Location, Location

How web-based inventory and demand systems get more products into shoppers’ hands

Selling spring fashions or apparel licensed by college sports teams may be a good way to kick off retail sales in the first half of the year, but it can also be a logistical nightmare for retail managers charged with getting the right items in place at the right time. In some stores depending on their demographics or location, certain fashions may sell out quickly, while in another city or region the same products might linger unsold, destined for the markdown bin.

A retail web site faces the same challenge. With a market reach across a retailer’s entire customer base, the web operation’s warehouse might run out of the jersey number worn by the season’s hottest college basketball player or the latest style made suddenly popular by a movie star. If only the retailer knew that some of its stores still stocked that item, it could arrange for a shipment from that store while the fashion is still hot.

Many retailers, however, operate with disconnected systems within online and offline selling channels for managing inventory records, merchandising plans and incoming orders. This leaves them without a central application that can show real-time updates of what products are still in stock and where they’re located, experts say.

Broad view

“Order management systems should show available inventory throughout an enterprise because often retailers own more inventory than they’re showing customers as available,” says Janet Sherlock, research director on the retail strategies team at research and advisory firm AMR Research Inc.

Now retailers of different sizes and market niches, such as college bookstore operator Follett Higher Education Group and fashion apparel designer, wholesaler and retailer Jones Apparel Group Inc., are deploying web-enabled systems that enable them to boost sales by better matching customer demand with inventory, regardless of where that inventory resides. They’re also using these systems to better understand cross-channel customer demand, which is helping them more accurately allocate products to avoid stock-outs in the first place.

So if an online shopper at one of Jones Apparel’s Nine West, Anne Klein or Jones New York e-commerce sites orders a spring pantsuit that is no longer available in the web store’s designated distribution center, for example, the retailer can automatically re-route that order to another distribution center, a drop shipper or a store that has the suit in stock.

And by viewing the locations of customers placing online orders for particular products, retailers can better plan how to stock those products across stores as well as at distribution centers. This can be helpful for planning allocations when introducing products without an order history because it lets a merchant test customer demand online before taking on the cost of distributing products across its store network, experts say.

Store fulfillment

Follett Higher Education Group sells college textbooks and general merchandise like apparel, gifts and school supplies through some 900 college campus bookstores. The stores also have associated retail web sites that Follett operates on its eFollett.com e-commerce platform.

With every freshman class more Internet-savvy than the last, Follett is facing an unusual challenge: Although it maintains nearly its entire college textbook inventory in its 900 stores, more orders for them are being placed online every year, putting pressure on Follett to connect web orders with store inventory. Although Follett ships some used textbooks from its distribution center directly to customers or to retail partners including Amazon.com, Follett fulfills all of its web orders for new textbooks and other merchandise from stores.

With the web already accounting for about 12% of store sales, double about two years ago, Follett sees that percentage rising every year. “It could go as high as 50%,” says Tom Dillon, vice president of merchandising systems.

Until recently, however, the surge in online orders was disrupting Follett’s ability to fulfill them and keep its growing number of web shoppers happy and stores running efficiently. That’s because Follett’s retail sites didn’t indicate whether featured products were actually in stock in the associated store.

So as online shoppers placed their orders, choosing either home or dorm delivery or in-store pickup, store clerks would print orders off a computer, hunt for the products to see if they were still in stock, and scan available products at a store point-of-sale terminal, where the clerk would also manually enter the online shopper’s credit card account number to complete the purchase. The clerk would pack the products and ship them off, then return to the computer to e-mail an order confirmation to the online customer.

That entire process would take several minutes. And with Follett’s entire retail operation handling some 1.2 million online orders per year, it was a costly process, even at the minimum wage level, to try to fulfill products that might not be available. “We were essentially providing poor customer service and taking too long to get orders out the door,” Dillon says.

Good hunting

Follett has changed all that with a suite of applications from JDA Software Group Inc., including the JDA Merchandise Management System and Win/DSS point-of-sale system, which integrate information on merchandise inventory and online and store sales data.

Now as sales occur online and at the store POS terminal, the system automatically updates the JDA Merchandise Management System, so product availability is displayed accurately on the web. And as store clerks receive online orders, they can be sure items are in stock before going to the picking location to find the merchandise.

The JDA suite also integrates with JDA’s Performance Analysis tool, which provides Follett with reports such as which products are selling best on particular web sites and in their associated stores. This enables Follett to plan store product allocations to meet customer demand, Dillon says.

The most measurable benefit of the JDA system has been a 30% reduction in the time and cost to fulfill web orders in Follett’s stores, Dillon says.

Follett also realizes harder-to-measure benefits through more productive store staff that spend more time assisting customers and improving merchandise displays, he adds. Combined with improved product allocations in its stores, this has led to increased sales through web orders. “This helps us complete web orders faster and keep online customers happier,” Dillon says. Follett’s e-commerce sales have grown 20% or more a year and so far this year are also running 20% over a year ago, even though Follett’s total sales are flat.

To learn how to process orders through the JDA system, store employees spent about an hour watching a training video that explained the new computer interface, how to pull orders and shipping labels, and confirm that orders were shipped.

Although neither Follett nor JDA would give the overall cost the retailer paid for the JDA system, Dillon says it has satisfied the business case he and others prepared before deploying it. “It has clearly met expectations,” he says.

Finding lost opportunities

Jones Apparel Group is using information in its cross-channel VendorNet StoreNet Manager application to identify demand from both online and offline customers for specific products that otherwise might have gone unsold in warehouses or never been sufficiently stocked in the first place, says Ron Offir, president of e-commerce for Jones Apparel, which operates about 1,000 stores and several e-commerce sites for brands including Jones New York, Nine West and Anne Klein.

“The implementation of VendorNet StoreNet Manager is part of Jones Apparel Group’s overall strategy to fulfill sales on our e-commerce platform by optimizing our current inventory to meet online demand and deliver best-in-class customer service,” Offir says. “Our partnership with VendorNet is helping us improve service to our customers by showing web shoppers inventory across all channels and capturing demand that may otherwise have been a lost opportunity.”

VendorNet’s StoreNet Manager operates as a web portal that connects with a retailer’s online order management, store point-of-sale and inventory-management systems. VendorNet takes about 60 days to map data connections throughout the system, requiring retailer clients to provide only an Internet connection from each store to StoreNet Manager, says VendorNet president Sharon Gardner.

StoreNet Manager constantly pulls information on web and store sales and inventory levels, enabling it to direct online orders to the most appropriate store for fulfillment. Depending on the number of stores connecting to the system, the system generally carries a one-time licensing fee of $25,000 to $50,000, plus a one-time fee of $300 to $1,000 per store, Gardner says. In addition, clients pay annual maintenance fees of about 20% of the full deployment cost, she adds.

Where’s that pantsuit?

The StoreNet Manager system serves two basic functions. It provides the retailer with product SKU-level information on what customers are ordering on the web, in stores and in call centers, enabling it to plan the right allocation of inventory in its distribution center as well as in each store. And it enables the retailer to automatically re-route orders to provide fulfillment from the most appropriate stocking location.

For example, if a Jones New York label tan summer pantsuit is not available through the online channel’s distribution center, the system will automatically send the order to a store with that suit in stock.

VendorNet applications, which are also deployed by Neiman Marcus Group Inc., David’s Bridal Inc., Spiegel Brands Inc. and The Orvis Co. Inc., are also designed to extend the selling seasons of products without forcing retailers to over-rely on price markdowns, Gardner says.

Before Jones Apparel deployed the VendorNet system, for example, it would follow the common retailing practice of marking down items in physical stores late in the selling season. At the same time, it would remove product images from its web sites once they were no longer available in a web distribution center.

But with centralized information on order flow and available inventory across channels, the retailer can now better plan merchandising and pricing strategies that cut across multiple channels. If it sees continued demand online for products slated to be marked down in stores, it might decide to keep selling them at the regular price or at least at a higher mark-down price while promoting them online for fulfillment from stores.

Boosting sales

Jones Apparel can also use information on online demand, including geographic location based on online shoppers’ IP addresses, to reallocate products to stores in areas where web activity shows continued strong demand.

Supporting its online channel with an effective means of fulfilling from stores is one strategy that has helped Jones Apparel Group excel on the web, the company says. Although the web channel still only accounts for 1% of overall sales, Internet sales last year rose 52% to $32 million from $21 million in 2007, as total sales fell 6% to $3.62 billion from $3.85 billion.

As retailers continue battling the down economy, having the right products in the right places can go a long way toward satisfying customers who are ready to buy.

paul@verticalwebmedia.com