Retailers & Suppliers Are Re-Tooling in TechnologySUSAN ALVAREZ & JAMES HOWELLITK SOLUTIONS GROUP

1. The New Store Experience

2. Expanding Roles of Mobility

3. Logistics and Supply Chain Opportunities

4. The Cost of Infrastructure and the Cloud

5. Interconnection and the "Big Data" of Retail

AGENDA

I. THE NEW STORE

EXPERIENCE

Interaction Changes• Personalized shopping experience

• Products in the store may be samples; your selected products shipped to your home

• The store as a marketing tool: teaching the customer about the brand and receiving direct design/product development feedback in return.

• Customer engagement. This may involve stocking less actual product and a different level of sales associate.

• More floor space for interaction, less product on the shelves

System Hardware Changes• Store systems hidden away and/or used as a design element.

This is more common in high end retailers.

• Chip payments: to PIN or not to PIN (that is the question)

• Packing purchases from the back of the house while the customer browses

• More interaction with the sales team (mobile POS)

• Mobile checkout; check out in the dressing room

What does this mean that you should demand from your systems?

• Flexibility in hardware options to suit different requirements• Real time supply information system-wide to locate the proper item

during customer interaction (not just this store – everywhere)• Choose a product that is being actively developed to drive new

features as the market changes• Choose a partner that knows the market and your business (so they

see what is coming and know what is applicable to your business)

II.EXPANDING ROLES

OF MOBILITY

Mobility & Payments• Mobile payments: finding a

secure option that customers are loyal to (this is still a work in process)

• Mobility as a consumer preference for security: 2 factor authentication. If the phone and the credit card are together, the transaction is probably good

Mobility & Ecommerce Growth• Last year mobile device sales grew

56% to $49.2B• Desktop ecommerce sales were

$256.1B, with annual sales growing at 8.1% (down from 12.5%)

• Mobile device sales account for 16% of all ecommerce sales

• An additional 40% of desktop sales in the 4th quarter of last year were attributed to an initial visit on an app

Mobility & Ecommerce CharacteristicsWhat to expect from this ecommerce sub-channel:• Purchases via mobile tend to be smaller,

impulse buys as shoppers prefer larger pictures and more in-depth review of larger purchases like furniture.

• There are more single item purchases, which can affect shipping costs.

• More window shopping and impulse-type buys.

III.LOGISTICS AND SUPPLY CHAIN OPPORTUNITIES

Issues and variables we are always trying to answer here

• How much will I sell• Will I have it where I need it when someone wants to buy it• How much will it cost to get there• How long should it sit on the shelf• How much will it cost to ship• When does my customer expect it

(and how fast will my competitor get it there)

System Flexibility for Shifting Variables• Cost of transportation:

fuel and labor• Cost of investment in inventory• Different reporting depending upon

the strategy• Thin supply means more possibility of light

baskets (some items the customer could not find, the retailer will never know the lost sale opportunity). Requires better reaction to potential stock outs and faster response to actual stock outs.

• Fatter supply means more potential dead inventory. Requires better monitoring of oversupply and better reaction to correct it before we get to price reduction strategies.

Deterioration & Pilferage 3-6%

Cost of Money 6-12%

Taxes 2-6%

Insurance 1-3%Warehouse Espenses 2-5%

Physical Handling 2-5%

Clerical & Inventory

Control 3-6%

Obsolescence 6-12%

Inventory Carrying Cost

Total = 25%

Shipping Analytics & EcommerceEcommerce has turned out to be logistically way more expensive than many retailers expected.

• Wal-Mart and Amazon are both experimenting with their own shipping networks in response.

• While this has affected all sizes of retailers, the ability to understand to the item level, gross margin including shipping costs in/out has become critical.

• This analysis should include if the item enables or encourages the sale of other (perhaps more or less profitable) items.

Store Design & Process FlexibilityIf we have the right system, can we accommodate these shifting strategies at the store level?• Store design should allow for sliding scales of

resupply• Store processes should allow for efficiency in

receiving large and small resupply runs.o Restocking schedules and processes: these should

vary by strategy. o Leadership and training at the store level to support

differing strategies.

IV.THE COST OF

INFRASTRUCTURE & THE CLOUD

Considering System ROI - CostsFactors to consider• License costs, solution plus any new required licenses• Hardware• Implementation services• Additional personnel and/or skills needed

o System operationo Helpdesk (if applicable)

• Training costs, initial and on-going• Annual software maintenance• Hosting costs (if applicable)• Complementary solutions: ISV costs, implementation

services and on-going training and maintenance• Other? This is very specific to the company being

evaluated.

System ROI – IT Budget BenefitsFactors to consider:• Planned system costs saved (to upgrade/maintain old system)

o Hardwareo Trainingo Specialized helpdesk

• License fees eliminated• Annual software maintenance eliminated• Hosting costs eliminated• Training costs eliminated• Other?

System ROI – Operational BenefitsThis is where the big ROI dollars come from (samples of real-life client situations):

Manufacturing capacity increase:“The US production line is slowed or stopped for approximately thirty minutes

three times daily (at the change of each shift) to enter machine data. Easing entry of this data (or capturing it electronically) could result in an increase in

manufactured goods of approximately 2% (at a -0- labor increase).” Calculation: 1 hour saved/24 hour production line = 4.2%. Note the conservatism

in the estimate of savings.

Client manufactured goods = $108M. Impact = $2.2M

System ROI – Operational BenefitsThis is where the big ROI dollars come from (samples of real-life client situations):

Out of stock reduction:If out of stocks run 10% of all transactions and management estimates that half

of those out of stocks could be converted to sales with better inventory integration and metrics, the expected increase to sales would be about 5% (if the

new system fully realizes the potential). Even a 50% realization of the potential capture would result in a 2.5% increase in

sales, which would often fully fund a retail ERP project.

Sales = $160M. Impact = $4M.

System ROI – Operational BenefitsThis is where the big ROI dollars come from (samples of real-life client situations):

Reduction in discounting through better purchasing:Discounting too deeply as a result of poor purchasing. How many items are sold at clearance for 50-75% off that should never have been purchased in the first place?

Choosing styles contains some human judgment and art (rather than science), but a good system can increase the science side and improve the buyer’s chances of nailing

down the art side.If inventory is sold at 70% of suggested price, on average, and the new system could

increase that to 75% by better anticipating demand flows and seasonality, a 5% increase in sales could be realized. Again, half the estimated benefit is used.

Sales = $80M. Impact = $2M.

How the ROI Comes TogetherSavings of system conversion 524,000$

Operational impacts 1,200,000

Investment 2,013,000

Return on investment (5 year) 86%

Annualized 17%

We prefer to calculate ROI of a major system, such as demand planning or ERP, over 5 years as these systems are not replaced every 3 years, nor should they be if the right system was initially selected.

V.INTERCONNECTION &

THE "BIG DATA" OF RETAIL

Retail’s "Big Data"• Store transactions down to the line item• What customers are buying when and where• What customers came in or shopped online but did not buy

Challenges:• Anonymous customer sales• Did we sell that because we didn’t have what the customer really

wanted?• Did we lose sales we don’t know about?• Formulating the right questions and considering the variables. This is

a concerted effort between operations, finance and marketing.• Mining the data

Other Uses of "Big Data"• Audit: Big 4 have developed programs to mine retail’s big data.

This can identify risk earlier.• Data patterns and anomalies, such as transactions of unusual

size/volume at specific stores.• Reduction in audit fees of 25% or more, due to more precision and less

labor hours.• Does not eliminate the human element but allows human intelligence

for analytical thinking, not rote data analysis.

Interconnection & what retailers are looking for

• Who is my customer no matter what channel they shop in?• What will I do with this information?

• Marketing planning • Better customer interaction strategies in each channel • What channels are underperforming?• What can I do to support channels that are performing, over performing?• What trends are in the data that we should be concerned about or accelerate?

**At the very least, systems should enable easy access to transactional data to answer questions formulated by the management team. Even better: if the data set can be accessed by a toolset that business professionals can understand so analysts can answer their own questions**

CONCLUSIONS

Points to Take Home• Look for flexibility in systems and hardware to handle shifting consumer and market

variables. A great business partner can facilitate this.

• Know the true costs and benefits of your systems.

• Understand consumer preference shifts (such as mobile purchasing) and have a strategy to satisfy these shifts if they apply to your business. This does not have to be an expensive undertaking. The more focused the goal, the more cost effective this often can be.

• Communicate through all the core business areas (operations, marketing, finance and IT) to understand what the questions are to grow the business and ensure we have access to the answers.

• Have the ability to mine the big data (transaction file)

Contact Us

• James HowellEmail: JHowell@itksolutionsgroup.comPhone: 404-956-4697

• Susan AlvarezEmail: SAlvarez@itksolutionsgroup.comPhone: 404-396-6970