Uncertain times in US apparel retail

The last couple of years have been exceptionally uncertain for US apparel retailers. As is seen from the graph below, sales had a significant year-on-year dip in September 2008 with the financial crisis. Each of the subsequent twelve months witnessed year-on-year declines. In September 2009, apparel retail sales started showing signs of stabilization. Since December 2009 retail sales have shown year-on-year increases. As of July 2010, apparel sales have crossed 2007 levels and appear poised for a full recovery.

Figure 1: US Monthly Retail Sales ($ BN) for Apparel Retailers (US Census)

However consumer sentiment remains much subdued. Although the University of Michigan Consumer Sentiment Index (refer Figure 2) has recovered from the lows of late 2008, it is still at/below the levels seen during the slowdown in the early 1980s and the dotcom crash in 2000. The lack of cheer among the consumers has made the outlook highly uncertain for apparel retailers.

Figure 2: University of Michigan Consumer Sentiment Index

Existing home sales, another important indicator of economic wellbeing, had a dramatic decrease in recent months. This has left many wondering how the future will shape up.

Figure 3: Seasonally-adjusted US Existing Home Sales (National Association of Realtors)

This period of uncertainty has left retailers rethinking their allocation plans and inventory management. Inventory turnover ratios dipped significantly between September 2008 and March 2009 (Q3’08 and Q4’09). Retailers adjusted to the new realities of low consumer sentiment, reducing retail sales and credit deleveraging, and adopted a more cautious inventory approach and an aggressive sales (discounting) approach. This led to higher turnover ratios between April 2009 and October 2009. Just as higher retail demand kicked in during Q4’09, the inventory turnover ratios returned close to 2007 levels.

Figure 3: Inventory Turnover for US Apparel Retailers (US Census)

Retailers have been cautious in filling shelves in the first two quarters of 2010. Retailers such as Macy’s have commented about their disciplined approach to inventory management. Inventory turnover ratios across the industry are running at historically high levels reflecting tight inventory management. Of course, one could wonder whether retailers are losing sales because of lesser material on the shelves.

Now, more than ever, apparel retailers will have to pay careful attention to making sure that the right product is in the right places at the right time and the right price. Retailers can use advanced analytics to better decisions in assortment, allocation, forecasting and pricing.

If you are interested in apparel retail best practices in assortment, allocation, forecasting and pricing, please write to me at raj@knowledgefoundry.net

Localizing assortment in fashion retail

CNBC reported today that Macy's recent outstanding results can be attributed to its local approach to customizing its assortment and its size mix (click here).

Chief Executive Officer Terry Lundgren attributed the results to better margins, disciplined inventory management and Macy's program to allow stores greater leeway in catering to local tastes. These factors also prepared the company to woo shoppers despite the threat of a new dip in consumer spending.

Although the department store chain has centralized its buying, planning and marketing operations, it also has local managers on the ground who examine sales data and travel to a specific handful of stores to study customer buying at those locations. Based on their work, individual Macy's stores may decide to stock more of a particular dress size in a particular style, for example.

Other store chains make similar inventory moves, but without the granularity of Macy's approach. For example, a store may ship more of a specific size for a whole range of clothing to a store. That may be all it takes to make more apparel sell at a full price rather than linger on the rack and be marked down.

Kudos to Macy's.

Based on our work for several US women's apparel retailers, I can tell you that assortment localization can be achieved through good analytics. Retailers don't need many local managers to observe the shelves to achieve localization.

The key aspects of analytics for assortment localization include:

• Collating the transactional sales data (gross sales ($,units) , net sales ($, units), cost ($)) at a weekly level across stores for the past few quarters -- typically hundreds of millions of rows
• Adjusting the sales data for stock-outs and negative margin sales (to get a true picture of demand for each style at a store level
• Rolling up the sales data to the desired level of product hierarchy (Department/category/class/section/end-use/Color/Size/etc)
  
• Using the rolled-up adjusted sales data across stores to decide assortment and allocation for the future.

Drop me a mail at raj@knowledgefoundry.net if you want more details.

... phone?... tablet PC?... No it's a Dell Streak Part 2

I have commented earlier on Dell's mobile device strategy (click here) and on the Dell Streak (click here).

Today Walt Mossberg reviewed the Dell Streak (click here) in the Wall Street Journal. Some salient points:

• I couldn’t find, and Dell couldn’t identify, any apps written especially for its larger screen. In fact, a few Android apps I tested seemed to crowd all their icons into just a portion of the Streak’s screen, especially when the device was held vertically, leaving lots of white space.

• It’s much lighter than the iPad, at just under half a pound, but heavier than many smartphones. In my tests, I found I could carry the Streak comfortably in the pocket of loose jeans, or in a suit jacket’s inner pocket, but not in a shirt pocket or the pocket of more fitted pants. It would take up a lot of room in a small or medium-size woman’s handbag. And it looks somewhat ridiculous when held up to the ear to make a phone call.

• When held horizontally, the screen felt luxurious, with lots of room, and good sharpness and color, for playing video or viewing photos. Even in portrait mode, reading books using the Amazon Kindle app was a much better experience than on any smartphone I’ve tested, though not nearly as good as on the iPad or Kindle e-reader.

• Its 5-megapixel rear camera took sharp photos and fair videos, and phone calls sounded clear. The large screen was a big plus for Google’s free voice-prompted navigation app. Battery life was very good, easily lasting a full day, and the battery is removable.

• But the Streak also crashed on me several times. On one occasion, it started vibrating endlessly, only stopping when I removed and replaced the battery.

• The device has a front-facing camera—unlike the iPad, which has no camera at all. But video calling isn’t integrated, unlike on the new iPhone, and requires you to sign up for a third-party service.

• Twice the device proclaimed it couldn’t find the memory card and had to be restarted before it could. Twice, the YouTube app failed to load any content.

• Also, the buttons on the top edge for turning the Streak on and off and for taking pictures are very close together and easily confused for each other. And the camera button eventually stopped working for me altogether. The speaker, located on the back, sounded tinny when playing music. And it was too easy to block the rear camera with a thumb or finger when holding the Streak naturally.

• Dell sees the Streak as a tablet first, with phone calling as a secondary function. It may well appeal to people for whom the iPad is too large to carry around, yet want some of the tablet experience coupled with a phone. But tweener devices can be hard to love and Streak buyers will have to overlook some of the shortcomings I encountered.

No one says it better than Walt.

Is it a phone? Is it a tablet PC?... No it's a Dell Streak

Dell Streak has launched in the UK and will soon be launched in the US. Here is the product page from the Dell UK website (click here) and a much better product page on the O2 UK website (click here). Here's a more instructional blog post from Dell (click here).

I had blogged in January 2009 (click here) about Dell's entry into smartphones. I had said then that Dell would find it a difficult business plan to pull off. It's time to revisit that assessment. (Of course, Streak is a cross between a smartphone and a tablet PC, not just a smartphone, but lets park that for now).

I was able to see a real-life demo of the Streak (don't ask how) and was impressed by the clarity of the display and the compact form factor.

Here's what works in the Streak's favor (or 'favour' if you are from the UK):

• It has a 5 inch screen as compared to the 3.5 inch screen of the iPhone4
  
• Dell Streak is based on the Android platform, which is an open platform, as opposed to the Apple platform.
• The Streak has a Gorilla glass display that prevents scratches.
• It is priced more attractively than the iPhone 4 (GBP 399 with Pay as you go compared to GBP 470 for the iPhone; On O2 it is free with a GBP 25 plan as opposed to a GBP 60 plan for the iPhone4)

Here's what works against it:

• Should I compare Streak with iPhone or iPad? Is there really a white space between a smartphone and a tablet computer?
• The brand pull of iPhone, iTunes and Steve Jobs
• iPhone4 has Retina Display.... one can read a significant part of a newspaper page on the 3.5" screen without squinting
• iPhone4 has video calling whereas the Streak does not

I still think Dell Streak will find it difficult to crack the US mobile market. Here's what Dell needs to do (to pose a serious challenge to Apple in this space):

• Don't launch exclusively on AT&T. Go for T-mobile, Verizon Mobile, Sprint, also so that you are not competing head-on with iPhone4.
  
• Clean up the Dell website to give more focus to the Streak. Currently you have to click 3-4 times to know that Dell sells mobile phones too. Maybe they should launch a separate product website for the Streak.
• The website needs to have more video on how the phone looks and feels. They should show how apps looks on the phone when they run... In PCs that is not critical as most potential customers have worked on PCs before.
  
• Currently Dell sells rival mobile phones (Samsung, HTC, etc) including some Android models. They need to be clear whether they want to sell Streak or help their rivals sell their smartphones.

I still feel it is difficult for Dell to pull this off....but I'll wait to be surprised.

Cola wars begin again

Pepsi is relaunching its cola wars ad from 1995 with a new generation twist. (Click here).
Interestingly they are comparing Coke Zero with Pepsi Max.

Interesting sections of the NY Times news article:

Introduced in Britain and Italy in 1993, and widely available in Europe ever since, Pepsi Max was not introduced in the United States until 2007. The sugarless cola, which is sweetened with a combination of aspartame and acesulfame potassium, contains nearly twice the caffeine of Diet Pepsi, and also contains ginseng.

A 2009 report by Mintel, the market research firm, said the soda’s sales had been “impressive,” even during the economic downturn, “likely by attracting price-sensitive energy drink users.”

I had earlier blogged (in November 2008) about the potential of Pepsi Max in the US market (click here) due to the attractiveness to price-sensitive energy drink users. I am pleased to see that variant doing well.

Also interesting to note, from the same NYT article:

Diet Pepsi is more popular with women, but about 60 percent of Pepsi Max drinkers are men, according to Lauren Hobart, chief marketing officer of the sparkling brands division of PepsiCo. Diet sodas popular with men, like Pepsi One, Pepsi Max and Coke Zero, which many in Europe refer to as “bloke Coke,” avoid a word to which marketers believe men are averse: “diet.” (It is a widely held view in the weight-loss industry that men are more apt to say they need to “get in shape” than “go on a diet.”)

Among the company’s sugarless brands, Pepsi Max is popular with Gen X and Diet Pepsi with baby boomers.“Boomers generally grew up drinking Diet Pepsi but Gen X has been raised with more choices, and we’re trying to provide more choices that may meet their needs differently,” Ms. Hobart said.

Its interesting how demographic (gender, age) segments have distinct choice preferences and how product names can play a big role in product choice. Brand managers at both Pepsi and Coca Cola must be busy poring through their Usage & Attitude (U&A) studies to understand the segmentation better and to better target their products... Watch out for interesting positioning moves in the cola variants!!