Retail and consumer products expert, Michael Appel, offers insights on industry trends, issues and opportunities.
Amid continued announcements of store closings and liquidations, there is some truth in the assertion that technology has changed everything, created disruption and eroded profitability. However, technology can also boost profitability by driving sales and improving margins, improve the use of working capital, and reduce indirect costs. These solutions have already been validated by innovative companies serving both retail and consumer packaged goods companies. I’ve helped many companies improve performance by aligning them with trusted resources for these types of solutions.
Here are two examples of how innovative technology is giving retailers a path to increased profitability.
Speed up your supply chain.
When I served on the board of Charming Shoppes, a multibillion dollar specialty retailer of plus size apparel (Lane Bryant, Catherines), I challenged management to improve the chain’s speed to market. Their cycle of bringing product to market took six to nine months, but H&M, Zara, and Forever 21 were getting goods on the shelf in 30-60 days. I recommended we emulate how these fast fashion retailers ran their supply chains, but the company just couldn’t do it. Their corporate culture and company processes were too ingrained to change. Like them, many retailers are now paying the price for not investing in updating their supply chain, and some are no longer around to tell the story.
Xcel Brands had a similar strategy. A Wall Street Journal article recounted how the company hired former Zara executives to help create a production model that mimicked fast fashion’s advantages by pairing proprietary brands with more nimble sourcing. Retailers were able to take advantage of a competitive fast fashion supply chain without the infrastructure investment and the time required to change company culture. The result: more goods sold at full price by delivering merchandise in real-time, closer to customer demand. Lord & Taylor is just one retailer currently partnering with Xcel and trying out the new strategy.
Invest in inventory and product optimization software.
Another challenge is placing the right product in the right place at the right time. Struggling retailers aren’t tailoring assortments to each store’s unique customer profile because their planning and distribution are based on old models driven by total volume rather than how customers actually behave. Celect, a new company founded by MIT professors, has developed technology to use a retailer’s existing data to optimize merchandising, planning and allocation operations. That enables buyers, merchandisers, planners and inventory analysts to understand how customers and products interact based on the choices they make. The software determines optimal localized assortments, which drives sales, reduces markdowns and improves inventory turn. Retailers such as Urban Outfitters and Bon-Ton are currently partnering with Celect, and initial results show it has the potential to be a real game changer.
These are just two examples of ways I advise retailers to fight back and regain their bottom line. Stay tuned for more ways you can improve profitability, if you’re open to innovation.
For more insights, email Michael at firstname.lastname@example.org or call him at 914-806-3632.