TAKING THE FEAR OUT OF ORDERS

MICHAEL GARRY

At the 2002 Joint Industry Unsaleables Management Conference in Newport, R.I., last month, speakers often pointed to seasonal products as one of the primary sources of unsaleables that retailers have to return to manufacturers, sell to salvage operations or destroy. Halloween products qualify as a primary example of such seasonal goods.

For annual events like Halloween, retailers and manufacturers try to take special pains to get the orders right so they are not stuck with over-stock or, for that matter, with too little merchandise to meet demand. In some cases the approaches are decidedly low-tech.

For example, Bozzuto's, a wholesaler based in Cheshire, Conn., does inventory checks beginning three to four weeks before the holiday to ensure that product is moving briskly, encouraging promotions where necessary. "We tell our merchandising group, 'Move it, move it, get rid of it,"' said John Moore, inventory control manager.

A higher-tech solution that is beginning to gain currency is price optimization or markdown software that enables retailers to determine how much to slash prices on over-stocked seasonal items before the holiday is over, thereby limiting their losses, noted Joe Polonski, vice president of merchandising solutions, Retek, Minneapolis, which markets such software.

One Midwestern wholesaler with corporate stores tries to prevent seasonal items from becoming unsaleables by refusing to authorize returns via its reclamation center, so that its stores (corporate and independent) don't get any compensation for returned items, noted an executive there. In addition, he said, buyers in the industry are "doing a better job of buying seasonal product."

But arriving at just the right order can be a difficult task, and so many retailers and manufacturers have turned to forecasting, replenishment and allocation applications that systematically determine how much product to stock.

In addition to pricing software, Retek is a supplier of replenishment and planning solutions used by such food retailers as A&P, Kroger, Sainsbury's and Tesco. Retek's system addresses both short-term and long-term planning issues, said Polonski.

On the short-term, promotional side, the system can factor in the effect of "causal factors" such as putting endcaps in place, running a TV ad, sending out a circular or changing a price. "The system knows the relationship between these factors and sales," said Polonski.

But for a seasonal event like Halloween, products not typically stocked may require longer-term planning. Plastic pumpkins, for example, may even need to be sourced overseas. The Retek system allows retailers to prepare "as far out as they like with as much prior sales history as needed," said Polonski, and it can accommodate new products by employing sales history of similar items. It also encompasses scenarios like new store openings or competitive store closings.

By offering manufacturers earlier visibility into events, retailers are able "to strike a better deal," he adds. But to maximize accuracy, the system holds the order as long as possible. It also allocates delivered products to stores as required.

One major supermarket chain purchased Retek's replenishment and planning solution last December to use initially with "a small amount of merchandise" in one or two distribution centers, said Polonski. The chain plans to use the system to replenish at the store level, he added.

Irving, Texas-based Michaels Stores, a 725-store retailer of arts and crafts merchandise and one of the fastest growing chains in the U.S., employs a three-year-old home-grown ordering system (which it will replace with a packaged system in a few years) coupled with a store allocation application from STS, Montreal, to properly stock its seasonal goods section.

Michaels, which is opening about 70 stores per year, also uses E3 software from JDA Software, Scottsdale, Ariz., to optimize basic inventory replenishment at its four distribution centers and recently added store-level E3 replenishment software for those products. Combining seasonal and basic inventory, the chain offers between 35,000 and 40,000 stockkeeping units.

Among its Halloween products, which Michaels began selling in mid-July with fall floral products, are packaged items like decorative scarecrows, witches on brooms and foam pumpkins that children can safely carve with plastic knives, said Tom Roush, the chain's vice president, merchandise planning and allocation. The stores also market unfinished wooden pumpkins and skeletons that can be painted and decorated, which must be offered as early as July to allow customers time to work on them at home before the holiday.

The planning process for the next Halloween season starts as soon as the current season ends, especially to accommodate imports. "We need the plan in place to go overseas and select items and negotiate prices and deliveries," Roush said.

Before using its internally developed seasonal goods replenishment system, Roush noted, Michaels undergoes a subjective process called "correction of errors," whereby executives from stores, the DCs, planning and allocation, and merchandising review the results of the past season, good and bad. They also factor in general trends such as the tendency this year for Americans to travel less and spend more time at home. They also look at vendors' and competitors' offers.

Then comes the quantitative process, using a Microsoft Access database to collect sales history, which the replenishment system manipulates to create an order plan, said Roush. The system looks at products and categories that needed to be marked down and those that were sold out too early. "If we ran out of merchandise in September, we build it back into the following year's plan," he said. The system also assesses stores by region and factors in promotions.

Before the seasonal plan is executed it gets vetted by senior management. "When buyers present their plan to us, we challenge and revise them and roll them up so we don't end up with an astronomical order," said Roush.

Once the merchandise arrives at Michaels' four DCs, the chain uses the STS allocation system, acquired in May 2001, to distribute the right quantities to stores. The system "takes merchandise out of low-volume stores and puts it into high-volume stores," said Roush. For direct-to-store deliveries, the company includes the allocation with the order for the vendor, who puts together the delivery. The STS system looks at store-specific sales history for individual SKUs and builds in regional trends. Previously, the chain only broke down allocations into eight store volume groups, using an Excel spreadsheet, but now each of the 725 stores gets its own order.

The STS system was still being refined during last year's Halloween season, but by the Christmas season it was working well, said Roush. He credits it with helping the chain have a successful season, with support also coming from a new allocation manager and staff. For the seasonal events during the first half of 2002, the system helped Michaels boost sell-through by 1% to 3%, he said, adding, "We're expecting a strong improvement in Halloween sales."