Micromerchandising the Mix

Technology brings merchandising to the regional, store and individual-consumer levels

WINTER COATS SELL better in Boston than in Honolulu. Large economy-size jars of salsa move fast in El Paso and slow in Milwaukee. In the retail world, all stores aren't created equal. That's why micromerchandising is hot - and the technologies that support it are even hotter. So how are retailers using technology to take merchandising to the regional, store and shelf levels, and all the way down to one-to-one merchandising?

Hot Benefits Up North

In 2002, Northern Group Retail Ltd. - a Canadian specialty apparel retailer with more than 278 mall stores across Canada, operating under the names Northern Reflections, Northern Traditions and Northern Getaway - put a three-step plan in place to enhance its merchandising strategy.

Michael Stanek, chief financial officer at Northern Group Retail, reports that the first step was regionalized markdown optimization. The second is product allocation by region. The third is allocation by store. "We started with markdown optimization," explains Stanek, "because it has the quickest implementation and the largest ROI." Prior to the implementation, "a lot of product sold for less than what we could have realized," he admits. "When the holiday season was over, we spent 90 days clearing through merchandise. It just killed our profitability." In spring 2002, Northern Group began the implementation of ProfitLogic's Markdown Optimization software. ProfitLogic gives Northern's merchants the ability to forecast fashion merchandise, view the most profitable merchandising decision out of all the possible options, and experiment with different markdown scenarios in advance to evaluate the impact of decisions before executing them.

"In just fourteen weeks from the start of implementation, ProfitLogic was up and running and delivering value," Stanek notes. For example, in the first two weeks of use, ProfitLogic's solution generated $60,000 of additional gross margin dollars on a single SKU in a regional area by holding outerwear at full price, even though prior experience told the retail group to reduce cost by 30 percent.

Seeking system-wide access to consistent, accurate data, the ability to balance store budgets and plans with merchandise budgets and assortment plans, and the ability to improve merchandise control for a lower average inventory, Northern Group implemented the Connected Retailer suite of applications from STS Systems, now the NSB Group, in early 2003. According to Bill Booth, Northern Group's vice president of merchandise planning and allocations, one of the reasons the retailer went with STS/NSB was that company's focus on the needs of apparel enterprises.

According to Booth, his company expects the improvements to their current system to positively affect millions of dollars in potential sales. "We're looking for a very significant ROI over time," he said. The ProfitLogic product will eventually be integrated with the new STS/NSB merchandise planning system.

The next stage, Stanek says, will involve the implementation of a demand-forecast-buying engine and an allocation-optimization engine to enable all Northern Group Retail stores to have "the right product, in the right size, in the right location at the right time."

Micro Fits at Bakers

Bakers Footwear Group Inc. is a mall-based retailer of women's shoes and accessories with 215 stores in 36 states, 2075 employees and 2001 net income of $5 million - the latest available numbers for the privately held company. The company has implemented a micromerchandising strategy that involves clustering retail locations by sales volumes. The resulting matrix is combined with customer sales data to help enhance each store's volume potential on a style-by-style basis.

"We knew we had to get closer to the store and plan by store and by style, but we couldn't do this manually," says Stan Tusman, Baker's executive vice president of information systems and inventory management. To automate processes, Bakers installed an assortment-planning software product from Marketmax, now a division of SAS, and a major supplier of advanced retail planning and optimization systems. "We want to define our optimum store assortments for the upcoming seasons and buy accordingly," says Tusman. "We want to fine-tune each store and gain visibility into what will happen in the near future." This will be achieved via the Marketmax software, which also permits the company's field management personnel to review assortments and suggest enhancements.

The Marketmax product is a perfect fit for Bakers as part of a comprehensive system that includes a POS environment from Datavantage, JDA replenishment and planning software, and a JDA merchandising backbone. "We expect to reduce markdowns by 2 percent to 4 percent of sales, via a better, more appropriate mix of products in stores - in other words, fewer mistakes," Tusman says, adding. "We also expect to improve customer sales and tailor our store assortments for fewer stockouts, which could mean as much as 2 percentage points of sales increase."

Micromerchandising Bug

Fashion Bug, a division of Charming Shoppes Inc., has also been bitten by the micromerchandising bug and is about to pursue a new regional markdown strategy. The women's apparel retailer recently purchased a system that will help shift markdown management from the corporate level to the regional level. The new system is from ProfitLogic. ProfitLogic Price will enable Fashion Bug merchants to make markdown decisions at the geography-based price-zone level. Fashion Bug expects the product to increase the profitability of its markdown decisions. Charming Shoppes, the largest women's plus-size specialty apparel retailer in America, operates 2,242 stores in 48 states under the names Lane Bryant, Fashion Bug, Fashion Bug Plus, and Catherine's Plus Sizes. "There are a number of benefits we expect to derive from ProfitLogic's solution," notes Eric Specter, CFO of Charming Shoppes. Liz Williams, president of Fashion Bug brand, agrees, "The ProfitLogic Price solution enables regional level pricing, allowing us to provide more value to our customers at the local market level while improving Fashion Bug's overall profitability."

Discount Furniture Store

"As a furniture retailer, our stores are showrooms," says Michael Hoffman, spokesperson for Bob's Discount Furniture. Bob's, a privately held company, sells home furnishings in retail locations in Connecticut, New Hampshire and Massachusetts. Bob's has a standard store footprint of 35,000 square feet, but also has a range of smaller stores for which it is critical that the retailer tailor the store assortments by size and demographics. To make sure the right items are on each store's showroom floor and to enhance visibility into sales, the company has installed a merchandising tool from GERS Retail Systems. Using GERS, "We can slice and dice data, and analyze sales and inventory levels easily with a click of a mouse button," Hoffman says. GERS works with Retail Analyst from Cognos. "Cognos pulls information from GERS and puts the data into a format that is easy to look at, from any aspect of merchandising, in any way we want," Hoffman explains. For example, "we can analyze item performance by store."

"We've significantly increased inventory turns, even in the face of having a large percentage of imported items in our stores, and our in-stock position is much better," thanks to the new system, he reports. "We've been building on our original implementation," he adds. The company began by analyzing written and delivered sales, expanded to analyzing inventory levels and ROI, and is in the process of adding an accounting model that will enable the company to view financial data easily and in multiple formats.

Hoffman advises that any company considering micromerchandising should be sure to get sufficient training for its staff, so that merchants and others are comfortable with the newest business tools. "It's important to stay abreast of new technology in the current competitive environment," he concludes.

Regionalized markdown optimization, store-by-store assortment allocation, and product customization. These are but a few micromerchandising options now available to retailers. Meanwhile, technology vendors are hard at work creating more and better micromerchandising tools. With these in place, retailers of the future will be better able to understand, meet and anticipate consumer demand.