Points of view | Insights

Optimization of sales thanks to a better distribution of flows

How to redirect and better prioritize the flows to the stores in order to increase the network’s turnover?

Inventory is at the heart of a retailer’s performance and its optimization has an impact on the entire company and its results. Optimization does not necessarily imply a reduction, but rather a continuous adaptation of the stocked quantity everywhere – anticipating variations in demand.

This optimization has many positive effects:

  • fewer out-of-stocks, resulting in better customer satisfaction and an immediate and sustainable increase in turnover
  • shorter lead times, which also leads to better customer satisfaction and loyalty, as well as an increase in turnover
  • less stock to be sold at the end of the season and therefore an increase in margin
  • less stock held by the company overall and therefore a “release” of financial means to invest and develop the network and/or sales channels

To maintain a dynamic product offering, ready-to-wear brands base their strategy on frequent renewal. They rely on planned mini-collections and regular updates.

The sales periods are organized around market events, allowing the product offer to be punctuated by a succession of targeted “themes”. The product life cycle is short and weekly sales per item are low. The back of the shelf is made up of more or less permanent “basic” items that must be able to fit into the themes. Some principles remain inherent: buy less but better, adapt production to demand in a very reactive market where collections follow one another, where sales are sensitive to the weather and where supplies can take several weeks.

After the stock enhancement actions, if there is still stock in the points of sale, comes the time of the markdown, which is the very principle of the sales.

Very often, with the same market events and the same offer in place on the shelves, the stores in the network present a great disparity in turnover. In a large and heterogeneous network of outlets, the turnover coefficient is greater than 3 between the leading outlets and the average.

Of course, the attractiveness of the location of the stores, the priorities given in the use of the available space or even the historical turnover must be considered. Theoretically, in order to attract customers and increase the likelihood of sales, a brand should be able to display a maximum number of items in the store. However, sales areas are not expandable and the price per square meter remains a thorny issue. Optimizing inventory is therefore a priority for stores. For example, low or medium capacity stores are more affected by shortages than high-capacity stores.

In addition to this stock management issue, new customer requirements in terms of services have been added: from now on, customers expect brands to provide information on their stock in real time. The final consumer expects to be able to order and pay for it online and then pick it up in the store of his choice thanks to click & collect. He also expects to be able to check the stock of his usual store before going there to try and buy the desired product. Also, in order to attract customers to physical stores, some offer and promote limited stock items online, which are only available in store.

Our experience has shown that the network’s turnover will grow if all stores are treated equally.

Rule #1: present a coherent offer on all the stores

Sales are built on the immediate availability and rotation of items. In this context, the strength and attractiveness of the in-store offer comes from its coherence. It cannot be limited or reduced by deliberate (selectivity) or unintentional (stock-outs) shortages, especially since tactically, the planned sales period is short. This availability must be consultable by the customer for stores via applications or on the brand’s merchant site. The final consumer expects to be able to buy what is available in the store on the website.

Obviously, if the brand identity is well identifiable in store and consistent with the whole network, the selection of products could vary according to the location of the store and the clientele (more specialized offer and limited editions…), which impacts the management of stocks. It is important to be locally relevant: whenever possible, retailers must stabilize and get to know the environment in which they operate and the consumption habits of customers within the catchment area.

PRINCIPES

  • Aim for availability of the entire offer in all stores and on the website.
  • Guarantee the same readability in all stores (loading depends on store capacity and product sales forecasts).
  • Guarantee the same services in all stores (click and collect, ship from store).
  • Adapt the relevance of the offer and the management of the stocks according to the location and the customer knowledge.

Rule #2: minimize store breaks at the beginning of the themes’ life and manage the volume risk

You must juggle the flow of items to get the right mix of items in the stores. At the point of sale, sales per item are generally low. Since the volume of restocking will be limited to the sales period, the allocation of item availability is a critical choice.

The sales volume initially allocated to the restocking is often limited. For example, for a 7-week sales period, putting 70% of the volume in the store generates an available volume that can correspond to only 2 weeks of restocking. Under these conditions, store shortages are inevitable and occur early in the sales cycle.

This fragility can be overcome by increasing the volume purchased in relation to the sales budget: with a volume purchased of +40% in relation to the sales budget, the restocking period is increased by 3 weeks, which limits the number of out-of-stocks.

This makes it possible to give priority to stores with a high turnover by restocking them for longer.

PRINCIPES

  • Implement according to the potential to try to cover the highest sales week.
  • Keeping a large part of the stock centrally to restock high potential products.

Rule #3: effectively manage the available

Store stock must:

  • Ensure sales during the replenishment period:
    With the same lead time, the level of stock depends on the sales potential of each product (High, Medium, Low, Very Low)
  • Guarantee the balance and dynamics of the offer:
    No selective offer
  • Occupy sales space:
    In addition to tying up sales floor space, inventory also involves cash flow management which can be cumbersome for a store. Obviously, optimizing stocks and reducing their level allows to enlarge the sales space and therefore the range presented in the store and consequently to support the sales forces. The level of stock obviously depends on the store capacity (segmentation of the network into groups of stores with the same capacity)
  • Be available online:
    The stock and availability of each item, as well as the possibility of click & collect must be consultable online, both on the merchant site or on the brand’s applications. The click & collect is interesting because it allows the brand to create a link with the customer and bring him service. Another advantage: it is the customer who goes to the store.
  • Enable ship from store by managing e-commerce orders from stores:
    Today, 20% of in-store inventory can be ordered online and then delivered to the customer’s home or to a collection point, according to the Capgemini Consulting/LSA omnichannel barometer (6th edition, 2017). The ship from store service, which appears to add value for the customer, transforms each store into a logistics center allowing the creation of a unified inventory, available for the entire network and especially for the website. However, this service may not be so financially advantageous for the company, as transport solutions are very expensive. Thus, this solution is only financially viable in countries where the cost of transport is low.

PRINCIPES

  • Continuously replenish the initial store inventory.
  • Anticipate shortages to replenish only fast-moving stores.
  • Redistribute store stock when unused.

The risk of stock-outs in the store depends on its initial stock and the rules for allocating available stock at the central level.

To minimize stock-outs in efficient stores, the need for reactivity and flexibility is paramount. This implies prioritizing restocking and/or increasing responsiveness “locally”.

Store stock must be replenished with sold items to maintain the balance and dynamics of the in-store offer. Continuous supply ensures reactivity and fluidity; the adequacy to the real sales is ensured by the acceleration or the slowing down of the rotation. One way to do this is to optimize inventory that has the lowest turnover and leverage point-of-sale orders.

The amount of stock available in a store must therefore depend on its storage capacity and merchandising rules. It is the good rotation of the stock that creates value and not the quantity of stock because having more stock does not necessarily mean more sales.

The main steps to follow:

1. PRIORITIZATION OF THE RESTOCKING (DAILY)

 

Stores are divided into restocking priority groups, based on their stock rotation from the previous season. This order of priority is used to allocate available merchandise.

Only sold items are restocked on the same basis of restocking = sale, as long as warehouse stocks are available.

2. Anticipated warehouse shortage management (weekly, carried out during the 1st half of the theme sales period)

 

Thanks to sales monitoring, warehouse shortages are anticipated.

The sales of references presenting risks of shortage are then analyzed at the store level.
This analysis allows to stop the restocking of the poorly performing stores and to direct it towards the best rotations.

3. Management of the residual stock in the store (weekly, carried out during the 2nd half of the sales period of the themes)

 

It depends on the level of the store stock, the date of the end of the sales period, and the sales target. 

For each reference, the moment of the stop of the restocking intervenes when its level of coverage in store is too high.

Rule #4: to have an optimal reactivity

Lead time is at the heart of decisions to respond to the market and keep inventory levels as low as possible. Product valuation and supply management specialists use DDMRP (demand planning) techniques, implement a “Pull” versus “Push” strategy, improve cash flow and reduce dormant inventory in the supply chain. They work with “open to buy” / “Wssi” tools and carefully monitor indicators such as stock rotation, markdown, clearance rate or stock coverage.

But beware of uncontrolled delays!

In periods of strong sales, everything is decided within a half day, it is useless to be in continuous research of logistic performances if the sales are not fast and secure and/or if the shelves are not reloaded as soon as the restocking arrives in the store.

PRINCIPES

  • Guarantee a short replenishment time (3 days).
  • Simplify the management of the available stock.
  • Reinforce the weekly management of the sales force in its product dimension.

Rule #5: redistribute unused store stock

The time scale can be fast in the textile industry. For example, a product not sold out in 2 months can be a sign of poor performance. The reactivity of the brands during the season in commerciality or markdown is therefore necessary for a good final performance.

Returning residual stock to the warehouse at the end of the season may be unavoidable. The return logistics must be organized to collect the packages from various points of sale. The stock can then be very fragmented and mixed. The cost of transportation is critical as the cost of goods starts to be higher than what they can bring in.

PRINCIPES

  • Return residual stock to the warehouse.
  • Simplify the management of available stock.
  • Use destocking if consistent with brand image.

Once the products have been received at the warehouse, the best thing to do is to return them, if their condition allows it, to a network of outlet stores, to specialists in destocking. They can also be sent back to the same outlets for the next sales. As these products have already had their chance, their sales potential is not certain and their supply would further degrade the margin: thus, the last pieces could be sold to discounters and generate cash.

Other possibilities are to be explored in order to sell the remaining boutique stock, such as selling it on a dedicated website or a branded destocking store. However, this competition can be frowned upon by physical networks. Some premium brands have abandoned their dedicated destocking website in order to preserve their image.

The ideal is finally to be able to sell these residual stocks from the warehouses but also from the stores on a website during the season. For this, it is necessary to have all the stock in one physical place: a logistic warehouse. It will be necessary to collect the residual stocks in store when there is still time and when the products correspond to the market need.

These solutions generate cash, save margin on these products and free up store space for new items.
Logistical complexity: batches of mixed garments, often without labels, arrive in the course of deliveries. These items must be sorted, repackaged, stored and then prepared again and sometimes reshipped within 24 hours.

Simplicity and efficiency guarantee a good reactivity, operational adaptability, organization of the collection, synchronization with the commercial network, traceability…

In all cases, only a global vision of the value chain, both inbound and outbound, from a financial and operational point of view, will enable the right decisions to be made. If inventory has a value, it also has a cost.

Rule #6: get the right tools

Stores are equipping themselves with digital tools to ensure the administration and synchronization of data. We can now often find in the store sales assistance tablets, which also allow to manage the arrival of stock. These are also tools for collecting customer data. This data must then be transformed from quantitative to intelligent and qualitative data, with the aim of proposing an ever more personalized offer, close to customers’ expectations. According to a study by Accenture Strategy in 2018, 66% of French people surveyed said they were more inclined to consume products from a brand that personalizes its offer or buying experience. Ensuring personalized emails is strengthening customer loyalty and boosting the drive-to-store or drive-to-web effect.

PRINCIPES

  • Equip your sales teams.
  • Use Big Data to turn it into Smart Data.

If the implementation of digital tools is necessary in the store, the real challenge is not necessarily in the store, but in the back-office functions and the knowledge of stocks. Retailers must have a unified vision of their stocks (store, web, reseller) and have a geolocation of all their products, with regular updates. Obviously, not all retailers have completed their transformation, requiring heavy investments. As soon as you want to share the inventory, you have to centralize data from the store and the warehouse, which is a major undertaking.

Case study: results obtained at a textile distributor

1. AN INCREASE IN SALES

 

The evolution of the share of store sales using these new layout and restocking principles shows cumulative gains of around 10%:

  • Better stocked stores.
  • Later stock-outs.

2. A DECREASE IN THE NUMBER OF SHORTAGES

3. SIMPLIFICATION AND OPTIMIZATION OF WORKING METHODS

In the warehouse:

  • Time savings are achieved on the preparation of themes.
  • Smoothing of the load made possible thanks to the new restocking rules.

At headquarters (downstream flow management):

  • Simplified, systematized and automated implementation and restocking procedures.
  • Decrease in the number of complaints from the boutiques.

At the level of the boutique network:

  • Sales teams made aware of the need to “sell better”:
    • Immediate sharing of results and winning practices.
    • Pushing available items.
  • Facilitated forecasting and commercial processing of out-of-stock items.
  • Reception and storage of merchandise for restocking now spread out over the week.

Pagamon is a strategy and transformation consulting firm founded in 2013. We support major players in the industry, services and life sciences sectors in their search for balance. Helping them structure their strategic vision, transform their operational and/or digital model, and drive change. To support profitable, sustainable and responsible growth. As a committed player, Pagamon leads the Observatoire de l’Entreprise Équilibrée™, articulated around a “think tank” and an annual survey. In order to provide an innovative, sometimes offbeat, perspective on the strategic support of transformations to support the growth of companies.

Pagamon is a strategy and transformation consulting firm founded in 2013. We support major players in the industry, services and life sciences sectors in their search for balance. Helping them structure their strategic vision, transform their operational and/or digital model, and drive change. To support profitable, sustainable and responsible growth. As a committed player, Pagamon leads the Observatory of the Balanced Organization™, articulated around a “think tank” and an annual survey. In order to provide an innovative, sometimes offbeat, perspective on the strategic support of transformations to support the growth of companies.