June 1, 2007, 12:00 AM

The merchandise traffic cop

(Page 2 of 3)

While merchandise managers may look at demand forecasts based on year-ago sales along with their gut feelings about fashion trends to plan merchandise buys and assortments, for example, they often fail to bring in pertinent information from corporate marketing managers on planned advertising campaigns, or local promotions planned by store managers. The result can be merchandise roll-outs that don’t coincide with actual demand across a store chain or within regional groups of stores or single locations, experts say.

Merchandise managers who are isolated from other operations and don’t consider crucial information like supply chain costs, for example, can’t determine whether rolling a broader assortment of goods to particular stores would produce targeted profit margins after factoring in the costs of shipping.

Making it exciting

Merchandising plans to promote new versions of products in an effort to create a buzz with customers might wind up hurting sales and profits tied to related ongoing or discontinued products. “How to price new hot products without taking away from other products is a major challenge,” says Sahir Anand, retail analyst with research and advisory firm Aberdeen Group, a unit of Harte-Hanks Inc. “The best strategy is to balance price promotions among a full product line based on the retailer’s overall pricing model, such as steady discounting or generally higher prices supported by a high level of service. When retailers try to go outside of their regular strategy, such as when they try to promote certain products suddenly pushed into the supply chain, that’s where problems start for many merchants.”

That’s one of the main reasons Sport Chalet decided to upgrade its merchandising system, Kaminsky says. Operating with the old spreadsheet-based system can work when things are going routinely, but the reality of retailing is that unexpected developments are often what makes things exciting for customers and drives sales-for example, hot new items from suppliers, or sudden changes in weather that make demand for certain products either surge or die-and merchandise managers must be able to act quickly in concert with managers in finance, marketing and supply chains to make fast decisions on changing merchandise displays and pricing strategies.

“We need to be able to get on top of opportunities and problems before things go too far,” Kaminsky says. “We want to feel comfortable about committing to a promotion. We don’t want to have to wait until the next financial statement comes out to find out that we had great sales but that our related costs were way out of line, or that we under-spent our markdown budget and got stuck with too many products that didn’t sell in their planned selling period.”

Such challenges become even more difficult for retailers like Sport Chalet, which has 50,000 SKUs in its stores without counting all colors and sizes and is adding more as it enters new markets.

“The proliferation of SKUs is a major problem for retailers,” Anand says. “For example, if a retailer merchandises a desktop printer at a price discount along with an ink pack, is it really helping overall gross margin and sales? Is it helping or not helping the sale of paper, pens or binders?” Retailers need to know how such merchandising tactics are affecting sales and margins on complementary as well as non-complementary products, he adds.

Multiple applications

The SAP system, backed with XML and web services technology, is designed to address such issues by pulling data from multiple applications, including sales and inventory records, to produce reports on sales forecast by region, store or products from general classifications down to SKUs, while showing the impact on sales across multiple product lines and stores.

“Sport Chalet will have more visibility into pricing data and how well particular products are selling in particular stores, have better ability to time when and how to arrange and price merchandise in particular stores, and an improved ability to allocate products to stores to take advantage of how some products sell better in one region or individual stores than in others,” Williams says. “And everyone in different operating departments will have visibility into the same information.”

The system is also designed to be user-friendly for business managers, who will be able to configure ad hoc reports and what-if analyses viewed in graphical reports on a single screen, Williams says.

So if a merchandise manager is trying to decide whether to ship to a region of stores a new baseball mitt promoted by one of its suppliers, or to use the store selling space to display another suppliers’ mitts already in distribution centers or stores’ backroom warehouses, she can view in colorful graphs how each plan is likely to produce sales as well as profit margins by factoring in supply chain shipping costs, expected customer demand, the impact of other promotions and cost of in-store labor to receive a new shipment and arrange a new product display.

Although the SAP system is designed to be user-friendly, however, it still takes an extensive amount of training to assure that retail managers and employees know how to get the most out of it, Williams says. “There are all sorts of challenges when putting in a new system, and one thing you can’t lose sight of is the change management piece,” he says.

BearingPoint involved merchandise managers, store managers and others in deciding how to deploy the SAP system around Sport Chalet’s business processes, such as how they need to analyze data and who has access to it. The consultants directly trained and certified six “super users” in operating the SAP system. About 3,800 Sport Chalet employees, including headquarters managers and store staff, will learn the system over a several-week period leading up the system’s launch in August, Williams says.

“We’ve been very involved in this deployment from the CEO on down,” Kaminsky says. “We involved all levels of personnel to make sure we’re getting the results we expect and that the system has the controls we need to serve our customers.”

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