By  on January 12, 2005

Retailers avoided a disaster this past holiday season. Despite generally weak sales in most sectors, executives and analysts say there was no major panic among retailers, in large part because of significantly improved management of inventory and markdown activities. While it may have appeared to consumers that there were endless sales at stores up to and after the holiday season, many of those sales were planned long before the holiday season began. 

The calm partially stemmed from the increasing use of optimization software, or at least elements of it. The hype of emerging technologies rarely matches the end results, as any executive involved in IT decision making and project implementation knows all too well. But optimization software may be one of those rare IT breeds that deliver the goods as well as, or even better than, promised. 

Optimization tools are designed to suggest best prices, determine when and how much to mark down product and fine-tune merchandise assortment and shelf-space allocation. For apparel retailers, especially, solutions that limit markdowns hold significant potential to enhance profits. Similarly, tools that maximize shelf-space allocation and, hence, sales per stockkeeping unit, can lift the bottom line by precious percentage points.

The move to what is broadly termed “optimization” tools represents a daunting shift for retailers who traditionally have relied mainly on historical data and instinct to make pricing and merchandising decisions. Optimization software calls for retailers to trust in science and technology to forecast demand and predict trends, and suggests changes to cash in on both. 

The trend is not yet widespread, but it has moved from the pilot stages among a relatively small group of retailers to an option almost all companies are aware of and are considering embracing.

Although retailers are typically shy about sharing perspectives on leading-edge technologies they believe give them a competitive edge, Marvin Hearn, vice president of planning and allocation at Burlington Coat Factory, shared specifics about that chain’s space optimization program and the paybacks expected as a result.

Burlington Coat Factory, which carries an average of 15,000 coats year-round as well as a healthy assortment of other apparel, shoes and accessories, wants to make sure that every inch of its real estate is performing at maximum capacity. Burlington Coat Factory operates 360 stores and generated net income of $68 million on sales of $2.8 billion for its 2004 fiscal year. Net sales for the first half of 2005, ended Nov. 27, hit $1.45 billion, a 10.7 percent increase over the same period a year ago.

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