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Archive for June, 2008

Increasing gas prices, declining house market and rise on the price of basic food items have led consumers to reduce their spending in more discretionary items like apparel, furniture and travel. Many apparel retailers have reported huge declines in same stores sales – Limited -5%, Gap -6% and Chico’s -15%.

In the face of such challenges, many retailers are adopting cost reduction strategies as the last resort to preserve their business profitability since the current environment does not allow them to focus on sales growth.

Apparel retailers have reported an improvement in gross margins as a result of better management of inventory at the stores. They are buying less goods and then reducing the amount of merchandise sold at discount. Others are going beyond inventory and actually reducing staff at headquarters. Talbots recently announced a reduction of approximately 10% at headquarters. Another lever to reduce cost is closing underperforming stores. For example, Gap has communicated its plans to combine Gap Body, Gap Kids and Baby Gap stores under its namesake stores in an attempt to better utilize real state and reduce leasing costs.

The positive side of this story is that apparel retailers are actually now looking at their operations and trying to reduce inefficiencies, most created in times of growth when increasing sales hide their operational inefficiencies. This is a great chance for these retailers, once the economy rebounds, to emerge with a much  leaner operation.

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Finding ways to better integrate brands and multi channels is an opportunity for retailers to create efficiencies for the business and, consequently, improve profitability. 

As described in the previous post (Gap integrating all its brands under a single web site), the successful integration of brands and channels can not only improve efficiencies but also increase revenues – e.g. through cross selling opportunities or leverage of physical stores as a support to web sales.

According to a recent study developed by RSR research, retailers face many challenges to go forward and integrate their businesses and channels:

1 – Real time inventory and customer updates

2 – Consistent cross brand content and product information management

3 – Central order management systems & processes

Many retailers in the research pointed out that technology constraints and inflexible legacy systems are major barriers to capture those opportunities. 

Those that overcome such challenges not only capture the benefits mentioned above but also jump ahead of the competition in developing the appropriate capabilities to keep evolving and succeeding.

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