Retail recovery: Strategies for retailers to maximize 2010 holiday season sales

By Wayne Usie, senior VP retail, JDA Software, info@jda.com

Retailers are wondering what the 2010 holiday season will bring. Will consumers be ready to shop after two years of economic turmoil? Will there be a repeat of 2009’s last-minute uptick in traffic? Will online sales continue to rise?

Retail executives are more optimistic this year after the 2009 holiday season resulted in a 1.1% increase in store sales for the full months of November and December, surpassing the National Retail Federation’s initial projection of a 1.0% decline1. The unexpected surge in shoppers left some brick-and-mortar retailers unprepared. As a result, consumers experienced stock-outs and left stores empty handed because retailers slashed inventory too early, anticipating a slump in holiday sales.

Certainly, a more profitable holiday season is a top priority for every retailer, as roughly 25% of a retailer’s sales occur during that timeframe. Retailers that want to increase in-store and online sales while keeping inventory levels low should consider the following merchandising, supply chain and store operations strategies:

Merchandising: Know the consumer
Give them what they want with localized assortments. With the ability to research and purchase a virtually unlimited selection of products via the Internet, consumers have access to more information than ever -- but so do retailers. Using that information to understand what shoppers are buying and where is critical for developing a consumer-centric, localized assortment planning strategy. Retailers should focus on providing each store with an assortment that is unique to their local consumers’ needs.

Category management is making its foray into specialty retail to help increase sales in their brick-and-mortar store formats. Today’s retailers need to adopt category management processes to ensure that premium floor and shelf space is allocated for the ideal product mix. This gives retailers the ability to evaluate product sales across varying markets to determine which price points and brands resonate with customers. Companies can then adjust the assortment range of a category or collection, increasing the space available for more profitable merchandise based on consumer preferences in that market.

Consider automation to respond faster. The adoption of category management strategies to reset store shelves is not as costly or labor-intensive as it once was. Today’s automated technology allows retailers to produce shelf plans or planograms in a matter of seconds, significantly reducing labor costs and providing the opportunity to create and execute store-specific merchandising plans more often and faster. Using category management to optimize product assortments can help retailers increase revenue and avoid the out-of-stock situations that plagued many companies in 2009.

Price it right. In addition to tailoring assortments to specific consumer preferences, retailers should consider market-driven pricing strategies to help increase traffic. According to an article in The Economist2, retailers must strive to lower prices, as well as stock more products that are at the low end of the price range. The utilization of advanced price optimization solutions can give retailers visibility into a pricing decision’s impact on the entire supply chain. Such solutions can also help them determine initial pricing, promotional pricing and markdowns, which creates a solid foundation for accurate lifecycle pricing. Integrating lifecycle pricing with promotional planning and advertising execution this holiday season will allow retailers to more easily adjust to shifting consumer demand, as well as improve margins during a time when consumer confidence is uncertain.

Supply Chain: One view of demand
Accurately plan inventory levels. Advanced supply chain solutions help retailers consolidate and leverage demand data, which then can be used to optimize the allocation of products between channels. Today’s retail solutions offer a holistic view into demand across multiple sales channels, breaking down silos to provide seamless communication and support a truly time-phased demand planning capability.

In an ideal world, retailers should be able to respond to replenishment cycles and shifts in consumer demand in real time, working efficiently with manufacturing and supply partners to ensure that the right products are delivered to the right place at the right time. The key to achieving this ideal state is integrating planning and execution operations through one view of demand. By integrating merchandising, assortment planning, pricing, space management and sourcing initiatives, retailers can respond faster to changes in consumer demand and achieve optimal inventory levels across all selling channels.

Deploy dynamic sourcing. Dynamic sourcing strategies can help retailers maximize profits during the 2010 holiday season. For example, if a shopper is unable to find an item at a certain store, the store manager could have it shipped and delivered from another store or fulfillment center the next day. This way, the customer can purchase the desired product and the retailer avoids losing the sale. The dynamic sourcing strategy currently used by a large automotive parts retailer offers a blueprint for retailers catering to holiday shoppers. In every region that the parts retailer serves, one store stocks upwards of 200,000 SKUs while other stores in the area carry about 60,000 SKUs. If a customer needs a part that is not available at one of the smaller stores, the larger store can ship it directly to the customer with next-day delivery. With advanced technology that provides visibility across the enterprise, dynamic sourcing strategies ensure that lost sales are avoided and shoppers remain satisfied.

Store operations: Up the service level ante
Make workforce management more strategic. In order to compete effectively during the holiday season, retailers should strike a balance between reducing store operations budgets and the growing demand for a consumer-centric shopping experience. Successful companies are making workforce management a top priority and are eliminating their reliance on outdated, manual procedures that are disconnected from their store planning processes. Today’s workforce management solutions factor in all of the traditional staffing constraints, plus business variables such as fixed and variable daily tasks and store sales volume -- all of which ensure an accurate forecast of staffing requirements.

Adopt a new point-of-service perspective. Hand-in-hand with online shopping, mobile commerce (m-commerce) is on the rise and set to make significant gains this holiday season, as Internet Retailer predicts3. As such, retailers must adapt to ever-changing consumer buying preferences, including shoppers who wish to select and purchase products using Internet-enabled mobile devices. This will require that retailers enhance their infrastructure and visibility into inventory levels across sales channels. The pressure to give consumers visibility into product availability via m-commerce applications will be intense for retailers, according to an article in E-Commerce Times4. However, the same article warns retailers that if they aren’t confident about their in-stock accuracy, they shouldn’t participate. Advanced store operations and inventory management technology can help retailers stay on the cutting edge of trends such as m-commerce.

As the holiday season approaches, retailers that adopt proven merchandising, supply chain and store operations strategies will be poised to increase sales and capture market share -- even if consumer spending is moderate. Customizing assortments and pricing strategies will help retailers meet the needs of shoppers at the store level, while deploying inventory and sourcing initiatives will help ensure that the products consumers want are available across all selling channels. Synchronizing these consumer-driven plans with workforce management and point-of-service strategies will give retailers the tools needed to build market share and solidify consumer loyalty beyond the 2010 holiday season.

1. Holiday Season Ends on High Note as Sales Increases 1.1%, According to NRF, National Retail Federation, Jan. 1, 2010
2. “The Retailers’ Dilemma,” The Economist, May 27, 2010
3. “Shoppers Reach Out to Santa this Year with Mobile Phones,” Internet Retailer, June 25, 2010
4. “Google’s New Mobile App Lets Shoppers Peer Into Retailers’ Stockrooms,” E-Commerce Times, March 12, 2010

Wayne Usie, JDA Software’s senior VP retail, is responsible for JDA’s retail industry strategy and executive-level relationships with JDA’s retail consumers and key prospects. Since joining JDA in 2001l, Usie has led the company’s research and product development organization. Please contact info@jda.com if you have any questions.