NEW YORK — Inventory management — let's call it inventory mismanagement — has emerged as an Achilles heel for department stores.
Those retailers, along with others selling third-party apparel, were particularly vulnerable to softer sales and margins during the past holiday season, according to a recent client note from MKM Partners Managing Director Roxanne Meyer. Inventory was a major factor (though not the only one) in rendering the period possibly the "most promotional holiday since the recession," she said.
Many current sourcing methods in apparel lead to overbuying and then markdowns, according to a recent report in sister publication Supply Chain Dive. Moody's, in a Wednesday report on the outlook for the department store sector, warned that inventory management has become "a chronic problem for the industry [that] will once again be a performance hot spot in 2020."
In her report on the National Retail Federation's Big Show, MKM's Meyer wrote that AI may be finally nearing "a tipping point." However, although most companies studied by her team "are likely exploring AI, we believe very few are leveraging it in a meaningful way," she also said. Moody's analysts in their report called on department stores "to mine data to leverage resources more efficiently, particularly for inventory."
Indeed, productivity and efficiency in systems like inventory management are critical if what agency WD Partners calls "O2O," or "online to offline," is to succeed. A high level of execution in back operations (to meet expectations for in-store pickup of online orders, for example), is critical, Lee Peterson, executive vice president of thought leadership and marketing at WD Partners, which is working with Google on such services for retailers, also said at the NRF's Big Show.
Belk runs nearly 300 stores across 16 states. Like its peers, it's faced with what Belk Vice President Tim Carney, speaking at the NRF's Big Show this week, calls "time boundaries" and merchandise demand, by color, size and style, across all those stores and e-commerce, including in-store pickup of online orders.
Carney credits AI for Belk's recent (and still improving) mastery of inventory management. While the technology is often touted as a way to spur personalization and marketing, Belk's revamp, which entailed moving from using spreadsheets to SAS' tech, is demonstrating how useful it is in backroom operations. Carney told the NRF audience that the department store integrated machine learning into its ordering, replenishment and allocation systems, including measuring demand for specific sizes by store. "Our virtual assistant does the heavy lifting," he said, noting that some obstacles remain, including the level of willingness among vendors to pack things differently.
Both Carney and Meyer note that AI isn't replacing humans. Rather, it's "the human-AI interaction that allows us to solve complex problems at Belk," he said. "It's a big shift."