Retail software programs
This article shows how large retailers use retail software programs to help manage their shops and how small retailers can utilise the same retail software to program their operations for more profitability.
When hurricane Ivan was heading towards the Florida coastline, Wal-Mart's retail software told them this would lead to a rise in demand for Kelloggs strawberry Pop-Tarts. Drivers delivered Pop-Tarts to stores in the area in time to accommodate the rise in demand. Major retailers like Wal-Mart have been using retail software programs for years to improve their businesses, so what are the main ways in which they benefit and can an independent retailer gain similar improvements by using retail software programs?
Save money on inventory
Reducing inventory costs is vital for every retail business. Wal-Mart are now looking at "scan-based trading" which gives them the ability to eliminate inventory altogether. It means that their suppliers own the products on the shelves until they are scanned by the checkout assistant at point of sale, at this time the product is paid for by Wal-Mart. This strategy is about reducing money tied up in stock and reducing the risk of being left with stagnant inventory.
Whilst "scan based trading" may be out of the reach of independents, achieving the strategic objectives are within their grasp. Independents can save on inventory costs by tighter controls and smart ordering, using the right retail software programs here are a couple of ways to strategically improve inventory.
- Smart replenishment. A computer system can make it so much easier to re-order. This means that replenishment can be done in smaller quantities and more frequently, reducing stock holding and exposure to risk.
- Knowing the ups and downs. A computer system keeps tabs on all products sold and when they were sold, allowing the owner to identify trends easily and stock up or down accordingly.
Increase turnover by improving availability
Wal-Mart recognise that customers will only come back so often after finding their intended purchase is out of stock. Today a checkout scan automatically signals a replenishment of stock. Both Wal-Mart and their suppliers know exactly what's selling and what's not so the right products are in the shops at the right time.
Getting the whole supply chain using the same technology is some way off for independents, but standardization in retail software programs can give better visibility of what is selling and when. The cyclic nature of certain products can easily be monitored and bought in more accurately, giving customers the products they want when they want them.
Keeping up with change, stocking products that customers want
Wal-Mart divide their product portfolio into "departments" and "categories". For example they will have a "Toys" department and a "Baby" category. They do this to monitor trends on which products are over and under performing. This same analysis is available to independents through a good computer system. Use no more than 10 departments and 10 categories within each department (giving a maximum of 100 categories). If more than 100 categories are used there can be too many insignificant categories representing less than as 1% of the business. If this seems difficult, consider that even large companies like Wal-Mart manage with great success using a small number of categories.
Develop better marketing initiatives
Many marketing initiatives rely on sales, discounts, bundles and twofers (two for the price of one). Giving away profit is essential at times to move on stagnant stock or possibly to generate more footfall, but it is also very costly. For example, on a product marked up by 1.6, then put in the sale at 20% discount, twice as many products need to be sold to maintain the level of profitability. So, it is important to track which marketing initiatives work. Repeating ineffective promotions just loses money. Big stores closely track the performance of their marketing activity by looking at; a) the rate of take-up for sale items, b) changes in the number of customer purchases and c) average customer spend during the promotion. Independents can do the same with a good computer system. The result will be more successful marketing campaigns and less wasted money on unproductive discounts.
Increase margins by negotiating better deals with suppliers
Certain large stores are renowned for their approach to working with suppliers. Whatever our moral position on big corporate retailers dealing will small suppliers, they undoubtedly achieve huge success in maximising their profits by working their suppliers hard. Reducing the cost of a product can increase profit margins in one of two ways; a) maintain the price of the item and deliver more profit from reduced costs, or b) use the reduced costs to lower prices and increase demand. The way computers are used to achieve lower costs is through "evidence based supplier negotiations". For example, a supplier's products may be underperforming in a category or may be less profitable compared to others. Using a computer system to give precise evidence provides excellent negotiation material.
Wal-Mart is the biggest and most successful retailer in the world. They claim that their success is largely due to their retail software. Yet sophisticated and easy to use retail software programs are more affordable than ever nowadays, whilst a retail EPoS system may not suit all independent retailers, they certainly offer some of the benefits that have helped larger stores become more profitable.