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Microcosms of Retail Development

BY Michael Fickes

This column comes to you from Triangle Towne Center in Raleigh, N.C., where many shoppers appear to be getting a jump on the holidays. For this editor, today’s mall visit is all about fashion, not Santa shopping. My teenage daughter and her best friend, who recently returned after living in London for two years, are checking out winter jackets.

I was curious to hear, in the eyes of a 15-year-old, how shopping in the United States compares to European choices. Not good, I learned. Our young friend preferred the store settings in London and other European cities, where malls were a rarity and, even when stores were a chain, they seemed more unique.

What about selection? The complaint I hear most often from my daughter is that everything looks so trendy, “There’s never anything individualistic or edgy.” Her friend echoed the sentiment: Fashion hardly exists in the United States, but in the U.K. fashion was cutting edge.

Her next comment spoke to the essence of retail logistics: “The European retailers were better at having in the stores what they displayed in their windows. Here, it’s confusing because there’s so much stuff in the stores that doesn’t go together or it’s disappointing because they never have what made you go into the store in the first place.”

Translated from teen-speak to supply chain terms: That would be failure to execute promotional sets and persistent out-of-stocks.

European retailer Zara is known for delivering hot, edgy fashion—and for fast-paced inventory turns. I recently talked with Professor Jeremie Gallien of the MIT Sloan School of Management about the inventory-optimization models he developed for Zara, in collaboration with professors Felipe Caro, Juan Correa and Jose Antonio Ramos from the UCLA Anderson School of Management and all graduates of the Sloan School. Together they defined mathematical algorithms that would optimize Zara’s replenishment processes.

“Zara replenishes all of its stores two times each week, which creates an enormous amount of decisions to determine every garment and every size that is needed at every store,” reported Gallien.

Replenishment decisions were being made by what Gallien described as “an army of people who spent an entire week doing data entry and very little time thinking about the massive decisions that had to be made or the trade-offs between stores to balance inventory.”

As Gallien explained, Zara would prefer to move a set out of a store if some pieces or sizes were out of stock, rather than have an incomplete offering. Following a pilot experiment of the optimization model on 15 “references” (i.e., SKUs) to approximately half of its worldwide store network, Zara deployed the optimization model for replenishment of all references across its entire portfolio. The optimization model enables Zara to evaluate what items are needed in each store to meet dynamic demand fluctuations.

“We think the potential impact of the model is a 3% to 4% increase in sales at no additional cost,” reported Gallien.

U.S. retailers could learn from Zara’s fashion statements as well as its new replenishment models. As for my quirky teen shoppers, they left the mall empty-handed and feeling fashion-deprived.

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CompUSA may get a new look

BY CSA STAFF

ADDISON, Tx. After opening a new format store last month, CompUSA may be changing the format of its other stores, depending on customer demand and product interest.

According to reports, the elements found in the prototype store, located in Texas, will be incorporated into other CompUSA locations across the United States.

The nearly 7,700 square-ft. relocation site includes an Apple shop featuring Mac computers, iPods and Apple accessories, and a full-length LCD TV wall.

Additional expansions include extended gaming, which includes an entire wall devoted to the Nintendo Wii, PlayStation3 and Xbox 360 gaming platforms, plus a PC gaming setup to test equipment and play new titles.

While businesses can get their share of support with a specialized services section, all consumers can visit the store’s redesigned IT support area.

“This new store aligns CompUSA’s vision to better serve its three core customers, the technology enthusiast, educated professional and small and medium businesses,” said Gabriela Villalobos, the retailer’s sales and operations evp.

CompUSA announced in April that it would narrow its focus to three core customer groups rather than try to serve a mass audience.

The move was part of a comprehensive restructuring, initiated last February, that included an overhaul of senior management and the closure of half its store base as the privately held chain looked to improve sales and profitability.

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Walgreens withdraws from CVS provider plans

BY CSA STAFF

DEERFIELD, Ill. After many months of talks over low and below-market payment rates by CVS Caremark for four prescription plans, Walgreens has withdrawn as a pharmacy provider from the plans.

Patients affected include members of prescription benefit plans managed by CVS Caremark for ArcelorMittal, Johnson Controls, Progressive Casualty Insurance and Wisconsin Education Association Trust.

Most of the affected members live in Illinois, Indiana, Michigan, Ohio and Wisconsin.

Trent Taylor, president of Walgreens Health Services, the managed care division of Walgreens, released the following statement:

“This is not where we wanted negotiations to lead,” he said. “We’re sorry that our pharmacy patients and CVS Caremark’s clients are caught in the middle, and we’ll do all we can to ensure a smooth transition for our patients to another pharmacy. Meanwhile, we’ll continue to work on resolving this issue with CVS Caremark.

“Leaving a benefits plan is an extraordinary step for us, but it demonstrates how extraordinarily low our payments were from CVS Caremark. We can’t continue accepting reimbursement rates that are drastically below market, while offering patients needed special services such as 24-hour pharmacy access and drive-thru pharmacies.”

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