Of all the factors influencing the retail world today, technology is having the most profound impact. Never before has any retailer been able to gain such a significant competitive advantage over another through technology.
Do You NEED TECHNOLOGY?
Yes!
Technology will not save a bad retailer, nor will it run your business for you. A computer is only a tool; but used properly, it can dramatically improve your performance; used improperly, it can wipe you out. What the right computer and software can and will do is increase your customer service level by 50% to 100% or more and increase your profitability by 10-20% or more if it is the right computer and you know how to use it.
With hundreds of computer programs to choose from, the challenge today is to know how to choose the right one. This appendix will address how a computer program can help you, and the benefits you can expect from the right systems.
The days of huge sales increases and high gross margins are over. Competition has led to tighter margins and greater pressure on profits. Operating expenses such as rent, payroll, utilities, supplies, etc. have been steadily increasing as gross margins have been steadily declining. The challenge of the future will be to increase the bottom line not from margin increases but from operating efficiency. In addition, substantial increased in full price business will be possible with the use of relationship marketing which is made possible by the use of a customer database.
Technology impacts retail in two different ways:, the marketing side and the operating side. Often the two are so interrelated that it is impossible to separate them. Increased efficiencies in operating can lead to marketing advantages.
How can a computer help me do this?
There are probably hundreds of possible efficiencies from using a computer, from payroll to ticketing to purchase order printing. This appendix will focus on the three areas offering the greatest opportunity for dramatic improvement in profitability. Sales, Inventory, Mark-downs.
Fundamentally, retailing is a straightforward endeavor. If we have the right item, in the right place at the right time, in the right quantity, at the right price, and serve the customer properly – we will be successful. The difficulty comes in getting all the rights right.
Assume that your location is good, that you know how to merchandise your store and that you have a basic understanding of what your customers want. Now, how can a computer program help you?
Sales
Knowing what is selling and when and at what price will help us to re-purchase those items that our customers tell us they want; Customers Vote With Their Wallets. Sales information at its size and color level lets you quickly replenish what you have sold. Sales information by price point tells you what your customer will spend within a classification. Sales by vendor tells you which vendors are performing. The more information you can capture at the point of sale the more efficiently you can control your business.
Inventory
If you expect to get sales reports at a certain level (i.e., sales by item) you must track inventory at the same level. Unless you are selling fine wine, your inventory is a depreciating asset. This means it is worth less every day it remains in your store. Sam Walton, the late founder of the largest and most profitable retailer in the world has said "Any retailer that is not clearly focused on inventory turnover will not survive."
A good computer system can allow you to look at inventory on a daily basis; identify what items are not selling and focus attention on problem areas; identify hot items and confirm that there is enough stock on hand and on order to meet the demand.
A good inventory system will also show where you are in serious need of replenishment. Some systems even automate this decision by suggesting replenishment quantities, generating an order and sending it via modem to the vendor (EDI). Today, with the real cost of money being at an all time high, it is imperative to trim inventories and weed out the profit robbers that are taking up expensive space and not paying the rent. On $100,000 inventory at cost, a 10% reduction of that inventory level will put a minimum of $2,000 into the bottom line. This savings comes not only from interest expense savings, but also from reduced mark-downs.
Mark-Downs
Most retailers will make the greatest productivity gains by reducing mark-downs. While mark-downs are inevitable, there is an optimum mark-down level. Too few mark-downs tell you that you are not taking any risks in challenging your customers with new products. The opposite extreme is too many mark-downs. Mark-downs should be viewed as tuition that you pay for an education about your customers; an education that is only possible if you study what is being marked-down and why.
A good computer system will allows you to analyze mark-downs by size, color, style, original price, vendor and age; and gives you valuable information for your next purchases. Good mark-down information allows you to tailor your inventory to what the customer is willing to pay full price for.
Relationship Marketing (how technology grows sales)
Back to the Future
A good computer system will also contain a customer database program that will allow you to identify which customers purchased what items. These systems tie every SKU to a customer’s name and allow powerful queries/questions to be performed; for example, the lost customer query. Ask your database on a monthly basis to produce a list of all customers who spent more than $500, or any other amount, in the past year, who shopped in your store more than six times, and who has not shopped in the past three months. This list contains potential lost customers who are drifting away; a nice letter and a $25 gift certificate can help get them back.
A customer database can be used in limitless ways. For example, list all customers who purchased a certain type of product, and send them an offering on a related item. Or send your 100 best gross margin customers a nice gift at Christmas; or send your lowest 50 gross margin customers a pre-clearance sale notice as you know that sale merchandise appeals to them.
The best computer systems are integrated – in other words, all the software programs talk to each other and share information. The point of sale system gives information to the inventory system, which also gives information to the financial and customer database system. This integration allows all information to be available for all kinds of analysis.
The efficiencies in the three areas and sales increases from relationship marketing are just the beginning. A good system will also help control expenses and increase productivity in every area of your business.
Technology, Operations, and Marketing
Today’s bar code scanning technology of gives you the ability to capture sales information quickly and accurately; and at the same time speeds customer check outs and reduces the need for additional staff at the register.
Today’s standard is the Universal Product Code/UPC, a combination of the supplier identifying number and the product identification number. The first five numbers are assigned to a unique supplier, and the second five numbers are assigned to the particular item. A laser or CCD scanner reads the codes and matches the information with a Price-Look-Up/PLU file in the register and assigns the current selling price and description of the item and shows it on the screen. In many cases , the UPC technology has eliminated the problem of price tag switching and of sale prices continuing past the end-of-sale date.
UPC technology makes Markdowns easier, as they can be entered in the PLU file and taken automatically at time of sale. It also provides valuable information as to when a customer buys a reduced item as well as at what price they bought it.
A drawback of UPC is that because it’s relatively enduring, the item can lose its date code. The UPC code cannot perform an aged inventory unless a separate product label is coded to give the date information. Some retailers simply add a date code to a separate price ticket.
The real efficiency of UPC comes from not having to put a price ticket on the product itself, which can add handling cost to the product.
Technology can also track inventory movement within the store. Once the SKU is entered into the inventory system, the computer can monitor that item, report numerous factors and measures about it, and help a retailer to maintain the balance of inventory to their customer demands with a minimum of intervention.
Automatic Reorder is another method by which the computer does most of the work. With Automatic Reorder the computer looks at the item’s historical sales pattern ,generally over 12 to 18 months, and calculates the daily demand based on this curve. It will also factor in last period sales to see if the item is trending up, holding even, or coming down from historical patterns. This sales forecast is then compared to the inventory on hand and on order; if necessary, the computer can produce the order and send it to the vendor.
Automatic reorder is not for every item in a store, but works best with items that have a historical rate of sale. New items with no history cannot be trended but must be watched closely based on the retailer’s knowledge of the market and gut feel.
Executive Information System/EIS
EIS is a software program that allows retail executives to look at key data and arrange it in any form they wish. For example;, you could initially compare yesterday’s sales to sales on the same day one year ago. If yesterday’s sales are down, EIS will explode them to a look by store, to see if some stores or regions were down more than others. If you find a store that was down, you can drill down to its sales by department. If you find a department that’s down, you can drill down to the classifications, then SKUs in each class, and compare this year’s inventory level to last year’s - all of this is done in a matter of seconds.
Almost all EIS programs today are written to run in Microsoft Windows™. With the exception of POS almost all retailers today are using Windows™ as the desk top operating system, even using it with their main frame or mid range computers in what is called terminal emulation mode. This allows users to take program data and import it directly into their own applications for further analysis or reporting.
Learning to use the technology - TRAINING COSTS
Most retailers use only about 50% of their technology, mainly because they have not invested enough time in teaching the end user to actually use the systems. Because the cost of hardware and software is decreasing so rapidly, many retailers think that training costs are decreasing at the same rate. They are not. To get the full benefit of your hardware/software, training is mandatory!
Don’t buy technology just to have it. Technology must pay back either by saving expenses or increasing sales, and preferably both. Companies who invest wisely in technology are gaining a significant competitive advantage over their competitors who have not made this critical investment. Before investing in any technology ask the following questions:
In both of the above examples the total to spend for system would be the purchase price of the hardware and software. This would be depreciated over five years to equal one and a half or two percent of sales each year. Financing charges, sales growth, inflation and operating efficiencies have been left out to make the calculation easier.
Using the above formula you will not go wrong financially if you buy the right system.
A computer is a tool to make your number one priority of serving the customer faster, easier and more profitable. Understand also that most computer sales-people are not retailers; they don't know your business like you do.
While not all-inclusive, the following questions will address the most critical areas.
Before you go shopping for a system, you must answer many questions and communicate your answers the computer salesperson so he/she understands what you want.
Fill out and take to your computer/system Sales Associate.
Once you complete this check list, copy it and give it to at least three software vendors. Ask them to propose a system that meets all your needs. Check out the vendors using the following sheet and also request a list of current users of their product and call them to ask about their satisfaction using the questions provided. When in doubt, enlist help from an outside unbiased source to make your decision. Don't be pressured, and don't put the decision off!
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