Author: Helen Thomas

We spent some time reviewing Christmas comps and here are some data points and observations.  

Sample Group

• 38 vendors in the sample selling various product departments including paint, tools, cleaning, lawn and garden, storage, electrical, and lumber. 
• Sales numbers for Home Depot, Sears, Wal-Mart, Lowes, Target, CVS.

Results

• All vendors as a group were up 1.40% year over year on a unit basis, and up 2.75% on a dollar basis.
• The variability in the sample is high when comparing % change YoY across vendors and retailers.  The sample ranges from (40%) to 147% with the median being (0.21%) and the average being 11.4%.  
• Five vendors saw a negative unit comp and a positive dollar comp.  This is interesting because it suggests a higher average dollar value per sale.

Overall Christmas 2012 finished well for most vendors when comparing against last year when you take into account that five of the negative unit comps were offset by positive dollar comps. 

The availability of retail point of sale data over the past several years has created the opportunity for vendors to gain a detailed understanding of consumer demand at the retail point of sale.  Actual consumer demand at the retail point of sale presents a more accurate and timely picture of how your SKU’s are selling than retailer forecast advice or even retail purchase orders.  So why don’t all vendors collect EDI 852 or retail POS data from their customers and use it for creating forecasts and managing sales?  There seem to be several myths holding vendors back….

Myth #1: Collecting and analyzing EDI 852 / retail POS data is expensive and complex.  In a few limited cases like Home Depot and Menards it is true that the simple process of collecting the data has some expense.  Home Depot EDI 852 for example must be collected using a VAN so there are data transmission charges.  Menards charges a vendor to purchase a RSA SecurID.   But most retailers make EDI 852 or retail POS data available for free and even when there is a fee the benefits exceed the expenses.   Extracting the data, matching to item catalog details and store details does require some expertise but there are many SaaS applications now like Accelerated Analytics which will outsource the technical requirements for an affordable monthly fee.  By monitoring the consumer demand and inventory on hand at a SKU / store level of detail a vendor can proactively work with the retail replenishment manager to avoid out of stocks.  Every sale you get that would have been lost due to an empty shelf is returning value and paying for the expense of collecting and using the EDI 852 data.  How many lost sales do you need to recover a monthly data management fee that is typically less than $2,000?   At a chain like Home Depot with roughly 1900 stores in the USA the answer is not very many.

Myth #2:  My buyer won’t accept replenishment recommendations.  We hear this all the time – “I realize I could probably increase my in stock rate using EDI 852 / POS data but my retail customer uses automated replenishment or has a fixed open to buy plan so my recommendations fall on deaf ears”.  Several things are at work with this myth.  First, most vendors are operating on an assumption that if they talked to their buyer, they would discover is inaccurate.  I’ve talked to buyers at many retailers and I get a consistent answer – if the vendor can quantify the problem and provide an accurate order recommendation I will take it into consideration.  Second, the vendor has to demonstrate a competency in using the data for basic tasks like sales monitoring before they try to recommend orders.  I’ve seen countless examples of a vendor providing sales reporting and value to a buyer who then gains confidence the vendor can get the demand forecast right.  Finally, you have to start off slow.  Start with your highest turn products at your A volume stores and calculate the lost dollars sold for an 8 week period.  Then go to your buyer with a summary of your findings and actions to improve in stock and quantify the sales opportunity for both of you.  Make conservative recommendations to increase the WOS by one week so you gain back some sales but avoid loading the store with inventory and dropping your GMROI.  They have the same goal as you – to sell more product!

Every vendor that sells a product through a retail store should invest into analyzing retail point of sale data and using it for creating detailed action plans.  The data acquisition and reporting costs are very low when you consider them as a percentage of your retail sales and the upside benefits of increased sales, better assortment planning, and optimal inventory on hand are huge by comparison.  Let’s make 2013 the year that all vendors make the investment.  

Home Depot Inc.’s (HD) fiscal third-quarter earnings edged up 1.4% as the home-improvement-products retailer recorded strong revenue growth and slightly wider margins.  

Tuesday, Mr. Blake said results for the quarter “were better than we expected and reflected, in part, what we believe is the start of the path toward the healing of the housing market.” 

Same-store sales rose 4.2%, reflecting a 4.3% increase in the U.S. The average ticket was $54.55, a 2.9% rise from $53.03 a year earlier, while the number of customer transactions edged up 1.7%. 

RedPrairie and JDA Software announced a definitive merger agreement today.  Many of our vendors use JDA plan o gram software for managing their store modulars so this is an interesting development.  The “merger” sounds more like a RedPrairie acquisition of JDA based on the language in the PR.  Home Depot in particular, but other large retailers as well, have essentially told vendors they must use JDA software for POG management so it will be interesting to see if that changes now.   What does this mean for all the money vendors have put into complying with retailers POG requirements?

Letter to JDA customers

As a group our Home Depot vendors are up 9% YTD over the prior year comp for US stores, Canadian stores are up 96%. (the Canadian sample is smaller)   Lowe’s stores are up 2% YTD over the prior year comp for US stores.   Home Depot will be releasing Q3 2012 earnings results on November 13 and Lowe’s releases their earnings on Nov 19.  We typically find that our vendors who are aggressively using POS data to drive business improvements are out in front of their competitors so I wonder how earnings overall will compare to our sample group of vendors who are doing pretty well on a year over year basis? 

Retail sales rose in October which is encouraging, and optimism for a good holiday sales period appear to be growing.  Some report highlights:

• Target same store sales rose 2.4%
• Macy’s same store sales increased 4.1%
• Kohl’s comps rose 3.3% – more than the expected 1.1%
• Nordstrom posted a rise of 9.9% in same store sales which was 3.9% higher than forecasted.
• The 17 retailers Thomson Reuters tracks reported a 4.7% growth in same store sales.
• Gap same store sales rose 4%

WASHINGTON — The National Retail Federation released its 2012 holiday forecast on Tuesday, which shows sales increasing 4.1% to $586.1 billion, down from last year’s 5.6% growth.

However, the NRF’s 2012 estimate tops the 10-year holiday sales growth average of 3.5%.

“This is the most optimistic forecast NRF has released since the recession. In spite of the uncertainties that exist in our economy and among consumers, we believe we’ll see solid holiday sales growth this year,” NRF president and CEO Matthew Shay said. “Variables including an upcoming presidential election, confusion surrounding the ‘fiscal cliff’ and concern relating to future economic growth could all combine to affect consumers’ spending plans, but overall we are optimistic that retailers promotions will hit the right chord with holiday shoppers.”

Recent government data released show a crosscurrent of indicators that could impact holiday sales, including unimpressive job and income growth and an unemployment rate stuck at 8%. However, positive indicators are emerging that show a cautious but capable consumer, such as increases in confidence and home prices.

“While moderate compared to what we experienced the last two holiday seasons, the forecast is a very pragmatic look at what to expect this year given the current rate of economic growth,” NRF chief economist Jack Kleinhenz said.

In preparation for the holiday selling season, NRF has forecasted that retailers will hire between 585,000 and 625,000 seasonal workers, compared with the 607,500 seasonal employees hired last year.

The role of analytics in retail has evolved substantially over the past few years and it’s having a significant positive impact.  The days of hearing a vendor say “Oh, we get an EDI 852 but we don’t really do anything with it” are starting to fade into the rear view mirror.  This blog post will discuss some of the mega trends we see occurring in business intelligence in retail and their impact on demand planning and forecasting.   

Retailers are much more open to sharing point of sale (POS) data with vendors now than they were a few years ago.  Wal-Mart paved the road with Retail Link, which gives vendors access to a wealth of data, and most other retailers use EDI 852 or a web site of some kind to make data available.  [As a side note there are some major retailers like ACE Hardware and Publix that still refuse to share POS data, which is pretty amazing]  Mega-trend:  retailers will begin to expand the metrics they share and they will slowly move toward providing daily data.  We have recently seen retailers begin to share on hand data and sales dollars which they had not shared previously.  Providing those additional data elements enables category management and demand planners to greatly expand their analytics.  We are also seeing retailers begin to make daily data available, which is probably the most exciting development in business intelligence for retail.  Demand planning and forecasting for retail is dramatically improved by daily data vs. weekly data and daily data creates the opportunity for things like weather analysis.   

Key performance indicators for retail are pretty easy to define and calculate.   Sell-through, weeks of supply, year over year comp or % change, gross margin, gross margin return on investment, etc.    We find however that many demand planners do not have the time or tools to monitor KPI’s at the store / SKU level of detail which diminishes the value that should be realized.   Mega-trend: vendors are using cloud based software as a service (SaaS) to get access to sophisticated retail reporting without having to invest into business intelligence tools and a bunch of expensive development.   Retail point of sale reporting and analytics can basically be purchased ‘out of the box’ and then customized to fit your precise business needs in a very small amount of time.  When a large customer like The Home Depot is asking you to get into the POS data, you don’t have the luxury of waiting on your IT team.   Outsourcing your retail POS reporting and analytics provides a very fast path to keeping your customer happy. 

Mega-trend: Vendors use of EDI 852 and POS analytics will become more and more sophisticated.    Not that long ago, when a vendor invested in POS reporting, they were getting ahead of their peers by using technology to improve their business.  They would build relatively simple retail dashboards with key performance indicators for retail stores, like units and dollars sold.  Today, however, we are seeing increasingly complex analysis for demand planning and forecasting, complex retail replenishment models, category management and even weather and demographic analysis.  This is a natural evolution of business intelligence in retail and it is driven by the availability of SaaS tools and very real results that vendors are experiencing.

Lowe’s posted declines in net sales, comp-store sales and earnings in the second quarter ended August 3.

“Our results fell short of our overall expectations,” said Robert Niblock, Lowe’s chairman, president and CEO.  “However, I have confidence in our strategy and in our employees, and while we recognize the significant magnitude of change that we’ve asked the organization to absorb as we transform our business, we fully understand that we must improve our level of execution.”

The world’s second largest home improvement retailer posted sales of $14.2 billion in the quarter, down 2.0% from $14.5 billion in the same quarter last year.  Comp-store sales in the quarter were negative 0.4%.  Earnings of $747 million were down 10.0% from the same quarter a year ago.

The quarterly comparisons in 2012, which is a 52 week year, are impacted by a shift in comparable weeks.  For the six month period, comparable store sales increased 1.0%.

Currently, Lowe’s operates 1,748 stores in the United States, Canada and Mexico, with 196.8 million square feet of retail selling space.  That compares with rival Home Depot’s store count of 2,255 stores.  Last week, Home Depot reported gains in comps and sales and a double digit percentage gain in net earnings.

Source:  retailingtoday.com

The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for July, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $403.9 billion, an increase of 0.8 percent (±0.5%) from the previous month and 4.1 percent (±0.7%) above July 2011.  Total sales for the May through July 2012 period were up 4.3 percent (±0.5%) from the same period a year ago.  The May to June 2012 percent change was revised from -0.5 percent (±0.5%) to -0.7% (±0.2%).

Retail trade sales were up 0.8 percent (±0.5%) from June 2012 and 3.7 percent (±0.7%) above last year.  Nonstore retailers sales were up 11.8 percent (±3.1%) from July 2011 and sporting goods, hobby, book and music stores were up 10.6 percent (±4.3%) from last year.

Source:  census.gov