Friday, December 19, 2008

IHL Group IDs Biggest Losers When It Comes To Out-of-Stock Failures

Out-of-stocks continue to plague the retail industry as one of the biggest causes of lost revenue and customer frustration. Now a new research study from IHL Group has helped to quantify just how big the problem is for the industry and also identifies the biggest laggards when it comes to in stock positions.

Consumers experienced out-of-stocks during approximately 17.8% of their shopping trips, which is about 123% higher than the out-of-stock rate claimed by retailers for themselves, according to the new report from IHL Group titled “What’s The Deal With Out-Of-Stocks?

Breaking the out-of-stock issue down by verticals, IHL Group found consumer electronics stores are losing the most, with consumers saying that they leave the store without buying at least one item 21.2% of the time. The study also found warehouse clubs lose $1.78 and grocery stores lose $.68 in sales for every customer when consumers cannot buy that product or an adequate substitute.

"Retailers remain in denial when it comes to consumer's perceptions of out-of-stocks," says Greg Buzek, president of IHL Group, an analyst firm and consultancy that serves retailers and technology vendors. "Consumers don't care why the product is not available. They come in with money to spend at the stores and have to leave either because the shelves are empty, there is no one to help get a locked item, or the staff simply cannot find the merchandise even though the computer system says they have it. 9% of all consumers in our study have simply stopped shopping at one or more retailers in the last 12 months due to the problem."

The study applauds those retailers who have achieved best in-stock performance by naming Safeway as best-in-class among grocers (with only 14.7% of consumers experiencing out-of-stock of at least one item); Ace Hardware as best-in-class for home improvement, (with only 13.6% of consumers experiencing out-of-stocks); and Fry's Electronics in consumer electronics (with 13.1% percent of consumers experiencing out-of-stocks).

On the flipside, the IHL study also highlighted those retailers losing the most revenue due to poor in-stock performance. With an 18.1% out-of-stock rate, IHL estimated CompUSA is losing $1.16 for every customer, while Radio Shack, with a 22.7% out-of-stock rate, loses $1.46 per customer.

The other biggest revenue losers, according to the report, were: Office Max, which has a 30.6% out-of-stock rate and loses $1.96 per customer; Office Depot, which has a 26.6% out-of-stock rate and loses $1.67 per customer, and Circuit City which loses $1.65 per customer with a 25.7% out-of-stock rate.

IHL provides customized business intelligence for retailers and retail technology vendors, with particular expertise in supply chain and store level systems. Our customers are retailers and retail technology providers who want to better understand what is going on in the overall technology market, or wish to identify specific equipment needs for the retail market.

Thursday, December 11, 2008

Case Study: Family Dollar Optimizes POS System With Embedded Apps

By Amanda Ferrante

While many other retailers are struggling, business is good at Family Dollar. The 6,700 store value chain is adding stores and posting increases in the 3% range. Not resting on its laurels, the company understands that competition means constant improvement to the in-store customer experience. The check out process is one of the latest areas where the chain chose to make an impact on that experience.

In early 2008, Family Dollar’s POS devices accepted only cash, checks, PIN debit, and electronic benefits transfer (EBT) cash. To remain competitive in the retail sector, Family Dollar wanted to expand its tender types to include signature debit, credit, and government-subsidized EBT programs such as USDA Food Stamps. The legacy systems in place could not support the complexities of these programs and required an overhaul of the application architecture and technical foundation.

Until recently, Family Dollar’s 16,000 checkouts were mainly equipped with aging POS terminals running proprietary application software. The single-threaded operating system meant that only one application could run at a time, while the 640k memory limit and outdated interface requirements restricted the addition of new retail application packages. Connectivity between stores and the corporate office was limited to a one-way, daily dial-up communication of summarized transactions with some capability for messaging.

“These initiatives were focused on providing avenues for new revenue growth, increasing employee efficiency and efficacy, and improving inventory management,” says Paul Rossi, Director of Customer Services for Family Dollar. “We also wanted to provide faster customer throughput and better customer service, as well as to create scalable, secure, flexible systems to support future growth and enhancements.”

Leveraging Assets
The technical tipping point came when Family Dollar decided to implement SAP Transactionware General Merchandise (SAP GM), SAP/Triversity's client/server point-of-sale application, which integrates with DOS, Linux, and Windows XP. Due to the extensive size of the rollout, new technology had to co-exist within the current environment. With 1,500-2,000 newer DOS-based POS terminals recently purchased, ROI for the new system was a pressing issue.

The answer for Family Dollar was Windows Embedded for Point of Service, a powerful operating system built for retail that offers a small footprint, extensive USB peripheral support, and POS for .NET™ designed to connect people, information, and peripherals in a familiar and standardized way. Development of the POS device itself was led by Toshiba TEC, which was able to leverage its Windows XP Professional experience, combined with Microsoft Retail Group support, to speed development of the Windows Embedded device.

Windows Embedded for Point of Service also could be “locked down” to prevent employees from installing unauthorized applications, surfing the web or downloading suspicious files. This was critical because the POS devices not only performed a mission-critical business function, but they also captured sensitive customer information.

Within three months, the new POS terminal was integrated with key peripherals using industry standards like OPOS, Unified Point of Service (UPOS), and POS for .NET, another retailer focused feature of Windows Embedded. After six months, the new checkout devices were being tested in stores. The entire project, including enterprise integrations, took less than a year from concept to deployment.

To date, Family Dollar and Toshiba have replaced or upgraded nearly 4,500 POS terminals in the field using a rotating installation method—DOS POS terminals removed from one group of stores are re-imaged with Windows Embedded to support the next group of stores.

Improving the Front and Back Ends
The POS equipment now includes a movable POS and PC keyboard, portable data collection device and the Personal Identification Number (PIN) pad for tender types—all connected through Windows Embedded for Point of Service. Family Dollar can now accept an expanded range of tender types like food stamps and credit cards. Additionally, reducing the total number of required registers reduced support costs and increased space for merchandise in the store.

The customer experience has improved dramatically. Customers now see a full-color presentation screen on a 15-inch flat panel display. They can view the rolling receipt, as well as promotions and advertisements. Lane efficiencies have been gained by eliminating older equipment and optimizing the use of the cash register as a multitasking device.

Reductions in shrinkage were also measured and attributed to enhanced functionality within the Point of Sale system and increased presence "up front" by store associates. Hardware and maintenance costs were reduced by eliminating the need for other back office computing equipment in the stores. Employee satisfaction has also increased. Family Dollar’s manager retention level is now higher. Employees are able to stay in touch with what’s happening at headquarters, like job openings, benefits and corporate emails.

The new POS terminal can communicate with the portable data collection terminals (PDTs) used for product cycle counts, price checks, and other barcode applications. Store managers upload the data to corporate back office systems through the POS terminal, and can even make data corrections on a Store Manager Portal page.

Thursday, December 4, 2008

Northeastern Professor Gao Offers 4 Point Plan of Attack To Address New Retail Realities

As a well-published academic specializing in international retailing Tony Gao, PhD, Marketing, Northeastern University, has written about some of the most complex issues the business can serve up. How does “The Antecedents and Consequences of Organizational Commitment in the Korean Retail Context” strike you for complexity?. But when it comes to the current retail environment, even he is taking a strictly back-to-basics approach.

“Value can come in different ways: same product for less money, higher quality for same price, same quality for lower price,” he explains. “To retain loyal customers and cement relationships with new customers, the value-oriented strategy must be worked into the entire organization, from operations to merchandising to communication.”

But, he warns: “Be sure to cap spending without compromising service.” Gao names BJ’s Wholesale Club as an example of a retailer that has cut costs but not customer service. “BJ’s is better utilizing its open store hours,” he explains. “The stores used to be open from 9am to 10pm but now they are open from 10am to 9pm. With the savings in labor from those two hours, the company is focusing more resources on the quality of its products.”

4 Difference-Makers For Retail

Retailers striving to survive in the current economy should offer deals early and often, suggests Gao. His advice was well-heeded during the Thanksgiving holiday weekend. In the past some retailers, particularly smaller, independent specialty companies, could get by without offering promotions and discounts but today they must offer them to help keep customers coming back.

To summarize his theories that describe which retailers will be successful during a down economy and beyond, Gao has put forth four phrases that he says will make or break retail companies:
  1. Create a buffer zone. Loyalty, internal support and historic performance are all keys to creating a strong buffer zone. Gao says retailers need to ask themselves: “’How many more mistakes can you afford to make before customers turn away?’ because this is the time when customers who are not loyal will be attracted away with deals.” Additionally, companies will strong support from the board of directors will have more leeway to tackle challenges and retailers that have performed well historically have a better chance of survival.
  2. Implement innovative marketing programs. Retailers should literally think outside the box when planning marketing strategies. For example, Baby Universe has aligned with, giving the company another source of sales. BJ’s is expanding its consumer base by targeting more traditional grocery shoppers with smaller packages of products compared to Costco and Sam’s Club.
  3. Fit with today’s times. Retailers that offer necessities will fare best in this economy, Gao notes, including food, consumables, drugs and gasoline. Also, retailers offering great value to their customers will come out on top.
  4. Offer diversification. Retailers should diversify their merchandise offerings, their geographic selling areas and their selling channels, Gao says. “Retailers like Walmart that offer a broad scope of merchandise will fare better than those who offer a narrow selection,” he says. “Walmart also receives 20% of its revenue from Europe. That is diversification.”
Bracing for a difficult 2009
After evaluating relative success or failure following the holiday season, retailers can expect to be faced with a difficult economy throughout 2009 and possibly beyond, says Gao. “Retailers will have to adjust their mentality to react to this environment,” he notes. “Maybe it’s not the best time for major strategic investments, but it is a good time to fine-tune operations and focus on customer service.”

Gao cites Lowe’s as a retailer ahead of the curve with customer service. “Lowe’s executives argue that even though sales may not be as good as they were in 2005, the company is better in terms of having systems in place to better serve all customers. All retailers should be doing some of that right now.”

When the holiday numbers are finalized in March, expect to see some bankruptcy announcements, he says. “We may not see a lot of bankruptcies, but definitely some. I don’t expect overall economic conditions to be much better in March or April of 2009, so retailers that didn’t fare well during the holidays will be under deep pressure.”