Optimize Assortment Planning

Kent Freshour, director of inventory analysis and merchandising systems at Appleseed's, experienced costly problems with the catalog planning system, which caused both inventory and ordering problems. Appleseed's offers contemporary apparel to women age 55 and older. The retailer is headquartered in Beverly, MA and employs more than 500 people. Though Appleseed's operates eight brick-and-mortar locations, three outlets, and an e-commerce platform, its sales are generated primarily from its catalogs. The retailer has two catalog titles, Appleseed's and The Tog Shop. The retailer creates eight full-price catalogs per year with three drops (i.e. each mailing is called a drop) for each brand. This results in Appleseed's mailing a catalog almost every other week of the year. For example, the first catalog dropped on Jan. 20, 2009. Appleseeds made a second drop of that catalog two weeks later and made a third drop two weeks after that. The first drop was sent to the largest number of women. "We typically do a great deal of prospecting for a catalog's first drop," says Freshour. "We rent or exchange names with other catalogers. A catalog's second drop reaches a smaller number of women than the first, and it does not include as much prospecting." The second drop was sent to many of the same addresses as the first drop. The catalog's third drop was sent to a smaller subset of Appleseed's customers. Appleseed's best customers receive every drop of all eight catalogs, because they are likely to make purchases whether or not they've seen a previous version of the catalog.

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Know The Difference Between Catalog And In-Store Planning
With eight catalogs at three drops each, Appleseed's merchandise planning department must forecast and plan for items for the life of the catalog, which is 18 to 24 weeks. "With brick-and-mortar stores, planners create new programs every two or three weeks and shift products on the floor every six weeks or so," says Freshour. "You can't apply the same forecasting and planning process to catalogs because the offers can change every two to three weeks or every time a new catalog is dropped."

Since 1999, the retailer used a catalog planning system to plan and order items for each catalog. The team was tasked with developing product assortment in order to determine their merchandise plans down to SKU level. However, the existing system forced planners to come up with orders by catalog, and many products appear in multiple catalogs. "The old system made it very difficult to time phase inventory needs," says Freshour. "Planners had to forecast the total need for the entire life of the catalog and buy merchandise all at once. The planners needed to buy stock for a given time period, regardless of which catalog was being mailed." They needed a system that allowed them to build "curves," or a percentage of the demand Appleseed's incurs or realizes every week across all catalogs in which the product was presented.

Appleseed's needed a new catalog planning system and began the RFP process in early 2006. Freshour was part of the team that reviewed three possible solutions. By the end of 2006, Appleseed's chose Direct Tech Forceast*21 product suite, an item demand forecasting, inventory analysis, and planning tool designed for catalog and e-commerce retailers. Forecast*21 is composed of many modules, such as marketing, administration, merchandise assortment planning, master scheduling, and reporting. Appleseed's uses each of these modules. The marketing module allows the user to enter specifics for a given catalog (e.g. circulation, number of anticipated orders, total gross demand, items per order) and assign curve and drop dates to the offer. The merchandise planning module is used by Appleseed's inventory planning department. This module allows users to build assortment, first by style and then by style color, down to the SKU level. Planners can compare the previous year's offer to this year's offer. Also, if a catalog features a brand-new item, planners can compare it to a similar item in the history screens.

Buyers use the master scheduling module to create their buys once all forecasting is complete. The module highlights beginning inventory, receipts, shipments, and returns. It determines the net need for each week, so buyers can tailor their buying decisions. In order to increase inventory turns, the application allows buyers to time phase or buy products as needed as opposed to at the start of every catalog offering. Some customers use the Internet to purchase Appleseed's merchandise. Therefore, planners need to consider this demand when buying. The purchase is attributed to the catalog itself if a customer enters the catalog's source code in their online purchase. Every catalog has a source code, which enables Appleseed's to determine from which catalog the customer placed orders.

Customize Your Merchandise Planning Application
Before Direct Tech installed the application, Appleseed's IT team first had to build the server. Next, Direct Tech loaded the application onto a CD and sent it to Appleseed's IT team to install on its server. The retailer receives updates via an FTP server, which connects directly to Direct Tech's server. Several people, including buyers and merchandise planners, received upgraded PCs in order to customize the application's dashboard. Each user can customize the dashboard to include a "hot list" of items they want to see on a regular basis (e.g. top back orders, biggest out-of-stock item, out-of-stocks). The IT team configured one of the machines and replicated that setup to the other PCs. These machines are all linked to the server. Therefore, updates are automatically transmitted to each PC.

Freshour states Appleseed's has reaped many benefits since implementing Forecast*21. Forecasting accuracy has improved, and the retailer has saved itself from overstock danger because of better time phasing. "We wanted to find a solution that would provide a quick payback," says Freshour. "We are on target to reach our goal of payback in less than three years."