Most apparel retailers offer a mixture of core (volume) and fashion stock, and their never-ending challenge in managing both types of stock can be summed up as margin protection. If specific stock cannot be sold at the right time it may need to be discounted, eroding the gross profit.Read More
How to protect your First Margin
Most apparel retailers offer a mixture of core (volume) and fashion stock, and their never-ending challenge in managing both types of stock can be summed up as margin protection. If specific stock cannot be sold at the right time it may need to be discounted, eroding the gross profit.
Fortunately, future demand for core products can be predicted to a degree by projecting forward historical need. Variations can be compensated for by adjusting replenishment parameters and by recurring purchases, automatically correcting out of stocks.
However, when it comes to fashion and seasonal stock, demand becomes more unpredictable. Such stock typically arrives once before the season, possibly with one top-up delivery. So, after the initial push of stock, the retailer must focus on working just with the stock on hand, maximising the quantity sold at full price.
To achieve this, the following processes can be adopted:
- A portion of the initially delivered stock can be retained in the central warehouse. Later, it can be trickle-fed to the best-performing retail outlets, to compensate for higher than expected demand. This reduces out of stocks.
- All stock from the initial delivery can be shipped to the retail outlets, but a second drop can be arranged a few weeks into the season. Research shows that such a second drop should be considered, depending on supplier lead times, when about 75 per cent of the expected season’s demand has been sold and the season still has more than 25 per cent of its duration to run.
- Once all the ordered stock has been shipped to retail outlets, the stock can be redistributed via lateral shipments (store to store transfers). This corrects oversupply errors made in the initial allocations.
- Finally, towards the end of the season, the remaining stock can be consolidated into a few best-selling outlets. Note that this is counter-intuitive, as most retailers send such stock to clearance outlets and sell it at discount prices.
It should be noted that on occasions stock redistribution can also be used to rebalance stock for core items, should the warehouse run out of stock due to delays from suppliers.
The above processes require a mix of skilful and timely merchandise decisions, but they also require highly capable retail systems to support the decision making process.
The Retail Directions Platform delivers such capability via a comprehensive suite of tools that allow the merchandising team to plan and manage initial allocations replenishment, and then transfer requests with instant communication to the stores.
In its simplest form, transfer requests can be manually created, on a SKU-by-SKU basis. Head office users can drag and drop stock from one store into another. Selected sizes and quantity of an item, or a range of items, can be easily reallocated.
As an alternative, transfer requests can be generated by the system based on one or two objectives: the balancing of stock levels within a set of stores, or to consolidate stock into selected stores.
The system uses a complex set of algorithms that take into account sales history for a stipulated period to calculate projected sales for the remainder of the season. Each store can then generate a list of recommended transfers that will balance stock between selected stores, to maximise the mobility of selling the stock during the season.
Once the transfer requests are created, the system makes no distinction between manual and computer-generated stock transfers, nor does it distinguish between stock balancing and consolidation, as ultimately all stock movements must occur at a SKU level. In other words, the stores don’t need to understand the rationale behind the Head Office stock movement requests, however the system does track the nature of the underlying process that created the transfer requests.
Transfer requests can then be reviewed and approved at Head Office. In this process, the system transmits them to the stores for action.
Once in the stores, transfer requests can be printed out with the printout being used as a picking list. Such lists can then be converted into an outgoing transfer and edited to adjust for any stock that was not available. At this stage, the system marks the transfer request as complete.
It is also possible to display a transfer request in [mk_tooltip text=”SMSmx” tooltip_text=”The RF-based mobile extension for the Retail Directions’ SMS (SMSmx) provides retailers with the flexibility of mobile computing on the shop floor. The SMSmx application runs on Windows devices as well as on iPads, and it links directly with SMS, the main store system.”] (Mobile POS) and use the content (shown by SMSmx) as a picking list in the store. The user can then pick the stock and edit the list to adjust for any stock that was not available.
Additionally, store users can display a transfer request in [mk_tooltip text=”SMS” tooltip_text=”Our Store Management System (SMS) handles store-level functions: POS and store back-end including reporting, reconciliations, banking, petty cash, stock control, transfers, messaging, and time in attendance.”] (POS in the stores) and mark it as “declined” (cancelled) to notify Head Office that the store needs to ignore the request if, for example, the requested stock has been sold in the meantime.
Head Office can then use the central system ([mk_tooltip text=”RMS” tooltip_text=”Our Retail Management System (RMS) centrally handles all stock transactions while monitoring and controlling practically all aspects of a retail enterprise. Because it’s at the heart of the Retail Directions software platform, RMS enables retailers to drive a unified customer experience across all store locations, including their web stores.”]) to show all transfer requests still waiting in the stores to be acted upon.
In today’s extremely competitive retail market with increasing pressures on margins, it is imperative for retailers selling seasonal stock that their business systems are capable of ensuring maximum sales at first margin. The Retail Directions Platform enables our clients to maximise their first margin, giving them a distinct competitive advantage.