E-commerce grew 20% for Costco in fiscal 2015—20 times faster than store sales.
E-commerce systems don’t always communicate well with inventory and financial software. Building that link can boost profits.
At men`s apparel retailer Jos. A. Bank Clothiers Inc., the name of the game is promotions-like buy one suit, get one free-and it`s a game plan that has kept the century-old retailer and clothing designer posting strong financial numbers this year despite the poor economy.
“We have 50 to 60 promotions throughout the year because we really have to have a compelling offer to bring customers into our stores or to our web site,” says Dave Ullman, executive vice president and chief financial officer.
Until recently, however, the retailer`s web site, JosBank.com, couldn`t handle those promotions, which generate orders at a fast pace, because it could not communicate easily with inventory and accounting systems. “When we had a promotion of buy one suit and get two, we couldn`t execute that on the web,” Ullman says.
Lack of integration
Although recognized by Internet Retailer as a Top 25 retail web site in 2002 for letting customers shop for customized apparel, the site had not gone through the extensive software coding that would have been required to connect the customer-facing front end, including merchandising displays and orders that come through the web site, with crucial information in back-end inventory and financial accounting applications.
Without real-time updates of information like available inventory, cost of sales and projected profit margins of promoted products, the retailer didn`t have the data it needed to launch and carry out online promotions. It simply didn`t know whether there would be sufficient inventory to fill orders and whether the offers would hit revenue and profit margin targets, says Pete Zophy, divisional vice president, e-commerce.
“Now we`re able to accurately project online sales for each promotional event, what our margins will be, and how much inventory we have available among the promoted products,” he says. The new system allows the web site to get updated inventory data as quickly as every five minutes in the case of fast-moving sales, Zophy says. In the past, such data would be refreshed overnight, not fast enough for sale merchandise that can sell quickly.
The new JosBank.com`s ability to integrate with enterprise applications is part of an important trend among retailers to tie all of their selling channels to back-end inventory and financial applications, experts say.
Although e-commerce platforms generally do a good job of taking customer orders and providing customers with status updates on delivery, they have struggled to communicate with back-end inventory and financial accounting applications, says Nikki Baird, a managing partner at research and advisory firm Retail Systems Research LLC.
Without timely and accurate updates of inventory records, retailers can be at a loss for knowing exactly what inventory has been committed to customer orders, and how much stock is still available to fulfill additional orders. “That`s really important for online retailers, because otherwise they basically don`t really know if they have an item in stock until they have someone pick it in the warehouse,” Baird says. “It`s not like in a store when they can see if something is still on the shelf.”
Likewise, without immediate and accurate updates of financial accounting applications, retailers are in the dark about key performance metrics, such as profit margins to determine ongoing merchandising and promotional plans.
Jos. A. Bank can now routinely review all customer orders in aggregate every day to see not only the unit sales of individual product SKUs, but the profit margins realized on each item, Zophy says.
“We`ll look at these figures at the end of the day and see by each product category how many items sold and at what margins, then figure if we need to make any adjustments to our merchandising and promotions,” he adds.
Being able to quickly analyze customer orders in light of financial and inventory data can result in a significant boost to revenue, says Rick Odorico, general manager of business operations at Dal-Tile Corp., a manufacturer and distributor of ceramic floor and wall tiles.
Dal-Tile works with the Sterling Order Management application from Sterling Commerce, a unit of AT&T; Inc., to manage profitability while focusing on increased sales. Dal-Tile is currently using the Sterling Order Management system for its 250 stores, but also plans to use the system to extend its B2B e-commerce capabilities, Odorico says.“We will look into all avenues in an effort to continue to be the best supplier and partner for our customers,” he says.
Dal-Tile`s managers can view an online dashboard that pulls in information from back-end inventory and financial accounting applications to factor in the cost of products. “We can see if we mispriced an order, then adjust the price to encourage future sales,” Odorico says. “We project the efficiencies we gain from the Sterling Commerce solution will generate about $1 million per year.”
The Sterling system also is designed to support more efficient order fulfillment from throughout Dal-Tile`s network of stores, Odorico adds.
By integrating its customer-facing order management system with back-end inventory management, Dal-Tile can automatically route customer orders from stores with insufficient supplies of desired products to the warehouse or store with the merchandise in stock. The system can determine, for example, that a particular store is best able to fulfill an order because inventory records show not only that the store has ample supply of the desired products but that it also doesn`t normally get much local demand for it.
The system also supports manual input from individual store managers, who may want to hold onto extra inventory to meet rising local demand for products stemming from a recent promotion. “When an order request is routed from our Elk Grove, Ill., store to our store in Naperville, Ill., the Naperville store manager can either accept it or reject it,” Odorico says.
More flexible tech
Store managers can also constantly update their inventory profiles in the Sterling system, indicating, for example, that certain items are getting more or less local demand based on current promotional activity and the strength of the local economy.
Dal-Tile operates the Sterling software on a web-based Unix technology platform that supports refreshes of data in the order management system from back-end applications.