http://www.mrketplace.com/content/community/mr-blog-cabin/harry-sheff-blog/blog/article/whats-new-in-neckwear-besides-plunging-sales/

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.

 
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!

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.

James Hallman (Atlanta, GA) had a couple of clients who were winners of the Alabama Retailer of the Year awards. The Fitting Touch won Gold for its category and Shaia’s won Platinum for its volume level. Congratulations to the winning owners and to James!

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