Magazine Article | July 1, 2003

A 30% Inventory Turnaround

Source: Innovative Retail Technologies

After replacing its legacy merchandise management application with a merchandise management suite, beauty and wellness retailer ULTA realized a 30% improvement in inventory turns.

Integrated Solutions For Retailers, July 2003

It's hard to believe that it was nearly five years ago that the world was caught up in Y2K hysteria. For most of us, worrying about Y2K turned out to be a waste of time. But, retailers such as ULTA (Romeoville, IL), a provider of women's beauty and wellness products and services, benefited significantly by preparing themselves for Y2K. By replacing its legacy merchandise management application with a Y2K-compliant integrated suite, ULTA did more than fend off the millennium bug - it improved its inventory turns by 30%.

Y2K Puts Legacy Vendor Out Of Business
In 1998, ULTA, then an 8-year-old company, began doing what many other retailers were doing - creating a list of potential Y2K threats and making sure all systems were Y2K compliant before the ball dropped at midnight on December 31, 1999. At the time, the retailer was working with a vendor with a basic merchandise and inventory management application. "When we contacted our vendor in 1998 to find out the Y2K status of its application, we had other issues we needed to address," says Greg Smolarek, senior VP of systems and logistics at ULTA. "We were unhappy with our overall inventory levels and out of stocks were becoming a real problem." ULTA's legacy application was able to provide reports that showed sales stats for the week, but beyond that, it was inadequate. It couldn't analyze the previous year's data, for instance, and forecast how much merchandise the retailer would need for the upcoming holiday season.

"After contacting our vendor several times and seeing only limited improvement to our application, we knew we had to start shopping for a new solution," recalls Smolarek. By June 1998, ULTA began putting together a list of criteria it wanted from its replacement vendor. "Besides the obvious Y2K-compliance issue, our decision hinged on two issues. First, we wanted a stable vendor that had a good reputation and would most likely be around in the future. Second, we wanted a vendor that offered a suite of solutions as opposed to a point solution."

Seeking A Seasoned, Stable Vendor
Prior to 2000, several retail point solution vendors as well as some of the larger suite providers were experiencing significant changes. For instance, some of the point solution providers were acquired by larger vendors that were trying to stay competitive. And, many of the smaller point solution providers, such as ULTA's vendor, were folding because they weren't able to change their architectures quickly enough. After researching several options, ULTA chose SAP's (Newtown Square, PA) R/3 as its replacement vendor and solution of choice. "Even though SAP had a stronger foundation in the ERP [enterprise resource planning] world, and at the time was just starting to be competitive in the retail industry, we saw a stable company with a tightly integrated product," says Smolarek.

ULTA chose a consulting partner and began its rollout in October 1998. It split the rollout into three phases - Phase I was accounting and general ledger (i.e. financials); Phase II was merchandising, marketing, and inventory management; and Phase III was fine-tuning. Phase I lasted only two months and went smoothly. "Phase II was where the implementation got much tougher," recalls Smolarek. "We replaced most of our hardware and our legacy software with a Microsoft SQL server and the R/3 solution. The big obstacle revealed itself when it came time to migrate the data from our legacy database to the SQL database." Because SAP and ULTA's previous vendor did not have any kind of partnership, there were no prewritten APIs (application program interfaces) that ULTA could use to move the data from one platform to the other. "We had to create our own translation tools, which turned into a huge mapping project," recalls Smolarek. "Another factor was that we were going from an application that had data files with limited elements to one that had a very large number of elements. We had to research and find the other data elements that our legacy system didn't capture to keep up with our new system." Phase II was completed by July 1999. Because ULTA's busy holiday season was coming in a few months (Christmas buying begins in September), and it was already Y2K compliant, the retailer decided to put off Phase III until January 2000.

Inventory Turns Up 30%
After the holiday season, ULTA proceeded with Phase III. Phase III was completed in a two-month period - taking the overall implementation time to nine months. During this time, many companies that hadn't upgraded their legacy systems were smirking with a "See, we told ya so" attitude. While most legacy systems were unaffected by Y2K, ULTA's new solution proved to be a wise investment nonetheless. "Within a two-year period from our initial implementation, we experienced a 30% improvement on inventory turns," says Smolarek. "During the same period our in-store stock percentage rose from 96% to 98%."

One other benefit that its new solution offers is the ability to conduct accurate forecasting. Rather than only being able to compare sales stats on a weekly basis, the R/3 solution is able to calculate trends from previous years' data. Additionally, it gives a more accurate picture of how much product the retailer will need to have on hand for any given season or holiday. In fact, about the only thing the solution is unable to forecast is how much more ULTA is saving compared to its competitors that opted to stick with their legacy solutions.