Micromerchandising: The next generation April 2007

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Micromerchandising: The next generation

Management briefing
By Stacy Baker April 2007

Published by

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Table of contents

Table of contents
Single-user licence edition............................................................................................................. ii Copyright statement .................................................................................................................. ii Incredible ROI for your budget – single and multi-user licences............................................... ii just-style.com membership .......................................................................................................iii Table of contents ........................................................................................................................... iv Introduction ..................................................................................................................................... 1 Micromerchandising answers critical apparel industry questions ............................................ 4 What’s in it for apparel companies? ............................................................................................. 8 The biggest hurdles to jump ........................................................................................................ 11 The top functionalities driving the solutions ............................................................................. 13 What is in store for micromerchandising solutions .................................................................. 17

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Introduction

Introduction
Since its infancy, micromerchandising’s charge has been to determine the breadth and range of products and stocking levels for garments at particular stores for a retailer. A retailer’s assortment of products is based on buying behaviour, as well as demographic, psychographic and geographic profiles. Retailers must determine the optimal way to pair product with stores in order to maximise profits, minimise costs and eliminate waste, all while giving consumers the best possible shopping experience. The underlying tenet: All of this is best accomplished by knowing thy customer. Only then can each store’s assortment be effectively and efficiently customised to local demand. This doesn’t sound so difficult until you consider that the larger the retailer, the more stores, the more brands and the more products it must juggle in order to optimise its offerings by location. Add other variables, like financial constraints, seasonality, competition, promotions and space layout (not to mention uncontrollable events like a celebrity wearing your brand’s boots so now everyone wants them!), and the computations grow. All of these decisions and possible outcomes become far too complicated to manage with a pad of paper and a pencil, or even an Excel spreadsheet. Some retailers even rely on intuition and instinct. In addition, many systems currently being used to support merchandising are cumbersome, outdated and lack the ability to effectively execute the mathematical computations necessary to optimise assortments and manage inventory. Over the years, these solutions have also been modified to the point where they are impossible to upgrade and can no longer handle the need for scalability, flexibility and visibility necessary to forecast and deliver accurately. Hung LeHong, research vice president with Canada-based Gartner, says that at present, retailers have three ways to create better product assortments at a high level: 1. headquarters makes the decision about what to put in each store, aided by merchandising optimisation tools such as advanced assortment planning;

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Introduction

2. vendors recommend or collaborate with retailers as to what should go on the shelves, much like the grocery category; and 3. store managers make recommendations based on their experiences at the store level. To effectively merchandise, LeHong says, retailers must have all three tools in their tool belt, using each option to various degrees depending on their operations, technology options, vendor relationships and store managers. Now enter micromerchandising technology, the facilitator of all three tools. “The next generation of merchandising technology is bridging the gap between art and science. These tools provide advanced analytics and algorithmic recommendation engines that enhance the merchant’s creative decisionmaking and inject greater business discipline into the process,” says Louise Chazen, president of 7thOnline (a provider of Web-based assortment planning solutions that are targeted specifically to the apparel, footwear and accessories category). “Essentially, the computer manages the numbercrunching and the tremendous amount of data involved in assortment planning so that the merchant can focus on product.” Specifically, the most significant areas of evolution from the first generations have been in three distinct areas, according to Ijaz Parpia, vice president of development, i2 Retail Industry Group: ○ ○ ○ customer-centric assortment management; transition to floor-sets-based planning; and integrated planning and execution.

Becoming more consumer-focused means ensuring that assortments meet very specific customer profiles. These descriptions will go way beyond ‘female, mid-30s, contemporary’ to ‘fashion-conscious working mother living in the city’. When solutions are able to strongly identify consumers, retailers are more equipped to meet consumer needs. “Making assortment decisions – range, depth, price, timing and time on offer – that are consumer-driven in every respect is driving retailers to consider each store or even each fixture within a store as a unique value proposition for a prospective customer,” says Parpia. In terms of floor-sets-based planning, retailers are reconfiguring how they approach deliveries, moving away from seasonal merchandise planning to floor sets planning. This means weekly changes and deliveries, which can

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Introduction

pose additional stress on a retailer’s capabilities. “Retailers who are still trying to leverage financial or other seasonal calendars to manage assortments are losing the edge to retailers who are capable of providing a fresh, compelling assortment each and every week to their customers,” he explains. And even though the technology has come far in the past few years, there is much more work to be done in order to streamline and optimise the back-end in order to heighten consumer experience. “If retailers are going to make the adjustments to their stores in terms of layout and assortment in order to create more locally relevant experiences for their customers, merchandising must continue to change, too,” says Nikki Baird, a principal analyst with Forrester Research. “This means the next generation of merchandising will be more granular, real-time, closed-loop and customer-aware than we’ve seen in the past.” Decision-making doesn’t end once assortment plans are made. Proper execution means working with retailers to be sure that the assortment plans are fully implemented on a daily basis. “Retailers are looking to make changes and adjustments to assortments, prices and inventory to reflect the latest trends in season on a daily basis, and are looking to ensure that their decisions can be executed upon the supply chain,” says Parpia. “This is only possible if planning and execution processes and tools are integrated in a seamless manner. Otherwise, there is no guarantee that the retailer can execute on the revised plan.” While the concept of ‘collaboration’, like the term ‘consumer experience’, has been a buzzword for many years, few apparel manufacturers are truly embracing the notion, nor executing it. This is because of their current business for the practices, same as well as their technology means. True micromerchandising success will come when all partners are working together end-results. “The next-generation solutions and the

accompanying controls are facilitating real-time information exchange among merchants, management, and trading partners, allowing all parties to make the best possible business decisions based on current data,” says Chazen.

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Micromerchandising answers critical apparel industry questions

Micromerchandising answers critical apparel industry questions
Poor merchandising plans and assortment execution can cause a variety of problems for retailers and brands: lower inventory turns, overstocks, stockouts, lost sales, poor store layout, cluttered selling areas, excess markdowns/promotions, poor customer service, reduced margins, ineffective promotions and inconsistent seasons with stale merchandise. Although assortment planning is just one step in a retailer’s entire merchandising cycle – along with financial and assortment strategies, logistics, distribution, forecasting and more – driving financial performance requires smart and effective planning and execution. This is one of the key concerns that micromerchandising solutions address. And if one uses the three tools outlined by LeHong in the previous section, the chances of assorting successfully are extremely high. “Imagine a retailer who uses merchandise optimisation to figure out the spread of sizes across a profile, and you have a store manager to determine specific collections and items, and then you have other categories that are just vendor-based because they’re reliable,” says LeHong. “What you’re getting is the combined power of someone who knows the business better, the number-crunching power of technology to determine sizes, and the store managers’ local ‘street smarts’ about what needs to be in stores. Those three methods get the right product in the right place at the right time. The results are fewer markdown dollars, greater sell-through and better inventory management.” To begin, managing every aspect of the merchandising cycle means being able to store, use and manipulate large amounts of consumer and product data both in-house and from outside sources. In addition, the nature of having a flexible, visible, responsive supply chain means being able to adjust and modify assortment plans as internal and external factors change, such as schedules, financial constraints, new trend data and more. “The coordination and sharing of this information both internally and among trading partners is critical to delivering the right products to the right place at the right time,” explains Chazen. “Furthermore, the short-life cycle nature of fashion merchandise puts additional pressure on market calendars, increasing the

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Micromerchandising answers critical apparel industry questions

need for rapid dissemination and interpretation of data – every day counts. Today’s technology addresses these challenges by enabling true real-time access and sharing to all necessary information and by providing sophisticated support engines to effectively leverage this data.” At the end of the day, retailers need to be able to handle all the potential issues that can arise. The most relevant and impacting, according to Parpia, include: ○ ○ ○ ○ ○ variety in assortment; uncertainty in demand; waves in inventory; promotions; and sizing.

I2 has considered these challenges when creating retail solutions. For example, retailers can quantify the benefits and downsides to various business decisions, such as creating broad versus narrow product assortments. Visibility at all levels has been another result. “The i2 tools provide visibility into store level sales, inventory and receipts over time (typically over 26+ weeks) that allows the retailer to plan with some certainty how business will look over time in units and not just dollars,” says Parpia. “It makes inventory and receipt flow decisions to maximise turns and disallows tidal waves of inventory from being built up in the supply chain while constraining the inventory and flow decisions to be within parameters imposed by the retail supply chain.” Many of these issues are compounded by ineffective or ‘siloed’ planning processes and large data warehouses that are difficult to access or housed in multiple systems. This heightens the need for strong technology solutions. “It is imperative to encourage cooperation across the planning process and acquire data from different channels,” says Parpia. “A smart retailer should supplement the art of planning with science that analyses multiple factors such as sales profiles, store types and locations, and regional and demographic variations. Retailers can gain valuable insights and plan far more effectively by leveraging all available data.” This wealth of data is critical in the execution of effective micromerchandising solutions. In particular, localisation – the idea of targeting consumers granularly by retail operation – will remain one of the key targets fuelling this technology. According to Baird, most localisation will centre around trying to

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Micromerchandising answers critical apparel industry questions

match sizes by demographics at the store level, i.e. creating size profiles within different categories in each location. For instance, a department store’s intimates department may have a different size profile than its sportswear area, so optimisation tools will determine the right size and style mix of products to maximise sales. This requires the ability to access and use large amounts of consumer data.

“There is some potential to customise the overall assortment as well – store A is more casual, and store B is more dressy – but that is potentially easier to do than size optimisation, because there is a supply chain cost to size optimisation,” Baird explains. “For example, someone has to bear the cost of packing 15 different pre-packs instead of the three that they used to, whether that is the manufacturer, some distributor or the retailer.” Clustering and store segmentation are impacting micromerchandising as well, evolving assortment planning to the next stage. Specifically, consumer data, such as buying behaviour, demographics, psychographics, wants, needs, etc, are helping facilitate planning and execution at a deeper level.

“Store clustering becomes the basis for size optimisation – helping to decide what the optimal number of pre-packs are, balancing projected increases in sales against the cost of creating more pre-packs,” says Baird. “But there’s a consequence to this in execution, because replenishment gets more complicated. Most retailers do some kind of holdback when they distribute inventory to stores if they’re doing one-time buys. But at what point does it become more important to break pack, or even move inventory from store to store in order to fill holes that demand has created?” To put this in real terms, consider that a retailer runs out of a certain size in its London store. Does the store know it? Also, should the store fix the problem by moving the size it needs from a nearby store or should it get a case of mixed sizes replenished from the warehouse? Which is more efficient and costeffective? Not only that, but how does the retailer’s central technology solution facilitate the decision, as well as notify each location about what’s transpiring? Look, too, for a nod to the capabilities of the local store managers who undeniably know more about their consumer than headquarters. They understand the geographic region, the buying behaviours of that consumer,

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Micromerchandising answers critical apparel industry questions

the local events, seasons, etc – basically everything that is unique and particular to that store location.

“In grocery and convenience stores, the pendulum of store control is starting to swing back to the store manager, where some retailers are allowing store managers control over, say, 20-30% of the SKUs in the store so that they can decide what to order,” says Baird. “But I haven’t seen that yet in apparel.”

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What’s in it for apparel companies?

What’s in it for apparel companies?
Technology improves the consumer experience by getting the right products to the right place at the right time. When consumers get exactly what they want when they want it, they begin to feel loyal brands and/or the retailers providing the experience. “It’s easier for consumers today to shop around between different stores and online sites,” says Lorraine White, director of planning for Manhattan Associates. “This means it is critical for apparel companies to make sure products are targeted to their specific demographic. It’s also important to analyse assortment before products are ordered and placed so that the mix in each location is targeted to each type of customer. Customer loyalty is key. When you achieve this, you’ll see financial benefits from increased sales, minimised lost sales, reduced markdowns, higher revenue and greater customer retention.” Beyond the consumer, the benefits of micromerchandising are the same as those all retailers and brands ultimately seek from their technology, namely revenue growth and bottom-line profitability. This is achieved because retailers and brands are able to present shoppers with merchandise that they are willing to pay the best price for when they’re ready to buy in the size, style, colour, etc that they desire. Allocating merchandise to the right store means optimising by product mix, demand and store attributes, not just human intuition, trending or historical data. Micromerchandising solutions serve as a warehouse of consumer data and product information, all updated in real time, so that decisions are made accurately, quickly and efficiently. Better promotions and markdowns are another result. For instance, the i2 solution shows planners the impact of their decisions on the merchandising process. “Planners can make store level decisions that allow them to mark product down in those stores that are not selling well, while retaining the mark up in those stores that are selling the same product per plan or better,” says Parpia. “Furthermore, the i2 tool recommends markdowns over time, rather than forcing the retailer to take huge markdowns at the end of life or the end of the season.”

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What’s in it for apparel companies?

Many retailers and vendors have already seen many quantifiable benefits from implementing 7thOnline’s assortment planning applications, according to a recent survey by Kurt Salmon Associates, including: ○ ○ ○ ○ ○ ○ realised additional sales opportunities of up to 25%; reduced end-of-season excess inventory by up to 50%; reduced time spent on administrative work by 40-95%; shortened cycle times by up to four weeks; reduced error rates by 50-80%; and enabled efficient buyer/seller collaboration and better management decision-making. Follett Higher Education Group has implemented components of Manhattan Associates’ Integrated Planning Solutions: Financial Planning, Item Planning and Assortment Planning. (Integrated Planning Solutions contain a suite of products in the categories of planning, demand forecasting and product replenishment, all designed to facilitate getting the right product assortments to the right stores quickly and efficiently – i.e. as demand dictates.) Follett used the solution for 250,000 products at 746 campus bookstores in the US and Canada in order to improve productivity and optimise assortments. Because Follett offers collegiate paraphernalia to a wide variety of colleges and universities, its challenge is determining and delivering unique assortments to each store. For example, one T-shirt style can be available in 15 different logos in more than two dozen different colours, plus different regions have unique style preferences, climates, etc.

“We partnered with Manhattan Associates because its professional services organisation had the skills and knowledge we needed,” said Tom Dillon, vice president of merchandising systems for Follett Higher Education Group. “It provided an excellent team that understood our business issues, made recommendations for improving our processes and tailored the Advanced Planning solutions to satisfy our requirements. This solution is powerful enough to handle our volume of data and allows planners to efficiently drill down to the lowest level of detail and make better decisions for each of our unique stores.” As a result, Follett streamlined its operations for more efficiencies and higher productivity. For instance, item plans are exported from the system, which automatically creates a purchase order. According to the company, this small

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What’s in it for apparel companies?

change has taken an entire month out of the process, which frees up time for analysing and improving plans, i.e. efficiencies have created more time in their schedules which they can now use to continuously monitor, analyse and improve their assortment plans.

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The biggest hurdles to jump

The biggest hurdles to jump
The hurdles in implementing any new solution typically revolve around issues like change management, executive buy-in, the learning curve, etc. While those also exist with micromerchandising, most experts agree that the greatest challenges stem from supply chain and retailer capabilities – what can the operation handle? A company needs to be able to manage a greater number of pre-packs, more granular replenishment and increased store transfers, says Baird. She also points to store capabilities. “With more localised assortments, there has to be a way to communicate to stores their unique requirements or take into account the variability among stores when planning assortments,” she says. “These decisions should not just be based on physical characteristics of the stores, but also on the consumer segments that shop there.” Another issue is maintaining scalability down to the granular level. When implementing merchandise planning solutions, the importance lies in determining the right process and the right steps in the process to do this efficiently. “When building assortments at a detailed level, retailers typically want to go to the lowest granular level, but that may not be the best practice and may be too detailed for the best results,” explains White. “The goal should be to plan at the appropriate granular level so decisions will be customerfocused and use integrated merchandising tools to manage ordering, allocation and replenishment. You have to make sure your tools are flexible enough to go to the desired level at each point in the process. The challenge for retailers is to get the right end-results based on customer characteristics, location and the process that meets their market needs.” For instance, in the case of a large retailer, it is clear that selecting styles and breaking out sizes at every location is impossible to do manually and a company can not micromerchandise every store if it has a thousand locations. In these situations, retailers come up a level to the store cluster level. The focus, according to White, then becomes how to best map those clusters to their customer characteristics. The common options are to group by demographics, climate, store format or regional factors, for example. “Every

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The biggest hurdles to jump

retailer will have a different set of attributes and characteristics that help them determine the best cluster,” White says. “When designing the

micromerchandising solution, this is where retailers sometimes need help and they have to think through these issues to be better able to take best advantage of the tools. The software isn’t going to come up with this solution magically. Retailers need to know their consumer, channels and locations, as well as how to tailor the solution to meet end-needs.” In January 2007, Manhattan Associates launched its store clustering software. While providing the ability to cluster using different levels and attributes, or combinations of both, the new module has more flexibility. When retailers think of assortment planning, they need include the most important attributes for their business. The challenge is to determine which characteristics drive the business. “Many retailers haven’t been able to do this before,” says White. “With the right tools, you open up possibilities to better reach consumers. Our role is to help retailers understand whether [or not] it’s price-point, colour, fashionability, quality, etc, that drives their business. Implementing software is relatively straightforward, but harnessing the flexibility of the software to solve the most important business problems of the retailer is the key.” That being said, the solution a retailer chooses should be customisable and configurable so that its particular set of critical attributes are the ones that get implemented. More specifically, however, LeHong points to the gap in communication between headquarters and individual store locations once the merchandising solution has been implemented. “Solutions today don’t cater to the decentralised store manager model,” he says. “The vendors are working on merchandise optimisation and collaboration, but not store manager input.” Today, if a store manager requests a wider variety of men’s shirts, for example, headquarters inputs this into the system via phone and e-mail. In some cases, the store manager buys the product then has to notify headquarters. In either case, systems don’t facilitate the modifications. “Many retailers are forced into a centralised environment for economies of scale, but they’re not decentralised enough to take valuable input. That’s the gap. Some of the big vendors will have to recognise that it’s important feedback and we need to build in the option,” says LeHong. He recommends that roughly 80% of the work be done at headquarters and 20% at the store level.

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The top functionalities driving the solutions

The top functionalities driving the solutions
As with any technology, micromerchandising solutions continue to evolve. One generation leads to the next as technology vendors work to optimise assortments, facilitate planning and create a seamless, no-waste delivery of exactly the right apparel to consumers. Today’s vendors are concentrating on becoming more consumer-insight driven, according to Baird. She points to Escalate Retail’s customer relationship management solution as one that is focused on exposing consumer data and insights so that merchants can make better, more accurate assortment decisions. (Escalate is a technology vendor that provides e-tail, retail and direct commerce solutions focused on keeping the customer at the centre of the business.) Many vendors have already made exciting gains in their offerings and functionalities to retail partners. The upside is that the technology can do just about anything when it comes to drilling down into size, SKU, lifestyle profiling, etc, but these decisions need to be balanced against the type of apparel company, its size, its needs and the resources available to invest. “Assortment planning needs to be balanced against supply chain cost,” explains Baird. “The technology can certainly be as granular as you want. Do you want unique size profiles by item by store? You can get it. But how would you execute it? It would be too costly – pre-packs are an efficiency that the resulting sales improvements gained from being specific would not offset.” Most of i2’s clients, for example, go to the following granular planning levels: ○ ○ ○ financially (by store, store-cluster, class, sub-class and week); assortment (store, store-cluster, style, style-colour, style-colour-size and week); and allocation and replenishment (store, style-colour-size and day).

Size optimisation, as well as demand forecasting tools, seem to be the functionalities most impacting apparel companies. Baird points to KhiMetrics and DemandTec solutions in the size optimisation category, plus i2,

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The top functionalities driving the solutions

Manugistics, SAP and Oracle in the demand forecasting arena. For collaborative assortment planning options, look to 7thOnline, Baird says.

“In retail, demand forecasting is most often used in replenishment to forecast inventory position while you’re in season,” Baird explains. “But vertically integrated retailers – those that manufacture their own products, like the Liz Claibornes or Kenneth Coles of this world – are looking at true ‘supply chainlike’ demand forecasts that can be shared between manufacturing and retail. This allows the complete business to be operating with the same assumptions, and updates or changes to those assumptions are communicated to both groups.” ProfitLogic and Coldwater Creek partnered up last year with success on size optimisation, as the retailer drove its business to the more granular level in its apparel assortments. i2 recently implemented its Merchandise Planner solution at WE, a Netherlands-based clothing retailer. And 7thOnline just released Size Optimization and Assortment Optimization modules in September 2006. i2’s newest offering, the Advanced Planning Suite, contains three modules – Merchandise Financial Planning, Buying and Assortment Management, and Allocation and Replenishment – that fuel a closed-loop, top-down, middle-out and bottom-up planning process. This offers the flexibility and visibility necessary to allow retailers to give consumers a fulfilling shopping experience, while increasing inventory productivity.

“This suite allows retailers to plan at the right level of detail, achieve profitable market-specific assortments, and synchronise their planning process with their supply chain for greater efficiencies,” says Parpia. “i2’s Advanced Planning Suite also incorporates demand intelligence capabilities, allowing retailers to bring science to the art of planning by informing every step of the planning process with critical insights about demand.” i2’s modular architecture “allows retailers to rapidly implement advanced planning processes at lower costs, and utilise pre-configured best practice business process templates”, according to Parpia. The i2 platform can also be tailored to meet the unique needs of each retailer and its operations. 7thOnline’s Web-based assortment planning solutions support both retailers and suppliers with internal systems that have the option of being cross-

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The top functionalities driving the solutions

collaborated – which will allow them to collaborate with each other. Each option offers users the ability to translate financial and strategic objectives into optimised assortments at the door and size level, using historical performance data as a driver. The company’s newest retailer-focused module is being implemented at Belk (the largest privately owned department store chain left in the US. It competes in the Macy’s and Dillard’s tier which is one below Neiman Marcus, Saks, etc). Implementation began in early 2006 (January) and still continues. “With 7thOnline, users can create store-level classification and unit plans that are in line with corporate financial and strategic objectives through a streamlined and integrated process,” says Chazen. “Throughout the process, historical information is analysed with our proprietary optimisation engines to provide recommendations for the breadth and depth of assortments as well as the size distribution by door, all with the objective of maximising gross margin.” 7thOnline Assortment Optimization uses historical, corporate strategic objective and consumer data to generate the optimal number of SKUs and the initial assortment plan that will best meet local demand. Its Size Optimization solution enables retailers and suppliers to optimise merchandise size distribution to meet store-level demand. “Given the lack of adequate tools, most retailers and suppliers are forced to use national or chain average size performance or to apply local sales ratios by size blindly in order to determine size distribution,” says Dr. Saman Hong, vice president of analytics and optimisation solutions at 7thOnline. “Consequently, a significant portion of retail sales and gross margin are lost due to a mismatch between store size distribution and local demand.” Through historical POS analysis and an optimisation algorithm, 7thOnline Size Optimization enables merchants to determine the optimal size distribution by style attribute for each store in order to maximise gross margin. For case pack styles, the system enables suppliers to determine the optimal size mix for each pack size for their buy accounts and enables retailers to optimally distribute case packs to each store. Specifically, the key functionalities of their solutions include: ○ easy-to-use assortment planning capabilities and optimisation engines for both retailers and manufacturers that enable merchants to build and analyse assortments by style/colour/size by door; ○ the ability to view and edit visual representations of assortments to combine visual and quantitative planning;

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The top functionalities driving the solutions

○ ○ ○ ○

real-time reporting capabilities and visibility into organisation-wide activity and location-level detail; optimisation algorithms recommend initial SKU by door assortments as well as size ratios and distribution; a single housing point of accounting and production data; and a collaborative environment that shares real-time financial and assortment plans at any time prior to, during or after market, shortening cycle times and improving supply/demand balancing.

Additionally, existing clients are able to drill down to the style/colour/size by store/store cluster level, while weighing in attributes like lifestyle profiles and climate.

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What is in store for micromerchandising solutions

What is in store for micromerchandising solutions
Overall, look for micromerchandising solutions to become more of a focus for retailers as the drive for efficient, effective delivery of apparel continues. Vendors will continue to push for greater functionality, ease of use and collaboration at all levels. “Greater business discipline and a more scientific approach will continue to be incorporated into merchandising solutions,” says Chazen. “Additionally, we believe assortment planning systems will play a more central and directive role in retail systems. Assortment planning is the heart of every retail operation, and it should drive many other merchandising decisions and systems such as financial planning, production, allocation and promotion/price management.” While specific features and functionalities will also continue to evolve in the micromerchandising category, look for evolutions in functionalities and benefits surrounding consumer-centricity. As retailers and brands strive to become more efficient, boost profitability and cut costs, their main focus is on the customer. All systems must be driven by the consumer experience.

“Retailers will plan less in terms of merchandising against categories, but more against specific customer types,” says Parpia. ”Also, micromerchandising solutions will improve the collaboration between a retailer and its suppliers so that the supplier knows exactly what the buyer wants during production. For example, Campbell’s Soup knows what its consumers want and produces merchandise accordingly, prior to the soup hitting retail stores.” Also look for advances in areas like promotion planning and space layout planning. As retailers and brands try to improve consumer experience, merchandising solutions will take greater strides in ensuring not only that an item of apparel is at the right place at the right time, but that it will also be at the right price and set in the right environment.

“Vendors are thinking about ways to automate promotions into the planning process – at least to give merchants visibility into the activities the marketing team is planning,” says Baird. “Promotions is a challenge – it really needs to

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What is in store for micromerchandising solutions

be considered in the context of price optimisation and pricing strategies, not as just an event planning thing. Promotions are a way to manage demand, just like the overall price. Retailers need to consider it in that context, not just in a marketing context.” Promotion planning, for example, is still at the early stages of development with few retailers or brands using technology to manage events. Some apparel companies are still in the ‘manual spreadsheet’ stage of planning at this point, but there are definitely opportunities for the planning applications to impact sales. Promotion planning is really a second level of assortment planning, explains White, because retailers are trying to determine the lift they will get for each assortment they select for promotion. “Assortment planning is about regular sales – what do I expect to sell based on regular seasonality patterns?’” she says. “Promotion is the process of layering promotional lift on top of that. Given that I promote these items in these locations, what lift do I need to plan for based on those events? It’s the same thought process, but it’s incremental to the base plan, you really care about the anticipated lifts in the promotions planning solution.” Space layout is finally making its way into the apparel arena and its impact is being seen much more than it has in the past. According to Baird, the largest gains have been seen in high-traffic areas, for example if a retailer has key items or traffic areas in the store, it can use space planning and space optimisation solutions to determine how to maximise the value and impact of layout and product placement for the greatest sales. 7thOnline continues to develop its vision for enhanced assortment planning by incorporating promotion planning, price optimisation and enhanced space planning into its offerings. “Promotion planning and space planning are an integral part of a full life-cycle assortment planning offering,” says Chazen. “Once the initial assortments are determined, merchants need to optimise merchandise flow on and off the selling floor by leveraging price and promotion strategies. They also need to understand optimal space planning and merchandise layout on for each store.” The next generation of this technology will likely also address some of the holes or problems that still exist, as well as the evolving nature of retail. For instance, as retailers become more multi-channel, solutions will need to be

© 2007 All content copyright Aroq Ltd. All rights reserved.

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What is in store for micromerchandising solutions

able to address the changing demands of providing right-place, right-time merchandise for catalogue and online customers as well.

“Most apparel retailers are not very cross-channel today, but that will have important implications on inventory accuracy and being able to hold or reserve inventory in stores for online customers,” says Baird. “Doing that will require assortment planning to be done with both online and stores in mind – something that’s pretty separate today.” There will also be a significant movement toward the use of optimisation and simulation tools to create demand forecasts, says White. She predicts that retailers will start to use systems in a more automatic manner so they will come up with forecasts, assortment plans, and recommended plans in advance. While most of the industry isn’t there, a few are moving in that direction. When looking into the future of assortment planning, one can not help but wonder just how close we are getting to technology helping merchandisers make initial core assortment decisions. This is especially critical without sales or trend history. Many experts argue that human intervention and decisionmaking will always play a role, no matter how progressive and ingenious the technology. “History will always play a role – it’s such an important input,” says Baird. “Even if you’re introducing a new item, it’s extremely helpful to base it on the history of a like item. The question is: how well will technology help merchandisers make these decisions, taking into account the impact it will have on the retailer’s most valuable or most strategic customer segments?”

© 2007 All content copyright Aroq Ltd. All rights reserved.