Specialty Retail Blog

Retailers may have some very helpful allies in places they would least expect to find them.

This article seeks to highlight some useful, but typically ignored synergies between science, engineering, business and retail. Karl Popper elegantly described the purpose of science as a process which generates predictive theories.  Science, economics and all kinds of business applications rest critically upon a common need; the need to accurately forecast a complex and dynamic future.

While the goals of science, economics and business are worlds apart, the actual process of forecasting is common to each. Similar challenges in forcasting allow lessons learned in one discipline to be applied in another.

Here, we’ll look at what forecasting insights can be gleaned from raindrops and market drops to help make our retail profits a little more stratospheric.

The most basic, even instinctive, method of forecasting involves guessing what will happen. Humans naturally learn to link certain events together. A midwestern corn farmer might say “knee high by the fourth of July.” If the crop isn’t tall enough by the given date, the farmer knows in advance that the crop has gotten a bad start and will therefore yield a weak harvest. Other times, the process is more intuitive, what we call “gut instinct.’ A person might “have a bad feeling” about some situation, even if he’s unable to explain the rationale behind it to another person. Recognizing patterns is something people do without even trying. It’s nearly impossible to look at a word written on a page, for instance, and not “read” it.

Of course, this kind of guessing is one of all kinds of human flaws and limitations. It lacks the dispassionate rigor of an actual scientific experiment. Just knowing that the crop isn’t high enough tells a person nothing about what caused its short stature. Even worse, it offers no clues to fix the problem. Gut instinct is difficult to transfer from one person to another. It creates dependence on a person, rather than a process and it’s horribly subject to the constraints of a single person’s memory and intellect. Using only gut instinct is better than nothing, but even at it’s best it is imprecise and prone to error. Stock outs sometimes and markdowns others is the result.

Of course, some of these problems can be solved by using past trends and performance to predict future results.

This approach is a little more precise and predictive if the system varies the same way it has done in the past. We’re no longer relying on the feelings of one individual and emotions are checked somewhat by stubborn little numbers. But it’s still less than ideal.

The professionals that spoke on climate research at a talk I attended recently amazingly faced the same problems that we faced in trying to predict future sales and performance for retailers. They started, as we did, using statistics.  Statistics and trends are useful in a somewhat stable or controlled environment. In statistical terms its changes can be depicted by a bell shaped curve or some other known distribution.   When climate change was affected by increasing CO2 the statistics based on the past could no longer predict the future.  Retail , also, is a constantly changing environment. When the recession hit, trends based on past performance were completely invalid.

The solution the climatologists brought to bear to help understand our dynamically changing environment was to make mathematical models of how the system worked. Over the years the model for climate change was modified to include surface temperatures, then atmospheric makeup including CO2, methane, and other gasses. Moisture content, then ocean temperatures were added. Then solar radiation coming in and out was added and so on. As each new variable was added to the model, a more accurate prediction was possible.  The true test was to back test to see if the model predicted what happened in the past. The final test is to see how accurately it predicts what happens in our actual, uncertain future.

We went through similar trials and tribulations to develop our Winning@Retail™ software. It contains both analysis of past performance using statistics and mathematical models  that account for the effects of the economy, local buying habits, inventory levels and much more to get an accurate prediction of future sales.  With each new variable added to the model the predictions improved.  Several independent tests have measured our ability to predict sales at 94% or better.

Just as knowing the future of climate change can help us prepare for the coming challenges, knowing future sales allows us to identify the right inventory levels and predict cash flow in the business.  If we don’t like the outcome, we can use the models to chart a new course based on a solid forecast of coming trends. Rather than just seeing a bad crop coming several months ahead of the harvest, we can consider how to nourish a business so that it continues to be fruitful and productive. The use of predictive models is the best approach to inventory planning.  POS systems and many spreadsheet approaches use statistics to project the past into the future.  Their susceptibility to sudden shocks and changes causes waste, errors and inefficiency, often when they are most painful.  The better your data and analysis, the better the predictions and the better the results will be.

More than ever before, using Last Year to set goals and measure performance can prevent clients from reaching their potential. On the one hand, expenses should be at the raw minimum now so comparing sales to poor performance last year can still be profitable, comforting and uplifting after a tough year. On the other hand, our clients must be making preparations and taking actions to gain market share and to grow their businesses, not simply striving to beat the worst year of retail history in recent memory. That is why planning is critical now more than ever. Our plans are based on a challenging growth strategy, not a declining retail environment.

 
To gain market share take an aggressive attitude. As an analogy, say you have a 15-year-old son who makes it onto the track team. After you congratulate him, would you:

a. Tell him to focus on the fastest runner and measure himself against him?

b. Tell him to focus on the state champion’s times try to match those?

c. Tell him to find the slowest runner and make sure he stays ahead of him?

To win, focus on the best. Champions act like champions. Champions, like great retailers, require great coaching, effective strategies, excellent management and goals that push them to exceed their abilities. If you focus on the slowest runner or your worst year, chances are you won’t be in the winner’s circle. Good luck in 2010!

Adapting will continue in subsequent Informer issues with various topics of how the recent changes in the market, economy and retail world are affecting your business. This is the second of the series by Evan Wise.

The Adapting article in last month’s Informer dealt with the need to identify your niche and then market to that niche. To achieve that, you have to identify the customers who you serve and stay true and meaningful to them. In the past, retailers concentrated on merchandise as the driving force for the store, but now the driving force must be the customers. Learning about customer preferences, culture and lifestyle must drive the buying process. As a retailer, you must be meaningful to customers and stand for something to them. That means you must be targeted, focused and consistent. Marketing data collection and gleaning the right information and conclusions must be at the heart of the decision-making and buying processes. Merchandise planning that focuses on sales forecasts driven by customer choices and actions is the only way to satisfy customer demands while providing cash flow and profitability.

Learning about customers must be part of the culture, job descriptions and habits of sales staff too. POS systems are now more sophisticated in managing customer data but they can only work if the data is entered consistently and accurately. These POS systems can help retailers match merchandise preferences to the customer to whom it relates. This foundation of information is absolutely essential for the independent retailer as the concept of mass marketing gives way to the trend toward personalized marketing.

Communication between buyers and sales staff must be open, frequent and meaningful. One mantra used by Management One® is that you can only improve what you measure. Your POS system should have the capability to measure a lot about your customers and their purchases. The ability to target market to your customers better than your competitors depends on the full utilization of that capability.

  Thanks to Ted for sharing this.

EW

A first grade girl handed in the drawing below for a homework assignment…



After it was graded and the child brought it home, she returned to school the next day with the following note:  

Dear Ms. Davis, 
I want to be very clear on my child’s illustration. It is NOT of me on a dance pole on a stage in a strip joint. I work at Home Depot and had commented to my daughter how much money we made in the recent snowstorm. This drawing is of me selling a shovel. 

Mrs. Harrington

Have you ever read about pivotal moments in history where people say, “This was the best time to buy” because a market had bottomed out and was starting to rebound.

In the past few years, this advice has frequently been given regarding real estate.  But I think it also extends to retail.  And I believe that RIGHT NOW is the time to map out a growth strategy.

Many stores have closed their doors.  Others have contracted, leaving market segments or territories open for those who can capitalize on the opportunity.

A retail establishment grows  via one or more of the following methods;

1. Gaining additional market share
2. Gaining additional territories
3. Adding Product Lines

We are advising all of our accounts to review the above methods and decide on areas where they can grow their business.  Sure, things are still tough out there.  Yes, I believe Spring 2010 is going to be a challenge.  But if an outlet can get through that (which we are helping our clients do via better marketing, improved cash flow and great open-to-buy planning), then they will  be able to grow an amazing business from the seed of the present opportunity.

This economy has had us all worrying, contracting, suffering, weeping, struggling, and enslaved for far too long.  The time is ideal to do something proactive, something spectacular, something bold, and something that will carve a mark in the memory of customers and competitors.

Dan Jablons
Retail Smart Guys

The biggest challenge in your business is listening. Being skilled in effective listening can boost your business and personal success. When owners learn the technique of effective listening and use it every day, they open themselves up to new ideas and realizations that would never have surfaced had their minds been shut to other voices. The members of your staff are on the front line of your business and have their own ideas of what is working and what is not. Their input gives you a clearer picture of how your methods are working. Completely new and innovative paths may also be discovered that may not have occurred to you.

Not only is it important to listen to the people who help support the business and make it thrive, it is essential to listen to your customers. There are more ways of listening them than just having conversations. What they buy, what they don’t buy and when they make particular purchases is vital information they are conveying to you. Knowing how to glean, organize and analyze that intricate data is the next step. You should be sure to keep an open line of communication with your customers, both the satisfied and the unsatisfied.Their message is often not verbal. So do chat directly but also perhaps find other creative ways to hear your client base.

Adapting will continue in subsequent Informer issues with various topics of how the recent changes in the market, economy and retail world are affecting your business. This is the second of the series by Evan Wise.

The hub of retail is moving out of the malls and into the streets. The recession has caused unemployment but the shoppers tend to be those who are employed, retired or otherwise minimally unaffected. However, even these shoppers can be more hurried and harried as the recession has caused most businesses to cut staff to the bone which puts more pressure on the rest to spend more hours, be more productive and work harder than ever before.

We value what is scarce and, because of the recession, it seems time is among our scarcest of possessions. The scarcity of time has put a greater value on convenience, availability and simplicity in shopping. A strip mall where a woman can take the dry cleaning to be done or have her nails manicured and can buy items for her wardrobe within 50 yards can be a huge convenience.

Other retailers have found ways to use their stores as bases and then move their sales influence beyond the physical location. Everything from bringing a wardrobe selection into an office to internet sales can move the boundaries to a much wider circumference and can make the shopping experience faster and more convenient. E-mail, social networking and even the phone extends your boundaries to expand your business. Now is the time to brainstorm ways you can make your store more available and easier to shop.

I was amazed while reading some statistics that 63% of Americans are concerned about the swine flu but  over 60% say they haven’t received the vaccine and do not plan to get it(ABC NEWS POLL).   That means 23 % of the Americans are worried about their health being jeopardized by a pandemic disease yet they don’t plan to be bothered to get a vaccine that costs $18 to prevent that disease.  Another 37% are not concerned about a disease that the best and brightest scientists have identified as a potential pandemic and threat to a significant number of Americans (according the CDC, to date 50 million Americans have contracted the swine flu virus and nearly 10,000 have died).

Since we deal with independent retailers, I obviously thought about the huge implications that statistic has for those retailers to whom we provide merchandise planning and OTB budgets for each month. Understanding this new retail environment is truly an enigma wrapped in a conundrum as Dennis Levine, one of our affiliates would say.  The statistics above prove that point.

The big challenge a retailer faces every season is finding the right lines and items that their customers will be motivated to buy.  If 20% of the people are not motivated to spend $18 on their own health and well being even if they believe it could be in jeopardy, and another 40% are not motivated by what many would argue are the obvious facts, the ability  to motivate customers  to buy the merchandise they pick  is an enormous task.  Fortunately the buyer usually has some great sales people to close the deal but that hardly absolves the buyer of significant responsibility for success.

The research that a buyer must do to accurately and profitably invest the company’s funds and make a profit is daunting. The two aspects of knowledge with which every buyer must enter the market are what will the customer buy and how much will he buy. Even the government only needed to predict demand in ordering flu vaccines!

Merchandise planning always begins with accurate forecasts of demand for each classification of merchandise in the store. Sales will happen when that demand is met with desirable merchandise and an effective sales force.  Once you know the demand (or, with the government example, how many people will want the flu shot) you can then determine how much inventory you have, how much of it is effective, how much additional inventory  you will need and what you can spend on it.  That gives your OTB budget.

The buyer must then be adept at assortment planning. This is where a good POS system can help document the lines, sku’s , colors and fashions that have been selling.  Just like your stock broker tells you, “Past performance is not necessarily an indicator of future sales!”,  a good buyer must be on top of the market, fashions and trends. That means hanging out where your customers hang out and watching what people are wearing.  Predicting the next trend is always a gamble but understanding your customers taste levels is a necessity.

I guess a buyer that gets the best merchandise planning along with OTB information and does the best trend analysis and assortment planning should be able to satisfy as much as 40% of his market. After all, that is the portion of the market that is motivated to get a simple shot to prevent a life threatening disease from attacking his body. That really makes it clear how little room retailers have for error in the current retail market and how important getting the right information on which to base decisions will be.

By Cathy Wagner, Retail Maven

1.  Be sure to make everyone’s schedule clear to eliminate any confusion.  Make sure to schedule yourself on the floor.

2.  Check your packaging, and operating inventory levels now.  You don’t want to run out of bags or toilet paper!

3.  Make it fun!  Everyone is stressed.  Remind your employees that personal problems are to stay at home and while they are at work they are expected to work.  It is important to incorporate fun into work now.  Here is one thought – the first one to make a sale for the day gets a $10 bill.  The next employee that has a bigger sale gets to take the $10 – and he gets to keep it until someone makes a bigger sale….and so on until the day ends and whoever has it gets to bring it home!  Get pizza for lunch one day – make it a red and green pepper pizza.  Put some thought into coming up with 5 different ideas – ask me for help!   Remember that YOU set the tone for the day.

4.  Have the daily and monthly goal posted BIG!  And you want everyone to know what the item/class/vendor of the day is.

Be ready to coach your employees on how to achieve these goals.

A good article on optimizing turnover rates by M1 Affiliate Alan Roseman