Say ‘technology’ and you can see the majority wince at the thought of what new buttons and bugs they may have to endure. Yet, it is possible to make a song and dance of your new IT initiatives. Take for instance the Metro of Germany, which was experimenting with ways to use RFID (radio-frequency identification) technologies in its stores.
In September 2002, Metro created a technology-enhanced grocery in Rheinberg, where shoppers could use small computers known as ‘personal shopping assistants’ that could be borrowed at the store’s entrance. Akin to PDAs (personal digital assistants), these handheld devices helped shoppers find products and provided in-depth information on goods, including such details as nutritional values and features, narrate Marshall Fisher and Ananth Raman in ‘The New Science of Retailing’ (www.hbr.org).
“Information terminals scattered around the store also offered recipes, wine recommendations, and suggestions on healthy eating. Customers loved the innovations. A third of them reported using the technology, and most users called themselves highly satisfied. Just as important, the number of customers and sales at the location increased significantly.” And, inviting Claudia Schiffer, a fashion model and a Rheinberg native, to be the first customer also provided Metro with considerable publicity.
As with new technology, so with shaving off the head leaving a strip of noticeably longer hair in the centre, or even more bizarrely having your boss resemble a punk rock fan. But that’s exactly what Ari Haseotes offered as a challenge to his employees. He had taken over as the president of Cumberland Farms’ 550-store retail division in late 2008, and he saw an opportunity to increase its market share for coffee, the authors recount. They add that during the last decade, Cumberland had lost ground to other popular coffee chains.
“Haseotes launched a new brand of coffee, called Farmhouse Blend, which acknowledged Cumberland’s roots in the dairy farm business. Unlike at Starbucks and Dunkin’ Donuts, where the smallest cup of coffee could cost $1.50, Cumberland offered any size for 99¢. It also promoted its new blend aggressively, in a series of ‘free coffee Fridays,’ soon after launch.”
More aggressive, in a way, was the defiant announcement by Haseotes that he would get a Mohawk haircut if coffee sales increased by 50 per cent in the first half of the year. That excited his employees and in July 2009, he had to head to the barber and make good on his promise, reads the narrative. “Coffee sales grew by over 50 per cent, sometimes even hitting 60 per cent or higher (all the way up to 80 per cent in one week).”
Study the SKUs
To those who generally get daunted by numbers, here is an example about Hugo Boss Bodywear on why it pays to look closely at percentages and their movements, especially in the area of product availability.
The company moved 45 of its SKUs (stock-keeping units) from monthly to weekly ordering while leaving the ordering process for 269 SKUS, which served as a control, untouched, write Fisher and Raman. “The in-stock rate on the 45 weekly SKUs went from 98.24 per cent to 99.96 per cent. Sales for the 45 SKUs increased by 32 per cent, even while sales for the control SKUs fell by 10 per cent.”
If you wonder why the sales grew by almost a third, rather than 1.72 per cent, the difference between 98.24 and 99.96, the answer is that though the division had historically achieved high in-stock rates on average, there were periods when in-stock rates on popular styles dropped to roughly 85 per cent.
Anticipating periods of low availability, retailers often carried an ‘insurance brand,’ which they could order more of during the periods when Boss’ products were in short supply, the authors explain. “By taking the in-stock rate close to 100 per cent, Boss reassured retailers that certain SKUs would never be out of stock. Many retailers responded by dropping the insurance brand from their assortments, causing Boss’ sales to skyrocket.”
Slow and cheap
A chapter on ‘flexible supply chains’ bemoans the fact that most supply chains are biased towards the slow and cheap, so much so that even when one staffer or department wants to do the right thing, someone else will complain about the cost, forgetting that lost sales could dwarf the additional outlays.
A telling example in this context is from the experience of a senior vice president of merchandising for a major women’s shoe retailer. “She had a hot seller but was running out and wanted to buy another five thousand pairs. Her Hong Kong sourcing agent said it would take four months for the additional supply to arrive. By then, the season would have ended, and the chance to sell a fashion item like shoes would be gone.”
Considering that the actual production only took a week, and air-freighting would get the product on shelves within two weeks, the vice president was ready to offer $1 more per pair to get the order filled within a week, and to incur an additional $4 freight, thus cutting the current margin of $50 to $45.
Though the manufacturer was ready, the hurdle came in the form of CFO, who rejected the deal, refusing to budge on the margin. This seems nonsensical, the authors fret; which is bigger, after all, $50 times 0 or $45 times 5,000? “But it’s too often how retailers think. They obsess over a few points of margin and refuse to pay for speed, which could reduce their margin percentage but would increase their total earnings.”