Written by Scott Thompson
In early May, leading retailers and technology suppliers gathered together in London for a merchandise planning roundtable covering internationalisation and cross channel challenges, social networking, m-commerce and SaaS and cloud computing models. Retail Systems reviews the event.
The roundtable, held at Tower 42, was chaired by Scott Thompson, Editor of Retail Systems and the panel comprised of: Rebecca Connell, head of merchandising, House of Fraser; Caroline Cooper, business change manager, Marks and Spencer; Wayne Snyder, project manager, Marks and Spencer; Nick Rennardson, head of IT, Republic; Tim Williams, group finance and IT director, Long Tall Sally; Nigel Spooner, development director, DHL; Charlotte Kula-Przezwanski, enterprise product manager, Torex; Brian Lawson, general manager: sales, Teleware; James Newman, business developement manager, Torex.
Multi-channel has transformed retail and nowhere has this revolution been more keenly felt than the field of merchadising, planning and forecasting. Multi-channel planning and merchandising enables retailers to assess demand across all channels but it also throws up a series of challenges (e.g. it has meant that more and more companies are doing business internationally but have their IT systems grown with them?) With this in mind, the roundtable addressed a series of key topics: internationalisation and cross channel challenges - what are the impacts on sourcing, critical path management and merchandise planning?; social networking - how can retailers harness this potential demand predictor into merchandise planning?; M-commerce as a rising retail channel; How could SaaS and cloud computing models work with merchandise planning?; Technology solutions available to retailers as they pursue projects.
Kicking off with internationalisation and cross channel challenges, the chairman, Scott Thompson, turned to Marks and Spencer, a leading multi-channel retailer with ambitious plans to expand its international business (in 2007/08, it announced its aim to grow the international business to between 15 to 20 per cent of total Group revenues by 2012).
“For M&S, it’s that age old question in terms of structure – do you want to have a separate international business or do you want to integrate into some sort of worldwide business?" noted Marks and Spencer's Wayne Snyder. "We have structured ourselves along international and UK lines and have separate planning and sourcing teams. Longer term, from a planning perspective there’s a question about what’s right and what’s wrong from merchandise planning and sourcing perspectives. For instance, in terms of the logistics side of it, when international is quite small you end up buying something from the Far East, bringing it to the UK and then sending it back to the Far East, which is what M&S is trying absolutely not to do. But the challenges associated with that are large both from a planning and supply perspective. For me, it’s a philosophical question, much like online in that respect. A lot of companies decide when it’s small and new to set up as a separate entity and to some extent duplicate methodologies, but if you’re looking at a much more holistic merchandise planning end-to-end, flexible, best practice solution, which I would say nobody has really achieved, it’s a completely different way of working.”
Marks and Spencer's Caroline Cooper added: “In big companies, it is incredibly difficult to get the whole thing bound together and the costs involved in trying to run two different operations are immense.”
Retailers with a presence in two or more countries are growing faster and more profitably than those operating in just one or two countries. Companies may seek to keep a lid on costs by adopting one platform and tweaking it for individual markets, but cultural differences will range widely between regions and going down that route may cause more harm than good.
Long Tall Sally’s Tim Williams came at internationalisation from an SME retailer's point of view. His company is a multi-channel retailer of fashion for taller women. As well as an online presence, it has stores around the UK and a telesales operation. It also has global expansion on the mind. “Last October, we purchased the Canadian business so we were purely retail in the UK (20 plus stores) and online throughout the world (online being about 60 per cent of our business). When we took over Canada, we put all the management into the UK so Canada’s merely an operational hub for us and we’re making all the decisions (merchandising, sourcing, buying) from the UK. The systems are completely disparate and that’s a challenge for us. We’ve got a UK system that won’t support the Canadian business and vice versa. We think we’ve got the management right but, from a systems point of view, we’re using spreadsheets and sticky tape to fix systems. And we’re about to open our first shop in the USA so that’s a whole new set of challenges.”
“Within the traditional retail business, Long Tall Sally initially saw online as a poor relation but in the last five years we’ve been realising how important it is. That helps with the internalisation side of things because online you’re selling to the US and so on,” Williams continued.
Torex's Charlotte Kula-Przezwanski spoke of her time at Next and the challenges the retailer faced: “We had the directory, retail, website and international franchise partners and different people had different lead times and buying patterns. When the franchise partners would come in for selection, the questions would be - what was the franchise model, could people buy sale or return, when did they want to select compared to when you were placing orders for the UK? How, if something took off internationally or on the website, did you then try and starve the UK pool of stock to service that? When you’ve got a brand new website or new franchise partners, it’s quite hard to decide who wins on the priority of stock. Also, one of our customers at Torex told us that suddenly their international business was getting to be 60 per cent of their business and that changed the whole sourcing supply model.”
Fashion outfit Republic is another retailer with ambitious multi-channel ambitions. “It has been a challenge for the leaders of the business, the people who have traditionally been shopkeepers versus the internet," said Nick Rennardson. "In the last three years, the website for us has grown at a phenomenal rate. So it’s important to look at the technology side, to make sure it’s streamlined as best as possible, but the critical thing is changing the fundamental fact that merchandisers need to appreciate the web and ensure that the stock is there. You need to know what the lost sales are and the lost opportunities – for us, you find that out online.”
“It’s the catalogue for us that causes more of the problems because we’re not purely online," commented Long Tall Sally's Williams. "If it was just the web, life would be a lot simpler. The catalogue drives the online traffic and, to a certain extent, a lot of our retail traffic. It goes out and if you’re not stocked for it it’s a problem and if you don’t have the product available for that channel it’s a problem. It’s a case of maintaining as much in the warehouse as possible. Our stock levels have gone up by probably 50 per cent in the last two/three years as the merchandisers have appreciated that more stock needs to be maintained in the warehouse and we need to get it in for the start of the season.”
DHL's Nigel Spooner brought the discussion back to internationalisation and the impact on sourcing. "We’ve put massive investment into data hubs to help get some visibility because a lot of the sourcing issues in merchadising are around visibility, so it’s important for 3PL suppliers like us to make that investment. Having standard operating procedures across many countries is a hugely important factor to get that visibility, to have the right inventory pipeline.”
Williams responded: “Retail replenishment across various countries is the challenge for us – if the stock’s in the wrong country, that’s very costly.”
Republic's Rennardson: “All directors want to do is sell stock to anyone who wants it. We’re retailers at the end of the day. It’s about ensuring that the planning and logistics tools and everything sitting behind it works, at the right cost and time scale.”
Marks and Spencer's Cooper again stressed that the bigger the company, the tougher the challenge. "If you decide that you are going to expand one part of the business, it’s so important to look ahead, especially from a systems side. If you know you’re going to need a new replishment tool and a new planning tool, you’ve got to look at what it’s going to look like in the end. Everyone wants to get their sales up quickly and see this year’s figures, which is fine, but we need to remember it’s a long-term thing.”
Marks and Spencer's Snyder argued that the cultural part of the equation poses the biggest challenge. "We’re quite fortunate in the UK that, from a merchanidising perspective, most of our stores are relatively homogenous. They sell pretty much the same thing continually. But when clothing goes online, how do you cost for the returns? It’s not about one stock pot, it’s about a different consumer behaviour and experience. We need to plan at a channel level, whether it be international, catalogue, online and so on. The first stage for everybody is to replicate in a system what they do in Excel. And you basically build a system that’s a bit like Excel, one that you can get better reporting from, but you are fundamentally missing the point of what these systems can do. These can move you to a different thought process. You’ve got one stock pot but you don’t treat is as one stock point, you do understand the dynamics around it.”
Torex's Kula-Przezwanski: “How can someone in the UK managing the one stock know all the facets of the international stores, what products will work where? Some of our customers have dipped their toes in the waters with a dotcom. Opening a store in the States is obviously very challenging and a lot of people have failed. But could you try a website there and understand the ins and outs of the website in that particular area? Next, for instance, now has a very successful European site that’s driving a lot of business for them. They’re offering delivery for five Euros and it’s cheap to get stock out there. But how do you decide what those people in Europe are going to want? Are they going to want the same things as Next customers in the UK? When you run it centrally, do you have regional offices that decide what someone in France would want?”
Long Tall Sally's Williams said that these issues were high on his company’s agenda. “We will be changing something at some point in the next 12 months and I’m at the stage where I don’t know what that’s going to be, whether we change the mail order, warehouse, merchandise or retail system or leave all the systems as they are and just go for a business intelligence tool. At the moment, I don’t know which way to go. The idea of a fully integrated multi-channel system is brilliant but hugely challenging.”
“The cost of dumping what you’ve got now and moving to a new system, assuming it goes smoothly, is something that would be extremely difficult to justify," he added.
“Virtually everywhere I’ve worked has bolted it on. You have no choice because replacing it all is very costly and virtually impossible,” observed Marks and Spencer's Snyder.
House of Fraser's Rebecca Connell added: “We implemented a range planning system and there was a lot of resistence because it didn’t look like an Excel system.”
Republic's Rennardson picked up on that point, to conclude the first part of the roundtable. “It comes down to engaging the teams," he said. "We’ve recently implemented a PoS project with Torex across the stores and are in the midst of it now. It’s a case of full communication from the moment of launch. Everything about the project, we’ve involved the managers from day one and that has served us very well.”
The rise of social networks means more people are acting as brand advocates by posting links to products and services on the likes of Facebook and Twitter. E-commerce platforms that provide customers with integrated social networking tools such as ‘tweet this’ or ‘post link to Facebook’ buttons will make it easier for individuals to promote products and services and for retailers to potentially reward them.
Yet many retailers continue to adopt a ‘wait and see’ approach. Where, asked Retail Systems' Thompson, do Marks and Spencer, Republic et al stand when it comes to social networking? “We’ve tested Facebook and Twitter and it does work. We’ve started doing pre-launch ‘win this dress’ campaigns. It’s steadily growing and people do want to feel a part of the retailer. After all, they’re buying your gear so they obviously like you," said Republic's Rennardson.
“We’re trying to push it wider to create a community of bloggers talking about us. You get broader content and hopefully a broader acceptance from the customer base. That’s something we’re looking at progressing further.”
User-generated content is a buzz topic in retail and looks set to be a growing trend in the next 12 to 18 months. But DHL’s Spooner sounded a note of caution: “The danger is that you can try to control it too much – do you try to control the uncontrollable and then it loses its credibility because people find out that it’s the company pumping out information.”
“For us, it’s definitely part of our marketing strategy to target Facebook and Twitter. We have our own person who has sole responsibility for it – one of the marketing team. It’s not particularly something that we’re good at right now, but we’re definitely working on it,” said House of Fraser’s Rebecca Connell.
Long Tall Sally's Williams said that his company is trying to build a community for the taller lady. "So we’ve got blogs and forums. But it’s difficult to account for what’s generating the sales in the multi-channel environment, because I’m sure that retail is generating website sales and vice versa. It’s a case of trying to work out how the channels overlap. Our guys for the last three years have really been banging their heads against this.”
Torex's Kula-Przezwanski noted that she had recently been at a L'Oreal presentation on social networking. “They have some Twitterers (customers) who love their products. There is one lady who has reviewed every single nail varnish and lipstick. If they launch a new lipstick colour, she’s straight on there making comments and if they’re bad it doesn’t go anywhere and if they’re good they get massive demand. They use software that trawls through blogs etc to see what the traffic is like on L'Oreal so they can start analysing positive and negative comments and what they can do in terms of marketing.”
Marks and Spencer's Cooper questioned how a retailer could harness that into their planning - "or how you measure it and work out how much time and investment you want to put into it in relation to return?"
Rennardson replied: “You can measure it by sales, but the value of the information you’ve got coming in from all these channels, you have got to harness that and drive some of those decision making processes through in terms of range and assortment and buying.”
Progress is being made. Yet, whether through conservatism or fear or perhaps a combination of both, many companies continue to miss out on the opportunities that can come from social networking. A recent survey by dotCommerce of 100 UK retailers found only 42 per cent had some kind of social media presence and that just a third of those that had a Twitter or Facebook account actually promoted them on their website.
Marks and Spencer's Snyder observed that: “The challenge for retailers is that historically we’ve dictated what the customer expects to find when they go into a store. Whereas in this new brave world, there are so many different facets driving these things and driving customers’ perceptions that are outside of our normal means of control. Retailers are fundamentally retailers and those people with those retail skills aren’t necessarily best placed to look forward and understand this. They’re still followers in that respect.”
“Very few people are using it as a potential demand predictor and taking into account all these reviews when doing sales forecasts,” he added.
Fuelled by an explosion of apps and increased numbers of iPhone and smartphone customers, mobile commerce has finally justified all the years of hype and become a strong trend in the retail market. And there have been a number of interesting developments in this area during 2010. Marks and Spencer, for instance, recently made its first move into m-commerce, opting for a mobile website rather than the app option preferred by many UK retailers. Customers can now log into their regular web account and manage the shopping basket from their phones.
House of Fraser’s Connell saw lots of opportunities – some perhaps not immediately obvious. "In a way, apps might make our stores better because there has to be a compelling reason to go in the store - if they can really sell service and the experience, that's a challenge for the retail side. For instance, I recently went to M&S to buy a dress - it was out of stock but still available online. It’s a case of making it work across the channels."
"The iPhone and the growth of apps has lead the way. But there comes a point where it has to turn back to the ‘mobile.co.uk’ experience to drive that seamless view depending on whether you’re on a Blackberry, a Nokia or whatever,” said Republic’s Rennardson. “The iPhone apps that have been dropped in place in terms of retail, particularly from a fashion point of view, it's not a nice, clean exercise to run through a purchase. It will get slicker but at the moment there are very few people doing it.”
Marks and Spencer’s Cooper touched upon the fast moving nature of m-commerce. "These things accelerate quickly. In 18 months time, we won't be talking about the iPhone - there will be something new. At the moment, it's all happening on peoples' phones and that's why we're discussing it today - retailers aren't doing it particularly well."
Torex’s Kula-Przezwanski asked: "What about things like loyalty or stored value cards that you could have on your mobile and be sent text offers? You could use mobile devices to be the loyalty communicator and reward people with offers. I saw recently with the Tesco Clubcard demo, if you swiped your card and you couldn't remember what offers you had, you could text the word and it would come back with pictures of the products on offer. And you could use your iPhone to find where they were located in the store."
Teleware’s Brian Lawson: "As a relatively new iPhone user, I was travelling around Scotland recently and had a great experience when I was looking for a grocery shop and went on an app and discovered that there was a Tesco about a mile and a half away. You press the map and are guided there via the GPS system. It's very much in its infancy. I can remember my previous company when the worldwide web first came out, we went around companies and they all looked on sceptically - you're asking us to spend all this money on this solution, is there anything in it for us? Well, look where we are today."
Marks and Spencer’s Snyder added: "It’s a case of simple things like going into a store, taking a picture of a product, emailing it to a mate, asking their opinion and then buying it. Things like that will be common practice in 10 years time."
"It works for the big companies because they have that information, but it's a problem for the smaller companies,” said Long Tall Sally’s Williams. “But there are lots of ways to improve the customer experience. My wife bought something from Sweaty Betty recently - she got an SMS in the morning saying her delivery would arrive between 10.45 and 11.15. It arrived at 11.17 and the driver apologised because he had a puncture. That kind of thing is fantastic."
"It's knowing that you're taking web content and something that people usually see on a bigger screen to a smaller screen,” commented Torex’s Kula-Przezwanski. “The user interface on the iPhone has made that easier to do, but still when you look at sites on some of the smaller screens, it's a nightmare."
Teleware’s Lawson: "It's the shop window on the web. There are some brilliant ones out there and some poor ones. John Lewis, for example. I went to buy something, it was out of stock and I clicked that I would like them to tell me when it comes in stock. Argos give you the option of delivery or going to the nearest store to pick it up."
"We're not too far away from the situation where you can walk into Tesco with your phone and it recognises you, knows your buying patterns and if you happen to walk by the sausages or whatever, it bleeps.”
Long Tall Sally’s Williams flagged up the sizeable investment required: "All these apps cost money. When we get the sales to justify the costs, great, but at the moment I would say no. For us, it's a case of at what point to do we want to get involved with it?"
Argos is generally regarded as a company that is particularly good at m-commerce and multi-channel retail in general. Customers can, for instance, order online and pick up in-store within an hour. And it has recently released an iPhone app as increasing numbers of consumers use Apple mobile devices to access its website. "Argos are doing it well and they are reaping the benefits of that. They have recognised the challenges they face from competitors and so on. They are box shifters at the end of the day,” said Republic’s Rennardson.
“They have to do it well because of their competition. They are fighting a battle against the big grocers - unless they do it, they're dead,” noted DHL’s Spooner.
Marks and Spencer’s Snyder: "The nature of their shops historically is very different to our's. Their stock record accuracy is one key example that has to be correct. They are as close to home shopping on the High Street as you can get."
Torex’s Kula-Przezwanski observed that it all came back to real-time inventory levels. “That's what Argos has prided itself on - whether you go online or in-store, you press the button and you're told, three of those available."
Republic’s Rennardson: "This is a big project at the moment in terms of the customer ordering element. We do pride ourselves on knowing the inventory of what we've got and the managers fully target it because you need to do that 100 per cent to ensure you can sell that item to the customer who is on the way to the store."
The final topic up for discussion was: how could SaaS and cloud computing models work with merchandise planning? A recent survey by retail software specialists CTS Retail showed a growing interest in cloud computing, on-demand, SaaS or managed services. Around 30 per cent of respondents said they were thinking of moving to retail software packages via the cloud in the next two to three years, making it possible to pay only for what they needed (based either on the number of users, or the level of sales). Over half thought that SaaS would be one of the biggest growth areas in retail IT during the next decade. However, a number admitted to not really understanding fully the notion of cloud computing.
There was a mixed response from those attending the roundtable – some were sitting on the fence for the time being, some circling with interest. The knock on effect being that it’s perhaps too early to say how SaaS and cloud computing models could work with merchandise planning, although the possibilities are intriguing.
"I love the concept of cloud computing, especially as we've now only got two head offices and the thought of having one place to look after servers, one place for applications, sounds great,” said Long Tall Sally’s Williams. “It's a bit too costly right now but in six months time we could well be seriously moving towards it. Anything for a smaller retailer to avoid that phone call at 11 O'Clock on a Saturday night, when the server’s gone down."
Teleware’s Lawson: "There is a real drive for companies to look at hosted applications because of the flexibility required, particularly in the retail sector and the associated seasonal changes. Hosted can give you that."
"Unless you're a big global player, the investment is perhaps too much," said DHL’s Spooner.
Long Tall Sally’s Williams: "The cloud bit is going to help me persuade people to move to one merchandising system or one mail order system because it's on one server."
Last word to Torex’s Kula-Przezwanski: "There's so much jargon out there - is it cloud, is it SaaS, is it managed services, hosted? Everyone interchanges these terminologies. One of the things I've been looking at as a product manager is the likes of range and assortment planning, when buyers are in the Far East, they don't have the problem of going in through a firewall/VPN or all these technical challenges. They can sit in their hotel or supplier's office, start keying things in and then people back in head office can see. Can these things go in a cloud and how do they work in a cloud and how do people access them? There's a big fight between Google, Microsoft and Oracle about who's going to have the best cloud technology that people can use, so I think it's a challenge for people about what they do and how they use it."
Retail Systems’ Thompson then brought the roundtable to a close. The conclusion being that consumer demand for ‘commerce anywhere’ is on the rise. Multi-channel has changed everything. Whether shopping on the move using a smartphone, in-store or via a call centre, shoppers want and expect retailers to offer a consistent high quality level of service across channels. This places an extra strain on the merchandise planning process. But developments like social networking and m-commerce also present a series of major opportunities. If, alongside the new generation of merchandise planning solutions, they are linked in with allocation, replenishment and other related processes across multiple channels, retailers really would be getting a little closer to the all-seeing, all-knowing ideal that the industry aspires to.