florida are out of stock of space heaters," said Craig Fishel, a spokesman for the company. The company continues to sell them online. We blog all the time about how to use POS and EDI 852 data to avoid stock outs. It’s not very complex, simply look at the current on hand inventory and the current rate of sales, and weeks of supply can be easily calculated. This stock out was pretty easy to predict; weather forecasters have been predicting the abnormally cold temps for 10+ days. More than enough time for buyers to work with their suppliers to bring in sufficient inventory to handle the upcoming demand. I wonder how many lost dollars have resulted?

Next Article: Increasing Sales By Managing Out of Stock Inventory

How Much Are Out-of-Stocks Costing You?

A recent RIS article titled “How Much Are Out-of-Stocks Costing You? Much More Than You Might Think”, by Greg Buzek, provides more evidence that retail out of stocks are costing vendors huge lost sales. Buzek quantifies the scope of the loss; “A retailer that invested in completely fixing its out-of-stock problem would gain a solid competitive edge. The average retailer could increase same store sales 3.7% by converting all perceived out-of-stocks into transactions. Specialty soft goods could have the biggest potential win: solving out-of-stocks would boost their same-store sales 7.1%, while department stores would see a 4.2% jump.”

The good news is we have seen dramatic improvements in in-stock performance by active store and item level analysis.  The methodology is pretty straightforward:

1. Determine the lead time from order to product arriving at a store.  Let’s say this averages 2 weeks.  This is your minimum on hand weeks supply to avoid a stock out.
2. Next calculate the average weekly sales velocity for each item, and each store.  Yes, you must know the average sales velocity for each peg or shelf position.
3. Calculate the weeks supply on hand for each item and store by dividing the current on hand inventory by the average sales velocity.
4. Filter the results to show only those items with less than the 2 weeks supply on hand.  These are the stores you need to make sure place an order immediately to avoid a stock out.

This type of analysis is not hard to do, but if you don’t have the proper tools, it can be very time consuming.  But it’s well worth the effort if you can improve your in stock performance by even 2%, you stand to gain significant sales.

Next Article: Increasing Sales By Managing Out of Stock Inventory

Reducing Retail Stock Outs

Stock outs are a serious problem.  Research has shown stock outs average 8%, but can be as high as 40% on promoted items.  So, retailers and vendors are losing up to 40% of their potential sales on some items.  The financial impact is often exasperated by an overly large order to compensate for the back-order of demand and, the retailer hopes, add some safety stock.  This of course just compounds the problem by increasing inventory costs and reducing GMROI.  Maybe worst of all, research shows when consumers are faced with an out of stock situation they will continue purchasing the items on their list but go elsewhere to buy that lost item.  If the out of stock happens a second time, they are likely to change retailers.  If it happens one more time, they are likely to change brands all together.

Here are some steps that can be taken to reduce stock outs:

1. Use a data analysis tool to proactively monitor POS data on fast moving items.
2. Use a data analysis tool to calculate min/max on the longest time series of data possible, and be sure to account for geographic variances.
3. Coordinate your promotions internally, and among your supply chain.
4. Assume new product introductions will create an inventory problem and plan accordingly.
5. Leverage the experience of your vendors by empowering them to analyze sales and inventory data.

Next Article: Increasing Sales By Managing Out of Stock Inventory