Retail EDI

Bankruptcies have plagued the retail sector this year, with a number of prominent chains folding, including the Sharper Image, Bombay Co., Comp USA, Linens 'N Things, Steve & Barry's, Fortunoff and Bennigan's. In addition, countless others are closing dozens, even hundreds of stores like former wall street high performer Starbucks Coffee Co. with an announced 600 planned store closures. There is much conjecture about who else will fail next year given the recent precipitous drop in retail sales that has resulted from falling consumer confidence - consumers shaken by the credit crisis and fears of unemployment.

Stores close, chains fail - this happens all of the time. Some chains fail because they lose relevance - they are replaced by new chains that meet a current need. Other chains succeed because they continually innovate to satisfy consumers. While this cycle culls the underperforming retail brands stores regularly, we are currently experiencing a heightened retail cleansing brought about by a over proliferation of brands, formats, items and stores (both brick and mortar and online). Supply is now far outpacing per capita spend capacity and demand.

Expect stores teetering on the brink of collapse because they are over-leveraged, cash poor or simply have a poor return on assets to suffer most as consumer demand bottoms. The economic crisis will push retailers that have failed to wow consumers consistently into bankruptcy a little bit faster. IDC RI cautions against a doom and gloom perspective because this fails to recognize the cyclical nature of retail and publicly penalizes retailers who are serving their customers well.

Those likely to fail are already cash poor, with inflated inventories and failing strategies. The weak performers can be determined with an objective evaluation of retail performance.  An accurate indicator of which retailers will weather the economic storm is earnings power - a reflection of margin and asset utilization. Margin indicates how profitable an organization is and asset utilization indicates how efficiently it manages assets like inventory. 

Continuous Technology Innovation Separates Leaders from Laggards 

A pattern emerged when Global Retail Insights recently reviewed the technology portfolio of retailers in each segment that are clearly leading in revenue growth, profitability and return on assets.  There is a distinct correlation between the winning retailers and their technology strategies. Retailers that lead the pack invest in technologies that enable greater levels of efficiency and execution excellence. This translates into optimal asset utilization - the right inventory in the right place at the right time. Leading retailers identify the holes in their processes that often result in unexpected costs, poor execution or ultimately unsatisfied consumers.

High performing retailers are generally those well armed with technologies that enable better product planning, demand forecasting, actionable business intelligence and tight execution. Technologies currently employed by the leaders include robust ERP systems, demand intelligence, and global sourcing applications. For now, we will limit the discussion to Global Sourcing, integrated applications capable of managing the merchandise lifecycle from product conception through order fulfillment.

Apparel retailers have utilized PLM for years as a standalone application that supports their manufacturing processes. But now, the value of PLM is being extended technically to provide a collaboration platform for product design and visibility from conception to delivery. Global Sourcing incorporates retail PLM into a broader platform that provides visibility to product ordering, compliance, fulfillment, and logistics. Retail blind spots are eliminated, enabling quicker response to trading partner delays, materials shortages or logistical challenges. Improved execution and cost containment result, enabling the best possible service levels to consumers. Reduced cycle times ensue that provide merchants more time to finalize decisions, reducing the number of failed product introductions.  Improved visibility and control of product anywhere in the pipeline results in improved inventory management.

RI talked with several apparel, specialty and hard lines retailers recently with extremely strong earnings power (according to standard Wall Street metrics) and learned that they are investing in Global Sourcing, often referred to by retailers by the component application names - PLM, Sourcing, Order Management, Supplier Relationship Management, Global Logistics Management, Quality Control and Compliance Management. Global Sourcing applications integrate these discrete functions on a common platform, removing the barriers to real time visibility of product development, procurement, order management, manufacturing quality control and compliance, and global logistics management.

Retail Global Sourcing Initiatives With A Variety of Primary Objectives

The retailers we talked with each started by solving a specific problem. Here are a few of the objectives and benefits achieved from five different retail initiatives:

●      Enable collaboration between pre and post-production. One needed to enable collaboration between pre-production and post production teams - a communication gap existed that delayed feedback to design teams. By ensuring that everyone in the value chain, including designer, manufacturer, distribution and stores are connected this retailer improved their ability to deliver products to consumer that were in demand. Cycle times were reduced to as little as six weeks for some products and the product success ratio was improved significantly.

●      Get fashion right for all channels. Another wanted to invest in integrated assortment planning , order management and retail PLM technology - a platform that supports "getting fashion right." Their new Tradestone Order Management and Merchandise Lifecycle Management platform provides visibility to product upstream in the value chain. The applications succeeded in filling in the order management gap between channels, reduced labor and reduced cycle time from 30 weeks to 20 weeks.

●      Enable fast growth and quality control of private brands.  This retailer needed control and visibility of the sourcing, production, compliance and global logistics management of their burgeoning private brands, expected to provide differentiation and increased margin. Their efforts resulted in improved landed costs, improved margin and happier customers who saved a considerable amount of money by buying the private label at brand comparable quality.

●      Global sourcing quality and compliance.  Another retailer invested in integrated supplier relationship management, sourcing and compliance modules to ensure excellent product quality, supply chain security and shipping compliance globally. This retailer is now well positioned in advance of C-TPAT 10+2 global trade requirements. 

●      Innovative price negotiation and buyer productivity tools. The final retailer we spoke with automated buying processes for their own private label products on a smart phone equipped with a scanner and order management functions. Buyers are now able to visit a show room floor and participate in real time negotiations for displayed product eliminating delays and redundant activities.

Retailers venture into Global Sourcing initiatives with varying initial objectives, but the overarching need is to respond more closely to consumer demand, and to eliminate barriers to moving products efficiently through the supply chain.  Potential delays include design approvals, procurement processes, PO approvals and submittals, production issues, quality control inspections, regulatory compliance and logistics management. The resulting product launch mishaps, delivery delays, fines and marketing snafus elevate inventory, increase landed cost, reduce sales and profitability.

Vendors  such as Tradestone, Eqos and NGC (New Generation Computing) have emerged to answer this specific retail technology need.  Other traditional PLM vendors such as Dassault Enovia, Siemens, PTC and Gerber are increasingly addressing retail needs. SAP, Oracle, JDA, Epicor and others all supply many of  the Global Sourcing capabilities described in this report..