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The Inventory Nightmare: When Shoes Show Up Where They're Not Wanted

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Put this one under the "no good retail deed ever goes unpunished" category. When chains listen to their customers and create localized store inventory, and then they listen more and accept online returns to any store the shopper chooses, they run into inventory train wrecks. Those Gomez Addams train crash moments occur when a shopper returns something—let's say a pair of shoes—to a store that happens to not have that SKU in that store's localized inventory.

Problem #1: Shoes have an extremely short shelf life. At the end of that shelf life ("that shoe is sooo last month"), the shoe is typically priced at a steep discount. Problem #2: Stores can't sell one or two products. The display unit would represent half of all inventory. So, again, that orphaned product goes on steep discount.

Problem #3: The store could ship that shoe to a store that does have that SKU in its inventory. But you then have the cost (hard out-of-pocket shipping costs as well as labor to prep the product on both ends) and time (the multiple days involved in shipping) delays, and you're still fighting against that extremely short shelf life.

"For apparel retailers, this problem has no good solution, even if there were a limitless budget, as time to market is a challenge," said an IT exec with Macy's. "Shoes, for example, typically have a shelf life of 12 weeks before the first clearance markdown. Some photo and creative workflows take four to six weeks, so unless Macy's gets assets from the vendor, we're racing to get our product on the site before it goes on permanent markdown."

This problem is also not limited just to stores that, given the nature of customers, don't stock a particular SKU. Sometimes that SKU is simply sold out, which gets you back into the "we can't sell just one product" problem.

"We're having the darnedest time with merged-channel returns. Biggest issue is that store returns are leading to onesie-twosie items at the store that takes it back. That store has to either take a huge markdown on the item (counts against their margin plan) or cross ship product to a store that carries the item at retail price. This is a big headache that is made worse by the fact that we're doing fulfillment from our retail stores," said the Macy's IT exec. "In my opinion, cross-channel item congruency is the biggest headache for retailers. It leads to issues in item availability, such as that you can't sell store items on the site that aren't properly attributed (description, price, photos, etc.), and then returns, planning, allocation and so on."

And remember, this is Macy's.And remember, this is Macy's, which has pushed faster and farther into merged-channel than most chains have. Macy's already ships E-Commerce orders from stores—specifically, whichever store is most overstocked with a product (and a single unit that's not in the store's assortment is sort of the ultimate overstock). Macy's has the enterprise-wide view of inventory and the back-room people in place to do the shipping. All the systems are in place, and it's still a monumental pain.

The best approach? "We've all got to get smarter about how we measure demand," the Macy's exec said.

Michelle Tinsley, the director of transactional retail at Intel, said this problem is impacting a huge range of retailers, and it needs to be dealt with quickly.

"In a perfect world, I think what would happen in that example is the return that comes back is accepted, because the customer views that brick-and-mortar location as today's face of that retailer, so they need to uphold that brand image and take the return," Tinsley said. "But in this merged world, (the chain needs to) allow any location in that nationwide retailer to see those shoes now bonused back into inventory and to then sell them very quickly and ship it from that location. So even though it was returned to a brick-and-mortar store, let it be seen in those warehousing systems so that the next order that comes in over the Internet or from a store in Cincinnati gets placed from that store in, say, California."

Tinsley argues that this problem is one manifestation of the old way of retailers looking at problems.

"I think you need to flip it. Instead of saying, 'I've got the inventory in the wrong place,' say, 'Well, I've just got to open up the inventory to where the next demand signal is coming from. And if that next demand signal is a pair of boots and it's been returned to L.A. but now you're getting a new order out of Rochester, N.Y., ship the boots from LA to the customer in Rochester, N.Y., instead of fulfilling it out of the warehouse. It's about creating that visibility so that we really focus and design the system to point to the demand signals and where the customer is at and worry a little less about the inventory controls and the physicality of where the inventory's at."

Tinsley discussed this and related issues during Part Two of this week's StorefrontBacktalk Radio segment.