Driving Profitability Through Merchandise Optimization Scott C. Friend Vice-Chairman & President...

Driving Profitability Through Merchandise Optimization

Scott C. FriendVice-Chairman & President

ProfitLogic

ProfitLogic Confidential2

ProfitLogic’s Mission

To help retailers transform their merchandising operations and practices with the help of Merchandise Optimization solutions, resulting in dramatically improved financial results and enhanced customer loyalty.

2


Selected CustomersSelected Customers

bloomingdales

TARGET

Marshall Field’s


Current Retail Environment is Demanding and Complex

• Demanding customers who have multiple choices for the same item

• Proliferation of stores and the geographies, demographics, and lifestyles of the customers they are serving

• Acceleration of fashion trends leading to shorter product lifecycles, more floorsets, more seasons, and more risk

• Increased competitive pressure as retail formats continue to merge and compete for the same customer, same dollar

• Retailers must provide a differentiated experience in terms of selection, presentation, availability, price, and service to retain customers and stay competitive

Merchandising is Getting Harder

How do you manage merchandising centrally while fulfilling unique customer demand and store requirements?


But the fundamental merchandising challenge hasn’t changed

After merchants decide what to buy, they need to make the following critical merchandising decisions:

How Much Should I

Buy for each store?

How Much Should I

Buy for each store?

What stores doI send it to?

What stores doI send it to?

How Should I Price it?

How Should I Price it?

AssortAssort AllocateAllocate PricingPricing

How Should I Price it to

most profitablyclear it?

How Should I Price it to

most profitablyclear it?

MarkdownMarkdown

How Should I Promote it?

How Should I Promote it?

PromotePromoteMarkdownMarkdownPromotePromote


Main Street

CEO Comp Store Sales Stock Price Profitability

CEO Comp Store Sales Stock Price Profitability

Retail really was a simple businessWall Street

Buyer: Men’s Casual Clothing

OTB Budget: $15M

Buyer: Men’s Casual Clothing

OTB Budget: $15M

Buyer: Women’s High Fashion

OTB Budget: $15M

Buyer: Women’s High Fashion

OTB Budget: $15M

Buyer: Women’s Shoes

OTB Budget: $20M

Buyer: Women’s Shoes

OTB Budget: $20M

http://www.xpectmore.com/woman.JPG

http://www.netcenter2001.com/images/asian-woman.jpg


Wall Street

Fast changing assortments and large-scale expansion have made it a lot more complex

• 27 years old• Liberal Arts degree• 4 years in

merchandising organization

• Motivated by fashion and trends




Main Street


http://www.kaiserpermanente.org/locations/california/cosmetic/images/asian_woman.jpg


http://www.casualmale.com/cgi-bin/sgin0104.exe?UID=2002093009475801&FNM=27&T1=78811+BLAC+62+PR&UREQA=1

http://images.google.com/imgres?imgurl=www.blackmantailor.com/main_168.jpg&imgrefurl=http://www.blackmantailor.com/main_Frame.htm&h=292&w=200&prev=/images%3Fq%3D%2522black%2Bman%2522%26start%3D40%26svnum%3D10%26hl%3Den%26lr%3D%26ie%3DUTF-8%26oe%3DUTF-8%26sa%3DN

















Budget: $18M

Women’s High Fashion

Budget: $18M

Women’s High Fashion

• 27 years old• Merchandising Management

degree• 4 years in merchandising

organization• Motivated by fashion and

trends

Would you trust this person to invest your life’s savings?

Main Street

Wall Street



It’s no longer a simple business

Main Street

Wall Street

Retail is Detail1,000 Stores

X 50,000 SKUs

X26 Weeks

X4 Measures (Sales, Inventory, Receipts, On Order)

XPlan, Actuals, Last Year

X4 Seasons

Retail is Detail1,000 Stores

X 50,000 SKUs

X26 Weeks

X4 Measures (Sales, Inventory, Receipts, On Order)

XPlan, Actuals, Last Year

X4 Seasons

One Trillion NumbersOne Trillion NumbersSource: Fortune 50 RetailerSource: Fortune 50 RetailerSource: Fortune 50 RetailerSource: Fortune 50 Retailer






















And management by average doesn’t get the job done







Average Hot Store

Average Cold Store

Average Mall Store

Average Small Store

Average Urban Store

Average Suburban

Store

$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00

$3,400 $550.00

$100,000.00$70,000.00$5,000.00

$400

$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00

$20,000.00 $20,000.00$6,000.00 $5,000.00

$500.00 $900.00

$300,000.00$100,000.00$55,000.00

$3,400

$33,400 $1,550.00 $9,000.00

$100,000.00 $6,000.00$55,000.00 $7,000.00

$100,000.00$70,000.00$5,000.00

$400

$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00

$3,400 $550.00

$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00

$20,000.00 $20,000.00$6,000.00 $5,000.00

$500.00 $900.00

$20,000.00 $20,000.00$6,000.00 $5,000.00

$500.00 $900.00

$300,000.00$100,000.00$55,000.00

$3,400

$100,000.00 $6,000.00 $5,000.00

$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00

$3,400 $550.00 $50.00

$100,000.00 $6,000.00$55,000.00 $7,000.00

$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00

$3,400 $550.00 $50.00 $100,000.00 $6,000.00 $5,000.00

$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00

$3,400 $550.00

$100,000.00$70,000.00$5,000.00

$400 $300,000.00$100,000.00$55,000.00

$3,400

$300,000.00$100,000.00$55,000.00

$3,400

$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00

$3,400 $550.00

$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00

$3,400 $550.00

$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00

$20,000.00 $20,000.00$6,000.00 $5,000.00

$500.00 $900.00

$100,000.00 $6,000.00$55,000.00 $7,000.00

$100,000.00$70,000.00$5,000.00

$400

$20,000.00 $20,000.00$6,000.00 $5,000.00

$500.00 $900.00

$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00

$3,400 $550.00

$300,000.00$100,000.00$55,000.00

$3,400

$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00 $300,000.00

$100,000.00$55,000.00

$3,400

$20,000.00 $20,000.00$6,000.00 $5,000.00

$500.00 $900.00

$100,000.00$70,000.00$5,000.00

$400$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00

$3,400 $550.00 $50.00

$20,000.00 $20,000.00$6,000.00 $5,000.00

$500.00 $900.00

$100,000.00 $6,000.00$55,000.00 $7,000.00

$100,000.00 $6,000.00$55,000.00 $7,000.00

$100,000.00$70,000.00$5,000.00

$400

$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00

$300,000.00$100,000.00$55,000.00

$3,400

$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00

$3,400 $550.00 $50.00

$100,000.00 $6,000.00$55,000.00 $7,000.00

$300,000.00$100,000.00$55,000.00

$3,400

$300,000.00$100,000.00$55,000.00

$3,400

$300,000.00$100,000.00$55,000.00

$3,400

$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00

$3,400 $550.00

$20,000.00 $20,000.00$6,000.00 $5,000.00

$500.00 $900.00

$300,000.00$100,000.00$55,000.00

$3,400

$100,000.00 $6,000.00 $5,000.00

$100,000.00 $6,000.00$55,000.00 $7,000.00

$100,000.00$70,000.00$5,000.00

$400

$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00

$3,400 $550.00 $50.00

$300,000.00$100,000.00$55,000.00

$3,400$300,000.00$100,000.00$55,000.00

$3,400

$100,000.00$70,000.00$5,000.00

$400

Main Street

Management by AveragesManagement by Averages

Wall Street

Top-down controls• Open to buy

• Top-down merchandise planning

Top-down controls• Open to buy

• Top-down merchandise planning

Average Hot Store

Average Cold Store

Average Mall Store

Average Small Store

Average Urban Store

Average Suburban

Store

Sto

re V

isit

s






















Nor does simple automation

Average Hot Store

Average Cold Store

Average Mall Store

Average Small Store

Average Urban Store

Average Suburban

Store

Wall Street







Main Street

No Insight, Just InfrastructureNo Insight, Just Infrastructure

Implement Integrated Infrastructure

• Automation – Integration - Reconciliation

Implement Integrated Infrastructure

• Automation – Integration - Reconciliation

$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00

$3,400 $550.00

$100,000.00$70,000.00$5,000.00

$400

$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00

$20,000.00 $20,000.00$6,000.00 $5,000.00

$500.00 $900.00

$300,000.00$100,000.00$55,000.00

$3,400

$33,400 $1,550.00 $9,000.00

$100,000.00 $6,000.00$55,000.00 $7,000.00

$100,000.00$70,000.00$5,000.00

$400

$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00

$3,400 $550.00

$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00

$20,000.00 $20,000.00$6,000.00 $5,000.00

$500.00 $900.00

$20,000.00 $20,000.00$6,000.00 $5,000.00

$500.00 $900.00

$300,000.00$100,000.00$55,000.00

$3,400

$100,000.00 $6,000.00 $5,000.00

$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00

$3,400 $550.00 $50.00

$100,000.00 $6,000.00$55,000.00 $7,000.00

$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00

$3,400 $550.00 $50.00 $100,000.00 $6,000.00 $5,000.00

$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00

$3,400 $550.00

$100,000.00$70,000.00$5,000.00

$400 $300,000.00$100,000.00$55,000.00

$3,400

$300,000.00$100,000.00$55,000.00

$3,400

$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00

$3,400 $550.00

$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00

$3,400 $550.00

$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00

$20,000.00 $20,000.00$6,000.00 $5,000.00

$500.00 $900.00

$100,000.00 $6,000.00$55,000.00 $7,000.00

$100,000.00$70,000.00$5,000.00

$400

$20,000.00 $20,000.00$6,000.00 $5,000.00

$500.00 $900.00

$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00

$3,400 $550.00

$300,000.00$100,000.00$55,000.00

$3,400

$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00 $300,000.00

$100,000.00$55,000.00

$3,400

$20,000.00 $20,000.00$6,000.00 $5,000.00

$500.00 $900.00

$100,000.00$70,000.00$5,000.00

$400$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00

$3,400 $550.00 $50.00

$20,000.00 $20,000.00$6,000.00 $5,000.00

$500.00 $900.00

$100,000.00 $6,000.00$55,000.00 $7,000.00

$100,000.00 $6,000.00$55,000.00 $7,000.00

$100,000.00$70,000.00$5,000.00

$400

$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00

$300,000.00$100,000.00$55,000.00

$3,400

$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00

$3,400 $550.00 $50.00

$100,000.00 $6,000.00$55,000.00 $7,000.00

$300,000.00$100,000.00$55,000.00

$3,400

$300,000.00$100,000.00$55,000.00

$3,400

$300,000.00$100,000.00$55,000.00

$3,400

$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00

$3,400 $550.00

$20,000.00 $20,000.00$6,000.00 $5,000.00

$500.00 $900.00

$300,000.00$100,000.00$55,000.00

$3,400

$100,000.00 $6,000.00 $5,000.00

$100,000.00 $6,000.00$55,000.00 $7,000.00

$100,000.00$70,000.00$5,000.00

$400

$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00

$3,400 $550.00 $50.00

$300,000.00$100,000.00$55,000.00

$3,400$300,000.00$100,000.00$55,000.00

$3,400

$100,000.00$70,000.00$5,000.00

$400























X

Typical LifecycleCurve

PlannedOut Date

ResultIncreased SalesHigher MarginsBetter Velocity

How Should I Price It?•Historical averages are used to determine markdown candidates•Gut feel is used to determine markdown timing and depth•Tendency to markdown items too late and too deep

In-Stock Date

How Should I Promote It?•Guess work to determine the expected lifts of different promotional events and vehicles•Tendency to promote whatever worked in the past and over estimate the expected lift

Time

Sales

X

How Much Should I Buy?•Stores are treated as an average in terms of sales and size profiles•Guess work to determine pre-pack quantities to fit required inventory•Forced to make big bets up front without visibility to future demand

Where Should I Put It?•Historical store averages are used to plan allocation quantities•Decisions are made at aggregate levels and spread down•Tendency to front load inventory with initial push

Order Date

X

Traditional Merchandising

Today’s merchandising processes do not reflect each store’s unique customer, demand, and capacity


The Result Is Impacting All Retailers

• 8% stock-out condition*

• 21% overstocking condition*

• 40-50% excess inventory or non-performing SKUs**

• Cluttered stores

• Dissatisfied customers

Operational Effects

• Lost sales

• High markdowns

• Lost GM$

• Low inventory turns

• Lost market share

• Lost brand image

Financial Effects

* “Putting Products in the Right Places,” Retail Info Systems News, August 2000.** “Product Replenishment on Merchandise Policy Techniques,” www.stirlingdouglas.com, December 2000.


Revenue $1,500K

COGS $1,050K -Merchandise -Markdowns -Shrinkage -In-bound LogisticsGross Margin $450K

Expenses $400K -Stores -Marketing -Buying -IT -G&AEBITDA $50K

300K40K

20K20K

20K

750K225K 30K 45K

Misalignment between business imperatives and I/T priorities has only made the problem worse

0%

25%

50%

75%

100%

Income Statement > Y2K IT $'s

Low High Stay-in-Business Strategeic

• Legacy systems run an efficient business– Suited for less complex times– Infrastructure, not insight. Automation, not

optimization.– Little impact on largest P&L lines

• Need new focus on effectiveness of decisions

Source: AMR Research


The Solution: Merchandise Optimization The Solution: Merchandise Optimization


X

Typical LifecycleCurve

PlannedOut Date

ResultIncreased SalesHigher MarginsBetter Velocity

How Should I Price It?

Maximize lifecycle gross margin by

optimizing markdown timing and depth

In-Stock Date

How Should I Promote It?Plan and execute promotions based on store level analysis

and forecasted lift

Time

Sales

X

How Much Should I Buy?

Maximize profitability and manage risk through local market assortments and optimal order quantities

Where Should I Put It?Minimize stockouts and overstocks

through optimal allocation quantities based on store level

analysis and available pre-packs

Order Date

X

Merchandise Optimization

How Does My Customer Buy?

Understand each store’s unique customer buying behavior to provide visibility to future demand


Understanding the Customer

Price Changes

Sales & Inventory Data by Location

Inventory

-

200

400

600

800

1,000

1,200

9/4/

1999

9/18

/199

9

10/2

/199

9

10/1

6/19

99

10/3

0/19

9911

/13/

1999

11/2

7/19

99

12/1

1/19

99

12/2

5/19

99

1/8/

2000

1/22

/200

0

2/5/

2000

2/19

/200

0

3/4/

2000

3/18

/200

04/

1/20

00

4/15

/200

04/

29/2

000

5/13

/200

0

5/27

/200

0

6/10

/200

06/

24/2

000

7/8/

2000

7/22

/200

0

8/5/

2000

8/19

/200

0

9/2/

2000

9/16

/200

0

9/30

/200

0

10/1

4/20

00

10/2

8/20

00

11/1

1/20

0011

/25/

2000

UN

IT S

AL

ES

AN

D U

NIT

IN

VE

NT

OR

Y /

10

$-

$5.00

$10.00

$15.00

$20.00

$25.00

PR

ICE

Seasonality

How do customers respond to price

changes and promotions?

How do customers shop during different

seasons and holidays?

How do customers respond to

broken inventory levels?

Customer Behavior

How customers will respond to different

merchandising strategies


Visibility to Future Demand

0

100

200

300

400

500

600

Sal

es U

nits

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Week

Last Year Sales Deconstructed

Markdowns

Promotions

Seasonal Lift

25% MD 50% MD

Circular BOGO

Christmas

0

100

200

300

400

500

600

Sal

es U

nits

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Week

Next Year Sales Forecast

Markdowns

Promotions

Seasonal Lift

25% MD

Circular

Christmas

50% MD


Profitable, Predictable, and Efficient Merchandising Decisions

Optimization:

1.Evaluate a complex set of trade-offs

2.Analyze all possible scenarios

3.Asses the risk of each scenario

4.Determine the most profitable scenario that respects business constraints

Optimization:

1.Evaluate a complex set of trade-offs

2.Analyze all possible scenarios

3.Asses the risk of each scenario

4.Determine the most profitable scenario that respects business constraints

• Demand forecasts

• How customers will respond to different merchandising strategies

• Demand forecasts

• How customers will respond to different merchandising strategies

• Performance criteria

• Best practices

• Business rules

• Constraints

• Performance criteria

• Best practices

• Business rules

• Constraints

Optimal merchandising

recommendations

Optimal merchandising

recommendations


Assortment Optimization

Store Clustering by Class Performance & Attribute Analysis Local Market Assortments

• Volume• Climate• Size• Seasonality• Demographics• Customer preferences


Store Group AStore Group A

Sales

GM%



Store Group BStore Group B



Store Group CStore Group C

• Performance objectives• Open to buy

• Performance objectives• Open to buy

Financial PlanFinancial Plan

• Item attributes• Flow dates• Planned pricing and

promotions• Store base

• Item attributes• Flow dates• Planned pricing and

promotions• Store base

SKU/Store ForecastSKU/Store Forecast

• Assortment breadth and depth by store

Local Market Assortments



Receipt Flow Optimization Order Optimization

• Purchase order quantities and shipments

• Initial allocations

Optimal Order Quantities

• Pre-season SKU/Store forecast

• Delivery frequency• Flow dates• Presentation

minimums and maximums

Store 3 Need

0

5

10

15

20

25

30

2 4 6 8 10 12 14

Size

Un

its

Store 3 Need

0

5

10

15

20

25

30

2 4 6 8 10 12 14

Size

Un

its

Store 2 Need

0

5

10

15

20

25

30

2 4 6 8 10 12 14

Size

Un

its

Store 2 Need

0

5

10

15

20

25

30

2 4 6 8 10 12 14

Size

Un

its

Store 1 Need

0

5

10

15

20

25

30

2 4 6 8 10 12 14

Size

Un

its

Store 1 Need

0

5

10

15

20

25

30

2 4 6 8 10 12 14

Size

Un

its

Store level size profiles

S, M, L, XL

Eaches

12 S, 24 M, 12 L, 12 XL

Prepack 1

16 S, 16 M, 16 L, 16 XL

Prepack 2

12 S, 12 M, 24 L, 24 XL

Prepack 3


Allocation OptimizationV

olu

me

XXInitial Receipt Second Receipt

Promotion Promotion

Markdown

XFinal Allocation

X

Holdback Quantity

Push Pull Push

• SKU/Store forecast• Coverage period• Inventory levels• Min/Max presentations

• SKU/Store forecast• Coverage period• Inventory levels• Min/Max presentations

Need by StoreNeed by Store

• Multiple prepack configurations and eaches

• Min/Max holdback quantities• Min/Max allocations & shipments

• Multiple prepack configurations and eaches

• Min/Max holdback quantities• Min/Max allocations & shipments

Purchase Orders &DC Inventory

Purchase Orders &DC Inventory

• Allocation quantity and prepack – eaches configuration by store

• Hold back quantity

Minimize Stockouts & Overstocks


Promotion Optimization

Objective

• Determine the the effect of promotional vehicles and offers

Analysis

• Evaluation of company wide events – department and class level lifts

• Evaluation of store wide events – department and class lifts

• Evaluation of circular driven events – front/center/back page, size, price

Recommendations

• Expected demand and profitability of events on the promotional calendar

• SKU/Store promotional lift for each promotional event and offer

• Halo and cannibalization effects of promoted items

• Optimal recommendation promotional events, offers, items, and stores to meet objective (margin, revenue, traffic, etc.)

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Girl's Dress Shoe

Women's Sandal

Women's Boot

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Company Wide Event

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Store Wide Event

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Circular


Markdown Optimization

10/7 10/14 10/21 10/28 11/4 11/11 11/18 11/25 12/2 12/9 12/16 12/23 12/30 1/6 Exp. GM.

Scenario 217 $7.99 $3.99 137,232$ Scenario 218 $3.99 141,596$ Scenario 219 $7.99 145,960$ Scenario 220 $7.99 $5.99 174,327$ Scenario 221 $5.99 152,506$ Scenario 222 $3.99 159,053$ Scenario 223 187,420$ Scenario 224 $5.99 165,599$ Scenario 225 187,420$ Scenario 226 $7.99 $5.99 $3.99 207,059$ Scenario 227 185,238$ Scenario 228 167,781$

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Optimal Scenario

• Markdown timing and frequency to maximize lifecycle gross margin

• Min/Max markdowns• Markdown frequency• Price ladders• Outdates & salvage value

• Min/Max markdowns• Markdown frequency• Price ladders• Outdates & salvage value

Business rules and constraints

Business rules and constraints



I have 1000 Stores. What is the best assortment breadth for each of those stores?

Store 722 - Class: Mens formal shirts

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AssortAssort AllocateAllocate PricingPricing MarkdownMarkdownPromotePromote


Case-Pack Optimization

I need to buy 50,000 units of a style in pre-packs.

What is the optimum configuration of pre-packs for the intended store distribution?

Large Medium Small

AssortAssort AllocateAllocate MarkdownMarkdown PromotePromoteMarkdownMarkdownPromotePromote


Allocation Optimization

I have 75,000 units of a style to allocate to 700 stores.

Based on the latest performance of each store, how much should I allocate to each store so as to optimize the inventory balance, and how much should I hold back for a later allocation?

Hold BackPre-allocate



Promotion Optimization

I want to promote a particular item on the front page of my circular, but I’m not sure what my sales lift will be at each of my locations.

How much inventory do I need to cover sales for this promotional period, and what will the impact of this promotion be on sales in related categories of merchandise?


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Markdown Optimization

I want to liquidate my inventory of a style by a certain date.

When, by how much, and how often should I mark it down in order to maximize my margin Dollars?


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Merchandise Optimization creates a merchandising organization that:

• Focuses on how the customer buys versus how they have bought in the past

• Uses science to support the art of merchandising

• Focuses on strategic initiatives versus number crunching

• Understands and predicts the impact of their decisions on financial performance

• Manages merchandise across the entire product lifecycle

• Manages centrally and executes locally

• Maximizes profitability while managing risk

Driving Operational Performance through Merchandise Optimization


Driving Financial Performance through Merchandise Optimization

• Right product, right place, right time, right quantity, right price

• Assortments and pricing tailored to local market demand

• Fresh presentations

• Satisfied customers

Operational Effects

• Increase sales 2-4%

• Increase GM$ 5-15%

• Increase sell through 10-15%

• Increase inventory turns 10-15%

• Increase market share and customer conversion

Financial Benefits


Average Customer Benefits

Gross MarginGross Margin

Sell ThroughSell Through

5% - 15% Increase5% - 15% Increase

10% - 15% Increase10% - 15% Increase

Inventory TurnsInventory Turns 10% - 15% Increase10% - 15% Increase


Keys to Success

Executive Sponsorship• Drive the importance of the opportunity, accountability, and long term commitment of the

organization

Strategy, Process, and Technology Alignment• Ensure merchandising processes align with business goals and performance criteria

• Ensure technology and architecture align with merchandising processes

Project Management• Stage the implementation to accelerate ROI and manage business process change

• Manage the implementation and process change on a day to day basis

Education• Educate all impacted areas on process, technology, and accountability

• Accelerate user adoption through comprehensive training and support

• Develop power users to drive continuous improvement and education

Performance Measurement• Document and recognize success to communicate throughout the organization


Why Now?

• Fast

• Flexible

• Financial Benefits


Customer Testimonials

“We experience a significant improvement in gross margin dollars, GMROI and sell-through when following the ProfitLogic system’s recommendations.”

Andy Cowan Senior Vice President, Director of Retail and Catalog Systems



“Our Merchandise Optimization solution was easy to implement and is simple to use. It’s making our lives alot easier and we’re getting better sales and margins.”

Steve SchwartzSenior Vice President of Planning and Allocation



“Our Merchandise Optimization solution delivered significant benefits without causing major disruptions to our organization during implementation. We are now using it as the standard merchandising tool that helps us with promotional price and markdown decisions.”Rose HuertaVice President of Planning



“It’s not just about merchandise anymore. If you add science to the art of merchandising, you can do two things: minimize risks in the event of a bad buy or economic downturn, and maximize profits if you’re hitting everything head on.”

Mike StanekChief Financial Officer



“We have a fundamental belief in the value of Merchandise Optimization as a driver of short-term and strategic benefit.”

Gary JonesDirector of Merchandise Process Management

THE HOME DEPOT



“Two key benefits drove the decision to use Merchandise Optimization in the Gap division. We were impressed by the financial benefits and quick return on investment we saw at Old Navy, and we were equally impressed by the seamless integration into our merchants’ current processes.”

Tom CawleySenior Vice President of Finance



“I’m not surprised that ProfitLogic has been voted best in customer satisfaction. ProfitLogic is a great partner that is completely focused on our success.”

Tom NakfoorPresident of Inventory and Supply Chain


ProfitLogic’s Mission

To help retailers transform their merchandising operations and practices with the help of Merchandise Optimization solutions, resulting in dramatically improved financial results and enhanced customer loyalty.

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Questions?

Scott FriendVice-Chairman & President

ProfitLogic617-218-1914

[email protected]

Driving Profitability Through Merchandise Optimization Scott C. Friend Vice-Chairman & President...

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