Argyle Conversations

by Argyle executive Forumsm
featuring Sherwin Socaransky Vice President of Merchandising and Store Systems New York & Company Hosted by MindTree Ltd.

www.mindtree.com/retail

On September 1, 2010, Sherwin Socaransky, Vice President of Merchandising and Store Systems at New York & Company, sat down with journalist Kathleen Kiley at New York & Company’s Manhattan headquarters to discuss the challenges and outlook for retailers. Sherwin, who for more than two decades has been implementing and re-engineering retail technology systems, talks about the strategic role technology plays in positioning retailers for success.

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Sher win Socaransk y Sherwin Socaransky strategy, operations

has over 20 years of retail and technology experience. He has extensive expertise within trade, as a Big-5 consultant and delivery executive for several leading technology vendors. Sherwin is currently Vice President of Merchandising and Store Systems at New York & Company – a leading retailer of women’s apparel. Over the past several years Sherwin has led an e-commerce launch while overseeing store technology transformation and CRM initiatives. In addition, he has supported several of the company’s strategic initiatives including foreign licensing/sales and new brand launches. Prior to joining New York & Company, Sherwin was Vice President of Delivery Services at CRS Retail (acquired by Epicor). He was one of the early executives at Found, Inc., a real-time inventory and order management company and has also worked for SAP (joint venture with Intel), STS Systems (now Epicor) and PricewaterhouseCoopers.

Kathleen Kiley: Sherwin, I first want to thank you for participating in the Argyle Conversations series. Before we go into detail about how technology has helped New York & Company compete in this challenging retail environment, perhaps you can discuss how you and other retailers are doing compared to last year. In addition, retailers are already planning for the holiday season. Can you discuss how you think this holiday season will differ from last year and why? Sherwin Socaransky: I think everybody in the retail trade is still genuinely perplexed and concerned about what the consumer is going to do, what’s going through the consumer’s mind and what the principle drivers are for getting them to part with their hard-earned dollars. Looking back, retailers had what I would consider to be a reasonably successful 2009 holiday period, starting with Black Friday. People were rushing in during the holiday and retailers were encouraged about the future based on numbers through February 2010. In response, many players ramped up their plans and when the momentum could not be sustained, they got overbought into Spring and Summer. Looking ahead, we will continue to generally see tight expense models and limited inventory in the stores; the unknown is really whether the consumer will respond with a similar level of pent-up demand we saw during the 2009 holiday. At the end of the day, the challenge lies in correctly matching purchasing plans (locked-in well before the holiday) and pricing/promotion to consumer sentiment.

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Now that we have an overview of the retail environment, why is technology key for a retailer’s strategic growth and overall survival these days? Technology has had a profound impact on produc- “I think everybody in the retail tivity, customer service and operational efficiency for our business. More than three years ago we trade is still genuinely perplexed embarked on a project to transform both the and concerned about what the technology and process footprint of our stores. I consumer is going to do, what’s had the privilege to both architect the solution and shepherd the implementation of a multi-million going through the consumer’s dollar initiative. We delivered the project on time mind, and what the principle and were on budget with a variance of less than drivers are for getting them to part 0.5 percent. More importantly we audited our ROI (return on investment), functional deliverables and with their hard-earned dollars.” product quality and came in on target across the board. We completely automated the matching of the customer-to-transaction process as well as the application of promotion and direct marketing coupons at point of sale. Moreover, we moved away from a traditional cash box model to a real-time point of interaction for all internal processes (reports, hiring, and corporate intranet), customer information and transaction details. Given the volume of promotions per year in our business and the complexity of deals we offer, our customers and associates have truly felt and received the benefits. How do you manage these promotions? We’ve got roughly 600 stores, 2,500 registers. Meanwhile we have price and promotion activity (into the thousands annually) going on so you want the system to do all the work in real-time. You have to build some very robust algorithms in terms of being able to dynamically offer deals based on the last thing that just got scanned into the basket. In essence, we built a “best deal” function into the heart of the register that ties product, price, promotion and customer coupons together. More importantly, we moved to a customer-centric retailing model. So we decided to increase our ability to match the transaction to the customer by accretively adding each transaction to her history. When we started this project we matched customer to transaction about 40 percent of the time. Our goal was to double that rate. So let’s say you know my history. Can you make me an offer on a sweater or denim purchase that makes me come back? Yes. But first we had to have clean data; we netted out to twelve million active customers from a much larger universe. Traditionally, the first thing we did was ask for your phone number, very basic data elements. After the purchase we looked at your credit card or phone number and did some magic behind the scenes. However, phone numbers can change and are shared by members of the same family and sometimes folks pay with cash, check, gift card or debit. This was not a high yield approach in as much as we were matching after the fact from data that could be confusing.

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Is identifying customers 40 to 45 percent of the time considered an industry average? It’s low in today’s terms, but it’s not low in old world terms. So we basically changed our model to better engage the customer and did some really cool stuff. We assigned all of our active customers a unique ID, focused on getting email addresses and created a barcode that was unique for every one of our customers. Every email and every piece of direct mail that goes out has that barcode on it and so when you redeem your coupon, we scan it and automatically attach you to the transaction. Since the deal and customer are all embedded in the barcode, and automatically applied and calculated, the process is fast, accurate and creates value beyond just the transaction itself – it builds a wealth of knowledge about our customer. Are other retailers doing something similar? Leading-edge retailers have the ability to uniquely identify customers and as a result they can better allocate differential price and promotions to their good customers. We immediately brought our match rate up to over 60 percent and today our match rate is trending towards 80 percent. Today, we have much better insight into who are customer is and what she’s buying. We also know how “Today, we have much better often she shops with us, what channel she uses and insight into who are customer is what promotions she’s actually responding to – the and what she’s buying.” take rate. And that’s all dynamic – the picture builds and improves each day. Sweat work at the register has been reduced, and since our customers like to receive coupons, they know sharing their contact information opens the door to even better deals! Of course we take great care to guard that information, and the customer can opt-out of any, or all, contact methods at any time. What are your demographics? Our customer has always been a person looking for nice goods at a good price that she can feel good in. We provide a destination for fashion that is both affordable and that provides great-fitting apparel. Typically she is married with kids – which means she is looking for a great value. If we create a destination for good-looking clothes at a great price and make her feel good about the way she looks, then we know we’ve done our job well. How real-time are your promotions? What we’ve achieved through technology is that I can change price, promotion or coupons any time of the day, at any location, without impacting the flow of business. I can, for example, create door busters and they’re good for x-number of hours and then at the cut-off point a new price kicks in. The price and promotion engine is the thing that I’m most proud of in terms of what it means for the customer and the associate. My in-store experience before we changed the technology was that customers would come in with a fistful

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of coupons and an armful of merchandise. They’d put the merchandise on the counter and say, “You figure it out.” And so folks would sit there with calculators and try to figure it out. Of course, it really messes up your statistics around average dollar sale, units per transaction, essential KPI’s. So now the system does all the work. In the past, we used to be very careful about always sending one promotion down at any given moment because the systems were so limited. If you tried to do a second promotion and you made a mistake, it was brutal to recover. Now we have a best-deal calculation. Deals are applied based on date, time, location, product category and even customer. Just about everything is calculated by the system and is very, very fast. Most importantly, our deals are created within a single engine and distributed to all of our selling systems in stores and online. What are some of the real-time inventory and order management strategies retailers are adopting? How are these strategies affecting sales and the bottom-line? We’re starting to get a handle on our cross-channel customer and the behavior of our cross-channel customer, versus the traditional store shopper or somebody who only purchases from us online. We can make nimble decisions about promotions and expect those promotions to be in place rapidly across channels. Our service level can now support those features and functions. We’ve done everything to make the buying experience a seamless one. If you bought something online and you want to bring it back to a store, it shouldn’t be any more complicated than if you bought it in the store. We should be able to scan the barcode on the packing slip and return all or part of it. When you buy something online, particularly if it’s apparel and you’re not familiar with the fit, or it’s difficult to discern the nuance of color and shade, you bring it back to the store. Many retailers still treat online returns to stores as something less than normal business and make the process painful. It should be frictionless from a customer’s point of view. Retailers historically – and some still do – have had problems linking their brick-andmortar stores with their e-commerce operations. Can you discuss the importance and benefits of having a seamless technology strategy? Let’s start with an example. Some of our stores may not have Petites or Talls in a given item, but there are plenty in stock if you buy through our website. We’ll order it for you right out of the register (and even combine it with your other purchases for your best deal) and a few days later you’ll have it at your house. The turnaround time is good and that’s because we have visibility into our central inventory from our stores that is real-time. We call the program “Ask Us.” If you’re in the store and you don’t see an item you saw online or you don’t see the style, color or size you’re looking for, then “Ask Us.”

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A lot of this is built around some very leading-edge architecture and infrastructure. We have deployed an Enterprise Service Bus. So everybody’s heard of SOA, Service Oriented Architecture. It’s a big buzzword and it’s a design philosophy with many pieces and parts to it. Basically it builds applications as reusable components and bridges to applications in such a way that they can easily communicate between pieces and parts across the enterprise in real-time. Are you talking about legacy systems being able to communicate with each other? Yes. The underlying theme is everything is message based. So when a piece of inventory is sold from store 117, for instance, a message is sent from store 117 back to a database that says: “take this unit of style, color and size out of inventory.” The next step: if the inventory level falls below two, send a message to the planners (merchandisers) and tell them that inventory is moving very quickly and they should start working on an allocation. So, an Enterprise Service Bus acts like a telephone exchange for messages. It’s basically a message-based network and you plug different applications in and those applications basically get trained through the Enterprise Service Bus to listen for specific messages. So I could have a hundred applications plugged into an enterprise service. Let’s go back to store 117. Can you walk me through this technology? Say I sold five things for $172 at store 117. I can bring it back to my data warehouse in real-time and we can do intra-day sales “we moved a ton of work analysis down to the department class level, even size level if off the shoulders of our we wanted to. I have a continuously updated and refreshed real- store associates and into time picture of my inventory by physical location. I can take that the realm of computing.” same information and feed it over to planners and allocators in the form of alerts and messages that say specific items have fallen below a minimum threshold of inventory. So that one message that came from the POS and the Enterprise Service Bus is now delivering that message throughout the enterprise. We have to train and configure those applications to listen to those messages. Everybody on the Enterprise Service Bus who has no need to hear those messages can ignore them. Everything used to be a batch-process during “lights out.” Now everything happens in real-time, which makes for a more nimble business. How does this technical information work on a strategic planning level? It filters up and there’s been a fair amount of assimilation. But, of course, there is a learning curve. We completely re-engineered the way we create promotions and the way we define coupons. Everything is within a single engine. We used to have two groups of people: one group would enter all these prices and all these promotions for stores and then another group would do the same thing through e-commerce. Now one system drives price and promotion from one point of entry, which materially reduces the amount of work and error factor. We moved a ton of work off the shoulders of our store associates and into the realm of computing.

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It goes without saying, that technology is central to retailers’ success. Having said that, what are the stumbling blocks against making greater investments in technology? Industries, such as the financial services industry, sells infrastructure (trades, transactions, balances) and so they know that technology is a key investment. But if you’re in the retail business, you’re selling goods from many locations. Our industry model used to be crunching the sales information at night. While we were pulling the sales back, we would also send down some new prices and SKU’s and that was basically it. The POS was truly a very expensive calculator. Now I can identify you at the register and go back to the central customer database, which is also a price and promotion database. It knows Kathleen is a member of the super shopper group and this particular week the super shopper group is getting an extra ten percent off. That message comes flashing back to the register and another ten comes off for you. This changes the game radically: now we are managing a relationship with Kathleen instead of just selling product. What about mobile devices? Where is New York & Company in the process and do you see mobile shopping as a key strategy to reach certain consumer segments? I think that we understand the technology and we’re still evaluating the value proposition and the right jumping off point for our customer. Many retailers are in the same boat. We focused our spending over the past few years on building the infrastructure so that we have a standardized platform to plug anything (including mobile) in, anytime. We have stuck pretty close to ART’s-based Architecture. We’ve also compelled all of our partners or outside vendors to model after us. If you want to do analysis with our data, you have to process an ART’s conforming to POSLog. But back to discussing mobile technology and its strategic role. You can throw up a mobile site that for the most part front-ends your website. You scale and optimize it for a particular browser and the operating system of the device. It’s an excellent communication channel. Mobile technology can provide information about style, what’s new in fashion, how you can mix and match things and offer information about trends as well as product availability, pricing and promotion. We don’t want to drive people nuts with junk text messages. As far as communicating with our customer, we take a very careful approach to sending text messages. I mean we literally have you opt-in twice. Some have talked about the next wave being location-based communications. But the latest statistics show overwhelmingly that people don’t want to give up their location. There are people that actually log into Foursquare as they’re actually leaving a location. So what does that tell you? People are concerned for their personal safety and their personal privacy. Buying over a mobile device also depends on the item you purchase. Am I really going to buy a $1,500 TV purely based on my consumer experience over a mobile device? And that is something that doesn’t have the nuances of style, color and sizing.

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There are thousands of mobile apps, we just haven’t seen “THE” killer retail app yet – and this is not without precedent. Look at the kiosk in the retail landscape: It’s been an uphill battle for even the largest and highest performing retailers. Nobody has ever figured out how to use it in retail (on a broad scale) because there’s no killer kiosk app - yet. Nobody in today’s world would argue there’s not a killer app when you rent a car. There’s a killer app when you get on an airplane. There’s a killer app when you take Amtrak. There’s a killer app when you’re checking in or checking out of a hotel, or need cash in a hurry. What’s the comparative killer app in retail? You know Kmart was way ahead of the curve and in the early 2000’s when they put out thousands of kiosks (for Bluelight.com) and then took them out because all their customers were like, ‘Inter-who? Net-what?’ They had no idea what it was. Even today, when you walk into a Target store you have to hunt down the kiosk and the only reason they still have it: a) because they have their gift registry on it, and b) you can apply for a job there. How would you sum up technology’s strategic role for a retailer? Have you ever seen the movie, the Minority Report? It’s a Tom Cruise movie set in the future. At one point he walks into a store and there’s this giant panel TV and all of a sudden this giant panel flashes his image and says, “Good morning Mr. Whatever. Is there anything we can help you with?” So with technology, it can help us to not lose sight of the individual customer, as an individual. We have to really engineer our thinking and our processes around the customer. We have to better understand what are the things that make a customer comfortable with spending their money with you? I think we probably have to get our heads around this because we are not going to be transported back where people are dumping huge amounts of debt on the credit cards and re-financing houses to pay for big-ticket items. The behaviors have changed at a fundamental level and so we have to adjust our behaviors to mirror that. If we don’t, then we’re going to be irrelevant. For instance, Coach is doing very well in the Japan market as a luxury brand. It wasn’t always considered a preferred luxury brand in that market; think LV, Chanel and Gucci. There was a time when you would walk down the Ginza and every woman in her 20’s, 30’s and 40’s was walking with a European luxury purse inhand. There were even stores selling “gently” used items. With the global downturn Japan succumbed to layoffs, joblessness and a shift in personal buying habits. But the Japanese women are still willing to spend hundreds of dollars on a purse. This is a lot less than the thousands of dollars Japanese women used to drop on a purse. So the lesson learned: understanding the local consumer and the market landscape gives you the ability to take action on such information that really pays off. So technology helps you know your market.

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