26/07/12

By Graham Buck

Honesty is always the best policy after a corporate slip-up, so Marks & Spencer chief Marc Bolland was upfront in explaining the reasons for the retailer’s disappointing first quarter UK results. Lost sales opportunities were a major factor; many M&S stores ran low on supplies of women’s coats, jackets and knitwear after weeks of mild winter weather gave way to a sudden cold snap in February.

M&S sold 100,000 cardigans and jumpers from its core M&S Woman collection, but Bolland admitted that it could have shifted three times the number had temporary stock shortages not caused gaps on the shelves. Failure to order enough of other in-demand items such as women’s ballet pumps compounded the problem.

According to David Noble, chief executive of the Chartered Institute of Purchasing and Supply (CIPS), the company’s sales slippage demonstrated the difficulty of managing stock in the face of consumer demand, particularly when weather-related.

“The results show the importance of demand management and ensuring supply chains are sufficiently flexible to respond,” he commented. Noble cited further challenges for retailers this summer from events such as the UEFA European Football Championships and the London Olympic and Paralympic Games.

“Accurately judging the impact hot weather or otherwise will have on sales will be critical for retailers looking to take advantage of the traditional increase in consumer spending during these kinds of events,” he added.

And consumers show less brand loyalty and have more choice about where to spend their money than ever comments Julian Clay, chief operations officer at supply chain management software company ediTRACK.

“A 2011 survey found that half of consumers look forward to visiting a High Street store because of the image they have of a brand – only to be disappointed by poor product availability when they arrive,” he reports. “One in four consumers now
uses the mobile internet to see if the goods they want are cheaper elsewhere.”

And as Cindy Etsell, industry marketing manager – commercial for SAS UK & Ireland, observes: “Retail needs to be come theatre, as it’s an experience. And with consumers spending less, retailers need to up their game. Yet you still don’t see that much technology employed in many stores. Indeed, often retail employees are savvier about technology than their employer.”

Unpredictable weather patterns are not the only challenge to maintain well-stocked shelves. Way back in the 90s, Delia Smith’s TV cookery series sparked sudden demand for items ranging from cranberries to omelette pans. This trend has accelerated in recent years thanks to the rise of celebrity culture and also social networks such as Facebook.

As NCR’s retail industry director, Stuart Henderson, observes a High Street dress worn by one of the Middleton sisters will be an immediate sell-out. Consumers also increasingly have the option of “shopping ahead of the curve” and pre-ordering items before they hit the stores.

“Getting the seasonal phasing of stock right and predicting which products will be the “hot sellers” is a key challenge in retail,” he says. “Retailers can look at long-range weather forecasts, how bloggers and journalist are responding to product previews, and work to ensure their supply chains are more responsive to constantly shifting levels of consumer demand.

“But there is no silver bullet, as many factors are beyond retailers’ control.”
Being out of stock of in-demand products means that a retailer is out of pocket. The damage is even greater when frustrated customers transfer their custom to a competitor because they cannot find an item. Conversely, being over-stocked erodes profit margins; end-of-season markdowns are needed to shift items that haven’t sold well and more time-sensitive goods, such as perishable items, will either be given away or disposed of.

“This means retailers need to take an integrated, multichannel approach to analysing, responding to and influencing demand to boost sales and profit levels,” says Henderson.

Gary Lynch, chief executive of GS1 UK agrees. “The explosion of data within retail – driven both by consumer demand for a seamless multi-channel retail experience and more product information – is having a major impact on inventory control,” he reports. “It’s clear that poor inventory control and inaccurate data can have a hugely negative impact on retailers, particularly in today’s tough climate.

“Accurate inventory control is crucial to the business bottom line. By standardising data throughout the supply chain, retailers can control their inventory more efficiently, cut costs and create a consistent and trustworthy experience for consumers.”

Cost versus flexibility
Lee Gill, vice president of retail strategy at JDA Software, says that M&S’s recent stock shortages are typical of a problem shared by many other big names and admires the company for being more candid than some of its rivals. Until the Eighties M&S stores proclaimed that at least 90 per cent of all goods sold were British-made, but that policy was steadily abandoned as it moved to overseas suppliers.

“There was a wholesale exodus of procurement to China, India and Eastern Europe; a change that generated improved margins but meant a less responsive supply chain – lead times got longer and grew to between six and eight weeks.”

Gill observes that lead times have become a major issue, with retailers obliged to assess the trade-off between the lower costs that come from having an overseas supplier and the greater flexibility in responding to demand in sourcing from closer to home.

“Resources should therefore be devoted to more unpredictable products – as opposed to “flow products”; items for which demand is more predictable as it remains relatively consistent over the year,” he suggests. “Fashion ‘plagiarists’ who quickly knock off copies of a new fashion have the raw materials close to hand and a nearby supplier.

More time-sensitive goods, such as fresh produce with a limited shelf life, also requires active management in terms of allocation and replenishment planning for the supply chain to ensure they are sold in time says Nishant Thusoo, sales manager-Europe for retail, consumer packaged goods and logistics at Infosys. Technology can assist by optimising which items to stock and the amount of shelf space to be allocated to each.

“By feeding in merchandising rules and optimisation algorithms, technology can create store-specific planograms (POGs), which can maximise sales or margins, depending on the retailer’s priorities.”

Multi-channel challenge
There is general consensus that merchandise planning is even more of a challenge for multi-channel retailers who provide Click & Collect services or home delivery of items. In North America, Nordstrom and JC Penney are regarded as among the names that have become most adept, while closer to home Boots, B&Q and John Lewis are well-regarded for their multi-channel strategy.

“Multi-channel planning is important as many retailers claim to offer cross-channel integration,” says Thusoo. “But this planning has often been rather disjointed – even though online offers huge potential for carrying more lines.

“Much better integration is required in the planning process, which needs to consider cross-channel customers’ shopping behaviour to take the right merchandising decisions.”

Cloud-based supply chain systems can assist the process by providing retailers with the latest information on stock held together with stock that is on the way, where it is and where it needs to be to achieve maximum levels of sales and customer satisfaction, says Clay.

“Using this kind of information the retailer may decide to “fast-track” certain items and delay others to maximise sales and minimise costs. Some retailers also utilise it to give online customers precise shipping times when an item is out of stock. By keeping them informed they are more likely to maintain brand loyalty – even in short stock situations.”