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The merchandise traffic cop
While throwing more products at customers, retailers use web-enabled planning to get the right products to stores at the right time.
Starting out in 1959 as a single retail shop for ski and tennis buffs in southern California, Sport Chalet Inc. has grown over the years into a regional chain with 45 stores offering gear and apparel for nearly every sport and recreational activity under the sun, from baseball, badminton and boxing to rugby, racquetball and roller hockey. Make that everything under the sun in Nevada, Arizona and, starting this year, Utah, as well as California.
The expanded range of products has coincided with a move away from the small shop environment to the retailer’s typical 42,000-square-foot store arranged in multiple-boutique style to give special attention to different product categories. Combined with its expanding geographical base, Sport Chalet’s expansive merchandise offerings are thrusting the retailer into a whole new level of challenges that have led to its decision to spend more than $6 million this year on new merchandise and financial planning systems.
“It’s paramount for us to leverage our investments so we can add stores and support our stores without excessively growing overhead,” says Howard Kaminsky, chief financial officer.
“As we continue to create density in our current markets as well as expand into our fourth state, Utah, over the course of calendar 2007, we are committed to offering the best in performance, technical and lifestyle merchandise and services to meet the needs of our customers,” chairman and CEO Craig Levra says in a recent quarterly financial statement. “We look forward to maintaining the momentum of the past year and continuing on our growth track.”
But to realize these goals, the retailer will need to improve how it chooses and promotes merchandise, how it figures the amount of space designated in each store for different products, and how it allocates assortments of products across its growing number of stores in areas as different as coastal southern California and the dry and mountainous Arizona, Nevada and Utah.
In other words, it needs a more effective and web-enabled merchandise planning system. Sport Chalet likes the merchandise planning software it has used for years, MarketMax from SAS Institute Inc., which provides useful sales forecast information to help plan merchandise displays and assortments, Kaminsky says. And it will probably continue using MarketMax for a while, he adds.
But the application works outside of a web environment with information presented on desktop spreadsheets, making it nearly impossible for multiple teams of managers at the headquarters and store levels to collaborate on merchandise plans and quickly respond to sudden opportunities or problems, Kaminsky says.
So, crucial information that headquarters managers dig up on hot products and trends that could spur sales and profits never turns into action in stores, or vital information that store managers have about local demand never makes it to headquarters.
Moreover, information on product trends that merchandise managers have isn’t combined with demand forecasts devised by financial planners or with information on inventory and supply chain insights compiled by distribution managers.
“So we’re not able to see and share forecasts on a changing merchandise mix,” Kaminsky says. “Like last winter with dry weather, stores weren’t selling winter sports products, but we expected water sports products to pick up the slack.
“We may know that at headquarters, and plan to move some hot summer-related apparel to the front of the store while moving winter stuff back for two weeks, but when we try to transfer that information to stores, it doesn’t happen. We may share the information in conference calls or in wall presentations at meetings, but the information is prone to error. Someone makes a copy of a spreadsheet during a presentation, but then while carrying out the plan doesn’t realize he’s looking at the wrong version of the spreadsheet.”
This August, however, Sport Chalet will go live with SAP for Retail, an enterprise software system built on SAP AG’s web-enabled NetWeaver platform. Integrated with MarketMax, the new platform will enable the merchandise planning system to pull in more operations data that can be simultaneously shared through web browsers with executives and store and department managers throughout the company.
“It will allow us to pull together core business processes around merchandising, demand and revenue planning, supply chain operations and store operations,” Kaminsky says.
Catering to customers
Indeed, the new system will enable a whole new level of planning, providing for low-level planning by departments, stores and cost centers that share plans with headquarters and multiple operations, including merchandising, marketing and supply chains, he adds. “This way we’ll be able to make sure the right merchandise is there in stores when it needs to be to satisfy customer demand, and that it’s gone when it needs to be-sold out in time so we don’t have to sell at steep markdowns.”
The SAP system, which was chosen and is being deployed with consultants and system integrators BearingPoint Inc., is capable of gradually replacing Sport Chalet’s existing collection of systems that were both home-grown and bought from a developer, says Andy Williams, managing director of the consumer markets practice at BearingPoint, where he heads up the Sport Chalet project.
The new system is designed to correct what are common problems in the retail industry, where merchandise planning is often fragmented among systems and operating groups-and at a time when retail industry competition is forcing merchants to cater more specifically to customer demand, whether in individual stores or across groups of stores or entire chains. “Many retailers don’t merchandise down to the right level of granularity, because they plan their merchandise for more of a national or chainwide market,” says George Lawrie, principal analyst with research and advisory firm Forrester Research Inc.
In a report released last month, “Consumer Centricity Takes Merchandising Into New Territory,” Lawrie and his co-authors contend that smart retailers are trying to tailor their in-store merchandise offerings to satisfy more segmented demand among consumers, but that many operate under ineffective merchandise planning processes that rely on year-old data on customer demand, fail to consider supply chain costs, and don’t share plans among multiple teams within merchandising departments, including those that prepare sales goals and product roll-outs, and those that allocate merchandise across stores and plan replenishments.