WHAT’S HAPPENING IN THE WORLD OF RETAIL?
2009 has emerged in the wake of an economic storm that devastated the retail holiday season. Retailers are reacting with layoffs, store closings, and bankruptcy. Reduction or elimination of capital spending and severely cut operating budgets have emerged as common remedies to faltering earnings.
While short term disaster may be averted, how will these changes affect the longer term profitability and even viability of these retailers?
Sales increases have been the driving force among successful retailers. This was and always will be the case. Sales improvements finance new stores, build home office organizations, fund projects, and delight shareholders, so the focus will always be there. However, in these sales contraction times, where ‘flat comps are the new positive’, we are learning that the sales increases may have masked inefficiencies and in the most dramatic cases, stunted operating improvements. As the saying goes, ‘as the water level subsides, the rocks are exposed’.
A Uniquely Retail Challenge
In today’s retail world, it is imperative to not only increase sales, but to also discover new ways to reduce operating inefficiencies. The best retailers are always interested in how to make changes to be more effective with every dollar they invest. Consumers have extensive shopping options, so now, more than ever, retailers must differentiate themselves by providing a superior shopping experience.
Retailers face the challenges of:
- Stock-outs and lost sales
- Excess inventory and carrying costs
- Inventory plans that do not consider demand and supply variability
- Managing a growing number of SKUs across the entire chain
- Markdowns
Retailers must address these challenges and conquer them by allocating their inventory better than their competition. And to survive and succeed, they must do it quickly – not 2-3 years down the road. This is where Allocation Optimization comes into play.
