Increasing Retail Profits Without New Stores

Larry Arnstein, Vice President of Strategic Market Development

July 11, 2016

A retailer once told me that running a retail business is like driving a truck filled with money down the road with dollar bills blowing out the back.  Why worry about the money blowing away when you can always put more trucks on the road? According to the Washington Post, the days of opening new stores as the way to increase profits may be over.

Truck loosing money as it drives

Citing data from real estate research firm CoStarGroup, the Washington Post article lists a number of statistics that together make the case for retail being “overstored.” Simply put, there is more retail shopping space than customers can support. If so, then how will retailers continue to grow? Today’s common answer to that question is, of course, through omnichannel sales.

It’s true that foot traffic is down and omnichannel sales are up. But here is the rub: omnichannel operations are not always profitable.  Among the factors that cut away at omnichannel profitability is a big one: lack of good, reliable inventory data across the enterprise.

Brian Kilcourse, managing partner at Retail Systems Research (RSR), identifies inventory visibility as the number one factor in building a profitable omnichannel fulfillment operations. In the RSR survey: Achieving Profitability in an Omni-Channel Fulfillment Model he states that “if the company wants to be able to commit to sell any inventory from anywhere it must either (a) have enterprise-wide visibility in something approaching real-time, (b) over-invest in inventory, or (c) risk disappointing the consumer with out-of-stocks.”

The omnichannel shopper has shone a bright light on inventory issues because failures can’t be swept under the rug. While it’s difficult to count the number of times that a shopper leaves a store empty-handed due to lack of availability in a store, the number of cancelled omnichannel orders is easy to count. Questions will be asked.

Retailers who can’t trust their inventory data hide merchandise from on-line shoppers by using safety stock limits and holding excess inventory. Macy’s president of logistics and operations has stated that 15-20 percent of inventory is accounted for by the last unit in the store.  So if the inventory safety limit is set at just two items, they are effectively hiding 15-20 percent of all the items in a store from omnichannel shoppers. “It’s a massive amount of budget, either marked down or not sold, and it is curable through RFID,” says Peter Longo, president of logistics and operations at Macy’s.

The problem compounds when retailers are left guessing how to supply their stores, and stores are guessing when to move items out of the stock room onto the sales floor. The result? More inventory in the systems, and ironically, less availability. Another way of looking at it is that inventory is in the wrong place and fulfillment is not optimized, driving down conversion and driving up cost of fulfillment. (RSR’s report noted earlier cites these as issues #2 and #4 respectively to achieve omnichannel profitability.)

With RAIN RFID, retailers are no longer forced to guess about their inventory. RAIN RFID tags are applied to each item and readers located in the stores and stockrooms provide real-time inventory data to the systems that run the stores and omnichannel operations. Adding readers to distribution centers brings further inventory details to the system.

With this level of visibility, stores can maintain the right assortment of items on the shelf, and no extra. Allocation to stores can be timed so that merchandise is sold through the best-possible channel at the highest-possible price. Inventory is reduced, yet availability is enhanced across all channels. RAIN RFID enables retailers to trust their ERP data and run their business decisively, without guesswork.

One thing I’ve observed in the past 10 years of working with retailers is that inefficiencies in common business practices are so normal that they can be difficult to notice. But I have also seen over and over again that when a change comes, there’s no going back.

As retailers look to online sales to replace growth that used to come from new stores, they can do this in a way that supports the stores, or not. Those retailers who build a cohesive, seamless operation informed by accurate real-time inventory data will be the real winners. It’s time to put a tight lid on that truck.

Interested in learning more? Try the Impinj ROI Calculator. This online tool can be used to calculate the  ROI from implementing RAIN RFID in a retail environment.

IMPINJ

Impinj (NASDAQ: PI) wirelessly connects billions of everyday items such as apparel, medical supplies, and automobile parts to consumer and business applications such as inventory management, patient safety, and asset tracking. The Impinj platform uses RAIN RFID to deliver timely information about these items to the digital world, thereby enabling the Internet of Things.

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