Kathryn Cullen is a senior principal in the technology innovation practice of Kurt Salmon Associates, the Atlanta management consulting firm. She works with retailers and consumer product manufacturers to find creative ways to apply information technology. She sat down with WWD to talk about the technologies that are changing retail.
WWD: When you think ‘retail’ and ‘technology,’ where’s the momentum?
Kathryn Cullen: The POS [point-of- sale] movement continues on. It’s a very major investment, but it’s also becoming recognized as key to improving the business and improving the customer experience. So while it looks like the POS is just terminals in a store, it’s much more than that.
We are looking at POS decisions as being foundational to helping retailers understand and better place product. With better consumer information, they are going to be able to train sales associates to do more things, increase sales, turn returns into potential sales and track when they are losing sales.
It’s sort of that catch point for bringing better information back to serve the consumer better. So when we start thinking about a POS decision in that context, it becomes bigger. It makes it a little bit more important.
WWD: Haven’t we talked for years about the value of collecting data? What’s really new here?
K.C.: We are looking at the quality of data. And I am going to touch on a subject that is dry, boring, dull: data synchronization. If we don’t have synchronized and clean data, we can’t do anything. We cannot make our extrapolations. I mean, we can do some of it, but it’s really critical to being able to extrapolate for better information about consumers but also to share back with your suppliers to collaborate better.
Companies are really focused on the importance of cleaning up that data and the POS systems are going to help them do that.
WWD: Are apparel companies thinking about data synchronization?
K.C.: Data synchronization is important for all segments of the consumer goods marketplace, both grocery and apparel, as well as hard goods. It has been more readily adopted by grocery and hard goods. The challenges facing apparel are the frequent new product introductions and changes for fashion items.
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Today, most of these product intros are handled via catalogues between the supplier and their retailers. However, there are still discrepancies that creep into the catalogue data via timing differences and frequency of updates. These discrepancies continue to create problems for order-, invoice- and ASN- [advance ship notice] matching efforts between the suppliers and the retailers.
The apparel suppliers and retailers are working to define the gap between what they do today via their catalogues and what they could be doing if they followed the data synchronization recommendations.
WWD: Can you give an example of the troubles unsynchronized data causes?
K.C.: Ugh. Every retailer we have worked with has recognized when they start to clean up their data that it’s inconsistent. Many retailers — and Wal-Mart, too — have found that 70 percent-plus of their data needed to be cleaned. I mean, they’ve got cases of product coming through that door so quickly, but if they don’t have the right [physical] dimensions about that product, they may not be able to receive it effectively. If you don’t have the current product information in placing an order, you may not get that order on time.
WWD: What is 2005 shaping up to be ‘The Year of’?
K.C.: It may be ‘The Year of Let’s Not Talk About RFID Too Much’ because we are still trying to clean all of this [data] up. It’s taking all of this time, but [radio frequency identification] is not going away. There is a little more openness on RFID on the item level side, but there is recognition of problems in the distribution center with all these multiple devices starting to conflict with each other.
WWD: Do you mean radio frequency signal interference among devices used to read RFID tags?
K.C.: Absolutely. We are still dealing with getting the technology buttoned down. It’s not there yet.
Let me go back to ‘The Year of.’ We’re looking at this multichannel issue. Internet sales are booming. They are growing 25 to 30 percent faster than people expected them to grow. They are growing six to seven times faster than retail store sales are growing.
Almost every client we are working with is considering how to expand their Internet reach. It used to be that you had a metric that said your Internet sales should be equal to one store, and then it was one of your biggest stores and now it’s, oh, baby, there’s no limit. Your Internet can be whatever you as a retailer want to make it. It is a very credible sales venue for consumers today.
WWD: A ComScore survey says 97 percent of consumers expect a seamless experience across every channel. How many are getting it?
K.C.: Oh, I think it’s much less than 50 percent. The fact that you can walk into a retail store with a product that you purchased either on the Internet or a catalogue and you can’t return it there, you can’t find it in that store or the clerk doesn’t even want to talk about this other channel, is extremely frustrating to consumers.
WWD: Why aren’t more retailers gearing up to address this?
K.C.: First of all, you’ve got some organizational differences within a retailer — between their Internet site and retail stores — so you don’t have that [internal] collaboration. This relates not just to merchandising of the product itself but also the level of service and sharing of consumer information across channels. There is some recognition of the problem, [but] I don’t know that retailers are willing to break down the barriers they’ve built up in their own organizations to achieve this.
WWD: Where does technology fit in here, to support a seamless, multichannel experience?
K.C.: There’s a couple of things. One is creating that customer information database. You need to know that when a consumer comes into the store, you may not sell them the product from the store. You may in fact sell them a product from the Internet or the catalogue because you don’t have it in the store.
You need to track the fact that the consumer walked into the store, but the order was fulfilled from a different source. That then drives you, as the retailer, to start to analyze this information, and get the right product to the right place.
The other part is starting to track in more detail product attributes. What sizes are they buying? What colors are they buying? What are the dimensions of the product? Is it a wider leg pant? Is it a narrow-leg pant? It’s not about just looking at style, color, size but also cut and fabric. These are more detailed product attributes that the better retailers are starting to track and understand, not just to use for trends for product design, but using it for product replenishment and assortment planning for the stores.
WWD: How does this play into the larger supply chain?
K.C.: You can now take this information and start to understand how a product flows and get good information about forecast and demand. A good forecast allows you to then go to a supplier that may in fact be the least flexible supplier that is just going to be able to deliver black slacks. So it can even affect the decision about what suppliers you use for which product, based on how well you understand demand and that consumer.
It’s taking this demand chain information that we have on the consumer and what they are doing in our stores and feeding it back to tell suppliers not only what [to produce], but also to make decisions about which suppliers make which products. It’s about matching characteristics of suppliers to characteristics of product demand and forecasting capability.
WWD: Is anyone putting this into practice?
K.C.: The vertically integrated retailers are obviously better able to do this because they have a little more control, but mass is certainly doing more of that. We have seen more and more manufacturers say they want to move to VMI — vendor managed inventory — where manufacturers take more responsibility for making sure that replenished product is there and on the shelves.
This is where RFID is starting to come in because more folks are talking about it at the item level. Abercrombie & Fitch is a good example. They are using it in their stores now to check [inventory levels of] certain high-price items. You don’t need to do it on everything. But you can use these handheld RFID scanners to do a perpetual inventory daily if you wanted to. For certain high-priced products, boy, it’s a great idea.
WWD: How about RFID’s role in fighting counterfeiting and diversion? Is there growing interest?
K.C.: No. While diversion and counterfeiting is an issue for Kenneth Cole or Coach, they don’t see RFID as a solution there yet. Yeah, I can’t sell it. It’s not on the radar screen. I think these folks are really focused on the customer experience.
Another really hot topic is PLM, product life cycle management, and PDM, product data management. There is a lot of activity on that. PLM and PDM take the creative process and provide some structure around it. It allows an organization to use the information they [generate] during that creative time period.
More importantly, [apparel companies] are starting to share this information with their suppliers in other parts of the world to help them to manage samples and lab dips much more efficiently than before. You can look on computer screens now and see a color the same way in one part of the world as you see it in another.
WWD: The hype about customer relationship management seems to have settled down.
K.C.: I don’t think it is going to go away. I think retailers are looking for the right tools for better CRM information.
CRM is not just having a call center that answers a customer’s question. It really is a broader-based issue [and involves] anyone who touches the consumer, whether it’s the sales associate in the store, whether it’s an Internet activity or catalogue, or customer service call center. Any one of those [channels] needs to have consistent information about the consumer’s activity across the channels, and the ability to not just respond to the customer, but do adequate customer service.
WWD: It seems like it should be easy …
K.C.: It’s hard! It’s not easy! No! This is huge. We can gather this data and know a little bit about a customer, but now this is where we get into retail analytics. When I understand this consumer, what are the rules I use to look at my product and target the right products to her. I’ve got 500,000 stockkeeping units here that I need to think about. Which are the right ones for this person who has three minutes, maybe, on the phone?
It’s different for every channel. If you are talking the catalogue and you are on the phone, it’s only going to be a few minutes and I need to be fast. But if it’s Neiman Marcus and a customer walks into the store with some time on her hands, then it’s catering to the individual needs, and now we can look at a designer collection. It’s a different message in the store because you have a little more time. That time issue changes your message.
We are still at the point where 70 percent of people walk out of the store without buying a product. You know, if you are a retailer, it just makes you gag. It makes you crazy. We have got to figure out: What is it they came in for and why are they leaving empty-handed?
And here is where the POS system comes in again — giving the sales associate the ability to track some of that, to be able to add in comments, like, ‘Gosh, we had six people come in for these tape recorders today, and I only had two.’ That’s four lost sales. Associates can tell you that. You just have got to give them the right tools.