Stormy economic forecasts test retailers
Experts tell midsize retailers to let business intelligence flow all the way to point-of-sale systems to weather turbulent economic seas ahead.
In Summary:
| • | Detecting changes and making adjustments are key to survival. |
| • | Forecasting and modeling demand with BI can boost sales and cut inventory costs. |
| • | Raw data from the POS system is a critical component of real-time analysis. |
While economic volatility may threaten profits for the second half of the year, experts are telling midsize retailers that now is the time to use business intelligence to ease any future pain.
"Retailers across the board are nervous about macroeconomic impacts on consumer discretionary spending. However, those that can detect changes and adjust merchandise, marketing, and personnel the fastest will succeed," says Scott Langdoc, vice president of research at IDC's Global Retail Insights in Framingham, Massachusetts.
Langdoc says many larger retailers have already held up against a surge of bad economic news that includes housing market woes, high gasoline prices, and high consumer debt. "Retail leaders have survived because they've been able to see pattern changes and respond quickly," he says.
Those that invest in business intelligence tools that help forecast and model demand enjoy top-line sales improvements of 5 percent to 12 percent, and as much as a 30 percent decrease in inventory carrying costs, according to Langdoc.
Now these tools have become more accessible to the midsize market. "Business intelligence analytics does not require unique skills in number crunching. The latest BI application offerings provide targeted insights and recommendations that retailers can understand," he says.
Applications such as Microsoft Dynamics Retail Management System (RMS) allow intelligence gathering all the way from the manufacturer to the point-of-sale (POS) system. "Raw transaction data from POS can now be more easily integrated into retail business intelligence, and is a critical requirement of real-time analysis," says Langdoc.
Mike Shelton, Web business manager for LoveSac Corp., a maker of leisure furniture in Stamford, Connecticut, says RMS and various features in Microsoft Dynamics are helping his company take a two-pronged approach to insulating against an economic downturn. "They help us figure out how to cut our costs and how to cast a wider net to our audience," he explains.
Shelton uses Retail Analytics for Microsoft RMS, an analytical reporting add-on product from Professional Advantage, to get a real-time view of his inventory across the company's 18 stores. He soon hopes to tie in the company's Web presence, franchises, and wholesale business. "With RMS, we're able to react quickly to fluctuations in the market and have just-in-time inventory in our brick-and-mortar stores," he says.
This is critical for a company that has been bedeviled by high gasoline prices. "Freight has been our nemesis this year, with all the fuel surcharges by the shipping companies," Shelton says. RMS helps him quickly see what items are selling versus their freight costs and make business-critical decisions. For example, although beanbag chairs cost less than foam-filled chairs, they are more expensive to ship. "I can't tell a customer that a chair costs more because it costs more to ship," he says.
Shelton plans to use RMS to help make a stronger link between Web sales and in-store pick-ups. "We hope to do Web fulfillment from our brick-and-mortar stores because otherwise we'd have to pay twice to ship the item—once to the store and then out to the customer. That is not the ideal," he says.
LoveSac is also coupling business intelligence and social networking tools to attract a wider audience. "We're hoping to use MySpace and other social networking tools to appeal to an audience that is five years younger than our core market. We want to start with a customer when they're just entering college, and keep them as they go into the workforce and gain buying power," he says.
Michael Griffiths, global product manager for the Microsoft Dynamics Retail Solutions team, says RMS handles multichannel sales opportunities well. "Companies can use RMS to counteract a downturn in foot traffic to the store," he says. For instance, one Microsoft partner, NitroSell, has built an e-commerce solution for RMS that enables customers to have an online shop that ties directly to RMS and their brick-and-mortar locations.
RMS also provides real-time information about customers at the checkout, so cashiers can up-sell them. "As you're entering a customer's information at the time of sale, you can see their purchase history and suggest other items," Griffiths says.
By tying in real-time inventory information with POS systems, store managers know what items to push and when to reorder. "You can set flags that tell you when an item has been on hand too long and what items to set for markdown or liquidation. With customizable reports, you also get an idea of how to target different sales and promotions," Griffiths says.
And RMS is a great help to managing personnel costs, according to J. Michael Nicholson, principal and chief operating officer at POSitive Technology, a Microsoft partner in Germantown, Maryland. For instance, companies can receive inventory straight to the store floor, keeping staff visible for customers. They can also track employee performance. "You'll see who sells the most and who clocks in on time. That way, in an economic downturn, if you have to get rid of some of your staff, you won't let go of your best people," he says.
 | Sandra Gittlen is a regular contributor to Momentum, the midsize business center newsletter. |
