Supply Chain Management in the Age of Unreal Experience

The Internet has conditioned consumers to expect huge selection and instant gratification, while obsessive online research into available options has created major purchasing and inventory dilemmas for travel goods retailers. Retailers have to carry a larger range of products (more dollars tied up in inventory), with lower average turns, to maintain the same sales volume. Marilyn Janisch of Going in Style, in Palo Alto, CA, shares what seems to be a universal experience, that “retail has become more of a challenge because of online shopping and consumer expectations.” There’s a lot more pressure on everyone’s forecasting ability, as well as the perception of less margin to go around – less margin and more risk – which makes SKU control an increasingly valuable skill for retailers and manufacturers alike.

Market Intelligence: Winning Through Sharing

When manufacturers and retailers share market intelligence, forecasting and purchasing get less risky and everyone wins. Brian Thompson, general manager of ExOfficio, believes that for a retailer, “new product introductions don’t need to be a shot in the dark,” and the key component of researching new product and new department options for a store is asking manufacturers for intel, based on what they’ve seen succeed. Robert Williams, president at BOCONI Bags & Leather, puts in a plug for experimenting with revolutionary product. “We understand firsthand how important it is to manage inventory and to turn stock, however if retailers do not try new products with fresh ideas they will miss new incremental business opportunities. Case in point: BOCONI was the first trade-up brand to introduce RFID protection in premium wallets and bags…now, we have introduced Kylie with RFID, so that women can have the same RFID protection without losing style or quality. Simply put, if you don’t try it…you will lose it.”

Market intelligence is not just finding a new best-seller, it’s understanding what it takes to expand a department, or create a new one. Is that a choice that is right for your store? Thompson gives an example of the market intelligence a manufacturer can share with a retailer. “If you are going to do apparel you have to be serious about it. You need to stock apparel for both genders, train employees to cross sell to the other gender (generally male employees need the most help learning to sell to women), fitting rooms, mannequins, and merchandising that tells a story. Canvas your customer base. Are they looking to you for travel clothing? What’s your competition in your local market, and is that a battle you want to fight? Can you build a partnership with another specialty retailer and cross promote, do some events together?”

Everyone agrees that today’s technology-driven, rapidly changing retail climate is a challenge, even for the most seasoned retailer. Thompson’s key message to retailers: “don’t think you have to go it alone. This is the time to challenge your suppliers and ask ‘what are you going to do help me sell this product?’ You need to know, are you engaging with a partner? Or engaging with someone who will just sell you stuff?”

Cooperative Forecasting

Specialty items have more sales variability than core items, and the Internet is only making it worse. One obsessed consumer’s hunt for an unusual size, color, or model online can create the artificial perception of a trend, as a sizeable percentage of those retailers contacted go back to their manufacturer and ask about availability. Lisa Heth Rappley, of Groskopf’s Luggage & Gifts, in Grand Rapids, MI gives the retailer perspective: “the Internet and Amazon are our big competitors, and we’re always battling them.” But the internet is not merely a different sales funnel for brands, it also distorts the appearance of demand, introducing pure noise into manufacturers’ forecasts. If only the manufacturer could see real-time sales data, they could see that all those inquiries only resulted in one sale, and they could avoid the very human tendency to forecast based on chatter.

When manufacturers are able to make the right product at the right time, it’s a win for both suppliers and retailers. “If we only had that ‘crystal ball,’ life would be good” says Marcy Schackne, vice president of marketing at 24-7 International. “Some manufacturers are really good at closely monitoring warehouse programs, and then you see other boutique brands selling off-price to liquidate seasonal and in-and-out colorways to make room for the next trending color.” While no one can see the future, knowing what is happening in the present is almost as good. Seeing what is turning and what is sitting at retail is a tremendous advantage to a manufacturer trying to forecast demand and plan production. There is a wide range of access to real-time retail sales data found in the travel goods industry. Many manufacturers want to be able to see actual retail sales as they happen, and they despair of a system where the best they can do is go to The International Travel Goods Show, analyze every word and reaction of their retailers to new product – like a junior high school girl with a crush – and then go home and wait for the phone to ring, i.e., the pre-book orders to come in. And then the pre-books ship, and they wait again. What’s selling? When is it selling? Who knows? They have to order from their factories without knowing what is really happening at the consumer level.

The predictable outcome of all this uncertainty is that manufacturers, spooked by a lack insight into what is selling now and in the future, have pulled back on stocking inventory. Heth Rappley expressed a common observation; “every year more and more companies are not keeping inventory in their warehouse like they used to. We definitely have had to adjust to that, but it’s a big change.”

Looking for inspiration outside the industry, mega-retailer Walmart has embraced complete sales and inventory openness with its manufacturers by adopting a Vendor Managed Inventory (VMI) system: real-time sales reports from all stores, plus warehouse inventory levels are all fed into a centralized database. The data is pushed out to suppliers who are responsible for analyzing it and deciding when to ship more product. Most supply chain experts believe that just-in-time inventory IS possible – but only with the use of VMI systems. So why isn’t this holy grail of supply chain management more prevalent in the travel goods industry? James Krueger, CEO of EPIC Travelgear, cautions that “retailer and manufacturer integration demands really good systems and follow up.” A true VMI system requires a substantial up-front investment, both in technology and in trust. Of the two, coming to a shared agenda is a bigger upfront challenge than installing and developing hardware and software.

Some travel goods manufacturers have achieved a nearly open system, albeit with only a handful of their top customers. Krueger is an evangelist for trust and radical transparency. “We need to get really naked and say O.K., everyone needs to make some margins. With our very best clients – everything is open. They know what our costs are for the goods. We forecast together. We don’t have a true Vendor Managed Inventory (VMI) system but we get close to it: we have several big clients where we receive weekly inventory reports. And everyone shares the risk.”

Other suppliers have evolved in the opposite direction, pushing risk onto their partners, and taking most of the profit. An example is a brand that hedges its bets by opening its own factory luggage boutiques, assuming the forecasting and inventory risk for those factory stores. Industry response seems to depend on how transparent the brand is about its intentions, and whether travel goods retailers are competing on a level playing field with the factory stores. At the extreme end, one industry manufacturer reportedly requires retailers to lock in orders 14 months in advance. Because this manufacturer no longer warehouses inventory for travel goods retailers, fill-in orders take eight weeks, putting all the risk associated with that product on the retailer. In response, some retailers have apparently dropped the brand they helped build, resulting in the gradual transition of the brand to a factory-store sales model. Krueger thinks this is the wrong approach. “We have the perfect word for this in Sweden, ängslan. It’s a combination of fear, anxiety, pain. When we structure our business to push the ängslan onto our retailer, then we haven’t defeated it. It still exists.”

Retailer Forecasting: The Rise of the Geek

The good news is that the data needed by manufacturers to improve forecasting efficiency is already being gathered, crunched, graphed, and sorted by an army of travel goods retailers. Schackne has seen the transformation first-hand. “Since I’ve started, the industry has drastically changed. Whole networks of mom and pop stores are gone, and in the last 10 years even some big, influential retailers have gone out of business. When I first started with Travelpro 17 years ago, we had a rebate program and that’s when I realized stores still handwrote receipts. But they all had great customer service skills.”

The retailers that have thrived in the last two decades have great customer service skills, just like the stores who closed. But they have also developed extraordinary inventory tracking and sales reporting tools, which allow them to carefully manage the risk, without going under.

Case Study: Guy Paquette, Director of Corporate Operations, Bagot, Leather Goods, Luggage Plus Kingston, ON

Perhaps the quintessential retailer/geek, Guy Paquette is the tech-savvy director of corporate operations at Bagot Leather Goods, Luggage Plus in Kingston, ON, who says the inventory management system at Bagot has been automated for approximately “forever.” Paquette describes their point of sale (POS) system as being very simple to use: “it reports top unit volume, and top dollar volume. It helps us manage what’s hot and what’s not. Our POS system answers those questions for us on a daily, weekly and monthly basis.”

Inventory management and SKU control are critical to remaining profitable in an uncertain retail market. Paquette shares that “last year, we had the worst year in our 20-year history.” Keeping the doors open in a challenging business climate is only possible by keeping tight control of ordering and inventory.

“Tradeshows are the time to see new products launch, take advantage of incentive order programs and book preseason orders. When we write preseason orders at a show, we’re helping make the inventory plan for our vendor. And in most cases preseason orders just put you in the cue to receive new merchandise. I had two reps in the store yesterday, and wrote fill-in orders for both. That’s typical, we do more immediate inventory orders than pre-book orders” explains Paquette. But online technology can hurt as well as help. “It’s an unacknowledged fact that we are the showroom for some brands. Customers look in our store to see the product in person, and then buy online. It’s the direct result of a brand’s decision to sell online to consumers, and it doesn’t feel like a partnership.”

Case Study: AAA Allied Group, Cincinnati, OH

Sue Lanter, AAA auto travel product coordinator, Cincinnati, OH, describes her businesses’ highly organized buying system. “AAA Allied Group consists of 45 offices that each have a travel store. They are all unique in size, configuration, etc. We even have some that are located in car repair facilities. Our offices are located in parts of seven states – Connecticut, West Virginia, Virginia, Kentucky, Ohio, Indiana, and Kansas – so we have very diverse regions. We do not have a central warehouse, so each office is responsible for placing their own orders. We have a list of approved items that they may order from and we customize the order forms from our vendors so that the offices only can order the items that we have approved for sale. We group our stores into A, B, and C categories based on sales and store size. We also have broken our items into ordering classifications so that the stores know the core items that they need to be stocking, as well as some others that give them options based on their location, demographics, etc. We have three classifications – Required, Recommended, and Optional – and the items vary depending on whether the store is an A, B, or C. Required items are our best sellers or they are items that are key to our business lines. They would be considered core products. Recommended items are good sellers, but not the top sellers; they can be Required in an A store, but based on size maybe not in a B or C. We tell the offices that once they have the Required items for their office in stock, to look at the Recommended items if they have space to add them. Optional items are newer, unproven items and should only be stocked if the offices are stocked on other things and have room. Often Optional items are seasonal colors or items, or specialty items.

“This has not been an easy system to manage. It is hard to measure turns because some offices will pick up new items right away and others may not pick them up for a couple of months, if at all. We have annually reviewed the entire list to determine items that would continue to be sold as well as items that will no longer be ordered and will be phased out. We look at margin, quantity sold, how long we have been carrying the item, and how many offices have sold the item in making our determination. It isn’t the most efficient process in terms of timeliness, but it has worked for us.”

Case Study: Lisa Heth Rappley, Manager, Groskopf’s Luggage & Gifts, Grand Rapids, MI

Lisa Heth Rappley is a third-generation manager at family-owned Groskopf’s Luggage & Gifts, in Grand Rapids, MI. “We have an overall budget, right now I’m working off a specific budget for the holiday catalogue, and we reserve a certain percentage for miscellaneous and special orders. We track every single one of our SKUs by company and we do regular reporting on each SKU, in order to make sure we’re not ordering too heavily. If we didn’t regularly track our SKUs we’d risk over ordering, and then we wouldn’t be able to provide variety. We run and review our reports before we go to shows, and set a budget for our core items, leaving a chunk of cash as wiggle-room for new stuff. It’s fun to take gambles with new merchandise! It’s always trial and error for new items, but then we set a budget.

The reality is that we have to project our orders out and turn them in by a certain date or they just won’t ship. Besides the International Travel Goods Show, the NLDA Summer show at Navy Pier is a big buying show for us. It happens at the end of June, and we just sent or orders in [in mid-July]. Getting orders in early assures we get product, versus someone who puts in a holiday order in November.

Case Study: Marilyn Janisch, Owner, Going in Style, Palo Alto, CA

Despite being the owner of Going in Style, a Palo Alto, CA, store with a highly regarded clothing department, Marilyn Janisch still finds clothing preseason orders “kind of painful. It’s hard to accurately predict what customers will want next season, or what the demand will be.”

Janisch shares that “one thing I do to increase our sales and to enhance our customer service is special-order items we do not stock, or just items we happen to be out of. If a customer is looking for a specific style, color, or size of an item we do not have, I offer to order it and either have it shipped to the customer, or preferably to have them come in to pick up in the store. There are several vendors who are very good to work with and turn these special orders around quickly — they are Baggallini, ExOfficio and Royal Robbins. Some vendors are not that easy to work with — if I want to special order just one item for a customer, I have to place a minimum order. Otherwise, I get charged an ‘under-minimum’ fee, and pay excessive shipping fees – which I have done just to satisfy the customer. It would be nice if more vendors (especially luggage vendors) would sympathize with small retailers and the challenging retail climate we are in and offer reasonable shipping fees for special orders and quick turnarounds.”

Beyond SKU Control: Competing in the Age of Physical Experience, and Online sales

How does a brick-and-mortar retailer compete against online sales? Retailers can also provide a fun, informative shopping experience and a personal relationship that is positive but not intrusive. Technology-driven change can also work for a brick-and-mortar retailer. Vancouver is swept up in Pokémon fever, and Bagot Leather Goods, Luggage Plus is taking full advantage. “We have battery backup packs for cell phones, which have become a rare and precious commodity among battery-draining PokémonGo players. We created a Pokémon poster for our window advertising battery backups, and activated a Pokémon lure in the store.” Local television station CKWS featured a recent on-air interview with Paquette about the craze, on location in Bagot Leather Goods. While talking to Travel Goods Showcase, Paquette looked out the window and reported: “tourists are taking selfies of themselves in front of our PokémonGo poster!”

Multiple manufacturers also made the case for embracing repairs and warranties. Krueger states “retailers need to touch repairs, because of how it builds good will. A friend of mine told me ‘anything good you do, no matter how nice it is, you’re doing it for yourself.’” In retail, this is never more the case than when a store is handling consumer warranties and repairs. Again looking outside of travel goods, the car industry is famous (and notorious) for experimenting with every possible path to a sale. There is a reason car dealerships have service departments. That way they can guarantee that their customer is standing on their lot at the very moment when they find out it’s finally time to get a new car. Schackne provides this important caveat: “from the retailer’s perspective, partnering with a seasoned manufacturer who honors warranty and repair service is critical. Otherwise, those issues become the retailers’ headaches and jeopardize customer loyalty.”

A brick-and-mortar retailer can also combat internet sales by providing a unique product that’s not available online. Some manufacturers who allow retailers to order a custom color or spec, in sufficient quantity (typically with some type of one-season exclusivity agreement). Krueger cautions that “if you order a custom product, you do need to respect the fact consumers now need to see and research a product online before buying in person, and they may even get anxious if they aren’t able to do that.” Any retailer-specific product should be represented on the retailer’s website, and if possible also on the brand website, with a link back to the retailer.

The paradox of today’s retail age is that even as consumers have gone digital for business, entertainment and relationships, they still hunger for physical, authentic, unplugged experiences. Besides the strong analytic skills and the customer service chops of travel goods industry retailers, the travel goods industry has a significant advantage over most other retail sectors. Consumers, especially young consumers, are focused on collecting experiences rather than things. Thompson defines the winning paradox of the travel goods industry: “while travel is an experience, travel requires new investment. Retailers who can help their customers have an experience rather than focusing on ‘how do I sell you stuff’ are the retailers who will thrive.”

This story originally appeared in the Fall 2016 issue of Travel Goods Showcase

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