It’s Sunday morning at the annual National Retail Federation Big Show in New York City and there is a mix of excitement, intensity and competitiveness is in the air…. 

Some of you may wonder what I was doing at a tradeshow on Sunday.  Well, I don’t usually spend my Sundays going to tradeshows.  However, I felt compelled to get to the NRF show for its opening day.   Unfortunately, it always seems to me like the best sessions at NRF are held on Sunday – especially in the morning.  However, one good thing about this year’s show is that it is one week earlier.  Normally, the show is held on the week of the Martin Luther King holiday, which means that to attend the conference you may have to forgo not only a Sunday, but a holiday Monday as well.  However there are a number of benefits to being at NRF on Sunday morning.  In my opinion it is really the best time to be there - not just because there are great speakers and content, but because of the atmosphere.   

The first session I attended was a presentation by Dr. Ira Kalish of Deloitte’s research group.  Every year at the NRF show, STORES Magazine and Deloitte release their annual “Global Powers of Retailing” report.  This is one of two retail industry studies that I look forward to each year.   The other is AT Kearney’s Global Retail Development Index - http://www.atkearney.com/shared_res/pdf/GRDI_2007.pdf.   I often carry a hard copy of the Deloitte study with me in my briefcase because it proves to be a useful reference throughout the year.   This year’s version does not appear to be online yet, but the 2007 report is posted at www.deloitte.com/dtt/cda/doc/content/Global%20Powers%20of%20Retailing_07(3).pdf if you are interested.    

I will share a few of the results from the 2008 study.  The top 10 global retailers were listed as:

1. Wal-Mart
2. Carrefour
3. Home Depot
4. Tesco
5. Metro
6. Kroger
7. Target
8. Costco
9. Sears Holdings
10. Schwarz 

A few other interesting insights from the 2008 study: 

• US Leadership – 37% of the Top 250 global retailers were based in the US.  45.5% of sales from the Top 250 were from the US market.  Most of the US leaders are non-grocery retailers and most only sell in the US.  Apparel is particularly strong with the US claiming the top 5 global chains worldwide.
• Emerging Markets - Chinese retailers are growing quickly with 6 retailers in the Top 250 and 3 of the Top 10 fastest growing chains (GOME, Suning Appliance and AS Watson).  There are no Indian retailers in the Top 250.  However, Russia and Eastern Europe are well represented.  In fact, Russia’s electronics retailer Euroset Group is the world’s fastest growing chain as measured by 2001-2006 sales.
• Sector Analysis – Hardlines, which as defined by Deloitte includes consumer electronics, office supplies and toy retailers, was the most globalized sector with leaders such as IKEA (37 countries), PPR (45 countries) and Toys “R” Us (35 countries) represented on several continents.   Hardlines enjoyed 14.5% CAGR from 2001 to 2006 – largely driven by the housing bubble in markets such as the US and UK. 

These are a few of the highlights from the study, but they don’t do justice to the outstanding presentation delivered by Dr. Kalish.  He provided what I think is the most succinct and easy-to-understand explanation of the root causes of the global credit crunch and its relationship to the US trade deficit and mortgage crisis that I have heard from anyone.  He then went on to reveal some fascinating insights about the retail market in 2007 and some intriguing predictions about what we can expect in the years to come.  While, Dr. Kalish’s presentation was without question the best session I attended all day, I could not help being somewhat distracted by my peers in the audience.   One of the most interesting aspects of the Sunday morning sessions at NRF is the attendee demographics and behaviors you observe.  On Sunday most of the attendees are not actually from the US, but instead from overseas.  There is a particularly large contingent from Europe and Latin America.  The Asian and the Middle Eastern countries are also represented, but with significantly fewer attendees.  These attendees are all hard-core retail types.   Many of them have traveled more than 3,000 miles to hear from the leading US strategists on innovations in consumer marketing, real estate and store design.   Although it is a Sunday most of this group is dressed in business attire.  And many are carrying digital cameras which they use to take snapshots of important slides presented during the conference.  By the way, these are not the disposable cameras you buy from a street merchant in Times Square or even the standard consumer digital cameras you use to take pictures of your family.  These are high end digital SLRs, which reflects both the passion and intensity of the audience.

Another excellent session I attended was titled “How America Shops” by a firm called WSL Strategic Retail.  I had not heard for WSL (www.wslstrategicretail.com) prior to this show, but I was very impressed by the presentation given by Wendy Liebmann, their Founder and Chief Shopper.  This session was attended by another capacity crowd eager to learn from WSL’s findings about consumer preferences and shopping behaviors. The theme of the presentation was “It’s Anarchy,” referring to the erratic buying behaviors exhibited by US consumers.  However, the theme proved to also be excellent foreshadowing for the end of the session.  WSL had produced about 100 color copies of the presentation handouts.  However, the room must have had at least 400 attendees.  As the session broke there was a mad rush by the crowd of to get a hard copy of the presentation.  People were literally pushing, shoving and kicking each other to make their way to the table to grab a copy.  It reminded me of being stuck in a mosh pit.  It is hard to believe that one would observe this type of behavior on a Sunday morning at a retail tradeshow, but as I stated above – these folks are hard core.  I did manage to get a copy of the handout, which I am considering auctioning on eBay…

Steve Keifer

© Copyright 2007 GXS, Inc.  All Rights Reserved.

Holiday EDInomics Part 4

Of all the presents exchanged this holiday season, what gift do you think was received by more people than anything else?

• Video Game Consoles
• Navigation Devices
• DVDs
• Clothing 

If you read the title of the blog you probably have already guessed that none of the answers above are the one I am looking for.  The answer is gift cards.  Gift cards have enjoyed phenomenal sales this holiday season.  An NPD Group poll found that 61% of consumers are giving gift cards this year.  I doubt you would find any other product category so frequently purchased as a holiday gift.

Although Christmas is over, the shopping has just begun for many.  Gift cards have contributed to a third big wave of holiday shopping (following 1) the Thanksgiving weekend and 2) the few days preceding Christmas).  A CNNMoney story posted earlier this week suggests that American consumers will spend $60B on retail purchases during the week between Christmas and New Years.  In 2007, December 26^th will ranks 6^th amongst the highest grossing retail shopping days of the year.   Of course, the post-holiday rush is not driven by gift cards alone.  Retailers often host aggressive merchandise promotions in their end-of-year sales.   Aftermarket accessories are another driver for post-holiday sales.  Consider all those electronic devices your family received on Christmas.  How many people will take to the stores in search of accessories, batteries or media to support these new gizmos?    But back to gift cards - the sales uplift received by retailers doesn’t stop at year end.  Gift card redemptions will carry forward into January providing a boost to first quarter sales for many retailers.

I have been fascinated by the growing gift card phenomenon in the US for the past several years, but it wasn’t until this holiday season that I put my finger on what really intrigues me.  It started with a visit to Safeway earlier this month.  While I accompanying my wife on a weekly grocery shopping trip, I turned the corner of an aisle and was amazed to see an entire rack of gift cards located on one of the end-caps.  This end-cap was prime real estate in the grocer’s floor plan, occupying space near the check out registers that would otherwise be reserved for a high-turnover promotion item.   But the plan-o-gram strategy was not what caught my attention.  What was fascinating to me was that most of the cards were not for redemption at Safeway.  The cards featured brands of third parties.  For example, there were a variety of cards from other retailers including DIY stores such as Lowes and Home Depot; department stores such as Kohl’s and Sears; and food service establishments such as Red Lobster and Outback Steakhouse.

Safeway is not the only retailer selling other retail brand cards.  General merchandisers such as Wal-Mart and Target; convenience store operators such as 7-Eleven and WaWa; and grocery stores such as Kroger and Albertsons are all selling gift cards.  Cards are available for telecommunications services such as long distance and wireless calling as well as for entertainment venues such as theme parks and sporting events.  And there are general purpose cards available from leading payment brands such as MasterCard, Visa and American Express.  Most interesting to me is the growing willingness of retailers to promote gift cards from other retailers.  The cards carried are never from direct competitors, but instead from popular food service, electronics, DIY and specialty store brands.   Well, at least, not traditional competitors.  I did find it intriguing that a grocery store would promote gift cards for food service chains.  One of the biggest challenges grocers face with increasing sales is the continuing trend of Americans to eat out at food service establishments.   In many respects, food service is a competitor to the grocery segment.  So the prominence of food service gift cards is either a gross oversight on the part of merchandising department or an ingenious strategy to capture sales from a non-core segment - the food service market.  I’ll assume the latter.

The New Retail-to-Retail Channel 

Typically retailers have limited their merchandise assortment to products they purchased from suppliers national brands, private label items they designed themselves and occasionally services from third party contractors.  Rarely, if ever, have we seen retailers selling products or services from another retailer.  The gift card has introduced a new horizontal, retailer-to-retailer channel into the market.

What are the implications for EDInomics?  We will explore this topic in a future post later this week. 

Steve Keifer

© Copyright 2007 GXS, Inc.  All Rights Reserved.

Holiday EDInomics Part 3

It’s December 24^th.  For many gift buyers panic is beginning to strike (if it hasn’t already).  There are only a few hours before the stores will close for Christmas and the window of opportunity for 2007 holiday shopping will have closed.   The panic is especially high for shoppers who may not have received all of the gifts they purchased on-line.  There are only a few hours of parcel delivery remaining for those critical packages to arrive.  Some of these on-line gift buyers may find themselves disappointed.  What to do if you are one of these panic-stricken shoppers still missing a few essential gifts?

·         Some will stand by the window with nervous anticipation, hoping to hear the familiar roar of a parcel carrier’s truck engine as it travels down their street.

·         Others will frantically head to the stores, hoping to purchase a back-up gift just in case the shipments bought on-line don’t arrive.

But most will probably start by logging onto the Internet hoping to get an up-to-date status on their anticipated deliveries.  Unfortunately, many will fail to find satisfaction on-line. 

Lost Packages 

The largest, most experienced retailers provide consumers with visibility to the status of their Internet orders on-line.  A popular technique is to provide the consumer with a shipment tracking number.  The tracking identifier can be used on a third party site such as FedEx, UPS or DHL to identify the last known location of package.  However, many second and third tier on-line merchants still lack such an order tracking capability.  Status information is typically limited to “order received” or “expected due date.”  Those retailers without on-line order tracking sometimes provide a toll-free phone number for consumers to call.  However, customer service representatives in retail call centers rarely have more information about the location of the package than can be obtained on a web site.  Not only do these retailers not know when the package will arrive, but many do not even know when the package shipped. 

How is that possible you might ask? 

You place the order with the on-line retailer and then someone in the warehouse puts a packing label on the box and sends it to you. 

How hard could it be to track this process? 

Right? 

Wrong! 

Drop Shipped 

Unfortunately, it is not that simple.  Many retailers use a process called “drop ship” for on-line orders.  With drop ship, the retailer forwards the consumer’s order directly to the manufacturer for fulfillment.  The manufacturer ships the package directly to the consumer straight from their warehouse.  Some retailers even provide the manufacturer with custom-branded packaging materials to create the appearance that the package shipped directly from the retailer.  99% of the time this drop ship process is a strong positive for consumers.  By shipping direct from the manufacturer’s warehouse the package arrives faster and the price is lower.  If the shipment were routed through the retailer’s distribution center first and then forwarded onto the consumer, several additional days would be required.  Furthermore the shipping costs would be higher due to the use of multiple carriers and the need to involve more warehouse personnel.  The drop ship process is efficient for the retailer as well.  Using drop ship, the retailer does not have to hold as much inventory in their distribution center.  Drop ship is especially effective for:

·         Infrequently ordered products which would not be cost-effective for a retailer to stock

·         Expensive products which may be costly to stock in any significant volume

·         High turnover products which may be challenging to keep in stock

·         Time sensitive products which need to be transported as quickly as possible

The challenge with the drop ship process is visibility.  The retailer lacks visibility into when the product shipped and where it is located.  This is not an issue until something goes wrong.  And usually nothing does go wrong.  However, in the peak of the December holiday shipping period, some packages will inevitably be improperly labeled, incorrectly routed or accidentally lost.

So what is the answer?  Don’t wait until the last minute to buy gifts online?

Well…that is one option, but probably not realistic for many of the procrastinators who make the last minute on-line purchases.  A better option is for on-line retailers using “drop ship” models to ask their suppliers to send an “Advanced Shipment Notice” or ASN.  The ASN, often referred to as “the 856”, which refers to its ANSI X12 document number,  is an EDI document used to communicate key information about the consumer’s shipment to the retailer.  Common data within an ASN includes the transportation carrier, point of origin, expected arrival date, package dimensions, content weight and the shipment tracking identifier.  Once received from a supplier, the ASN data can be stored in the retailer’s system along with the consumer’s order.  The shipment information can be exposed on the retailer’s web site or be available to customer service personnel in the call center.  Either way, the consumer’s questions about when the package was shipped and where it is located can be answered quickly.

Lost Customers and Dropped Relationships 

So why don’t more tier 2 and 3 retailers use ASNs?  As with any IT initiative, key reasons businesses do not deploy technology are:

1) Lack of experience

2) Costs to implement and support

3) Inability to justify

The full cost of an ASN including creation by supplier, delivery over a network and receipt by the retailer is less than a first class postage stamp.  So it adds negligible cost to both the manufacturer and retailer.  In fact, many manufacturers are already providing ASNs to their retail customers for traditional orders delivered to the physical store.   Expanding an ASN program to include drop ship orders is a natural extension of their existing program. 

As for justification - it is much more cost effective for retailers to warehouse the ASN data (rather than the physical product).   But more importantly, the risk of losing consumer loyalty is too high to not provide this type of customer service.  For Internet shopping, the competition is only a click away.  Being empty-handed on Christmas is a memory one doesn’t easily forget.  The odds of a consumer making a repeat purchase at a retailer who failed to deliver last Christmas are remote at best.

Steve Keifer

© Copyright 2007 GXS, Inc.  All Rights Reserved.

Holiday EDInomics Part 2

There is a great article in the current issue of Business Week on the supply chain challenges Nintendo is experiencing with availability of its Wii console this holiday season.  This is an intriguing subject to me because it seems like every year there is one hot product that everyone wants, but no one can find.  Back in the 1980s we had “must have” gifts like the ColecoVision and Cabbage Patch Kids.  A few years ago the Sony Playstation 2 was the killer gift and then Apple’s iPod Nano. 

A few interesting insights on Nintendo’s Wii from the Business Week article:·        

• “Over Thanksgiving weekend, online retailer Amazon.com reported that its British site sold out its entire stock of Wii consoles in just 10 minutes.”·          
• “A search of eBay’s U.S. site pulls up thousands of listings for new Wii consoles, with bidding well above the suggested retail price.”  “Some…are going for triple the suggested retail price online.”

I’ve always wondered whether the hardware OEMs who manufacture these products intentionally short supply during the holiday season just to create a buzz.  Certainly, the hype around these “hard to find” products is successful in creating even greater demand.  One could argue that the hardware manufacturer enjoys higher margins from such an approach as they can sell the product at full list price.  Additionally, the OEM stabilizes sales across a broader time horizon throughout the year, rather than peaking around the holidays and experiencing lower sales in the subsequent quarter.  And with under-supply, there is no risk of excess inventory to manage.  All of these factors make an argument for intentionally limiting supply.  Or could it be that OEMs struggle to accurately forecast sales for these items, or for that matter, to manufacture in sufficient quantities to meet consumer demand.

The video game sector presents an interesting case study to examine this issue of supply and demand.  The industry economics are such that the video game consoles are typically positioned as loss leader products.  Higher margins are generated from sales of the actual games to the captive install base of owners.  Royalties from the game sales are shared by the publisher with the console manufacturer.  From a supply chain perspective, if the consoles are not in stock then game sales will suffer as the install base will be smaller.  Given this, it seems unlikely that any OEM would deliberately short supply.  Furthermore, with the fierce competition that exists between Nintendo, Microsoft and Sony, it seems unlikely that any OEM would risk losing market share during the key selling period by limiting supply.

So how does EDInomics fit into all of this?  B2B integration technologies are the key enabler that allows manufacturers to obtain demand data from their downstream channel partners, the retailers.  But that begs a larger question - What types of data can high tech OEMs use to better forecast demand for holiday season sales of hot products such as HDTVs, video game consoles and digital music players?  To build an accurate forecast will necessitate gauging consumer demand months in advance.  Demand signals such point-of-sale, loyalty or market basket data would probably less useful in this scenario.  It’s unlikely that console purchases in September or October would provide meaningful insights into demand in November and December.  In fact, an inverse correlation may exist as those in the market for a game console will probably defer their purchase until the holiday season.  More accurate sources of demand data might be the frequency of page clicks on popular on-line retail sites such as bestbuy.com;  links to the product on personalized “Wish Lists” such as amazon.com; or the number of bids on auction sites such as eBay.  Or if one could somehow eavesdrop on the holiday wishes children are telling Santa at local malls…  There are obvious privacy challenges with all of the above, but there are perhaps ways that data could be aggregated to prevent identification of individual consumers.

Once demand data is aggregated, a critical factor in supply chain success will be the ability of the OEM to propagate this demand data to multiple tiers of the value chain.  Regular updates of forecasts and inventory need to be shared with the contract manufacturers who produce the consoles; their suppliers who fabricate the semiconductors and components; and, of course, game publishers who distribute the software.  Access to electronic information whether it is via direct integration of ERP systems or using web portals will be a necessity to respond quickly to new demand signals.

With regard to Nintendo, I think the real story is not so much the supply chain challenges it has experienced in the past month, but rather the phenomenal sales success the Wii product continues to enjoy.  One year after the product introduction, Nintendo’s Wii is still experiencing amazing success in the marketplace.  Sales growth continues even with the recent introduction of Sony’s Playstation 3.  Nintendo’s quarterly earnings reflect the results.  On October 26^th the Wall Street Journal reported “Nintendo’s group net profit rose to 132.42 billion yen ($1.16 billion) for the half ended Sept. 30 from 54.35 billion yen a year earlier. Sales for the Kyoto-based company more than doubled, to 694.8 billion yen from 298.82 billion yen.”  Wii can only be envious of such strong results…Here are the links to the Business Week and Wall Street articles I referenced above: Business Week - A Long, Long Wait for a Wii, -http://www.businessweek.com/magazine/content/07_51/b4063030297026.htm?chan=magazine+channel_newsWall Street Journal – Nintendo Plays it a Wii Bit Cautious http://online.wsj.com/article/SB119697501146616201.html

Steve Keifer 

© Copyright 2007 GXS, Inc.  All Rights Reserved.

Tomorrow is the release of Season Six of Fox’s 24. And next Tuesday on December 11^th we will see the release of ABC’s LOST Season 3. These are, in my opinion, the two best programs on television today. And I, along with millions of consumers, will be rushing to stores in during the holiday season to buy these new DVDs along with other releases such as Harry Potter and the Order of the Phoenix; Pirates of the Caribbean at World’s End; or Shrek the Third.

Amongst the topics on the minds of me and my fellow DVD shopper’s minds are:

· New Seasons - Will the Screen Writers Guild strike affect the new seasons of 24 and LOST starting after the New Year? Or will we spend this upcoming spring watching the DVDs of last year’s seasons rather than new programs?

· LOST - Will the distress call Jack placed to the nearby ship be answered by friend or foe?

· 24 - Will a city other than Los Angeles actually be the target of attack? Will Kim Bauer finally be written out of the plot?

Covers of the new DVD releases:

But I doubt many, if any, of the shoppers stop to consider:

· Product Availability - How does my retailer know how many of each DVD to have in stock so that when I come into the store I will be able to find the title I want?

Herein lays an interesting challenge unknown to the average consumer. Home entertainment products such as DVDs as well as their peers in the CD and video game categories have some of the more complex supply chains in the retail sector. One of the biggest supply chain challenges is in the area of new product introductions. For DVDs, up to 80% of the sales of a product typically occur in the first few weeks after the product launch. As a result, ensuring that products are always available on retail shelves is critical for both home entertainment brands and the retailers who sell them. Out-of-stock scenarios for DVDs can often result in a lost sale. Each lost sale can represent between $3 and $6 potential profit. Eliminating out-of-stocks is more challenging than one might expect. Each DVD title has its own unique demand characteristics. Retailers and brand owners are challenged to estimate launch time sales as they have no historical demand pattern to build forecast models. The supply chain challenge grows more complex when one considers that for each title, there may be multiple SKUs. Each DVD launch typically includes a widescreen and standard format version as well as HD-DVD or Blu-Ray formats.

So how do retailers replenish their stores with DVDs? The process works as follows. Each night the retailer aggregates point-of-sale data from its stores and transfers the information to the brand owner. The sales consumption data along with last-known store-level inventory positions are utilized to assess stock positions at each individual store. The data is then fed into a replenishment application which can calculate SKU-level stocking needs for each location. The calculated replenishment quantities are used by companies called video duplicators to manufacture the actual physical DVDs. The shrink-wrapped product is then routed by the duplicator or a third party logistics company directly to the retail stores. As a result, consumers can expect to find the title of their choice at their local retailer.

Of course, the key to this whole process is the ability for retailers, brand owners, video duplicators and third party logistics companies to share point-of-sale, inventory and logistics data amongst one another in a timely manner. Sometimes the entire replenishment cycle can be as short as 24 hours, but this is necesary to ensure sales are not lost to out-of-stocks. This is an excellent illustration of how the B2B technology is used to power complex, demand driven supply chains. And those retailers and DVD manufacturers who can master these B2B processes will gain a competitive advantage over their peers by suffering fewer out-of-stocks and maximizing sales of new product introductions. All of this is yet another example of EDInomics at work…

Steve Keifer

© Copyright 2007 GXS, Inc. All Rights Reserved.