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State of the Market: Retail Survival Strategies for 2009 December 2008 Sahir Anand

State of the Market: Retail Survival Strategies for 2009 Page 2

Executive Summary Our research shows that holiday sales performance this year and competitive performance in 2009, will decide the tipping point for 'retail recovery' as 80% of companies are challenged by historically higher levels of cost of goods sold and low consumer confidence. Aberdeen surveyed 200 retail enterprises between October and December 2008 to reveal the changing business and technology scenario in retail. This report serves as a 'reality check' for the retail industry that is grappling to deal with critical pain points such as declining topline sales, business value chain impact, and shifts in the information technology roadmap and priorities. This report outlines how Best-in-Class CxO’s in retail are attaining success through reprioritization and renewed focus on retail basics.

Research Benchmark Aberdeen’s Research Benchmarks provide an indepth and comprehensive look into process, procedure, methodologies, and technologies with best practice identification and actionable recommendations

Best-in-Class Performance Aberdeen used four key performance criteria to distinguish Best-in-Class companies: • Average sales comp improvement (year-over-year): 11% • Average gross margin improvement (year-over-year): 16% • Average customer conversion rate increase (year-over-year): 23% • Channel in-stock performance: 90.5%

Competitive Maturity Assessment Survey results show that the firms enjoying Best-in-Class performance shared several common characteristics: • Real-time reporting of enterprise-wide business analytics that support adjustments and corrections to individual business unit plans. The Bestin-Class are seven-times more likely than Laggards and three-times more likely than Industry Average companies to possess this capability. • The Best-in-Class are two-times more likely than Laggards to improve management involvement in customer service and implement aggressive competitive pricing strategies to counter recession. • One of the top customer management strategies used by 58% of Bestin-Class companies is the use of personalized product offers. The innovators are using tools including product recommendations, loyalty elements or tools that are personalized to suit specific customer segments based on product affinity and lifestyle preferences.

"As business shrinks, retailers typically do three things: cut inventory (thin out assortment), start cutting capital spending, and get more careful with labor hours. The challenges facing retailers are how do you offset the impact of limited inventory? One answer could be that you want to tease out who better customers are (profitability and loyalty wise) and get closer to them." ~ VP - Information Technology, Large North American Fashion Apparel Retailer

Required Actions In addition to the specific recommendations in Chapter Three of this report, to achieve Best-in-Class performance, companies must: • Continue integration and improvements within critical IT application and business processes • Instill a higher focus on demonstrable ROI justification • Develop acceptance for lean retail IT techniques (on-demand, SaaS, and hosted application delivery models) • Focus on mission-critical customer-facing and employee-facing applications © 2008 Aberdeen Group. www.aberdeen.com

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State of the Market: Retail Survival Strategies for 2009 Page 3

Table of Contents Executive Summary....................................................................................................... 2 Best-in-Class Performance..................................................................................... 2 Competitive Maturity Assessment....................................................................... 2 Required Actions...................................................................................................... 2 Chapter One: Benchmarking the Best-in-Class ..................................................... 4 Business Context ..................................................................................................... 4 The Maturity Class Framework............................................................................ 7 The Best-in-Class PACE Model ............................................................................ 8 The Best-in-Class Put Their "Recession Strategies in Place:" Can Other Companies Follow-Suit? ......................................................................................... 8 Chapter Two: Benchmarking Requirements for Success ..................................13 Competitive Assessment......................................................................................14 Capabilities and Enablers......................................................................................16 Chapter Three: Required Actions .........................................................................24 Laggard Steps to Success......................................................................................24 Industry Average Steps to Success ....................................................................25 Best-in-Class Steps to Success ............................................................................26 Appendix A: Research Methodology.....................................................................28 Appendix B: Related Aberdeen Research............................................................30

Figures Figure 1: Retail IT Investment (Last Six Months) - All Respondents ................ 5 Figure 2: Retailers Highlight Recessionary Pressures ........................................... 7 Figure 3: Best-in-Class BI Strategy Pivot's Enterprise-Wide Guidelines .......... 9 Figure 4: Alternative 'Recession Beater' Strategies.............................................12 Figure 5: Best-in-Class Process Management Capabilities.................................16 Figure 6: Organizational Capabilities for Tough Economic Times ..................18 Figure 7: Best-in-Class Knowledge Management Capabilities ..........................19 Figure 8: Best-in-Class Performance Management Capabilities .......................20 Figure 9: Top Five Best-in-Class Technology Investments................................21 Figure 10: Planned Recessionary Technology Adoption - All Retailers .........22

Tables Table 1: Top Performers Earn Best-in-Class Status.............................................. 7 Table 2: The Best-in-Class PACE Framework ....................................................... 8 Table 3: The Competitive Framework...................................................................14 Table 4: The PACE Framework Key ......................................................................29 Table 5: The Competitive Framework Key ..........................................................29

© 2008 Aberdeen Group. www.aberdeen.com

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State of the Market: Retail Survival Strategies for 2009 Page 4

Chapter One: Benchmarking the Best-in-Class Business Context These are trying times for the retail industry. Things had gone awry for retailers since the holiday season in 2007. In 2008, corrections and adjustments continue even as the recession assumes 'official' status. In the 2008 Aberdeen Report, retailers indicated that "possible recessionary market conditions" is one of the top three macro-level business pressures being faced by their enterprise. Our research shows that the impact of poor holiday sales performance this year , and prospects for competitive performance in 2009, will decide the tipping point for 'retail recovery' as 80% are challenged by historically higher levels of cost of goods sold and low consumer confidence. These challenges have meant that retailers must re-align their business growth and technology strategies within key retail sub-segments, namely specialty, consumer electronics, and department stores. Aberdeen surveyed 200 retail enterprises between October and December 2008 to reveal the changing scenario in retail. This report serves as a 'reality check' for the retail industry that is grappling to deal with critical pain points such as declining topline sales, business value chain impact, and shifts in the information technology roadmap and priorities. Most importantly, this report outlines how Best-in-Class CxO’s in retail are attaining success through re-prioritization and renewed focus on retail basics. We will provide recommendations for recessionary adjustments that aid business and technology re-alignment.

The Retail Story in 2008: A Rough Ride for Business and IT During the holiday season of 2007, retailers bought historically high levels of merchandise expecting a sell-through. However, consumer demand slackened appreciably. This meant that retailers had to resort to excessive price mark-downs for a sell-through of merchandise through Q1, 2008. Therefore, the business and IT challenges for retailers had begun early in 2008. The economic slowdown further intensified the downward spiral.

Fast Facts √ Eighty percent (80%) of retailers are challenged by historically higher levels of cost of goods sold and low consumer confidence. These challenges have meant that retailers must re-align their business growth and technology strategies within key retail sub-segments. √ The Best-in-Class are twotimes more likely than Laggards to improve management involvement in customer service and implement aggressive competitive pricing strategies to counter recession. √ According to 57% of all retailers surveyed, they are currently using budgeted and discretionary funds towards aggressive promotional strategies including price discounts and advertising that enable promoted and complementary product sales.

At the start of 2008, our data indicated that the top three areas of technology investment priorities that support new application deployment, improvements, and professional services at the retail headquarters were business intelligence (36%), pricing management (24%), and promotion management (23%). In the store environment, the top three areas of focus included point-of-service (27%), back-office (16%), and both store-toheadquarter and in-store communication tools (16%). The last six months leading up to the current holiday season indicates a shift in value chain priorities and IT investments when compared to the beginning of 2008. Figure 1 shows how the value chain IT priorities of retailers shifted in the last six months of 2008. © 2008 Aberdeen Group. www.aberdeen.com

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State of the Market: Retail Survival Strategies for 2009 Page 5

Figure 1: Retail IT Investment (Last Six Months) - All Respondents 0%

20%

40%

60%

Marketing and prom otions

60%

Cus tom er loyalty

47%

Inventory m anagem ent

46%

Replenis hm ent

35%

Bus ines s Intelligence Point-of-Service

80%

35%

23%

Source: Aberdeen Group, December 2008

"The biggest challenge we are facing is customer retention rate. We have placed an increased emphasis on our customer loyalty programs our customers are a driving factor for our marketing decisions. As we look for new marketing avenues, we are increasingly looking at web based marketing initiatives as a way to counter the struggling economy.” ~ CIO, Mid-Market Specialty Retailer (North America)

As the recession gathered steam during the second half of 2008, retailers experienced a perceptible downward trend in consumer buying power due to stagnant employment conditions, high gas prices, and the mortgage meltdown. The combination of these macro economic indicators and declining consumer buying power snapped growth in revenue, which forced a change in capital spending plans including technology spending in retail. As Figure 1 shows, the top three areas of overall retail IT investments during the last six months changed dramatically when compared to the first six months of 2008. Our results show that during the last six months of 2008, technology and process spending was geared towards accelerated product campaigns, door busters, and promotions - in terms of price discounts and frequency, customer loyalty programs, and inventory management. The objective over the last six months within key retail sub-segments such as department stores, fashion, apparel, specialty, and consumer electronics has centered on customer-pull strategies and lean inventory techniques. The obvious reason for this strategic shift is to pull-through the current tough environment with minimal business risks (e.g. store closings, working capital squeeze, depleted customer satisfaction due to staff cuts, and low margin attainment). Additionally, retailers are also wary of a lukewarm 2009 that may be a repeat of the 2007 fiscal year and a dismal 2008.

Business Pressures Characterizing Retail Operations for the Rest of 2008, 2009, and Beyond Cost of goods sold comprises of procurement, landing, transportation, and selling costs. In retail, cost of goods sold is an expenditure line item that dictates gross margin and profitability. Our results point to the fact that currently retailers are increasingly facing a 'high cost of goods sold' scenario as the top business pressure (Figure 2). Irrespective of the maturity class in retail, cost of goods sold is dictating retail decision-making today. A 'high cost of gold scenario' leads to a variety of reactions in retail. Some retailers cut costs by operating lean in their channels in terms of lower labor costs to © 2008 Aberdeen Group. www.aberdeen.com

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State of the Market: Retail Survival Strategies for 2009 Page 6

sales; others lower the inventory holding costs by operating with reduced quantities of on-hand merchandise. Other reactions include: cancellation of non-revenue related travel and entertainment expenditure including sales junk-its, lower increases in salaries and rate of new hires, and broad-based reduction in capital expenditure. Other creative ways of cost-cutting include data capacity optimization, a higher focus on waste management and sustainability, localized sourcing, and supply chain re-design. Our qualitative data indicates that a wide number of retailers within specialty, department, luxury, and consumer electronics that have been hit hard are taking evasive action. This list includes: Office Depot, Staples, Dillards, Saks, REI, Dick's Sporting Goods, Best Buy, JCPenney, Nordstrom's, Neiman Marcus, Gap, and scores of other anonymous retailers in tier 2 and tier 3 retail are introducing new and ingenious cost-cutting adjustments everyday. Retailers are now compelled to take an in-depth look at their Stock Keeping Unit (SKU) level pricing strategies. Almost a third (27%) of Best-in-Class retailers are currently encountering 'static merchandizing pricing', which refers to the lack of price variations due to market conditions. Until last year, if a large branded store or channel carried several thousand SKUs of merchandise, in the case of large retailers, as high as 35% of overall merchandise was impacted by 'static pricing' techniques, irrespective of their pricing model or market conditions (e.g. hi-low, everyday low price, or premium). This means that pricing of several products from an assortment do not react to prevailing conditions perhaps leaving money on the table for retailers that could have otherwise sold the product through competitive pricing techniques. The recessionary economic conditions have compelled companies to consider variable pricing techniques for a wide majority of their products and services in order to compete and survive in a difficult marketplace. This has also led to the need for incisive category, department, and channel-level business information that can act as a catalyst for improved integrated retail planning, productivity, and performance for the corporate network, stores, and other sales channels.

© 2008 Aberdeen Group. www.aberdeen.com

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State of the Market: Retail Survival Strategies for 2009 Page 7

Figure 2: Retailers Highlight Recessionary Pressures 0%

20%

40%

60% 52% 48%

Cost of goods sold (e.g.procurement, landing, transportation, selling costs) 31%

33% 27%

The need to control non-revenue related expenses

25%

27% Static merchandise pricing

Best-in-Class Industry Average

8% 14%

Laggard

Source: Aberdeen Group, December 2008

The Maturity Class Framework Aberdeen used four fundamental key performance criteria to distinguish the Best-in-Class from Industry Average and Laggard organizations during the current recessionary retail environment. The maturity class has been developed via the weighted average of retail performance within these key customer, financial, and operational metrics. These year-over-year KPIs are essential to determine the health and sustainability of any retail business. It is noteworthy that while topline sales may not be an indicator of retail strength today, however it has historically been a vital indicator that determines the health of the business. Therefore, it has been included as an indicator of maturity. Table 1 provides a framework with which companies can benchmark themselves and identify the category into which they fall. Table 1: Top Performers Earn Best-in-Class Status Definition of Maturity Class Best-in-Class: Top 20% of aggregate performance scorers

Industry Average: Middle 50% of aggregate performance scorers © 2008 Aberdeen Group. www.aberdeen.com

Mean Class Performance ƒ Average sales comp improvement (year-over-year): 11% ƒ Average gross margin improvement (year-overyear): 16% ƒ Average customer conversion rate increase (yearover-year): 23% ƒ Channel in-stock performance: 90.5% ƒ Average sales comp improvement (year-over-year): 5.5% ƒ Average gross margin improvement (year-overyear): 7% ƒ Average customer conversion rate increase(yearover-year): 4% ƒ Channel in-stock performance: 82% Telephone: 617 723 7890 Fax: 617 723 7897

State of the Market: Retail Survival Strategies for 2009 Page 8

Definition of Maturity Class

Mean Class Performance

Laggard: Bottom 30% of aggregate performance scorers

ƒ Average sales comp improvement (year-over-year): 1.3% ƒ Average gross margin improvement (year-overyear): 4.5% ƒ Average customer conversion rate increase(yearover-year): 1.5% ƒ Channel in-stock performance: 70% Source: Aberdeen Group, December 2008

The Best-in-Class PACE Model Table 2 shows the current retail business Pressures, Actions, Capabilities, and Enablers (PACE) prioritized by Best-in-Class companies for the use and application in the market conditions. The PACE model, when applied, can enable companies of Industry Average and Laggard maturity class to identify the best practices and fill gaps in the use of critical process, knowledge, organizational, and performance management capabilities and enablers that are being considered as part of the Best-in-Class repertoire for countering recession. Table 2: The Best-in-Class PACE Framework Pressures

Actions

ƒ Cost of goods sold excluding payroll (e.g. procurement, landing, transportation, and selling costs)

ƒ Execute optimized customercentric promotions ƒ Improve management involvement in customer service and sales

Capabilities ƒ The ability to introduce a robust service culture by providing knowledgeable and friendly staff ƒ Provide channel teams with weekly operational compliance requirements for cost-minimization ƒ Executive mandate for increased integration between channel front-office and back-end applications ƒ The ability to hedge company growth expectations with expansion in new markets ƒ The ability to develop geographicallyspecific, “store-cluster” assortments for merchandizing ƒ The ability to execute cross-channel customer loyalty programs

Enablers ƒ Promotion management ƒ Real-time reporting application ƒ Enterprise-wide inventory visibility ƒ Online web 2.0 enhancements (search, rich media, comparison shopping, personalization) ƒ Performance dashboards ƒ Demand-driven forecasting application ƒ Data repository for data management (customer, inventory, and merchandise) ƒ Enterprise finance application ƒ Integrated workforce management

Source: Aberdeen Group, December 2008

The Best-in-Class Put Their "Recession Strategies in Place:" Can Other Companies Follow-Suit? Aberdeen data indicates that Best-in-Class retailers are using a series of strategic actions today in order to dispel the negative impact of recession. These strategic actions are centered on several value chain elements. Our © 2008 Aberdeen Group. www.aberdeen.com

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State of the Market: Retail Survival Strategies for 2009 Page 9

analysis will showcase a few such elements to detail the strategic shifts. The top three Best-in-Class strategic actions include: •

The use of accelerated promotional pricing initiatives;



Direct involvement of headquarter and field management in day-today customer service tasks (e.g. Zappos's mandatory 10-day call center channel training for all new hires and Staples decision to hire a customer service champion for field stores in order to free-up time for sales managers to be on the floor interacting and engaging customers);



Aggressive use of competitive pricing techniques (e.g. Macy's and JC Penney). Best-in-Class retailers are at least twice as likely as Laggards to execute the latter two actions, thus impacting 'focused and aggressive up-selling and cross-selling' in sales channels.

Figure 3: Best-in-Class BI Strategy Pivot's Enterprise-Wide Guidelines 0% 10% 20% 30% 40% 50% 60%

Execute optimized customercentric promotions

Improve management involvement in customer service and sales

"We are currently experiencing a decreased IT spend on development, help desk support, and human resources. We have started to outsource development, help desk support, and shift investments towards back office hosted environments."

45% 37% 38%

39% 26% 14% Best-in-Class

Aggressively implement competitive pricing strategies

33% 15%

Industry Average

14%

Laggard

~ CIO, Specialty Retailer (Entertainment Products, Americas)

Source: Aberdeen Group, December 2008

Below are some of the more significant Best-in-Class 'retail value chain' impact areas. These value chain areas have been instrumental in preventing a greater retail slide during the course of the last few months. The areas outlined below are also likely to shape retail resistance to any further recession onslaught during the course of next two to three quarters: •

Business and consumer insight. According to 94% of retailers, consumer insights are a vital component of the retailer's ability to improve promotion effectiveness and accurately predict demand. Bestin-Class retailers are separating their most profitable customers and creating customized marketing programs to build deeper relationships. These companies are also implementing more granular and as close to real-time business intelligence performance reporting approaches to identify performance gaps and productivity issues such as sales per hour,

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State of the Market: Retail Survival Strategies for 2009 Page 10

labor cost to sales, labor task compliance percentage, and margin attainment. •

Sales and marketing. According to 57% of all retailers surveyed, they are currently using budgeted and discretionary funds towards aggressive promotional strategies including price discounts and advertising that enable promoted and complementary product sales, customer-pull strategies for traffic improvement, and loyalty across all sales channels. The focus is on meeting and exceeding customer re-activation, reduced attrition, and retention goals (e.g. Macy’s, JCPenney, Best Buy, and TigerDirect.com have recently launched several such initiatives). Over the next two to three quarters, Best-in-Class retailers will continue to spend on technology and processes that aid customer-centric sales and marketing.



Precision merchandizing. Our data shows that 86% of retailers indicate that the need to increase gross margin and inventory turns are the primary reasons why retailers are creating merchandise assortments that are closely tied to customer affinity and preference. As traditional customer segments are unable to open their purse strings during this holiday season and beyond, department store chains such as Macy's and JC Penney are planning and executing assortments across all channels for the teen and youth audiences who are expected to bring the adults along to the stores. Besides the merchandizing plans, store design, props, marketing and advertising are all tailored towards attracting the younger audiences with buying power into the stores.



Lean and virtualized inventory management. Our data shows that 67% of Best-in-Class companies are currently using improved enterprise-wide inventory visibility using virtualized inventory tools to ensure optimized use of inventory. Our results indicate that “10% to 30% less on-hand inventory” has become one of the top three holiday season mantras for Best-in-Class companies in retail so that companies are not constraining working capital requirements and are in a position to develop swift exit strategies, just in case things get worse. It is not uncommon to walk in stores today to find less than usual over-stock which is also due to reduced buffer-stock in warehouses. Lean inventory techniques enable effective fiscal responsibility, optimum level of merchandise turns, and nimble store, channel, and warehouse environments that can react more quickly to customer demand and reduce cost of sales operations.



Optimized store operations. It is evident that the current slide in retail same store sales growth is predominantly in the store channel within consumer electronics, specialty, big-box (except for discount retail), luxury and department store segments. Store environments with a greater than average -10% year-over-year same store sales are implementing radical optimization techniques towards store operations within the following areas:

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State of the Market: Retail Survival Strategies for 2009 Page 11





Accelerated store price promotions with a focus on margindriven packaged selling programs - door busters, extended price promotions, discount cards, and multi-tier rebates



Incisive loss prevention updates - payment security and cash management



Workforce management- department labor planner updates, customer-centric task compliance, and labor hour adjustments



Extensive use of store-to-store transfer of excess and nonperforming merchandise



Incisive markdown management

Agile supply chain. Agility and market responsiveness of the retail supply chain is going much beyond standard board-room brain-storming sessions. Data indicates that 71% of retailers are at least partially impacted by the current credit squeeze and working capital constraints within supply chain finance, planning, and execution. For the first time in the last decade, the supply-side forecasting and flexibility is under the scanner of scrutiny to minimize the risk of high cost of goods sold during the initial stages of the product lifecycle. Companies are undertaking: •

A greater degree of product localization techniques



Deeper relationships with the top 10 suppliers for improved vendor scorecarding, deeper vendor-funded merchandise programs, and flexible payment cycles



Review of transportation and warehouse management practices including re-negotiating and cancellation of longterm fleet service agreements



Closure of deadweight stores, district collection centers, and warehouses (e.g. Office Depot recently announced the closure of 112 under-performing stores and six distribution facilities in North America)

Aberdeen Insights — What if the Current Strategies are not Working? Figure 4 illustrates the retailer mindset on alternative business strategies to counter the ensuing recessionary economy if their first line of strategic intent proves ineffective. Our data shows that Figure 4 is a reflection of a belief in retail that if a combination of current retail value chain strategies does not derive the short-term (one to three month) gains, then companies will continue to focus on increasing price-driven promotional discounts despite margin losses to drive customer traffic and sales (40%). continued

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State of the Market: Retail Survival Strategies for 2009 Page 12

Aberdeen Insights — What if the Current Strategies are not Working? The second largest viewpoint, according to 39%, of retailers is that irrespective of the current results emanating from counter-recession strategies, these companies seek to stick to the original plans and hope to somehow turn the tide. However, the second strategy can prove erroneous and potentially damaging to recovery prospects. Retailers that are likely to overcome the current downward spiral are the ones that continuously adjust their positions on key customer, sales, and operations-related programs based on insightful customer and business data. In no way do retailers have to forego their larger strategies of customer focus and responsible operations, but they have to display a sense of dynamism. A dynamic retail brand that can adjust to the evolving market and competitive conditions is almost certain to turn the tide in its favor in due course. Figure 4: Alternative 'Recession Beater' Strategies Increase product campaigns and promotions, both in terms price discounts and frequency

40%

Stay the course; you’re already implementing your best plan

39%

Reduce payroll expense

30%

Reduce marketing and advertising expense

24%

Conduct store-to-store transfers of high-liability merchandise to higher performing stores

17%

0%

10%

20%

30%

40%

50%

60%

Source: Aberdeen Group, December 2008

In the next chapter, we will see what the top performers are doing to achieve these gains.

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State of the Market: Retail Survival Strategies for 2009 Page 13

Chapter Two: Benchmarking Requirements for Success In order to address the threats imposed by the recessionary economy and uncertainties around consumer spending, this chapter presents core capabilities and technology enablers that are instrumental in building the unrelenting recovery of retail headquarter and store or channel efficiencies in 2009. Overall, the Best-in-Class retail need for process changes, missioncritical application deployment, and improvements to existing hardware, software, and support services is driven by a faster expected time for return on investments (six to 12 months). Recession Response — A Large Fashion Apparel Retailer This business case of a large fashion apparel chain based in North America demonstrates the business challenges, current, and projected response to the recessionary conditions that are impacting retail. This retailer operates several stores, a web channel, and a catalog. The recessionary challenges include high inventory holding costs, a focus on the needs of the customer, and inventory availability across all channels of operations. As a response, this company developed a threefold strategy. First, they cut inventory and reduced their assortment. Second, they prioritized their capital spending on the most essential process and technology infrastructure needs. And third, they developed a workforce management strategy to control labor hours more tightly in line with the revised business goals. This company faced a larger question on how best to address the ability to balance limited inventory, labor, and customer service. This retailer found an answer in balancing assisted selling and labor control needs. "We needed to make sure that the customer is still provided with the proper amount of service, so as not to take on a self service environment. But, you have to make sure that there is not an excess of either, as that is an improper use of resources," says the VP of Technology.

Fast Facts √ The Best-in-Class are three-times more likely to currently possess the business capability to ensure greater application integration for improving process efficiencies between ERP, POS, back office, Customer Relationship Management (CRM), and warehouse management applications √ Only 24% of Industry Average retailers possess the ability to provide channels with timely reporting of current and expected cost of operations √ Only 11% of Laggard retailers possess the ability to develop geographicallyspecific, “store-cluster” assortments for merchandizing optimization

This company also ensured that they identified their best customers via point-of-sale data and customer analytics, from both a profitability and loyalty standpoint, and developed CRM programs that provided additional value. The company identified three technology strategies for success: enhancement of real time CRM, leveraging inventory availability on a virtual basis, and a limited outsourcing program that involves their web applications. continued

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State of the Market: Retail Survival Strategies for 2009 Page 14

Recession Response — A Large Fashion Apparel Retailer On a day to day basis, this retailer focuses on three important areas of their business, to ensure that they can maximize profitability. First, all systems have to be up, and be up all the time. A website can not go down, as lost up-time results in lost sales. Second, data has to be accurate. If the data is not accurate, reporting will not be accurate. If bad data is passed along to business heads, this will result in bad decisions down the line. Third, retailers have to optimize pricing strategy. This means they have to be in a position to support the business. According to the Senior Technology Executive, "An example of this is our ability to change pricing on products across all stores and channels in an hour, without worrying about a lack of integration along the way. This is something that the majority of retailers are unable to do."

Competitive Assessment Aberdeen Group analyzed the aggregated metrics of surveyed companies to determine whether their performance ranked as Best-in-Class, Industry Average, or Laggard. In addition to having common performance levels, each class also shared characteristics in five key categories: (1) Process (the approaches they take to execute their daily operations); (2) Organization (corporate focus and collaboration among stakeholders); (3) Knowledge management (contextualizing data and exposing it to key stakeholders); (4) Technology (the selection of appropriate tools and effective deployment of those tools); and (5) Performance management (the ability of the organization to measure their results to improve their business). These characteristics (identified in Table 3) serve as a guideline for best practices, and correlate directly with Best-in-Class performance across the key metrics. Table 3: The Competitive Framework Best-in-Class

Average

Laggards

The ability to introduce a robust service culture by providing knowledgeable and friendly staff 71%

67%

50%

The ability to provide channels with timely reporting of current and expected cost of operations 59%

Process

24%

8%

The ability to execute cross-channel customer loyalty programs 46%

34%

23%

The ability to develop geographically-specific, “store-cluster” assortments for merchandizing optimization 41% © 2008 Aberdeen Group. www.aberdeen.com

29%

11% Telephone: 617 723 7890 Fax: 617 723 7897

State of the Market: Retail Survival Strategies for 2009 Page 15

Best-in-Class

Average

Laggards

The ability to hedge company growth expectations with expansion in new markets

Organization

50%

9%

Executive mandate for increased integration between channel front-office applications and back-end applications 40%

Knowledge

37%

30%

13%

The ability to provide channels with timely reporting of current and expected cost of operations 59%

30%

29%

Applications or platforms that support current retail IT initiatives:

Technology

ƒ 71% Enterprise finance application ƒ 70% Online search ƒ 67% Enterprisewide inventory visibility ƒ 67% Data repository for inventory data management ƒ 63% Data repository for merchandise data management ƒ 50% Integrated workforce management ƒ 42% Demanddriven forecasting application ƒ 60% Online comparison shopping tools

ƒ 48% Enterprise finance application ƒ 45% Online search ƒ 48% Enterprisewide inventory visibility ƒ 42% Data repository for inventory data management ƒ 36% Data repository for merchandise data management ƒ 29% Integrated workforce management ƒ 39% Demanddriven forecasting application ƒ 32% Online comparison shopping tools

ƒ 21% Enterprise finance application ƒ 13%Online search ƒ 24% Enterprisewide inventory visibility ƒ 33% Data repository for inventory data management ƒ 33% Data repository for merchandise data management ƒ 18% Integrated workforce management ƒ 15% Demanddriven forecasting application ƒ 0% Online comparison shopping tools

Performance management parameters used

Performance

52% Provide channel teams with weekly operational compliance requirements for cost-minimization

28% Provide channel teams with weekly operational compliance requirements for cost-minimization

14% Provide channel teams with weekly operational compliance requirements for cost-minimization

Source: Aberdeen Group, December 2008

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State of the Market: Retail Survival Strategies for 2009 Page 16

Capabilities and Enablers This section provides the ways by which Best-in-Class retail companies are countering depleted customer demand, the need for process integration and inventory optimization, data bottlenecks, and customer service operationsrelated inefficiencies. Best-in-Class companies are far more likely to have established these capabilities than Industry Average and Laggard respondents, thus improving their ability to react and address 'market changing' events.

Process Management When it comes to business process management, the nature and extent of processes used by a retailer to manage customer, data, and inventory depends on the size, scalability, customization, and cost-related factors. Best-in-Class retailers are currently focusing on building the process management changes that include short-term (month-to-month and weekto-week) sales and operations planning, business workflow, execution, and analysis versus quarterly and annual process improvements. In deciding the process framework, functions, and roles, Best-in-Class companies are carefully scrutinizing the enterprise-wide impact, process replication requirements in the store, web and catalog channel, and the need for overall business agility. Figure 5 presents the most significant capability development and execution areas for headquarter, store, supply chain, and channel teams. Figure 5: Best-in-Class Process Management Capabilities

0%

25%

The ability to execute crosschannel loyalty programs The ability to develop geographically-specific merchandizing

75%

100%

71% 67%

The ability to introduce a robust service culture

The ability to provide channels with timely reporting

50%

50% 59% 24% 8% 46% 34% 23% 41% 29% 11%

Best-in-Class Industry Average Laggard

Source: Aberdeen Group, December 2008

There are two capabilities where Best-in-Class companies are ahead of Laggard and Industry Average retail companies by a comprehensive margin:

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"We are addressing recessionary concerns by cutting down costs at all possible levels in the stores and other business units. On the other hand, our management team is directly involved in customer service and we are providing our teams with granular associate performance on an hourly basis. This places importance on productivity at all times. From a customer service standpoint, our objective is to continue to foster robust customer relationships. Our district's customer satisfaction score is at historically high levels this year." ~ General Manager, Field Operations, Staples Inc. (North America)

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State of the Market: Retail Survival Strategies for 2009 Page 17



Headquarter, store, and supply chain processes that relate to design and development of store-based precision merchandizing and shelf-level execution of consumer-driven assortments. The Best-in-Class are fourtimes more likely than Laggards and twice as likely as Industry Average companies to possess this capability. Consumer-driven assortments are created using granular Point-of-Sale (POS) data mapped to demographic affinity and demand trends. These assortments enable better margin attainment and improved inventory turns, thus saving millions of dollars in lost margin due to markdowns and inventory handling costs for a retailer.



Real-time reporting of enterprise-wide business analytics that support adjustments and corrections to individual business unit plans. Best-inClass retailers are seven-times more likely than Laggards and threetimes more likely than Industry Average companies to possess this capability. The "ability to generate automated reports" requires that the organization have a method for scheduling and publishing reports based on change-data. The speed at which change-data can be accessed, integrated, analyzed, and published to report consumers is directly related to the competitive value that retailer can deliver.

Organizational Management Best-in-Class retailers focus on creating an organizational mandate and consensus for hedging the risks associated with growth. Such measures involve a shift in capital investment towards other profit-centers or business growth areas such as alternative web-based channels, delivery businesses, and expansion in international ventures where the expected growth and returns can be higher. International retail ventures have enabled Best-inClass retailers to hedge against domestic demand shortfall, balance working capital needs, and optimize supply chain requirements (e.g. Abercrombie & Fitch, Wal-Mart, Staples, and Best Buy). On the other hand, Best-in-Class retailers are also creating the internal and external (e.g. upstream suppliers and vendor network) mandates for improved process and technology integration. Recent examples include the collaborative shelf-level management initiative of Unilever and Kroger's. Better technology integration in the retail network between enterprise resource planning, store, other channels, and supply chain applications improves overall data and application performance efficiencies. Virgin Entertainment's technology integration in the last two to three years is an example where a company evaluated its data integration strategy for optimizing applications.

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State of the Market: Retail Survival Strategies for 2009 Page 18

Figure 6: Organizational Capabilities for Tough Economic Times 0% The ability to hedge company growth expectations Executive mandate for increased integration

10%

20%

30%

40%

50%

60%

50% 37% 9%

40%

Best-in-Class

30% Industry Average 13% Laggard

Source: Aberdeen Group, December 2008

Technology integration initiatives in retail are a risky strategy during tough economic times due to resource constraints, but it is a necessary step in large and mid-size retail organizations to balance the operational costs of the IT infrastructure with the ROI. Retailers can start small and scale the integration drive over the course of one to two years.

Knowledge Management Developing the knowledge management and business intelligence for timely reporting on cost-related factors in retail has always been a challenge as retailers tend to pay greater attention to the successes than missed opportunities. It requires that retailers have the ability to access and collect cost-based information such as promotions, procurement, training, and overall selling costs. Best-in-Class retailers focus on reporting cost factors as much as revenue (Figure 7). They integrate it with existing customer and purchase data, and analyze it in order to derive new meaning and drive decisions and actions. This is a knowledge management capability that retailers must prioritize in order to achieve Best-in-Class performance. Just as in the case of customer data, the ability to analyze cost-related data is not technical. Too many retailers focus on the technological capabilities of software programs, but forget that it is really the capabilities of the business analysts themselves that must also be evaluated as part of the equation. The lack of BI skill sets has long been a top barrier that Aberdeen research has uncovered within many survey results over the past two years. If the analytical skill sets around spend management are not in supply, retailers may want to consider outsourcing for these capabilities.

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State of the Market: Retail Survival Strategies for 2009 Page 19

Figure 7: Best-in-Class Knowledge Management Capabilities 0%

The ability to provide channels with timely reporting of current and expected cost of operations

25%

50%

75%

59% 30%

29%

Best-in-Class Industry Average Laggard

Source: Aberdeen Group, December 2008

Performance Management As stated earlier, visibility to the cost metrics that drive the bottomline attainment is critical to a successful retail strategy during recessionary times, but moreover, it is also essential that performance metrics be identified, accessed, tracked, and acted upon at the lowest levels of the organization. Best-in-Class companies are far more likely to gain visibility towards cost performance at the store level, and are also more likely to achieve an even greater level of granularity at the store associate level in terms of daily and weekly compliance. Some examples of cost-related compliance tasks that can be intensified during slow sales periods include: •

Timely completion of an accelerated schedule for channel-specific markdowns and return status products



Frequently contact the buying office to lessen or eliminate shipments that are likely to be marked down



Conduct store-to-store transfers of higher-liability to higher performing stores

This enables a company to affect performance improvement among the very people who have the most effect on customer interactions (Figure 8).

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State of the Market: Retail Survival Strategies for 2009 Page 20

Figure 8: Best-in-Class Performance Management Capabilities 0%

Provide channel teams with weekly operational compliance requirements for costminimization

10% 20% 30% 40% 50% 60%

52%

28%

14%

Best-in-Class Industry Average Laggard

Source: Aberdeen Group, December 2008

No matter what level of granularity is achieved, Best-in-Class companies are also focusing efforts on establishing performance thresholds, or "business rules" that dictate the generation of alerts for relevant managers and decision-makers. This is still a capability that is emerging as Best-in-Class retailers enter into more advanced areas of BI capability.

Technology The use of existing and acquired technology is directly or indirectly aligned with core retail goals such as in-stock, customer service, customer loyalty, and sell-through of product. More so in the current economic times, retailers must map technology needs with business needs and closely scrutinize ROI, delivery model, level of application customization, and scalability requirements. In addition to the management capabilities previously described, Best-inClass companies are showing leadership when it comes to the adoption of technologies that can potentially enable effective retail processes during an extended period of less than desired growth. It is important to note that there is not a single technology platform which can provide a way out of less than desirable growth in retail. However, Best-in-Class companies use a combination of best-of-breed and ERP technologies at any given time. Currently, the foremost deployment criteria that retailers are using to measure new application deployment and improvements include: cost of deployment (42%), scalability for enterprise-wide adoption (37%), and customization of specific features and functions (36%). Best-in-Class companies have identified the top technologies in which they are currently investing which, according to these companies, is in sync with current market conditions and their business objective shifts. Figure 9 shows that Best-in-Class companies are focusing on the building blocks of retail (data and inventory) and hedging risk by focusing on a growth channel such as web. Best-in-Class retailers are five-times more likely to be investing © 2008 Aberdeen Group. www.aberdeen.com

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State of the Market: Retail Survival Strategies for 2009 Page 21

in online search capabilities (search engine and website-specific) than Laggards. Figure 9: Top Five Best-in-Class Technology Investments 0%

25%

50%

75%

100%

71% Enterprise finance application

48% 21% 70%

Online search

45% 13% 67%

Enterprise-wide inventory visibility 24% Data repository for inventory data management Data repository for merchandise data management

48% Best-in-Class 67%

42% 33%

Industry Average 63%

36% 33%

Laggard

Source: Aberdeen Group, December 2008

Enterprise-wide inventory visibility, storing, and managing data within an enterprise warehouse are both "front-end" and "back-end" BI technological capabilities. The "front-end" data access, viewing, and analysis capabilities are also important, and this is where the concepts of dashboards and scorecards come into play. This is particularly important when discussing how a retail organization is able to take corrective action based on performance metrics. Best-in-Class retailers are far more likely to have implemented either operational dashboards (i.e. dashboards focused on an operational area of the business such as inventory, merchandise category performance, POS activity, among others) or executive dashboards (i.e. dashboards that are focused on strategic financial KPIs such as profitability, RONA, same store sales, etc.). Planned adoption of technologies among all respondents shows that there is a great interest within the next two years to KPI-driven performance dashboards (46%), demand-driven forecasting application (45%), development of more BI capabilities for the enterprise, especially when it comes to building out an end-to-end BI platform for the enterprise (44%), consumer-driven replenishment (44%), and customer-loyalty application (43%) (Figure 10).

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State of the Market: Retail Survival Strategies for 2009 Page 22

Figure 10: Planned Recessionary Technology Adoption - All Retailers 0%

25%

Enterprise-wide inventory visibility Data repository for merchandize data management Performance dashboards

Demand-driven forecasting application

45%

29%

Currently Exists Plan to Implement within 13-24 months

21%

16%

25%

19%

20%

23%

31%

24%

22%

22%

24%

100%

15%

30%

34%

Integrated business intelligence suite

Customer loyalty application

20%

38%

31%

75%

24%

40%

Integrated workforce management suite

Consumer-driven replenishment

50%

13%

22%

19%

Plan to Implement within 12 months

Source: Aberdeen Group, December 2008

Aberdeen Insights — 'Recession-Beater' Technology Strategies Retail IT complexities further intensify during a period of economic recession as scarce IT resources need to be distributed between "frontend" versus "back-end," customer-centric versus cost-centric, and revenue-related versus non-revenue related priorities. The following are a few IT allocation roadmap changes that could shape the near-term (three to 12 month) technology use, development, and adoption in retail. These points could serve as best practices for re-aligning your IT strategy with the larger business strategy: •

Prioritization of IT spend towards mission-critical customerfacing and retail optimization applications that directly impact bottomline attainment. Best-in-Class retailers focus on demonstrable ROI justification for every new critical application deployment rather than anecdotal evidence. Best-in-Class expected time to ROI for new applications (on-premise or SaaS) is between six and 12 months. These companies ideally balance the needs between mission-critical revenue generating customer-facing and optimization applications such as pricing, promotions, and markdown management that can potentially lower selling costs. continued

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State of the Market: Retail Survival Strategies for 2009 Page 23

Aberdeen Insights — 'Recession-Beater' Technology Strategies •

Greater application integration to improve retail value chain and process efficiencies. Best-in-Class retailers are three-times more likely to currently possess the business capability to ensure greater application integration for improving process efficiencies between ERP, POS, back office, CRM, and warehouse management applications. This leads to improved data capacity management, increased application uptime performance, accuracy in sales forecasting, and improved CRM programs.



Greater visibility and acceptance for lean retail IT techniques (on-demand, SaaS, and hosted application delivery models. Best-in-Class retailers are finding that the time to ROI from SaaS applications is seven months when compared to 9.3 months and 11.3 months for Industry Average and Laggard companies. Our analysis also shows that on average, despite the risks associated with a lack of control on the delivery model and enterprise data when compared to on-premise retail application models, Best-in-Class companies have experienced a 17% reduction in IT infrastructure costs due to use of SaaS-based retail applications.

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State of the Market: Retail Survival Strategies for 2009 Page 24

Chapter Three: Required Actions Whether a retailer is trying to move its performance from Laggard to Industry Average, or Industry Average to Best-in-Class, the following actions will help spur the necessary business performance improvements, both in terms of business processes and technology:

Laggard Steps to Success •





Precision alignment of business needs with changing business process and IT needs. In order to prevail in the current selling conditions, Laggard retailers must audit their current front-end and back-end technology and business process requirements on a monthly basis. This will complement the changing retail business climate characterized by the need to lower selling costs, gross margin attainment, and narrower assortments for a better sell-through rate. Laggards must adopt innovative and personalized offline and online selling tools that can be used by sales staff on a daily basis, precision assortment plans, and loyal marketing tools that support the ability to execute narrow yet deep product assortments and frequent product promotions in order remain competitive. Currently, two-thirds of Laggards do not possess these capabilities or the tools that support it. Commit resources for tracking business and technology performance. Ninety-two percent (92%) of Laggard retailers lack capabilities to provide real-time or near real-time reporting of key performance indicators. In sluggish economic conditions, this is a dismal rate of performance measurement. Laggard retailers must track three to five business performance indicators such as sales per hour, transaction size, in-stock, and gross margin performance on a daily, if not near realtime basis. On the other hand, Laggard retailers must measure three to five technology performance indicators such as application uptime, troubleshooting solution rates, and breakdown rate to ensure optimum IT performance that supports business goals.

Fast Facts √ The Best-in-Class should reduce their IT acquisition, development, and training costs by limiting these expenditures to missioncritical applications that enhance sales and margin opportunities such as promotion management, pricing optimization, or point-of-sale √ Industry Average retailers can gain invaluable IT resources by outsourcing non-mission critical applications. These resources can be used for investments towards existing application improvements and required training √ Avenues must be created for Laggard retailers to develop segmented customer profiles of their customers for seamless loyalty campaign creation and delivery

Intensify the focus on the most profitable customers. Avenues must be created for Laggard retailers to develop segmented customer profiles of their customers for seamless loyalty campaign creation and delivery. These customer profiles would ensure that field channel teams address the value proposition of the retail brand effectively in terms of product offering, promotion information, assisted selling, and other service functions. A segmented customer profile also ensures that offers are personalized and customized to the needs of the customer. One of the top customer management strategies used by 58% of Best-in-Class companies is the use of personalized product offers. The innovators are using product recommendations for up-selling and cross-selling online and offline, loyalty elements or tools that are personalized to suit

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State of the Market: Retail Survival Strategies for 2009 Page 25

specific customer segments based on product affinity and lifestyle preferences.

Industry Average Steps to Success •

Instill a higher focus on demonstrable ROI justification. In order to remain competitive in a tough retail environment, Industry Average retailers must instill a focus on demonstrable ROI justification for every new critical application deployment rather than anecdotal evidence. Rather than the standard one to three year ROI on customer-facing and other key retail enterprise applications, Industry Average companies must insist on attaining a faster six to 12 month ROI through daily measurement, tracking, and corrective action for application performance. Industry Average retailers must explore several software and hardware acquisition models such as pay-for-performance, in addition to an outright purchase or software licensing.



Outsource non-critical business applications and support functions. Despite the burden of escalating IT infrastructure costs, 80% of Industry Average retailers have not opted to outsource administrative applications, IT support and help desk, web and catalog order management call center, and back office applications such as returns management to third party providers. Industry Average retailers can gain invaluable IT resources by outsourcing non-mission critical applications. These resources can be used for investments towards existing application improvements and required training. Such thirdparty agreements must contain a clause to review consistent application delivery performance on a regular basis and include the ability to cancel the contract due to non-performance by the retailer.



Develop acceptance for lean retail IT techniques (on-demand, SaaS, and hosted application delivery models). Lean retail IT techniques would ultimately support lean initiatives that are currently implemented in retail to ensure lower infrastructure and operating costs. However, Industry Average retailers need not adopt SaaS-based models without adequate pilot programs. Moreover, untested SaaS delivery models for mission-critical customer-facing and retail optimization applications are a risky strategy due to un-tested delivery models and integration methodologies. Industry Average companies can start by adopting multi-tenant SaaS applications and other lean retail IT initiatives in the areas of dynamic web content management, digital imaging, order management, fulfillment, and data centers that support data capacity optimization for large, mid-size, and small retail networks. Industry Average companies must ensure that SaaS delivery models are consistent on application delivery performance. Furthermore, lean retail IT delivery models must support seamless front-end and back-end performance, open-source architecture, and seamless integration with other enterprise applications. These delivery models must be compatible with C++, Java, Windows, and Linux-based application platforms.

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State of the Market: Retail Survival Strategies for 2009 Page 26



Focus on mission-critical applications. Depending on the health of the business, do not issue blanket moratorium on mission-critical customer and employee-facing application improvement or new acquisitions. For example, CRM, cross-channel, online, supply chain fulfillment, or promotion or pricing management application improvement could be instrumental in supporting the recession plan. Prioritize IT projects based on the question: “what IT applications are most vital for business continuity and sustenance?” Create deployment plans in multiple phases that can stretch the extent of scalability, extensibility, and optimum utilization of resources.

Best-in-Class Steps to Success •

Re-negotiate service-level agreements. Best-in-Class companies must exercise the option to re-negotiate rates on long-term license revenue agreements that include application and platform development, implementation and maintenance costs. Such agreements can include software, hardware, and peripherals. Often such negotiations can enable better options for retailers in terms of per user licensing fees and reduction in exorbitant support costs. Retailers must include a renegotiation clause within the original RFP process. This hedges the ability of the retailer to re-negotiate a previous cost structure up to a certain limit, due to unforeseen harsh economic and financial conditions that can impact even the most prosperous of companies.



Eliminate deadweight IT costs. Besides implementing cutting-edge business strategies to reduce the cost-burden in the areas of customer, inventory, and data management, the Best-in-Class should reduce their IT acquisition, development, and training costs by limiting these expenditures to mission-critical applications that enhance sales and margin opportunities such as promotion management, pricing optimization, or point-of-sale. Best-in-Class retailers must prioritize and, as much as possible, re-negotiate the costs associated with the use of outside consultants. If required, these consultants should be hired for mission critical tasks related to seamless application delivery, integration issues, and legacy system upgrades. Non-time sensitive software application, hardware, or peripheral improvements should be postponed until such a time that it is absolutely required to reduce the IT cost burden.



Continue integration and improvements within critical IT application and business processes. Best-in-Class retailers need to ensure that they are continually focused on introducing timely feature and function improvements to the software applications that can facilitate an improved focus of channel employees on day-to-day sales, gross margin, and increased customer satisfaction. Secondly, improved integration between applications and business processes (e.g. point-ofsale application and daily price updates due to promotions and price variability) using service-oriented architecture and virtualization techniques, such as cloud computing, is gradually becoming a Best-in-

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State of the Market: Retail Survival Strategies for 2009 Page 27

Class practice. Currently, 60% of the Best-in-Class need to focus on improved application and business process integration to ensure seamless business execution, and greater customer and end-user satisfaction. Aberdeen Insights —The Role of Technology Our research has revealed the current and planned methodologies of Best-in-Class companies in retail during the current recessionary trend. These best practice techniques will serve as an example for the rest of the industry to re-invent or adjust their business and IT planning as well as execution processes to be in line with the larger corporate costcutting and bottomline-driven objectives. A summary of key strategies that have been discussed in this report include: •

Re-prioritize IT investments for improved ROI: Focus on solutions that drive customer-pull strategies, lean retail initiatives, and more precise assortments



Accelerated product campaigns, door busters, and promotions, both in terms price discounts and frequency



Accelerate schedule for channel-specific markdowns



Reduce wasteful non-revenue related expenses through sustainability tools and employee awareness programs



Reduce expenditures related to cost of goods sold



Re-align marketing and advertising priorities towards customercentric programs



Lessen or eliminate shipments that are likely to be marked down



Conduct store-to-store transfers of high-liability merchandise to higher performing stores

Assign associate hours based on productivity, e.g. Selling Volume Per Hour (SVPH)

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State of the Market: Retail Survival Strategies for 2009 Page 28

Appendix A: Research Methodology Aberdeen surveyed 200 retail enterprises between October and December 2008 to reveal the changing scenario in retail. This report serves as a 'reality check' for the retail industry that grappling to deal with critical pain points such as declining topline sales, business value chain impact, and shifts in the information technology roadmap and priorities. Aberdeen supplemented this online survey effort with interviews with select survey respondents, gathering additional information on multi-channel technology and integration strategies, experiences, and results. Responding enterprises included the following: •

Job title / function: The research sample included respondents with the following job titles: C-level (17%); Information Technology (30%); Business Process Management (9%); Sales and Marketing (26%); Store Operations (10%); Finance (2%); Customer Service and others (6%).



Industry: The research sample included respondents exclusively from retail industries. consumer electronics (12%); specialty (21%); general merchandise and apparel (18%); supermarket and grocery (14%); department, convenience, FMCG and drug stores (15%); furniture and hardware (10%); fast food and hospitality (3%); wholesale (1%); and others (6%).



Geography: The majority of respondents (60%) were from the Americas. Remaining respondents were from the Asia-Pacific region (20%) and EMEA (20%).



Company size: Thirty percent (30%) of respondents were from large enterprises (annual revenues above US $1 billion); 35% were from midsize enterprises (annual revenues between $50 million and $1 billion); and 35% of respondents were from small businesses (annual revenues of $50 million or less).



Headcount: Twenty-six percent (26%) of respondents were from small enterprises (headcount between 1 and 99 employees); 27% were from midsize enterprises (headcount between 100 and 999 employees); and 37% of respondents were from large businesses (headcount greater than 1,000 employees).

Solution providers recognized as sponsors were solicited after the fact and had no substantive influence on the direction of this report. Their sponsorship has made it possible for Aberdeen Group to make these findings available to readers at no charge.

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Study Focus Responding executives completed an online survey that included questions designed to determine the following: √ The changing priorities of the retailer's technology roadmap, and the core process, organizational, knowledge, and performance capabilities that are being adopted to address profitability, growth, and process improvement objectives. √ Ways by which Best-in-Class CxO’s are attaining success through re-prioritization and renewed focus on retail basics. √ Current and planned use of business capabilities and technology enablers currently and within the next two years √ The knowledge and performance management benefits, if any, that have been derived from Business Intelligence The study aimed to identify best practices for business process management and technology use to counter recessionary times in retail, and to provide a framework by which readers could assess their own management capabilities.

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State of the Market: Retail Survival Strategies for 2009 Page 29

Table 4: The PACE Framework Key Overview Aberdeen applies a methodology to benchmark research that evaluates the business pressures, actions, capabilities, and enablers (PACE) that indicate corporate behavior in specific business processes. These terms are defined as follows: Pressures — external forces that impact an organization’s market position, competitiveness, or business operations (e.g., economic, political and regulatory, technology, changing customer preferences, competitive) Actions — the strategic approaches that an organization takes in response to industry pressures (e.g., align the corporate business model to leverage industry opportunities, such as product / service strategy, target markets, financial strategy, go-to-market, and sales strategy) Capabilities — the business process competencies required to execute corporate strategy (e.g., skilled people, brand, market positioning, viable products / services, ecosystem partners, financing) Enablers — the key functionality of technology solutions required to support the organization’s enabling business practices (e.g., development platform, applications, network connectivity, user interface, training and support, partner interfaces, data cleansing, and management) Source: Aberdeen Group, December 2008

Table 5: The Competitive Framework Key Overview The Aberdeen Competitive Framework defines enterprises as falling into one of the following three levels of practices and performance: Best-in-Class (20%) — Practices that are the best currently being employed and are significantly superior to the Industry Average, and result in the top industry performance. Industry Average (50%) — Practices that represent the average or norm, and result in average industry performance. Laggards (30%) — Practices that are significantly behind the average of the industry, and result in below average performance.

In the following categories: Process — What is the scope of process standardization? What is the efficiency and effectiveness of this process? Organization — How is your company currently organized to manage and optimize this particular process? Knowledge — What visibility do you have into key data and intelligence required to manage this process? Technology — What level of automation have you used to support this process? How is this automation integrated and aligned? Performance — What do you measure? How frequently? What’s your actual performance? Source: Aberdeen Group, December 2008

Table 6: The Relationship Between PACE and the Competitive Framework PACE and the Competitive Framework – How They Interact Aberdeen research indicates that companies that identify the most influential pressures and take the most transformational and effective actions are most likely to achieve superior performance. The level of competitive performance that a company achieves is strongly determined by the PACE choices that they make and how well they execute those decisions. Source: Aberdeen Group, December 2008

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State of the Market: Retail Survival Strategies for 2009 Page 30

Appendix B: Related Aberdeen Research Related Aberdeen research that forms a companion or reference to this report includes: •

The 21st Century Retailer; January 2007



Retail Contactless Payment Systems; January 2007



The Changing Dynamics of Retail Promotions; February 2007



The Roadmap to Successful Contactless Payment implementation; November 2007



Customer-centric Point-of-Service; February 2008



Responsive Trade Promotions Management; July, 2008



Technology Strategies for Multi-Channel Integration; April, 2008



Responsive Customer Loyalty: Creating Customer Commitment in Retail; June, 2008

Information on these and any other Aberdeen publications can be found at www.aberdeen.com.

Author: Sahir Anand, Senior Analyst, Retail, [email protected] Chris Cunnane, Research Associate, Retail, [email protected] Since 1988, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide organizations with the facts that matter — the facts that enable companies to get ahead and drive results. That's why our research is relied on by more than 2.2 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of the Technology 500. As a Harte-Hanks Company, Aberdeen plays a key role of putting content in context for the global direct and targeted marketing company. Aberdeen's analytical and independent view of the "customer optimization" process of HarteHanks (Information – Opportunity – Insight – Engagement – Interaction) extends the client value and accentuates the strategic role Harte-Hanks brings to the market. For additional information, visit Aberdeen http://www.aberdeen.com or call (617) 723-7890, or to learn more about Harte-Hanks, call (800) 456-9748 or go to http://www.harte-hanks.com. This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.

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