A strategic growth plan lead by Best Buy

For Best Buy, Fassler essentially had a neutral rating. He trimmed his price target to $38 from $39 believing a more streamlined growth strategy would happen in 2011. He also believed warranties would help Best Buy’s profitability where past sales lacked stating that consumer electronics retailing has been “historically a low-margin business that is dependent on extended warranties for profitability.” As content business – music and movies – has continued to shrink over the years, extended warranties would prove to be even more valuable to Best Buy in 2011, according to Fassler.

Best Buy planned to open 6-to-8 large format stores in the U.S. and a total of 18 stores in the U.K., Mexico and Canada throughout 2011 and 2012. The retailer also announced its closing of namesake stores in China, shifting U.S. growth to smaller formats instead of its familiar big boxes–all part of their strategic growth plan. And as a result of restructuring, Best Buy said it would incur charges of $225 million to $245 million over fiscal year 2011, diluting earnings.

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Best Buy reported net earnings of $651 million for fiscal fourth quarter in 2011 down from $779 million for the prior-year period. Their pre-tax restructuring charges totaled $222 million consistent with what Fassler had discussed. In line with their growth strategy for 2011, Best Buy announced plans to re-brand China stores as well as exit the Turkey market in 2012.

In terms of profitability, the company continued to advance its strategy to sell more mobile phones, broadband and TV connections to customers through the evolution of its product offerings and selling model. This correlated to Fassler’s notion that Best Buy would find new ways to increase profitability due to content business slowing. The retailer saw a 20 percent growth in annual sales with 9 percent acquired from mobile phone revenue in the U.S. Moreover, Best Buy made no mention of how extended warranties fit into their 2011 strategies.

RadioShack puts focus on mobile

Significant market changes made it an appropriate time for RadioShack’s CEO Julian C. Day to retire. With that said, before Day left, he mentioned three areas that RadioShack might consider focusing on in 2011:

Mobility: The retailer would start to expand their presence in the mobility sector moving to 2-to-3 carriers nationally allowing consumers to have choice and product comparison.

Re-allocation of space in stores: The second major change Day determined RadioShack would encounter within the company’s business was to reallocate the space in their stores for mobility and some signature categories such as power.

Financial strength: Day sighted T-Mobile struggles as part of the gross margin issue RadioShack was experiencing and decided that it would probably persist. Day thought getting a better handle on their accessories would be their biggest growth margin rate opportunity to improve the financial strength of the company.

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2011 was a transitional year for RadioShack: they phased out T-Mobile and launched Verizon Wireless products and services in their company-owned stores, and they focused on offering a more compelling assortment of brands and products. As Day mentioned, their mobility platform was a key component of their growth strategy as it represented 50 percent of their revenue. The Shack recognized there was still future potential for expansion as they positioned themselves as a multi-carrier wireless retailer.

During second quarter 2011, RadioShack ended operations in their Chinese manufacturing plant and, as a result, incurred closure-related costs of $11.0 million for the first nine months of 2011. For third quarter, comparable store sales for company-operated stores and Target Mobile centers decreased 4.0 percent which was primarily due to the decline in T-Mobile postpaid wireless sales. Having ended their relationship with T-Mobile and beginning to pay attention to offering consumers more carrier options and accessory assortments, RadioShack began on the right path to success just as Day predicted.

OfficeMax slump could be permanent

Analysts were divided over whether or not the big three office supply chains – Staples, OfficeMax, and Office Depot – were in long-term danger. Fassler expected stocks to fall, but in a research note he indicated there was some promise in OfficeMax’s forecast. The rise in retail competition with the likes of Wal-Mart, Costco and Target as one-stop mass merchants has been a huge headwind for the office supply giants as well as the decline in paper usage. Although paper itself isn’t lucrative, Staples, OfficeMax and Office Depot derived about half of their revenues from those operations, which sell in bulk to other companies. Paper sales also provided sales of other products such as ink, staples and printers, and therefore, have the potential to pose a big threat for superstores long-term.

OfficeMax announced the closing of 20 stores in 2011 in addition to downsizing existing units and curtailing expansion costs as third quarter saw a 2.1 percent decrease in same-store sales contributing to a 1.8 percent decrease in comp-store sales overall. But OfficeMax wasn’t the only one feeling the pain in 2011. Office supplies was one of the biggest revenue losers in 2011. Staples only saw a slight gain in Q3 at 0.5 percent and Office Depot saw a 2 percent decrease appearing as if Fassler’s thoughts on long-term decreases were correct.

Barnes & Noble fares well over Borders bankruptcy

As Borders listed a debt of $1.29 billion and assets of $1.28 billion at the end of 2010, they were left to file for bankruptcy. By the time the retailer embraced new strategies and tactics such as e-commerce, the competition had already established a firm lead. Rival and leading bookseller Barnes & Noble stood to be the biggest winner in the light of the filing in 2011. Before such, Fassler upgraded Barnes & Noble to ‘neutral’ from ‘sell’ ahead of the filing.

Barnes & Noble reported record sales of $7 billion for fiscal 2011. Digital growth fueled 78 percent in fourth quarter at BN.com and increases were also driven by sales of the company’s NOOK. Strong sales for the retailer were speculated to have developed out of new business from people who used to shop at Borders.

Home Depot to improve, Lowe’s to transition

Two similar home renovation retailers have been found going in different directions. After years of evolution, Home Depot was poised for new levels of profitability while Lowe’s began to undergo a transition. Because of this, Fassler upgraded Home Depot to ‘buy’ and downgraded Lowe’s to ‘neutral’. He forecasted improvement in same-store sales over the first few quarters in 2011 in reference to a focus on home repair, remodeling and maintenance and less emphasis on appliances for Home Depot. As for Lowe’s, the company’s management has undergone substantial shuffling causing Fassler to note their biggest challenge: introducing new and innovative ideas, that there had been too much redundancy in years past.

Fassler’s prediction for Home Depot was spot on. Home Depot experienced growth in 2011 ending the third quarter of the year with net earnings of $934 million compared with net earnings of $834 million in the same period of fiscal 2010. Home Depot accredited their success to the strength in their core categories and their exceptional customer service. Like Fassler mentioned, the retailer spent prior years on transforming their merchandising efforts and introduced new initiatives to benefit the customer. 2011 was the year it all came together for Home Depot.

In regards to Lowe’s, Fassler made some very accurate projections on their current transitional stage. Lowe’s managerial moves put them in some difficult corners; however, they were necessary for the retailer in order to see new growth. Along with leadership changes, Lowe’s also experienced changes in the number of stores they operated. Store closings and discontinued projects led to reduced pre-tax earning for the third quarter, and forced Lowe’s to create strategies focused on advancement and becoming a “home improvement company” as opposed to a “home improvement retailer”. The 2011-year positioned Lowe’s with strong potential as the company continued to transform realizing that they needed to go beyond the confines of a brick and mortar store, providing customer support whenever and wherever a consumer chose.

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AutoZone takes the driver’s seat

Chairman of the Board, CEO and President, William Rhodes, spoke highly of AutoZone’s success in 2010 experiencing growth in domestic and Mexico businesses as well as in both commercial and retail sectors. Servicing the customer and providing the degree of trustworthy advice continued to be a key differentiator in the marketplace, Rhodes stated. Fassler went on to say that their incentive comp would remain close to current levels in 2011.

In 2011, AutoZone, for the first time, exceeded $8 billion in sales increasing 10 percent versus 2010. The company still believed providing great service was their number one focus and the main contribution to their growth. The retailer put an emphasis on growing the commercial business, leveraging the Internet, and investing in technology in 2011 as other sources of development. Rhodes admitted that 2011’s numbers weren’t easy to reach, but hard work and dedication put them in the driver’s seat.

The specialty retail sector has had an especially difficult 2011-year. Shoppers continued to cut back on unnecessary purchases, products that were once lucrative came to a standstill, and some retailers were found caught in the midst of an identity crisis. Whether it was Lowe’s and Home Depot or AutoZone and Best Buy, specialty retailers had one thing in common: trying to keep up with consumers’ always-changing wants and needs. But that was just the beginning. Retailers then had to determine how and when shoppers were going to make purchases.

Stay ahead of the game with Quantum Retail. Check out our free white papers and reports for more insight on innovative strategies and retail trends. Read more about Q, our profit-driven merchandising platform.

Read Fassler’s full prediction here»

Please note that the information provided above is sourced from public releases and reports and does not include any undisclosed information from or about the retailers named.

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Wal-Mart’s U.S. same store sales deterioration

3 reasons Wal-Mart is struggling

1. Same store sales deteriorating in the U.S.
2. Heightened competition from niche grocers and dollar stores
3. Lack of free flow due to international expansions

Grom stated that what he’s been able to tell from the data is that Wal-Mart’s traffic has simply remained elusive and that despite the good outlook for international expansion, Wal-Mart’s U.S. base has been suffering. And because nearly 80 percent of their business comes from the U.S., Grom believed they needed to spend serious time and effort on traffic-driving initiatives.

Wal-Mart continued to invest in capital to grow the business in 2011, but didn’t produce the strongest returns decreasing to $10.9 billion from $14.1 billion. The Wal-Mart team began implementing aggressive plans to try and retain U.S. sales and to offer a broad merchandise assortment more relevant to their consumers and guests. Other plans included expanding multi-channel initiatives, reallocating selling space, and growing through smaller formats in both grocery stores and convenience formats as they continued to keep U.S. sales and growth a main priority.

In order to benefit from larger assortments and diverse store formats, Wal-Mart needs to focus efforts on allocation first.

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Costco Wholesale and cost increases: What it means for consumers

Grom noted in an earnings call with Costco that their fresh foods margins have been down. Grom assumed it was because Costco wasn’t willing to pass the price increases of commodities and food onto customers. Executive Vice President and CEO Richard A. Galanti agreed with Grom’s assumptions adding that he didn’t see any major competitive issues in their fresh foods but overall margins have been quite good.

Galanti and Grom also discussed how gas prices had hurt them in the second quarter. Galanti made reference to some relatively flat numbers, but determined it wasn’t a real big issue.

Costco referenced that throughout 2011 prices of certain commodities including gas and other food products had affected sales and profit margins, but they continued to grow and compete with discount retailers and supercenters seeing increased sales across all departments. Net sales increased 17 percent in 2011 for Costco. The retailer’s growth strategy included expanding business in existing and new markets and a recently announced increase in annual membership fees by $5.

Target’s Canadian entrance to create substantial growth

Target stated that they expected to invest about $2.5 billion – plus or minus $200 million – in capital in the U.S. retail segment in 2011. With their movement in the Canadian market, they expected those stores to help the company exceed $100 billion in sales in the next 6-to-7 years beginning in 2011.

As far as consumer outlook was concerned, Target believed consumer optimism would again increase and anticipated that the 2011-year would compare to first quarter of 2010. The retailer discovered that consumers are still risk-averse concerned about lost jobs and thus have increased coupon use, focused heavily on promotions and have opted for the good option as opposed to the better or best option. Target planned to help their consumers understand features, quality, and value at every price point throughout 2011.

Earnings per share in the third quarter of 2011 increased 10.2 percent to $0.82 from $0.74 in the same period a year ago for Target. Other U.S. results saw increases of 5.4 percent citing the right strategy, strong credit card segment and supporting guests and team members as driving factors for the growth. For Canada, actual expected market entry is slated for 2013. With that said, third quarter 2011 EBIT was $(35) million due to start up expenses and depreciation. Target has started to staff up its operations in anticipation for the first string of openings in March 2013. The retailer expects to have a huge impact on the Canadian retail landscape and within a decade, foresees generating $6 billion a year in sales. All in all, Grom’s goals for Target’s Canadian entrance have potential to come true.

Macy’s see 2011 as another positive year

For Macy’s, 2010 was a great year. The retailer saw a 4.6 percent annual comp increase, which was their best performance in at least 15 years. Looking forward to the 2011-year, Grom noted that the gross profit margin line sounded like Macy’s expected first quarter to be down. Chief Financial Officer and EVP Karen Hoguet expected a 3 percent comparable store sales increase for 2011 and didn’t see a huge deviation from quarter-to-quarter. In reference to commodity price increases, Hoguet said that it has been a challenge Macy’s was taking very seriously adding that it was a lane in which they successfully played prior to the recent recession. She continued on to say that a significant portion of Macy’s business were in categories not impacted by escalation in raw materials prices, but Macy’s has established a pricing team to provide more analysis on pricing decisions.

Same-store sales were up in the first quarter increasing 2.6 percent in January and 5.8 percent in February. However, March saw a mere 0.9 percent increase, which actually exceeded expectations as Macy’s anticipated a negative first quarter. Further along in 2011 in the fourth quarter, same-store sales were up 4.8 percent thanks to a strong Black Friday.

Overall, Macy’s saw positive results in 2011 having launched new lines and brands, announced a $400 million renovation of their New York flagship store, and created new social media initiatives. Macy’s sought stronger sales by differentiating merchandise assortments and tailoring items to local taste also contributing to growth in 2011.

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Rising gas prices and commodities are not going to disappear overnight; they are challenges that retailers will continue to face throughout the next few years. With many options out there for retailers to acclimate to these challenges, the best approach is for companies to implement an automated solution that provides all the right tools to adapt to changing conditions. Quantum Retail’s platform, Q, addresses the rapidly shifting patterns of the changing retail industry providing unprecedented value for retailers.

Learn more about our platform Q here»

Read Grom’s full prediction here»

Please note that the information provided above is sourced from public releases and reports and does not include any undisclosed information from or about the retailers named.

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Stay posted for next week’s review from Matthew Fassler, Goldman Sachs

Room for growth in supermarkets

Adler discussed in an interview with CNBC the deflated outlook of supermarket stocks stating that while grocers, like Whole Foods Market, might provide a wonderful shopping experience, analysts don’t think prospects for their growth are as good as the price would indicate. And although there is a strong niche group of consumers that can afford to shop at Whole Foods, there are many people that can’t, which might eventually create a plateau for growth.

With that said, out of multiple grocers including Supervalu, Kroger and Safeway, the only grocer Adler recommended to CNBC was Winn Dixie and that was primarily a play at valuation.

According to results from the latest Annual Food Shopping Trends Tracker Survey, rising food costs haven’t curbed Americans’ appetite for natural and organic foods with 72 percent of Americans saying they would continue to buy the same amount of organic and/or natural foods as they always have. In addition, Whole Foods released findings from a recent competitive pricing study showing a basket of popular grocery item costs $5.38 less at Whole Foods Market than at other national supermarket chains. In fact, Whole Foods’ sales increased 12 percent to $2.4 billion in the fourth quarter reporting eight consecutive quarters of accelerating two-year identical store sales growth.

Winn Dixie didn’t experience as much success as Whole Foods did in 2011. Net sales for the fourth quarter were $1.6 billion for the retailer, which was a 3.8 percent decrease compared to fourth quarter of 2010. Winn Dixie attributes inflation increases as a focus of decreased sales.

On a different note, Adler told Supermarket News (SN) that she expected Winn Dixie’s new SVP, Larry Appel, to bring a more strategic point of view to marketing. She believed decisions must be made locally and a balance between making a strong statement to customers about pricing without giving the store away was needed for Winn Dixie’s customer-centric strategy.

As part of this customer-centric strategy, Winn Dixie began renovating stores to provide guests with solutions and services to make shopping easier and fun including expanding produce, bakery and deli departments, cozy sitting areas, and bilingual store décor packages at appropriate locations.

 Learn more on creating a customer-centric supply chain here»

The discount sector

Of all the retailers in the discount sector, Adler’s favorite stock of 2011 was Dollar Tree. Adler determined that Dollar Tree could add at least 3,000 stores to the existing U.S. base plus 900 Dollar General stores in Canada as she saw dollar stores continuing to fare well even if sales started to level off. She predicted that higher-income households would start to recover from the recession and low-income families would still be suffering from high unemployment, weak disposable incomes, and high gas prices and would therefore continue to shop at discount stores.

Thus far into the year, Dollar Tree has added 257 new stores and has expanded or relocated 88 units as well as enlarging their distribution center. It doesn’t appear as if Dollar Tree will make it to the 3,000 count as Adler would like to see, but the retailer is on the right track. In terms of sales, Dollar Tree experienced an 11.9 percent increase at end of third quarter.

Family Dollar also began to expand its footprint in the discount retail industry. The retailer recently announced the grand opening of four stores in California and one in Ontario with plans to further development in California within the next year. Family Dollar didn’t have a double-digit sales increase like Dollar Tree did, but the chain reported record sales and earnings with a 9.1 percent increase.

Big Lots and the food business

Big Lots and Adler, in an earnings call on March 3, 2011, discussed expansion across many fronts paying close attention to consumables. Big Lots had plans to aggressively increase transactions and show great value at the same time. Some initiatives included in these plans were expanding fresh private label assortment, engaging Buzz Club members, Internet blowouts, and an international food fair. Big Lots CEO Steve Fisherman told Adler that he saw real opportunity in the specialty foods part of their business and that unique items set them apart.

Commenting on sales for the second and third quarters, Fisherman attributed increased sales to consumables and stated that it was their strongest category. As they continued to see positive customer responses to advances to restore momentum in that category, Big Lots planned to keep working towards more advancement in their food business. Although the company’s closeout format provides an edge over traditional discount retailers such as their primary competition Target, analysts have become more cautious about the stock recently.

For more ways to revolutionize your grocery business, check out our Grocery Innovation Report»

Walgreens takes pharmacy to a new level

Analysts expected Walgreen’s stores that have been open for at least a year to grow 3.3 percent in 2010, not the 2.2 percent they actually grew by. Walgreen’s also expanded to 506 new locations last year, which included the acquisition of Duane Reade pharmacy chain adding 2.5 percent to total revenue growth in 2010. Consequently, Adler expected an even weaker growth for 2011 with a mere 1-percent increase in front-end revenue.

For fiscal year 2011, sales increased 7.1 percent from the prior year to a record $72.2 billion for Walgreen’s with a total of 261 new locations and 36 acquisitions. Same store sales saw an increase of 4.4 percent. Additionally, front-end sales also saw an increase of 4.6 percent in the fourth quarter. Adler’s expectations for Walgreen’s were not complementary nor were they accurate as both total sales and front-end sales saw more significant increases than anticipated.

Helping to aid in increases, which Adler may not have foreseen, was the completed acquisition of leading e-commerce site drugstore.com extending Walgreen’s multi-channel reach to an additional three million online customers and adding approximately 60,000 health, personal care and beauty products to its online offering.

Food inflation and price sensitive shoppers are simply two reasons retailers, especially those in the supermarket, pharmacy and discount sectors, have witnessed increased competition and prices throughout 2011. With retailers beginning to expand store formats and product assortments to combat 2011’s challenges more problems can arise: customers and stores vary widely across regions proving difficult to understand stock levels and the selling behavior of every product at every store. In order to keep up with the pace of expanding business and changing markets, advanced awareness needs to be paid attention to on a real-time level.

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To read Adler’s full report visit»

Please note that the information provided above is sourced from public releases and reports and does not include any undisclosed information from or about the retailers named.

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Stay posted for next week’s review from Charles Grom, JPMorgan Chase

2011 through the eyes of four different retailers

Dunn evaluated 2011 outlooks for four retailers – some struggling and some succeeding:

American Eagle: Caught in the middle of competition while struggling to differentiate

Analysts were critical of American Eagle as the four weeks ended January 29, 2011 and reported total sales decreased by nine percent. Some say a change in management was needed to prove they’re a prime player and not a “broken brand”.

Dunn admitted that turning around AE wouldn’t be easy as retailers all around faced a handful of economic headwinds in 2011 from rising transportation costs, gas prices and commodity prices, unemployment and difficult same-store sales comparisons. The only way for retailers to pick up their game would be to differentiate from the pack. Consumer’s shopping behaviors and patterns constantly change; whether it’s difficult to get people through the doors or if it’s just that customers are not finding the right product, there are ways around it.

As American Eagle continues to face strong competition, their total sales have not been too detrimental. Total sales for the second quarter increased by 4 percent to $676 million compared to $652 million last year. There were no major management changes to attribute for that increase, but a new focus on key item businesses and improved merchandising more than likely played a large part. However, AE recently announced current CEO Jim O’Donnell would be retiring late January 2012 and a replacement has already been selected.

In addition, AE also launched new campaigns and initiatives to give them a competitive advantage. With the rising prices of cotton and the retailer’s love for denim, AE partnered with Cotton Incorporated on “COTTON FROM BLUE TO GREEN®” denim recycling program. The retailer also began engaging heavily in social media with a social photo contest in which nearly 800,000 customers and employees uploaded photos of them wearing AE apparel. The contest, called AE BestShot, was a chance for American Eagle to show just how passionate people are about the brand.

To learn more about how to differentiate as a retailer check out our free whitepapers and reports»

J.C. Penney: Moving forward by shifting with shopper habits

Dunn believed we would see J.C. Penney moving away from their past, including their catalog business, to focus on their future. The retailer planned on closing stores, call centers, and outlets and cutting jobs related to these facilities in order to gain traction for their future. Dunn predicted we would see a lot more of these moves from J.C. Penney as they transitioned their appeal to consumers shifting habits.

The most important thing a retailer should do in this type of situation is to respond to what core customer’s want and need. It takes a proper mix of strategies and technology to keep up with today’s market.

It appears as if J.C. Penney is making moves to differentiate from their past. The company hired a new CEO, former SVP of retail operations at Apple, and began the leap into e-commerce and m-commerce. J.C. Penney has been looking to mirror the ease and convenience of their stores and catalog online at jcp.com and with a new mobile commerce site. They continued to leverage their digital infrastructure and introduced guided navigation and mobile coupons.

The retailer also started to better understand their core customer as well as shoppers changing habits. By closing a string of stores and outlets, they have made themselves available to acquire new brands and compelling assortments necessary to maintain relevance to their consumers. Recent store closings were also executed to aid in increased sales productivity and to manage costs and expenses more tightly. In time, J.C. Penney hopes to be the one-stop-shop for all of their customer’s needs.

Lululemon: Might see stalling growth as competitors beef up their activewear

After having virtually invented the yogawear category in Canada, the company was facing a fresh challenge in the United States as other retailers have looked to cash in on the activewear trend. Dunn stated lululemon’s biggest risk for 2011 was valuation and although the retailer has tapped earnings estimates for at least eight straight quarters, analysts believed they needed to do more than simply beat forecasts; they needed to announce a blockbuster quarter to keep investors contended.

Many retailers, despite their main focus, have sought after a piece of the activewear pie, so to speak, with reporters citing this trend as “lululemon envy”. Retailers, like Gap and Nordstrom, have started to mimic lululemon’s strategy. Gap’s Athleta stores sell yogawear for similar prices and offer free yoga classes – an innovation started by lululemon. Nordstrom went a step further by hiring lululemon alum to create and introduce their new yoga line Zella. Even companies that already dominate in athletic wear are taking it to the next level. The North Face recently announced that they will premiere new running and yoga collections in spring 2012 and Nike now sells capris and crops in a yoga-studio format.

Needless to say, lululemon has started a revolution. It’s not just their product that enables them to have increased revenue of 39 percent in the second quarter of 2011, but it’s the format of their stores, their deep experience and passion of the sports they practice; it’s the complimentary yoga classes and local “ambassadors” that give them a cult-like following and have made them a household name.

Chico’s and Soma: Outlets are an area of growth

Dunn asked Kent A. Kleeberger, EVP, CFO and treasurer of Chico’s, to discuss outlets and outlet strategy and how it would impact the company’s gross margins in 2011.

Kleeberger commented that their outlet strategy was a big driver for the Chico’s brand. Chico’s has continued to experience increased sales with their made for outlet (MFO) products, expanding into additional categories. The retailer planned to grow their MFO product in 2011. Their sister company, White House|Black Market has been doing some novel things in the outlet sector as well, and Soma brands has been mixing in some full-price product with clearance goods. Overall, Kleeberger was looking forward to growth in the sector as well as increased MFO product across all brands in 2011 and beyond.

Chico’s focused their infrastructure investments on opening new stores, primarily for the Chico’s brand and new Soma stores. They began to explore new merchandise opportunities and brand extensions; however, the Chico’s brand spent the majority of 2011 growing the number of WH|BM and Soma boutiques as opposed to outlet stores. Additionally, they increased penetration of the MFO product with the Chico’s brand, but much of their clearance was carried out through their direct-to-customer channel.

The 2011-year saw some stores struggle, but the majority of retailers’ maintained sales and some even achieved record quarters. Despite costly commodities, low unemployment rates and increased competition, retailers found creative, new ways to succeed in the challenging market from taking advantage of brand and product strategies to increasing e-commerce initiatives. Nonetheless, the most important thing a retailer can do is respond to core customer’s changing wants and needs. Next generation technologies need to be implemented to ensure the right product is in the right place at the right time allowing consumers to find what they want when they want it.

Read Dunn’s full report here»

For more information about adapting to the new pace of retail with Quantum Retail’s inventory platform Q visit»

Please note that the information provided above is sourced from public releases and reports and does not include any undisclosed information from or about the retailers named.

Stay posted for next week’s review from Meredith Adler, Barclays Capital

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1. International growth: Retailers such as Abercrombie & Fitch, Polo Ralph Lauren and Tiffany planned to increasingly focus on international growth with many retailers closing domestic stores to take advantage of emerging markets.

Driscoll and S&P were spot on with this prediction. Abercrombie & Fitch and Tiffany both sought international expansion in emerging markets this year. Tiffany’s international sales were even set to exceed sales of its U.S. stores. The retailer now operates 31 stores in Europe. More so, Gap is an even better example to demonstrate this trend. The retailer recently planned to close approximately 200 domestic stores in the U.S. to focus on global growth and expects China to become a billion-dollar business in three to four years.

Retailers are more aggressive than ever about global supply chain expansion as they don’t want to rely solely on U.S. revenue stream. Expanding stores to new markets means retailers need a supply chain that responds to customer needs and that is efficient at distributing product on a global scale; an international presence means understanding more than IT, it’s about everything retail.

Get more resources on how to adapt to the challenges of today’s retail market here»

2. E-commerce growth: As the recession continues, consumers have begun to favor value and convenience more and more. With that said, Driscoll predicted an online growth of 10% in 2011. For retailers, the web has been the perfect place to test trends and assess customer interest. For those already involved with e-commerce initiatives, Driscoll stated it’s important that online sales don’t take away from store sales and inventory.

Quantum has devised a solution that enables retailers to easily manage and integrate e-commerce inventory, warehouse or vendor availability, and distribution alongside physical store locations.

To read more about Quantum’s solution, Q, visit»

What Driscoll and S&P have proposed here is very accurate in a sense that e-commerce has become a major trend and now accounts for a large percentage of sales for retailers. Most retailers have even begun to offer free shipping with no restrictions for the large percentage of consumers that prefer to shop online and, as a result of increased demand, retailers are also offering hard-to-beat deals exclusively for online shoppers. Online retailers have gone a step further and created a Black Friday counterpart: Cyber Monday. Cyber Monday is the one-day of the year in which retailers and e-commerce sites offer deals similar to those of Black Friday.

3. M-commerce growth: Becoming more common, increased price comparisons and retailer enabled Wi-Fi hot spots in stores have given rise to m-commerce. S&P speculated that 50% of consumers would have smartphones by the end of 2011 and that sales associates would also be empowered by this greater access to information.

Tablets and handheld devices are becoming staples for tech-smart retailers allowing associates to search online warehouses, other stores in a chain, and other retailers for specific products and prices. In turn, allowing consumers to make purchases right then and there. Google Wallet is making an appearance in retail store locations as well. OfficeMax added the new service to checkout terminals to make it easier for customers to pay, redeem coupons and utilize its loyalty program all through the use of their smartphones. Mobile services that enhance the shopping experience will soon become a necessity, not an option.

4. Social media growth: Driscoll determined that companies would more than likely rely on social media as an effective way for retailers to manage image and brand.

Retailers and companies are definitely capitalizing on all the possibilities that social media offers as its proven that consumers who connect with a brand via social media have a deeper emotional commitment to the brand or company and therefore, spend more money. According to a report by Bain & Company, those people that engage with brands through social media spend between 20% and 40% more on the products offered by the brands they follow compared with other customers.

5. Green/organic growth: S&P analysts expected consumers to increasingly seek out organic or green products in 2011.

This trend was not as predominant as anticipated. Companies are “going green” more often these days, but as far as green products are concerned, consumers are confused by what exactly ‘green’ means and are trying to request better clarification.

New research from Ryan Partnership Chicago and Mambo Sprouts Marketing determined that consumers would spend more money on sustainable products if they knew which products were “truly green”. The survey also concluded that more than half of shoppers prefer that sustainability information such as packaging and labels be displayed within the store.

6. Meeting individual consumer demand: It’s been important for retailers to personalize service, catering to individual consumer demands by providing greater service and marketing. But, the fact of the matter is that every store and consumer behaves differently.

More retailers are developing new sites and apps that allow consumers to input information about themselves for more tailored product searches. However, retailers such as Nordstrom don’t consider this a trend – it’s a best business practice for them in which each department within a store caters to a specific lifestyle. Moreover, Nordstrom offers free personal shoppers to help each customer find exactly what he or she looking for. For Nordstrom, it’s always been about the individual consumer.

7. Increasing the divide between high-end and value merchants: The success of high-end luxury stores benefiting from the wealthy and low-end retailers being aided by value-seeking consumers will continue throughout 2011.

This has been a very true trend for quite some time now especially as, despite the recession, the wealthy have continued to shop high-end stores and value driven consumers are taking a step back. Retailers that cater to consumers on the tightest budgets stand to lose the most.

8. Increasing the thrill factor: Consumers will seek out new and exciting experiences. S&P predicted stores that are able to thrill, surprise, delight and engage would probably win in this category.

 It is not just the thrill factor that consumers are enticed by; it’s the ambiance of a store or the interactivity of a web site. Department stores, particularly, need to better enhance the shopping experience such as with the use of lavish displays, celebrity appearances or live music to attract more foot traffic.

9. Increasing consumer personalization: Brands are testing the waters of mass collaboration, providing the consumer with the opportunity for community input in product designs.

S&P analysts might be on to something with this prediction. Although it has not proven to be a major theme for retailers in 2011, this may be something to look forward to and something for retailers to consider in the future.

10. Increased coupon use to lead to decreased margin: More and more consumers have started searching for coupons as a means of creating value for their purchases.

Extreme couponing has become one of the most popular trends of 2011 especially in the grocery and household goods sectors. Consumers who engage in couponing are becoming less loyal to retailers, stores and brands, and are focusing on where the money-saving coupons take them. Shoppers are also seeking deals in different forms such as cash-back rewards, in-store contests and gift-card giveaways.

Retailers face the fear that all the effort and money put into coupons and deals is going to be thrown away to one-time buyers with no return. And with increased costs, heavy promotions and constant coupon use, margins have started to suffer.

Retailers have become considerably aggressive over the past year pursuing new opportunities to drive sales. Driscoll and her fellow analysts at S&P declared 10 ways in which retailers would improve sales in 2011 and while some of the trends were more prevailing than others, it’s best for retailers to keep an eye out for those that will become major game changers in the coming years.

To read Driscoll’s full report visit»

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Please note that the information provided above is sourced from public releases and reports and does not include any undisclosed information from or about the retailers named.

Stay posted for next week’s review with insight from Liz Dunn, FBR Capital Markets

• Drive sales across multiple channels
• Improve buying and allocation decisions
• Enhance margins with next generation optimization tools
• Leverage strong toplines with workforce management

Citigroup also predicted that CVS, JC Penney and Macy’s were the most likely to use technology with two themes taking front-and-center: optimization technologies and multi-channel fulfillment.

• Optimization technologies are building new technologies onto existing platforms and capabilities. The best approaches are from the store-level up and are in real time to maximize inventory productivity. Next generation technologies allow retailers to go above and beyond price, markdown and size optimization, to focus on profit and loss.

Learn more about next generation technologies here»

• Multi-channel fulfillment streamlines assortments from all channels – online, in-store, catalog, etc. – to create a more refined experience for consumers ensuring retailers have the ability to fulfill orders and purchases from all inventories. Integrating product availability and distribution from vendors and warehouses to actual brick-and-mortar stores assures product doesn’t go out of stock at any channel.

Taking advantage of technology in 2011

Macy’s was indeed a major retailer to take advantage of technology in 2011 as Weinswig and Citigroup anticipated.

Having recently announced their international sales launch to online shoppers in 91 countries, Macy’s began expanding their e-commerce business in 2011. The retailer also rolled out new technologies to benefit customers by increasing their omnichannel platform. In addition to expanding their Search & Send initiative, which permits stores to search for a product that is out of stock or unavailable at a location through Macys.com and then send the product to the customer’s location of choice, they are now implementing the use of tablets and handheld devices in select stores. This will give consumers access to larger selections, product features and other offerings while allowing them to purchase items through Search & Send.

For more information on multi-level distribution here»

With that said, Macy’s began an adoption process for an RFID program focused on optimization technologies and inventory accessibility through multiple channels. The program is a way for Macy’s to build on their already-existing capabilities streamlining in-store and online merchandise, increasing sales and assisting with e-commerce integration as Citigroup projected.

CVS and JC Penney also utilized technology in 2011, but their presences did not appear to be as strong. CVS made IT investments to support services that pharmacists provided as well as to improve access and treatment of health care for their consumers. Other initiatives for CVS included rolling out a Pharmacy Advisor program that added value to clients by offering face-to-face counseling within pharmacies, and advancements to their Consumer Engagement Engine which identifies cost savings or health improvement opportunities. These new technologies have given CVS the ability to integrate all of their target key points: retail pharmacies, mail order pharmacies and call centers.

JC Penney, on the other hand, utilized technology to launch new mobile plans including a mobile commerce site and location based check-in offers. The retailer also dispersed iPad devices to 50 fine jewelry departments in conjunction with the introduction of their Modern Bride concept that can be accessed in-store, on jcp.com and on modernbride.com.

Aside from the aforementioned retailers, Lowe’s is another retailer that exemplified Citigroup’s technology projections. Their more recent program, called MyLowe’s, allows all purchases, whether made in-store or online, to be tracked automatically and amassed on a customer’s online profile. Still in its first phase, MyLowe’s features ways to organize products, projects and ideas, grant access to warranties and product manuals, and set reminders for common maintenance tasks. Additionally, the retailer released its Lowe’s app for iPhone and iPod touch designed to support customers with home improvement projects and to aid in the shopping experience.

As Lowe’s expands its technological portfolio, the retailer realized it also needed to strengthen its technology infrastructure and platforms. However, Lowe’s is approaching the opportunity in a slightly different way than Macy’s is by hiring up to 300 IT professionals to support operations and create processes to better serve customers. Lowe’s immediate need is to improve upon present technology proficiencies to drive sales across the multiple channels they now operate as well as supporting strong revenues with their current and upcoming IT workforce.

Improving service levels

Weinswig and Citigroup made some accurate predictions for 2011, but as the year comes to an end, it’s clear to see that while retailers have begun to understand the importance of technology, not all retailers are so quick to jump onboard. And although every retailer wants to increase sales and enhance their margins, they also have to find new ways to excite the consumer and provide great service.

Macy’s, CVS, JC Penney and Lowe’s have all acknowledged how important service is to a consumer. It is this acknowledgement that has been leading them to discover and implement new technology campaigns and initiatives aimed at better building higher service levels or, in some regard, benefiting the customer. If Citigroup and Weinswig missed one thing in their predictions, it would be utilizing technology to increase service levels.

To read Weinswig’s full prediction visit»

Please note that the information provided above is sourced from public releases and reports and does not include any undisclosed information from or about the retailers named.

Stay posted for next week’s review with predictions by Marie Driscoll, Standard & Poor’s.

MINNEAPOLIS, MN, November 4, 2011 – Quantum Retail recently announced it ranked No. 173 on Deloitte’s Technology Fast 500™, ranking of the 500 fastest growing technology, media, telecommunications, life sciences and clean technology companies in North America. Quantum Retail grew 557 percent during this period.

Quantum Retail grew 557% during this period.

Quantum Retail’s Chief Executive Officer, Vicki Raport, attributes the company’s 557 percent revenue growth to Quantum’s ability to innovate, design and deliver retail industry solutions that consistently increase top line and bottom line results for our customers. She said, “Our staff has extensive experience and a deep understanding of what retailer’s need to compete in today’s new market. The software solutions and processes we’ve created are transformational; we allow retailers to change, not conform, setting themselves apart in this aggressive industry.”

“Quantum Retail, like all 2011 Technology Fast 500™ companies, have excelled in fostering innovation and channeling it into spectacular growth – against the backdrop of one of the most challenging economies in history,” said Eric Openshaw, vice chairman and U.S. technology, media and telecommunications leader, Deloitte LLP. Deloitte recognizes Quantum for its remarkable accomplishment.”

“We are please to honor Quantum Retail as a 2011 Technology Fast 500 company,” said Mark Jensen, managing partner, technology and venture capital services, Deloitte & Touche LLP. “As one of the fastest growing tech companies in North America, Quantum has demonstrated excellence in technological innovation, entrepreneurship and rapid growth.”

Quantum previously ranked 56 as a Technology Fast 500™ award winner for 2010.

About Deloitte’s 2011 Technology Fast 500™

Technology Fast 500, which was conducted by Deloitte & Touche LLP, a subsidiary of Deloitte LLP, provides a ranking of the fastest growing technology, media, telecommunications, life sciences and clean technology companies – both public and private – in North America. Technology Fast 500 award winners are selected based on percentage fiscal year revenue growth from 2006 to 2010.

In order to be eligible for Technology Fast 500 recognition, companies must own proprietary intellectual property or technology that is sold to customers in products that contribute to a majority of the company’s operation revenues. Companies must have base-year operating revenues of at least $50,000 USD or CD, and current-year operating revenues of at least $5 million USD or CD. Additionally, companies must be in business for a minimum of five years, and be headquartered in North America.

About Quantum Retail Technology, Inc.

The market is asking new questions. You need new answers. Q answers the new questions facing retailers today with solutions that enable them to profitably buy, move, and sell merchandise, solving the most complex and costly problems they face - quickly and permanently.  

Q is the answer for: Assortment and Range Planning – Forecasting and Order Planning – Replenishment and Allocation.

Every Quantum Retail customer has achieved rapid results in less than 6 months. For more information visit http://www.quantumretail.com. Follow Quantum Retail on Twitter at http://twitter.com/quantumretail.

These systems cause questions to arise in planning and management. Which category comes first? What doesn’t fit? What is handled separately? All are questions that grocery IT managers ask across the globe on a daily basis.

5 reasons/benefits to combine perishable and non-perishable supply chain systems:

1. One replenishment engine for ALL departments will:
   • Reduce redundant hardware, software and system support
   • Simultaneously apply software upgrades across the enterprise
2. Consistent replenishment reporting across ALL departments (Grocery, Meat, Produce, Bakery, Deli, GM, HBC, etc) allows for:
   • Systematically created consolidation reports
   • Data aggregation flexibility across organization hierarchy
3. Consolidated IT development and support teams can create:
   • Consistent solution development across the organization
   • A unified technology platform for enterprise supply chains
4. Cross departmental resource sharing (buyers, merchandisers, analysts, etc) allows for:
   • Departmental sharing of resources
   • Expanded career opportunities for key personnel
5. Consolidated education platforms will:
   • Reduce custom education across departments
   • Have common terminology within education materials
   • Reduce ramp up for new personnel

Retail IT budgets are shrinking, forcing grocers to find a way to stretch their dollars even further than before. Consolidated systems will optimize their dollars while providing the best solutions for their user communities.

It’s clear that grocery has become more complex for retailers in the last decade. Not only have buying patterns shifted since the beginning of the recession, but customer preferences and eating habits have too. The huge demographic shifts that occurred extremely rapidly have greatly impacted the way grocery retailer’s look at buying and managing their inventories. Companies that had some success in understanding these changes were fortunate enough to have had the capabilities of seeing pertinent information in their data. Many others struggled.

Other contributions to the complexity of grocery include the multitude of suppliers and vendors that retailers are dealing with along with the growing volume of product that moves through the supply chain. Additionally, the speed at which a product moves through the supply chain has become increasingly complicated. For a typical producer, supplier and vendor of a grocer’s product, replenishment happens in very quick cycles, but varies widely for the different types of products.

To make matters worse, there is a huge difference in how to handle ambient (non-perishable) product compared to perishable product. There are many different logistical concerns from the time product leaves the supplier to how you get it through your internal supply chain and then to the store shelf within a retail location. With perishables, you can incur waste with tray sizes that are too large for some stores, but because you need to meet a certain service level, you might have to send the trays regardless.

Ambient product, on the other hand, has to accommodate to specific shelf display requirements particularly special fixtures during promotional periods. Non-perishable inventory may need to be brought in earlier ahead of a promotion. Overall, each delay or error in the process can lead to waste, shrink or a missed selling opportunity. It all comes down to getting the right product to the right store at the right time.

With that said, some retailers have neglected business strategies through all these changes in terms of waste vs. profitability specifically in a sense that certain product is critical for customer satisfaction. Therefore, having a higher availability, even if it means more waste and less profit, is critical. Establishing and maintaining strategies can help ease decision-making with perishable and non-perishable product.

Challenges in managing inventory with grocery

There are many inventory challenges brought forth from grocery’s new supply chain complexities.

One such challenge is the data dependency in tracking inventory successfully through the supply chain. For example, a grocer may receive an item from three different suppliers making it difficult to track their inventory. To overcome this challenge, some retailers benefit from having all of their suppliers manage to their specifications. Essentially, those suppliers would be contracted to put the same SKU number on that item.

For branded product, part of the challenge is that the manufacturer may actually have a number of different UPCs across regions for what is the exact same product. This can be driven by either change in the product over time or how the product is managed regionally particularly when production or preparation of those items is subcontracted. This is where you get into a lot of data complexity; if you don’t have a good handle on the data that represent a moving item through your supply chain, you’re going to have a hard time keeping track of it.

Multi-level distribution systems add to the challenges of tracking inventory successfully because a product can follow many different paths through the supply chain. Products often follow a lineal path from supplier to national distribution centers (NDC), NDC to regional distribution center (RDC), RDC to store.  However, some retailers also have supplier direct to store or NDC direct to store and other combinations of movement that complicate inventory tracking, including lateral transfer of inventory between stores or between distribution centers.

Many grocery retailers work with antiquated systems that do not allow them to process item level receiving at store back door. At some point, these retailers will lose sight of that inventory because of the system’s limitations. In order to deal with these challenges, many retailers are in the middle of significant ERP programs where the primary goal of these programs is to get a better grip on managing inventory.

Technology to simplify the complexity

Ineffective inventory management can add to the complexities grocery retailers are combating. A simple solution lies within technology. Next generation supply chain solutions are key to managing the right amount of product at the right time. In turn, helping grocers to move forward in resolving inventory complications.

The ability to generate draft order plans that forecast demand should be an essential component of inventory management technologies, especially when it spans across the entire supply chain. This ability enables retailers to share order plans with suppliers who can then take the information and do a much better job of planning what they are going to be asked to produce and deliver in the future. Better yet, this helps suppliers with the purchasing of their own input materials that go into distributing product. Forecasting and demand planning also determines the right amount of product on the right days, which aids in quick replenishment cycles. A quick replenishment cycle increases product freshness and the usable life to a customer not to mention helping suppliers and vendors along the way.

It can prove difficult to get the right product to the right store when dealing with a multifaceted multi-level supply chain. With that said, it is crucial to have a tool that has a good distinct view of what product is moving through the supply chain, not only what has been delivered to the supply chain by the supplier or what is sitting in the store, but having the ability to pass the demand of a product appropriately through any distribution level to get that product to the store regardless if its from a national vendor or a local farm. A new technology solution that factor into the order planning and allocation processes what product is moving to the store, from the supplier and where it is going to hit would eliminate such issues.

3 things grocers can do to maximize profits

1. Incorporate product strategies: It is important to have good product strategies in place especially for those perishable items with rigid pack or tray sizes. Depending upon your pack size, this can be a brute force decision creating two entirely different choices and sometimes missing the boat and incurring a little too much waste or perhaps losing sales. Defining product strategy goals is a proven tactic to maximize profit.
2. Collaborate with suppliers: Managing ordering and replenishment properly is difficult with complex supply networks. By building a connection with your suppliers not only are you generating trust, but also you’re increasing your profit by reducing time and overlap within the supply chain. This holds true for both perishable and non-perishable products.
3. Invest in new technology: Antiquated systems are not successful at overcoming data complexities or changes in buying patterns nor are they successful at getting the right amount of product to the proper store at the correct time. Solutions that are strategic, profit-aware and automated should be utilized.

Just like consumers have transformed, so has the grocery industry to keep up on the challenges produced from customer’s new wants and needs. What once were miniscule constraints now are made of multiple levels and large volumes. In order for retailers to flourish and be advantageous in overcoming these changes, next generation supply chain opportunities need to be adopted. Retailers need to employ tools that provide order planning and forecasting, track inventory successfully, and handle ambient and perishable product properly to avoid being left in the dust.

Products that most often fall into being managed this way are commonly referred to as “image items.” The store doesn’t sell a lot of them, but it’s important to carry one to maintain an image for the shelf. These items also frequently have high retail prices.

There are a few ways to view this replenishment problem. Remember, only a small increase in selling or decrease in inventory units is substantial due to the value of these items often being very high. One of the most effective ways to discuss this is to compare against traditional approaches and their weaknesses.

Four important flaws in this approach are:

1. Every store gets one (or more)
2. They don’t get another until there’s a sale, then they get one – in one lead time
3. The point in the product’s life doesn’t get considered unless it’s managed manually by store
4. The min/max is typically managed by SKU (therefore size when used with apparel). Even if not, understanding of size behavior is usually severely biased and limited

There are a few things we can do that are more effective than the above approaches. Which approach to pick depends on what your objectives and constraints are. Those objectives are built into our merchandise strategy.

If the need to have one of each of these image items is a hard constraint that must be adhered to, then choices are limited. There is still opportunity, however, because even slow movers can move more than one occasionally.

It is possible to interpret the likelihood of selling a unit. It is also possible to consider the likelihood of selling two or three, etc. Doing this allows you to send two units to a store that may sell two but would otherwise only be stocked with a single unit. This can capture sales that would otherwise be lost because conventional systems would take one lead time to replenish the unit, in which time the sale would be missed.

Another concept similar to this is a variation on the same theme called ”lumpy” demand. This refers to situations where some items have the propensity to sell either nothing or multiple units. Different than above, these items either sell zero or three, for example, never one or two. Knowing this enables you to make the decision to stock three, therefore capturing the sales as opposed to losing them if only one or two units are stocked when a customer wants three or nothing.

If the item is an image item, is it the only image item? If not, where you have a number of image items that share some commonality we can use what we call an aggregate constraint. This allows you to look at the group of similar image items and apply a strategy that sets a minimum service level for the group with a much lower service level for the individual items. What this does is allows you to maintain a presence for the group, while focusing on those items that have the most chance of selling one of the items and limiting those that have less of a chance. It is a very effective way of reducing the investment while maintaining the image.

For sized merchandise, this concept can apply across styles and or colors, but even if a strategy dictates that all styles or style/colors be represented, forcing all sizes of a style/color to be represented is a costly and flawed philosophy. In the process of understanding store behavior, you can get a detailed understanding of how stores sell different sizes. This knowledge can be used to limit the allocated or replenished image items to the size selling behavior of the individual store (as opposed to a user-biased representation of a cluster of stores).

Intuitively most retailers think this limits sizes to the midrange “core” sizes, but inevitably there are behavior patterns that move some store to being able to sell more of some fringe sizes. Put the sizes where they will sell and only those sizes that will sell. The presentation of the image is not dependent on size, only the sale is. So, it’s only a waste of inventory to send a size that will never sell at full price on such an item.

Two other strategies allow us to minimize the inventory investment. These include sending the initial unit but sending the replenishment unit only if demand (forecast demand vs. reacting to a sale) dictates it. Operating this way, a lower service goal will allow the store to be out of stock on the image item if there is little likelihood of selling another. The second variation of this applies to seasonal or short life merchandise. For these items it is important to understand product lifecycle. This allows you to determine when an item is nearing the end of its full price life, something that happens differently across locations. Knowing this will raise the implied cost of sending a unit (more likely to mark down and erode margin) for items that are nearing their end of life. This can save you from sending units late in the item’s season or life that have no hope of selling at full price.

With all of the options you have to react more effectively to true store demand and maximize the profit you make on your inventory, it is time to put your “min/max” or “sell one/get one” techniques to bed. All stores have unique demand, but the more you can pay attention to that demand on an ongoing basis, the more you will increase your margins and fulfill your customers needs.

Thank you for following along with this series! Look out for our next series on efficiently managing grocery inventory.