“SORRY FOR THE DELAY - THANK YOU FOR WAITING”
I just had a pleasant experience with a back order from L.L. Bean. How can you have a good experience with something that’s been on backorder for 6 weeks? Well let me tell how.
First the background. On April 1st, I ordered 5 pairs of chino pants and 1 was on backorder. The CSR told me immediately that the color would not ship until May 15, six (6) weeks later! I liked the color and the price so I let it remain on backorder.
Well guess what? The 4 other pairs came in 2 days shipped for free on my L.L. Bean card and express delivery which is standard. And the back order arrived before May 15th much to my surprise-I’d forgotten it. Who hasn’t had nothing but disappoint with projecting back order dates arrivals?
But even as important, I found something of real interest printed on the backorder’s order/packing slip. On the line above the item was this message:
“SORRY FOR THE DELAY - THANK YOU FOR WAITING”
It struck me, how many times do we thank customer’s for their patience when we disappoint them? And better yet, how many times do we follow through with the promises we make on backorders? But then, that’s why I always use L.L. Bean as one of the standard bear’s for high customer service.
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Ways to Save Money
The following is a brief email that we received from one of our eNewsletter readers, in response to an article we wrote about saving money in your company…
Curt:
Just received your electronic May newsletter and wanted to send you some ways we are saving money.
- Cut utility usage
- Drop non productive associates
- Reduce fulfillment goals from 92% to 85%
- Keep 15% of your OTB in your back pocket
- Only mail your best customers ( we are thinking of prospecting again this summer )
- Drop marginal books
- Flow inventory, more smaller orders, more frequently.
- Keep margins high, but salt the assortment with redlines for the illusion of markdown.
- Offer free personalization instead of a mark down.
We are actually making money on a reduced sales plan.
Hank
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ACCM Tidbits and Opinions
ACCM Attendance: The show had about 500-700 attendees from what I could tell. Like many of the shows we have attended this year the number of attendance looked to be down 50% to 80% from prior years. Penton took a bath on both NCOF and ACCM this year. There is a question in my mind about the viability of two independent shows; I know they are two different audiences.
I will say that those who attended appeared to be decision makers. In my speech on dashboards and KPIs more than 75% of the attendees were new to ACCM. Interesting mix of e-commerce and multichannel managers. If you would like a copy of my PowerPoints, e-mail me at cbarry@fcbco.com.
Companies’ Results: As someone said to me, “The new standard is to be only 10% off plan.” I met many where sales were off more than that even when plan wasn’t very aggressive. Companies with unique product offerings are doing far better than companies with stock or open market product. Jack Rosenfeld, Chairman, Potpourri Collection and Sheryl Clark, President, Boston Proper, during the Monday luncheon panel both emphasized the importance of this. And they cited that their apparel businesses were doing well because they were tuned into the customer.
I did meet a number of niche businesses that seemed to be doing better than the average. They struck me as having unique product niche’s and unique marketing approaches. One of them has grown to $200 million in sales in 2008 from being a start up in 2000! What’s interesting to me is that they aren’t catalog or category merchants. They opportunistically market products that they think will sell - they don’t try to fit it under an existing title. They also test product and don’t buy product initially. We can be critical of the customer service/inventory approach but it’s interesting in terms of sales growth and profitability.
Leisure and hobby product companies seemed to be holding their own.
While there are many companies which are losing money, there were comments about people being surprised that more haven’t shut down already.
Many people expressed increased optimism with the improved stock market of the last 5 weeks. I think it’s really important for the leadership of this industry to remain optimistic. Without hope we don’t have anything. Some days I know it’s tough.
One of the largest business to business list brokers told me that many of their clients were doing OK (meaning flat to down 5%) until this past month when business declined further. No idea why last month was out of the norm with the trend.
Prospecting: Many companies are excited about the possibilities of the USPS “summer sale” on postage. My hat’s off to American Catalog Mailer’s Association (ACMA) for the work they have done with the USPS to help them understand the effects the postage increases have negatively had on our industry. Since July 2007 the ACMA estimates catalog mail volume is down 35%. The year-to-date net loss is $2.5 billion for the USPS compared to LY’s $35 million loss. To learn more about what the ACMA is doing for catalog businesses or to join this great association, please visit ACMA’s website, www.catalogmailers.org
Holiday 2009: Companies seem to be delaying Holiday mailing plans to see a few more “economic tea leaves”. Paper and printing seems to be available. It’ll be interesting to see how circulation plans pan up.
Measuring E-commerce promotional response: As we work with clients on our co-developed dashboard and analytical software product (with Taurus Software, Manage Metrix, managemetrix.com), we don’t see companies being very analytical about measuring E-commerce promotional breakeven. Companies are not measuring the profitability of the promotions. I asked this question in a number of ACCM sessions. No one seems to have been motivated to doing this. In my opinion, this should be a priority given that e-commerce marketing is 2% to 15% in our client companies on top of the catalog marketing costs of 25% to 35% of net sales.
That’s my take on ACCM 2009. Did you go? What’s happening in your world?
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15 Ways to Reduce Warehouse Expenses
As it appeared in Catalog Success Magazine written by Paul Miller
At the recent NCOF, Curt Barry, president of Richmond, VA-based multichannel operations & fulfillment consultancy F. Curtis Barry & Company, presented “15 Ways to Reduce Warehouse Expenses.” Here is a summary:
- Efficient receiving. Inventory accuracy and product flow through the warehouse all start with receiving. The single biggest improvement companies can often make is to develop and implement vendor compliance policies.
- Reduce inbound and outbound freight. Outbound freight now exceeds direct labor in many centers. Don’t be too proud to ask consultants to help negotiate new contracts, even if it’s on a gain share basis. Too many dollars are at stake.
- Put away. Look to reduce warehouse back orders and “can not finds” which may cost anywhere from 20 to 60 minutes to resolve.
- Slotting. Efficiency techniques include “hot pick areas” for fast selling products. The old 80/20 rule holds for product sales.
- Order Picking. Reduce the picking time—which is 70% of picking time is walk time in the warehouse—by using the proper approach to fit your business (e.g. singles, cart/bin, batch pick and sort, zone pick, etc.). In many businesses, singles are more then 50% of the pick volume.
- Reduce number of replenishments. Hold the equivalent of a week’s unit volume in the forward pick.
- Packing. Picking and packing amount to more than 50% of direct labor costs in the warehouse. Put packing supplies adjacent to the stations, and ensure you have the proper number of insert compartments, sufficient table top square footage, and adjustable length stations.
- Returns processing. Returns cost more than orders. Eliminate the controllable reasons for returns (e.g. picking errors, copy and art errors, etc.). Streamline the receiving process to get returns processed efficiently and refunds back to the customer quickly.
- Inventory Control. Inventory is the largest balance sheet asset in most businesses. Without accurate inventory you can’t have sales or move orders efficiently in the DC. Use aisle mapping (proper location of product without counting) frequently.
- Bar code scanning. May be the most underutilized technology in our industry. Maximize its use from dock receiving, to put away, to picking, pack confirmation, shipping, returns processing, inventory control and cycle counting. Speed product and order flow through the center. Increase inventory accuracy to 99.9%.
- Effective warehouse layout. Look to increase capacity within the same facility and streamline product and order flow.
- Work standards and measurement. You can’t improve that which you haven’t measured. Apply benchmarking principles to set up internal benchmarks. Use external benchmarking to understand what other companies achieve, and for best practice ideas.
- Management of labor. Labor is more than 50% of the cost per order for call center and warehouse.
- Developing a world-class team. There are 11 key issues you need to resolve, including staff empowerment, delegation, hiring competent people, recruiting and training the person who will take your place eventually, etc.
- Use 3rd party logistics. Barry’s clients have used 3PL more in the last two years than in the prior 10. Internal costs have increased to the point where, for many companies, on a total cost per order basis it’s cheaper to use 3PL. Additionally, they avoid having to invest in infrastructure such as warehouses and systems, and have reduced management of fulfillment, call center and IT. They can instead concentrate on the critical areas of marketing and merchandising.
Curt Barry is president of F. Curtis Barry & Company, a multichannel operations and warehouse consulting company. Helping you understand inventory cost savings and warehouse management are just a few of the ways we can help your multichannel business. Please visit FCBCO.com for more information.
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How to Make Vendor Compliance Programs Work For You
Of all the strategies for reducing costs in your catalog business, vendor compliance programs may be the most underdeveloped. A well-thought-out, formal vendor compliance policy can reduce warehousing and freight costs, speed up order processing, and lead directly to increased customer satisfaction. In order to achieve this it must spell out your requirements and the charge-backs for vendors’ non-compliance.
Without a formal vendor compliance policy, the warehouse has no recourse but to absorb both direct and hidden costs for noncompliance. Without compliance it is impossible for a merchant to implement advanced supply chain systems, ASNs, just-in-time inventory, source marking and ticketing, or RFID programs. A good vendor compliance policy will not only avoid pitfalls but will reduce the time spent dealing with vendor disputes, claims, and charge-backs.
Merchants are sometimes leery that more comprehensive accounting and charge-back policies may upset vendor relationships they’ve worked long and hard to develop. Besides weighing that possibility against the probability that improved vendor compliance will reduce costs and improve customer service over time, you need to consider that a well-defined document in which requirements, expectations and penalties are spelled out will ultimately remove ambiguities, end misunderstandings and result in even better vendor relationships. Anyway, if your vendors are dealing with large retail companies, they are already used to compliance policies.
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Free shipping strategies: Merchants weigh in
Multichannel marketers consider their free shipping offers to be highly strategic and competitive. So when operations consultancy F. Curtis Barry & Company interviewed dozens of direct merchants about their free shipping strategies used this past fall/holiday 2008, few wanted to be quoted directly.
But catalogers and Web retailers have plenty to say on the hot topic of free S&H. Here are some of the observations they shared with F. Curtis Barry & Company about what shipping offers they tried—and how they worked—this past year.
- Apparel cataloger (men’s): We use free shipping once or twice per season for our house file rather than for prospecting. It is still effective, but not as much as it once was.
- Apparel cataloger (women’s): Our early results in November with free shipping look okay, but not stunning.
- Book publisher and gift company: Our company, because of our exclusive merchandise, is looking to raise merchandise prices to be able to afford free shipping.
- Gift cataloger: We have traditionally seen a 12%-15% lift vs. a control on free S&H. The September and October drops had no lift. Average order value held. We traditionally ask for a higher AOV to qualify for free S&H. Obviously, this kills profitability. No explanation yet for the results; waiting on accounting to research.
- Home decor merchant: We do some free shipping on selected items only. All our tests show a discount of 20% off the merchandise gets us the lift better than free shipping.
- Multititle catalog company: We definitely use free shipping. It is a powerful tool, but we saw a dramatic falloff in September and October to our traditional lift in response with free shipping. This is a new phenomenon! We have not had a full accounting of the results yet.
- Nonprofit cataloger: We did offer free shipping in September. Results were good, considering the financial climate.
- Nonprofit cataloger: We offered a free shipping banner on the front over for all of our catalog drops this year, valid through Dec. 24 and redeemable only via our Website. We also offered free shipping via e-mail blasts, and it is our Web orders that are really below plan. So while I’m sure the free shipping offers secured some of our sales, I question how much it has motivated a new sale—it’s become a commonplace promotion. What I’m afraid of is if you condition the customer to free shipping can you ever stop it without hurting sales? We could not get a reasonable response to our e-mail promotions without a free shipping offer.
This was a snippet from the full article, “Solving the Free Shipping Puzzle”, that is on our website.
Curt Barry is president of F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in multichannel systems, warehouse, call center, inventory, and benchmarking; Learn more online at www.fcbco.com
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Free Shipping: A Database Marketing Perspective
Virtually every bit of advertising and promotional material produced by multichannel companies during the holiday season has contained a common phrase: FREE SHIPPING. In preparation for an article that will appear in the February issue of Multichannel Merchant, we tracked hundreds of promotions that arrived in our postal and e-mail mailboxes from August through December, and polled dozens of multichannel businesses on their free shipping strategies. What we found was an unbelievable array of opinions, conditions, restrictions and timetables. What we didn’t find was any kind of consensus on whether free shipping is a strategy that works.
To get a database marketing perspective on free shipping, I interviewed db marketing consultant, Kevin Hillstrom. Hillstrom is president of MineThatData, a consultancy that helps CEOs understand the complex relationship between customers, advertising, products, brands, and channels through a methodology he developed while VP of Database Marketing at Nordstrom, director of Circulation at Eddie Bauer, and manager of Analytical Services at Lands’ End.
Curt Barry: I’ve spoken to dozens of executives from different companies, and they say results of free shipping are all over the place. What’s your experience?
Kevin Hillstrom: Results are all over the place, and are completely dependent upon the customer that the business caters to. Businesses that are trusted get less benefit from free shipping than businesses that are trusted less. Free shipping means more to an online startup that nobody has heard of than it means to L.L. Bean.
CB: What kind of lift do you need for it to be worthwhile?
KH: Free shipping seems to give a 5% to 35% bump in productivity. Depending upon each element of the profit/loss statement, you’ll probably need a 10% to 20% increase in sales in order to make free shipping profitable; and a key point: low gross margin businesses need a much bigger bump in performance to make free shipping work. If you’re running margins in the 15% to 40% range, you need a big bump in performance; if margins are in the 50s or 60s, you don’t need as big a bump. Coming up with pro-forma estimates and measuring actuals is key.
CB: Is there sufficient testing being done to know whether it’s working? What kind of testing?
KH: Not many folks are doing testing. The folks that are doing testing tell me that their business becomes “spikey” when they do on/off free shipping promotions. In other words, in test/control groups, you see that free shipping gives you a +20% when the promo is on, then gives you a -10% when it is not being offered, then goes +20% and -10% again as it is put on/off over and over and over. We train the customer to only buy when free shipping is offered—and therefore, we increase the number of free shipping promotions, further causing these positive/negative spikes. If the test/control group is done over a six or twelve month period of time, we don’t see much of a total increase; in other words, the negative spikes offset the positive ones, yielding little long-term benefit.
Some companies are building shipping/handling into product costs and then offering free shipping. One retailer went from the standard $14.95 shipping to $5 shipping in 2005 and saw a 2-3 month bump, but then, business basically flattened out; that $5 shipping gave a bump in performance that didn’t really hold up over time. One of their competitors increases the price of comparable items $3, then offers free shipping—so when you buy two items, shipping at either company is essentially the same.
CB: Are we conditioning customers to wait for free shipping?
KH: I believe we have conditioned customers to expect promotions. Long-term, I believe the model that offers the most benefit is either free shipping with increased prices, or cheap shipping coupled with free shipping over a certain level. I believe we’ve taken the focus off of merchandise, and that is a really bad thing long-term for catalog/online brands.
Curt Barry is president of F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in multichannel systems, warehouse, call center, inventory, and benchmarking; Learn more online at www.fcbco.com.
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Catalogers Get Small Postal Increase!
Who do catalogers have to thank for the relatively slight postal rate increase announced yesterday? The American Catalog Mailers Association (ACMA), Hamilton Davidson, ACMA’s Executive Director and their Board of Directors.
Davidson’s initial assessment is that catalogs got a 1% lower increase than levied on other mailers. The average increase in Standard Mail Flat’s is 2.3% while the average rate hike for carrier route flats is 4.3%. What a huge victory compared to the 20% to 40% catalog mailers suffered before!
You know the difference? It was ACMA working with postal management and regulators to:
• Help them understand the catalog industry
• Show how absolutely dependent catalogs are on the USPS
• Understand the need for catalogers to prospect to grow the business
• Explain how postal increases negatively affect USPS’ volume which is down considerably in the last two years
• Bring catalog business owners to postal hearings to discuss the effects of postal changes
While Davidson appreciates the pricing news, he points out, “It isn’t curative.” And I’ll add there can be “no free lunch” forever for non-members of ACMA. ACMA is seriously under budgeted for what they need to do in the future with not only postal increases which now can go up annually by CPI and catalog choice type movements. I hope many other catalogs will join ACMA to fund the work of Hamilton Davidson and ACMA. Thanks to everyone that had a hand in this victory!
Curt Barry is president of F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in multichannel systems, warehouse, call center, inventory, and benchmarking; Learn more online at: http://www.fcbco.com
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Sales Without Inventory
Sales without inventory—now there’s an oxymoron. Many of us who cut our teeth in the retail and catalog trade know that you have to own inventory to make sales. In fact, for many businesses it’s the largest balance sheet asset.
In the late 1990s, dot.com companies with their “virtual inventory” concept tried to change all that. And guess what? That business model never really went away; it continues in both large and small businesses of many different types today.
There are two scenarios for running a business with little or no inventory. The first is the traditional vendor drop-ship, which requires no inventory. The other is to build a just-in-time inventory model, which entails warehousing certain products, typically those that need to be fulfilled frequently.
Vendor drop-ship
Here’s a few examples of traditional vendor drop-ship: One of our clients is a retail specialty department store that has direct sales of $400 million. During the holiday season, its direct business approaches 20% of net sales. Holiday assortments that are drop-shipped include food, specialty items, wreaths and garlands, along with big-ticket items such as furniture, rugs, draperies and other home products.
Another company we are working with sells unusual hardware. It keeps bestsellers in stock and drop-ship the slower moving products, which can all be sourced and shipped within a seven- to 10-day window.
That may not be the highest level of customer service, but then the company doesn’t have a major fulfillment facility and the attendant inventories, concern for forecasting with required tight accuracy, or the significant overstock and liquidation problems common to other direct businesses.
A third client that specializes in business supplies has a small internal inventory and extends its assortment offering 80% by drop-shipping directly to the customer.
I’ve also seen a mega-retail/direct sporting goods company expand its line tremendously to include many slower-selling products that could not “break even” in the catalog’s merchandise selection process.
The point is, with drop-shipping you can open up a much broader assortment to your customers than you could justify for inclusion in print media and internal DC stocking.
What do these businesses have in common that makes this strategy effective?
–Systems functionality: These merchants’ Website and call center order management systems provide connectivity to the major vendors participating in vendor drop-ship programs. These systems validate, credit and process the orders out to the vendors.
The better systems download customer orders throughout the day or in batches. The systems are connected to terminals and printers in the vendors’ DCs to process all during the day. As orders are viewed and printed by the vendor, the drop ship system controls the process and gives the retailer visibility into the various order statuses.
As the vendor prints the pick tickets and the order is ship-confirmed to the system, those confirmations are sent upstream to customer service files online or in batches. This allows the retailer to eliminate all the costly manual processes that usually make drop-ship a nightmare and lead to poor customer service.
–Domestically sourced product: Imported product, exclusive and long lead-time products are not candidates for vendor drop-shipping because of the length of time required to get them. True fashion product is not a candidate because the retailer gets only one chance to purchase product, and possibly one reorder — by its nature the product is new, with no selling history and little reorder ability.
This concept generally works best when the replenishment is short: one to 10 days. This way you can continue to provide higher customer service, but without the attendant inventory and facility costs.
–Vendor reliability: Since the vendor is shipping directly to your customer on your behalf, they have to be as good or better in terms of accuracy than your internal fulfillment. This, I’m afraid, eliminates many vendors that do not understand the direct industry.
What’s more, the retailer must develop and enforce vendor compliance standards for processing orders, accounting paperwork for POs, invoices, possible returns processing, etc.
Just-in-time fulfillment
Some businesses have migrated to the just-in-time model and are warehousing products with longer lead-times or which need to be fulfilled more frequently. Several companies we work with hold inventory that is exclusive. Many of these merchants use a mix of just-in-time fulfillment and drop-ship programs.
With these just-in-time programs, not only can you achieve lower inventory costs, you can:
–Reduce the number of packages received by the customer
–Gain the ability to insert company materials (value-added service)
–Use cartons and labels with the company name
–Reduce freight costs with fewer shipments
Like the vendor drop-ship scenario, the merchant has to be responsive and reliable. They have to be willing to hold some inventory in order to cover anticipated customer orders.
Each of these scenarios can help you build your sales without being forced to carry a huge amount of inventory. Both can help you reduce the occupancy and labor costs associated with processing product and fulfilling customer orders.
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F. Curtis Barry & Co. works with multichannel businesses to increase catalog profitability through the evaluation and implementation of order management systems, inventory management systems, warehouse management systems that match client objectives.
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The Skinny On Slim Jims
An update from ACMA (American Catalog Mailers Association) suggests that catalogers may want to start preparing for imminent changes to USPS rates for slim jims. ACMA says their best guess is that many of the changes to slim jim regulations suggested by a Federal Register notice in March 2008 will become official, with final rules expected to be published in February 2009 and an effective date in May.
You may recall that the PRC suggested catalogers simply convert to a slim jim format as a lower cost alternative to the sharply higher catalog mailing rates that became effective in summer 2007. While many catalogers did not want to reformat their books, some did, and the volume of slim jims in the mail increased. Unfortunately, as ACMA explains, the increased volume made it obvious that some slim jims were causing “train wrecks” on high speed sorting equipment—the very equipment on which they are presumed to ride, justifying mailing at lower letter rates.
The USPS and the mailing industry agreed to collaborate on a series of tests to determine what characteristics make some slim jims “machinable” while others are not. Under the new regulations, slim jim formats that do not run well on the equipment will be charged nonmachinable letter prices or the applicable flats postage rate as appropriate. This leaves many catalogers with longer planning and production lead times trying to determine what to do with slim jims, since if forced to pay higher rates anyway, most catalogers would prefer to have larger format books with more square inches for merchandise.
ACMA expects additional tabs on each booklet with specific tab requirements covering the material, placement and configuration of the tabs to be used, and that the perforated clear poly tabs in popular use today will be prohibited in favor of specific sized paper tabs. They also expect that effective page count will be limited by new lower weight and thickness requirements that mean lighter, thinner booklets than are mailable today, and heavier cover stock. ACMA warns that equipment may score and mar both front and back booklet covers, so mailers may need to accept more handling marks than typical on flat catalogs that go through different processing.
As an ACMA member, F. Curtis Barry & Company is getting more details on these issues. If you would like to have this information, please contact us directly. You should also consider becoming an ACMA member yourself. ACMA continues to work to support you, and needs your support to continue. Get in touch with Hamilton Davison, Executive Director, at hdavison@catalogmailers.org or 401-529-8183.
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F. Curtis Barry & Co. works with multichannel businesses to increase catalog profitability through the evaluation and implementation of order management systems, inventory management systems, warehouse management systems that match client objectives.