Inventrak Blog

This past year I wrote quite a few posts on the business models around cloud computing.  I am excited to share this study from Retail Industry News which states that 27% of retailers will deploy cloud computing solutions in 2010.   This confirms the business model information, but to many that still may not be enough to embrace the benefits. This year, people have asking me –we have read about cloud computing, we have seen the statistics, but what do you think are some of the main benefits specifically for micro to midsized retailers.  Why should retailers become early adopters of this platform, how can we foresee the benefits that we are not realizing?

I spent some time thinking about it and my next few blogs will focus on individual features: 

- On demand access to business management. -  To me, this is the most exciting feature of cloud computing, and let’s explore the simplest way to see how this benefits a retailer.  Think back to a time when the only way you could contact someone by phone was through a landline.  If you were not at home or at a business that call could not be made. Then came the cell phone, and large as they were, they served a purpose of being able to make the call when you wanted. While for many, it was a privilege, for others it was something they could live without.  Today the use of cell phones has contributed to business growth, and has made people available on demand.  In a July 22, 2009 statement by Federal Trade Commission Chairman Julius Genachowski before the United States Senate Committee on Commerce, Science and Transportation Hearing, indicated that there are over 270 million cell phone subscribers in the United States. That means that 87.4% of the U.S. population are cell phone subscribers.

Cloud computing solutions for retailers share the same benefit of cell phones— on demand. The same convenience can help retailers today with access to viewing every single detail about your business when you want.  Would you wait until you got home to make your calls so why wait till you get to your retail store to know how your retail business is doing at any given time. Imagine, as a retail owner, whether you are at your storefront, or enjoying an international vacation, or playing a round of golf, that you are able to view what is happening at the store.  From your cell phone or any other network devices, you can view how many transactions are being processed, what are the best sellers at the store and many other details of your business. Moreover, you are also able to change the pricing, offer a spontaneous sale, or order product delivery to the store at any given moment.     

Will continue…

What went wrong in 2009?

In Aberdeen surveys in 2009, 88% of retailers surveyed reported that one of the biggest challenges in 2009 was the high cost of goods sold, and they were forced to cut payroll and other budgeted expenses.

However, these surveys also show that in 2009 the top four negative impact areas were due to these budget cuts.  The top four negative impacts are lower sales, customer service, staffing and inventory. According to the majority of retailers who provided qualitative responses, poor sales and customer service was caused by staffing and training budget cuts as well as marketing budget cuts. Non-optimized inventory was primarily due to untimely decisions. Moreover, 54% of retailers in the Aberdeen surveys clearly indicate that one of their top recession-beater strategies is to cut payroll and marketing expenses instead of realigning marketing, merchandising and consumer management strategies.

What went well in 2009?

The 2009 holiday season is right around the corner. Are you ready? Here are some marketing tips for this upcoming holiday season:

Offer your customers what they are interested in. You can figure out what your customers like by looking at their transaction history, especially by looking at what they bought during last holiday season at your store. Then, you can send out a newsletter to offer your customers what would interest them the most.

Promote your gift cards. Gift cards are a good gift choice. You can send out your gift card promotion by email or directly promote to your customers when they check out at your POS terminal. In order to promote your gift cards, you can offer a discount or a special gift to those who purchase the cards.

Offer gift ideas. Offering gift ideas can make your customers' lives much easier. Everyone is trying to figure out what to buy for their friends and family. Through email or mail, you can send out gift ideas to people based on your experience.

Recently, Chris Thorman posted an interesting blog “SaaS v. On-premises Software: Which One is More Green?”  He compared energy consumption of a business before and after they adopted the SaaS system. “That’s a 93% reduction in overall energy consumption,” Chris wrote in his blog.

According to Chris, the energy consumption reduction comes from:

Economies of Scale: businesses dump their own servers and share their software vendor’s server. As more and more users begin to share the server, the average energy consumption of each user decreases dramatically.

On demand computing:  computing resources are made available to the user as needed.

93% reduction is a very impressive number, isn’t it?

Actually, in retail field, there are more and more retailers beginning to adopt SaaS based retail management systems. There are a number of reasons why they choose SaaS based retail management systems over traditional ones, including real time reporting. However, few retailers realize that SaaS Technology can make them greener.  

Imagine how much energy consumption you can save annually with a SaaS based retail management system!  Let your store go green with SaaS technology!

Though you may not be familiar with Software as a Service (SaaS), you probably have heard the popular buzz word – “on demand”.  Yes, SaaS technology enables “on demand” possibilities for every business. It has actually grown increasingly popular for all sizes of businesses. 

How does SaaS benefit retail businesses compared to current retail technology?

On demand access to your database.  You can manage inventory and pricing even if you are abroad; you can use your smart phone to access all sales, inventory and customer information whenever you want.  

Recently, at Best Buy, the Palm Pre was supposed to sell for $199 but a lot of consumers bought them for $99. Best Buy Marketing Manager John said, “Without releasing confidential numbers, all I can confirm is that the price was honored until removed from the system. Not sure how we reconcile further?” They had been dealing with the pricing problem for a few days. 

If they had real time pricing management capability, much of their loss could have been avoided. 

On demand scalability. The SaaS model allows merchants to scale up and down based on the needs of the retail business. It is like a customized Google page, where you can add whatever applications you want; on your SaaS system, you can add whatever modules you want. Moreover, no worry about IT problems when you expand your business, SaaS database is scalable. 

Lower IT cost. This is one of the main reasons that some retailers begin to go to SaaS. SaaS technology reduces total cost of ownership by eliminating the initial capital expenditure to buy and establish infrastructure in-house. It also reduces operational cost by reducing infrastructure maintenance.  

Many merchants have had great difficulty in their attempts to successfully improve customer retention.

They are forced to use ineffective mass marketing vehicles, such as sending the same flyer to every household locally, which does not allowing for efficient communication with their customers. Some have loyalty programs, but these simple discount programs do not increase the merchants’ knowledge of their customers, thus a thriving relationship cannot be built. 

With the development of technology, a new trend in retail industry emerges: personalized marketing.

The ability to provide personalized marketing can help merchants to build a relationship with customers.

Current retail IT tools make personalized marketing economically possible for every merchant.  The foundation of personalized marketing is to use retail IT tool to collect customer identified transaction data. From this data, you can get insight as to who your customers are and what they like, you can get insight of their personal needs.

Then, you can provide personalized marketing through multiple channels. For examples, you can take web-based technologies to efficiently and effectively provide personalized flyers, coupons and newsletter; at the point of purchase, a cashier is able to recognize a customer, greet him/her and recommend products that the customer would be interested in.  

Some stores have begun to deliver a combined online and in store experience to their customers. These customers are not only enjoying convenience but also the accessibility to an expanded product line. The customer searches for products online then go to the physical store to make their final purchase decision; they return products purchased online at a physical store instead of shipping back.

Some retail giants use this ability to bring even more to their customers. Sears recently took advantage of kiosks to enhance their customers’ shopping experience. If a customer can not find what they want while walking around the store, they can go to the kiosk to search online and purchase the product (Sears will deliver this product for free), which said by Sears Holdings vice president Thomas Tisch differentiates themselves from their competitive market.

Small retailers who are beginning to build their own online business should consider incorporating this trend into their business model. Bring convenience to your customers, make shopping easier, and the result is satisfied customers who feel like they got more from their shopping experience.

Moreover, online stores and physical stores can be complementary parts to each other. Usually, yours physical store display is limited by the space. You can expand your product lines through an online store. Based on the best sellers at each store, adjust your product assortment at each location to maximize your profit.  

In such a volatile economic environment, small retailers are struggling with cash: you are facing tight bank lending; your customers seem to come back, but they do not spend that much.  The good thing is that you have already navigated your business through the worst time. Now, you need to be cautious and ensure that your business generates positive cash flow, so that you can grow your business during the upcoming recovery.

Here are some tips:

Reward programs and gift cards: If you want your inventory to move faster and generate more cash, reward programs and gift cards are better methods than by using discounts. Simple discounting is like giving your customers cash back, but they probably will not use their extra cash at your store. However, reward programs and gift cards ensure that your customers use those cash savings at your store for your products

Keep optimum inventory levels:  Inventory generates your cash, but it consumes your cash, too. The principle to keep an optimum inventory level is to invest minimum cash in inventory to meet market demand.  We have talked a lot about it, reaching this goal requires quick response strategy: order as little as possible at the beginning, read your daily sales reports and ultimately make reorder decisions based on those short term demand trends. 

Concentrate on core lines:  Every retailer has some product lines which generate more sales than others. Why not focus on those popular lines? You may have various reasons for maintaining the slow moving products, but why not use the funds you have been using to buy the least popular items to expand your hot lines? Or develop a related line of hot lines? (Note:  Whenever you want to test market demand, you can start with a small quantity, see the trend on the daily sales report and then confidently invest more on the hot items.)

.

Amazon shared that cross-sells were responsible for 35% of its sales! An informal survey shows that, for online store, cross selling accounts for 5% to 10% sales; for brick and mortar stores, it accounts around 20% sales! 

Do you have cross selling strategy or plan to get one?

Here are some quick tips for cross-selling:

Customers Who Bought This Item Also Bought… 

This promotion has been proved very effective and efficient. Because customers are more likely to buy what you recommend based on other people's buying history.

When a customer checks out at your POS, let your POS system automatically generate an items list of what other customers also bought when they purchased the same item, promote these recommended items at your POS. This is probably a perfect way to promote items at your online store. At your physical store, in consideration of convenience, for each customer, you can promote one related item with highest frequency. 

Bundled items for sales               

Based on your transactions report, you can also pick up frequently bought together items to form a bundled package. Display and sell these items as a package at your store.  

In my last blog, we have discussed one of the possibilities that might lead your store to promotion trap.  In this blog, we will discuss another one.

Let us go back to Jessica’s story. Jessica found out that both of sales and gross margins of her brand A purse increased, but total gross margin for the store slumped. So sales of some other products must have fell. After she carefully read her sales report, she came to interesting results but not out-of her expectation- she lost big sales in other purses…

Looking at the results, it is easy to reason that increasing sales of brand A purses came from sales lost of other purses… 

Generally speaking, when you promote an item in your store, it will affect sales of other similar items in your store. Should you stop promotion ever? Definitely not. However, even other items’ sales are affected, as long as total gross margin increase, your promotion is in a good path.  

Quick tips to minimize the affect and maximize total gross margin:

Manage promotions in category/sub-category level.

• Promote the whole category/sub-category.
• If you promote certain item(s) within a category/sub-category, read your category/sub-category sales report daily : 
            How much  is the total gross profit of those items?           
            How about the gross margin of the whole category/sub-category? If it is not good, stop your promotion, find which items’ sales are affected. (next time, you probably should consider to add these items to this promotion group).
• If vendor A ask you to promote one item which would affect the sales of products from vendor B, negotiate with A to get more money or talk with B to get big discounts.