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CORAL GABLES, Fla. — Maybe information technology really has come of age. Signs of the retailing industry becoming more comfortable with the reality that information technology is a driving factor in bottom-line performance emerged to a surprising degree at the A.G. Edwards investment conference held here late last month.
Typically press-shy retailers stepped up to the stage and unveiled an array of paybacks from technology investments and even dared to reveal some of what they expect to implement in the future. They also peppered talks with cautionary advice about making sure the mix of technology and company culture is right.
Executives from Nordstrom, J.C. Penney, Hot Topic, Guess, Wal-Mart Stores, BJ’s Wholesale Club, and Build-A-Bear Workshop, among others, took part in the event, titled “Retailing 2005 — The Technological Imperative.”
J.C. Penney’s Centralized Turnaround
Jeffrey J. Allison, J.C. Penney’s executive vice president and director of planning and allocation, offered his company as a case in point for the importance of a clear, strategic technology vision. In five years, Penney’s went from a decentralized buying environment with over 1,000 vendors, 250,000 items and slow merchandise flow to one that is now fully centralized.
“This journey started with the issue of survival,” Allison said, alluding to the company’s financial woes in the late Nineties. “Survival was a great motivator. There was wide recognition that the company needed to change.”
At the time, markdowns and buying decisions were made at the individual store level. “We had to take every significant buying process and build an application that would support a centralized model,” Allison said.
With the development of a centralized buying function, the number of items went down to fewer than 100,000. “Our merchandising plan feeds the store plan. Merchandise planning, store planning and assortment planning are integrated from beginning to end.”
The new system provides monthly store presentation plans and in-season forecasts for 1,000 stores managed by 25 store planners. “We have gotten improvement in in-stocks and sales, markdowns and expense structure,” Allison said.
With better controls, J.C. Penney is looking to grow turns by 5 percent to 10 percent and improve speed-to-market of private label. Where the process of getting an item from the design stage to the sales floor once took 18-to-24 months, changes in supply chain systems and product development could speed the process up to 45-60 days from concept to door. And new system targeting improvement in point-of-sale is “the big exciting new effort we’re kicking off this year,” Allison said.
Pumping Up Margins at Nordstrom
Nordstrom’s kicked into high gear automating its IT systems in 2002, when comp-store sales were slumping and the company was seeking information to help better understand and bolster the business, said Michael G. Koppel, executive vice president and chief financial officer of the department store chain. The company started using technology to analyze its young men’s business and the move paid off.
By revamping its financial and warehouse management systems, the company saw sales per square foot rebound from $319 in 2002 to an estimated $350 in 2004, with similar gross margin gains, the executive said. “Gross margins are higher than they’ve ever been in company history,” Koppel said, and pretax margins of 9 percent are the “highest since our heydays of 20 years ago.”
Koppel credited better execution within Nordstrom’s culture of customer service as well as a $350 million investment in technology over the past four years as keys to the retailer’s improved performance. “The real story has been keeping a delicate balance. How do we bring new technologies into our system without taking away what’s special to our company?” he said.
The first systems to be installed were Oracle’s financial and Manhattan Associates’ warehouse management solutions. Retek’s inventory system went live next and “took the most to get going,” but yielded important results, including improved store-to-store allocations and better replenishment. Turns shot up 5 percent last year, and 11-12 percent this year, Koppel said.
“But the systems can’t take pride. They don’t generate discipline in managing money.” People, rather than systems, are still responsible for selecting great products, he noted.
Nordstrom also rolled out a new point-of-sale system from Fujitsu that enabled stores to eliminate, to a large degree, manual ticketing. One of the offshoots of investing in new registers as part of the POS system was the ability to integrate them with Blue Martini’s Personal Book software. “It takes all the great practices of our best salespeople over the years and put that data right into the register,” he said. About one-third of all sales are captured on Personal Book, which was rolled out this past fall.
Coming next: Retek’s replenishment optimization application will go live this quarter and ProfitLogic’s markdown optimization program is scheduled for rollout by the second half of 2005.
Less Guessing, More Automating
The sales floor is an area Guess is focusing on, with its Guess and Marciano brands moving further into retail, said Michael Relich, senior vice president and chief information officer in charge of IT and e-commerce for Guess Inc.
New technologies helped Guess transition from a wholesale apparel business to one with a significant retail presence. About 71 percent of the company’s revenues now comes from its direct consumer business, compared with 50 percent in 2000, he said.
Much of Guess’ IT systems, some of which had been in place for more than a decade and were complicated to use, have now been replaced with more user-friendly and robust applications. “We believe in simplicity,” Relich said.
As a result of technology now in place, sales representatives receive e-mail reports every Monday on their customers’ best-selling items. Allocation tools were simplified and focus on presentation profiles for basics and fashion merchandise. “We send less out, see where it’s selling and replenish,” he said. The company went from carrying $144.2 million in inventory at yearend 2000 to $83.5 million in 2003, and inventory levels dropped another 15 percent in 2004.
Guess’ latest project involves creating “virtual warehouses” to help cement accountability on both the wholesale and resale sides of the business. Also on the table: Building a sourcing office in Hong Kong and putting more resources into a retail data warehouse. Relich is also rewriting the company’s e-commerce platform to better serve its retail divisions.
Wal-Mart: RFID 10 Years Away
Kevin Turner, Wal-Mart’s executive vice president and the president and chief executive officer of Sam’s Club, was the corporation’s cio before stepping into his current position. Sam’s targets small businesses and counts 47 million cardholders among its shopper base.
While Wal-Mart is widely recognized as a global leader in leveraging technology, especially on the supply chain side, Turner said balancing technology and people is always critical, and “we skinned our knee whenever we got the focus on one area and not the other.”
All Wal-Mart divisions rely on a centralized database system. What that means, Turner said, is that “when one area makes a breakthrough, we can replicate [that advance] with great speed.”
Wal-Mart buys few software packages and requires those employees who program the front-end registers to spend time running the registers first. Turner said Wal-Mart was one of the first major retailers to implement POS systems and that those systems helped drive retail growth. “It was difficult and bloody, not unlike RFID,” he said.
Satellite communications, T-1 lines, in-store processors and wireless communications also helped speed flow of data, yet each system came with its challenges. Wal-Mart’s philosophy is to think about eliminating a task before automating it and thus lower the potential for needlessly spending time and money on technology.
What’s upcoming for Wal-Mart: Predictive technology, which “spots problems and allows you enough time to fix them” and takes into account factors such as the weather. A simulator that predicts hurricanes or other severe weather would allow Wal-Mart stores to stock not only items that sold well during prior hurricanes, such as bottled water and tarps, but also products that might have sold well if they had been in stock, such as beer, spam, and hand can-openers, Turner said.
Then there’s the matter of Wal-Mart’s high-profile industry advocacy of RFID. “We have another 10 years work of development. The greatest thing we will do with RFID is likely the one we haven’t even thought of yet. We’re still learning,” Turner said.
BJ’s Tackles Replenishment and Shrinkage
With three automated warehouses serving 156 clubs in 16 East Coast states, BJ’s Wholesale Club banks on a centralized replenishment process, linking inventory management, distribution and transportation, to serve its core customer: the family shopper, a mom with two children.
“Centralized replenishment is key to efficiency,” said Ray Sareeram, senior vice president of logistics. BJ’s leverages POS system data as well as promotional data from its distribution centers, and satellites link delivery truck information with company systems.
The POS data system now allows for a seven-day lead time between ordering and putting it on the shelf, as for example, with Tide detergent from Procter & Gamble. Given BJ’s price and payment terms with P&G, “We’ll sell that product long before we have to pay for it,” he said.
BJ’s uses systems from JDA and Manhattan Associates to optimize its distribution and warehouse management. Sareeram also said its shrink rate was 6/100,000ths of 1 percent, a rate that drew murmurs from conference attendees.
Hot Topic’s Hot Customers
With 8 million electronic card-carrying members, BJ’s may have “perfect knowledge” of its customers’ buying habits. It’s far less perfect for a chain like Hot Topic, whose young female consumers usually pay with cash.
To create a better database — and customer loyalty — Hot Topic started a pilot loyalty club called Divastyle at Torrid, its plus-size chain.
Tom Beauchamp, cio, said the program rewards customers who spend $250 or more with a 5 percent discount on all purchases for the remainder of the year. Customers receive a 10 percent discount on their birthday and a $10 discount for referring a friend.
“A high percentage of our customers take it one time and don’t use it again,” Beauchamp said, noting the company hoped to lower the cost of its sign-up materials. Members’ receipts tell them how much more they need to spend to get the discount. The company can also tailor exclusive offers and events to its customer base. The results have shown Hot Topic that Torrid’s top 2-3 percent of customers spend at surprisingly high volumes, “well beyond our expectations,” he said.
Build-A-Bear Gets More Personal
Since its first store opened in 1997, Build-A-Bear Workshop has sold personalized bears to 9 million households in the U.S. and Canada. With each bar code specific to each animal, the company has a database that not only records customer data but can trace the stuffed animal back to the owner in case it’s lost, said Barry Erdos, president and COO Bear (that’s his real title). Customers personalize their animals with clothing, including licensed Limited Too outfits, sound chips, names and other qualities.
The company, which went public in October 2004, now operates 170 locations in the U.S. and Canada and via international franchisees. POS data allows the company to target customers with coupons and inform them of events. In addition, the company runs a satellite-equipped mobile store that “moves every five days without skipping a beat,” Erdos said. The company already opened a specialized store at the Philadelphia Phillies’ baseball stadium, and its technology may be used to help the company conduct business in other nonmall locations, including sports venues, theme parks and possibly cruise ships.