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Back-Room Secrets

BY Connie Robbins Gentry

For all the attention focused on supply chain processes, from global sourcing to the end consumer, very little discussion is dedicated to how shipments are received into stores. The reason is perhaps quite pragmatic: Few retailers are willing to talk about what happens in their back rooms. When approached for this story, most declined to comment. However, there is a clear consensus among retailer expectations: Inventory should flow from the back room to the store floor as quickly as possibly. Back rooms, kept to a minimum footprint, are for processing shipments, not for storage.

Speaking on condition of anonymity, a specialty apparel retailer with more than 380 locations told Chain Store Age that inbound shipments are ideally on the selling floor the same day that they arrive at the store. Currently, the retailer uses FedEx for store deliveries and relies on FedEx to scan cartons at the time of delivery. An electronic acknowledgement is sent to the retailer verifying the receipt.

Reliance on transportation carriers and third-party logistics providers for storelevel logistics has become a dominant trend. The ultimate goal is to manage store deliveries so that store resources, specifically back-room space and labor, are utilized most efficiently and in-stock positioning is optimized. Velocity Express of Westport, Conn., provides time-definite regional and localized deliveries for a number of retailers, primarily in the pharmaceutical, office supply and furniture sectors.

Pharmacies in traditional drug stores as well as in grocery and super-store formats have some of the most stringent requirements for just-in-time (JIT) deliveries. Every inch of every footprint is at a premium, and neither the pharmacist nor technicians has time to receive shipments.

“A pharmacy retailer may need to receive deliveries before 6 a.m. to replenish stock or at a defined time slot when they have scheduled clerks specifically for receiving deliveries.” noted Drew Kronick, executive VP of business development and supply chain solutions for Velocity Express.

A national home-accessories and lifestyle retailer began using Velocity Express for furniture replenishment about 18 months ago. In a targeted Northeastern market where the retailer operates approximately 30 stores, Velocity Express makes daily deliveries to the stores, and in some cases may deliver multiple times to a single store. Valuable square footage that was once dedicated to back-room storage has been converted to selling space, and replenishment inventory of large furnishings is held in a centralized location. When furniture sells from the store floor, Velocity Express picks up at the central warehouse and delivers to the store that same day.

The JIT service is designed to deliver to whatever parameters the retailers set. In markets where there is a critical mass of stores, a fleet of trucks and drivers may be dedicated to a specific retailer.

Positive Returns

Hassle-free services impress shoppers

Perhaps there is a silver lining in the storm of returned merchandise that retailers face each January. Consider this: The person returning an unacceptable gift might be visiting your store for the first time and an efficient, positive returns process could create a one-on-one opportunity to convert that visitor into a loyal shopper.

“Ensuring a smooth and hassle-free returns process is vital for retailers, particularly if it’s the customer’s first visit to a store,” advised Linda Shea, senior VP and global managing director of customer loyalty practice at Princeton, N.J.-based Opinion Research Corp. “Getting the process right could mean potentially gaining a new customer; getting it wrong might alienate both the customer who initiated the return, as well as the one who made the initial purchase.”

Opinion Research Corp. (ORC), a division of Omaha, Neb.-based info USA, recently released the results of a survey it conducted of 1,024 individuals following the 2006 holiday season. According to the report, “The majority of retailers ‘got it right’ when dealing with customers at the returns counter.” Twenty percent of those surveyed reported they had a better impression of the store as a result of their returns experience.

One in seven respondents reported that the returns experience fell short of their expectations, but only one in 10 said they had encountered a problem when returning merchandise following the 2006 holiday season. However, ORC also reported “when expectations for the returns experience were not fully met, there was a substantial decrease in the likelihood of recommending the store to friends and family.”

The study also concluded that, of those who returned merchandise, two gifts per consumer were taken back to the store, and the average value of these returned gifts was $30 each. Women were more likely to return gifts than men; 27% of women said they would return unwanted gifts vs. 16% of men. Additionally, recipients with an annual household income of $75,000 or greater were more likely to return unwanted gifts than those with an annual income of less than $25,000.

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Home Depot Projects Lower Profit in 2007

BY CSA STAFF

Atlanta, The Home Depot Inc. said Wednesday it will pump $2.2 billion into improving its business this year even as it expects lower earnings and slim sales growth. Home Depot said that for fiscal 2007 it expects sales growth in the range of flat to an increase of 2%, a decline in comp-store sales in the middle single digit percentages and an earnings per share decline of 4% to 9%.

Including the effect of a 53rd week in its fiscal year, consolidated sales are expected to increase by 1% to 2%, and earnings per share are expected to decline by 3% to 8%, Home Depot said.

CEO Frank Blake told investors at Wednesday’s conference that like last year, “2007 also will be a difficult year.” But he said it will be a year of focus on Home Depot’s priorities and a year with “hopefully less noise.”

The “noise” was apparently a reference to the investor furor over former CEO Bob Nardelli’s hefty compensation in light of the company’s lagging stock price. Nardelli resigned in early January after six years at the helm of the company. He took with him a severance package valued at $210 million.

To improve its business, Home Depot said it will invest $2.2 billion this fiscal year in key priorities, including the opening of 115 stores. The investment includes $1.6 billion in capital spending and $600 million in expense.

Home Depot said it will recruit master trade specialists, simplify its staffing model, use more technology to aid customer service, and redesign employee compensation and reward plans. It also will invest in new merchandise and review its pricing strategies. Additionally, the chain will spend money on customer loyalty programs, direct-ship programs, credit programs and other specialty sales initiatives.

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Federated Plans Name Change

BY CSA STAFF

New York City, Federated Department Stores on Tuesday said it would ask shareholders to approve changing the company’s corporate name to Macy’s Group Inc. A vote to amend the corporation’s charter to accommodate the new name will be held in conjunction with Federated’s annual meeting on May 18. If approved, the company will be known as Macy’s Group Inc., effective June 1. The move comes on the heels of the company changing most of its store nameplates to Macy’s.

“Macy’s Group is the appropriate name for our company, given that about 90% of our sales involve the Macy’s brand. That said, Bloomingdale’s is—and will remain—a very important part of our company,” said Terry J. Lundgren, Federated’s chief executive. Federated Department Stores also said stronger sales at established stores and lower costs drove a 5% rise in fourth-quarter earnings. For the quarter ended Feb. 3, net income rose to $733 million from $699 million the prior-year period. Sales fell 4% to $9.16 billion from $9.57 billion, as the company shuttered 80 “duplicative” store locations. Comp-store sales rose 6.1% in the quarter.

During the quarter, Federated lowered its selling, general and administrative costs 11% to $2.31 billion.

The company also announced a $4 billion increase to its stock buyback program and said it will immediately repurchase 45 million shares for $2 billion under the plan.

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