Introduction
Several important ideas and technologies are gaining momentum in retail to change the game on sales performance by getting the right level of inventory at the right store. Assortment Planning — one of the big-data-driven analytical exercises in retail is incredibly useful, but fairly difficult. Hence, many retailers don’t get around to doing it — or just don’t do it well.1
When we talked to over 150 retailers in our recent research, the challenge of assortment and replenishment was expounded upon, and there is a way out: RFID.
No More The Blues about Blue Jeans
So why is blue jeans such a hot topic with retailers and RFID, I wondered? “Do the math,” one retailer told us. Just one season of ladies’ blue jeans can have 1,104 variants.
Now add to that the specific forecast for each item. Not all channels, stores, or geographies may stock all items. And even with the full selection, certain items sell at different rates, requiring replenishment as you go. That’s of a lot of data and a lot of math!
As one major retailer told us, “There are too many combinations — it’s hugely complex. There is no way that a human can do that without mistakes — it will always be wrong.” And so it is. For us picky customers, it is a surprise and delight when we actually find our size (8 short, heritage cut, for example) in the store. During a recent trip to Macy’s, where I went hunting for RFID implementations, I found a huge floor full of slacks. Lucky them — I bought 2 pairs of slacks, since I found my needle in their haystack.
And this is exactly what the retailer was hoping would happen — Sales!!!!! My colleague, Bill McBeath, who recently wrote a report on RFID use in retail, calls it the high mix/hard-to-keep-in-stock problem.
Phantom Inventory
Merchandising and assortment planners often sit around and wonder why an item is not selling. Interestingly, though, by doing an RFID project, another retailer realized that the inventory in question was often never even in the store. Errors from picking and ticketing in the DC filtered right through to the store. The system said it was shipped. The system said it was in the store. But actually, these products never arrived. This has a huge negative effect on your analysis and your sales, especially if this is one of your big sellers, never-out-of-stock, or high-margin products.
You can’t sell what you don’t have. So that means the replenishment systems will not re-order (even if you need to, since you don’t really have the merchandise in the store). And the assortment planning system may say that kind of item doesn’t sell well in NY. Let’s not stock it there next season. As another retailer said, “Our phantom inventory errors were eliminated, now we know whether we have it or have to replenish it.”
Any big retailer or even warehouse manager will tell you that the caverns of items they have to manage each and every day is just too big for people to be able to see, decide upon, and keep in order. And the product lines are just too complex to keep straight. In fact, many retailers said that they and other retailers don’t know for certain what the real, current inventory status is. “RFID gives us the transparency to reduce stock-outs, which we couldn’t even calculate before. People don’t even know what their OOS is. We could measure it and reduce it almost to zero.”
Another told us that their out-of-stocks ranged from 6 to 12% depending on the item. Now they also can measure it and have gotten OOS to less than 1%. The accompanying sales uplift, then, was astounding.
Conclusion
Smart analytics, like assortment planning, need accurate data to really excel. Doing cycle counting, looking at scan data, rationalizing POS, etc., all are important. But they are somewhat erroneous. (You can read about cycle counting and other inventory-locating woes in the accompanying article The Price is Right in this issue.) Retailers are looking for ways to do assortment planning well — RFID looks like the right partner to help make assortment planning a success.
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1 In subsequent articles we will talk about Assortment Planning software. — Return to article text above
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