One Size Does Not Fit All

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One Size Does Not Fit All

• Using Size Analytics to Drive Sales
• Gale Weisenfeld
• VP, Planning / MIO
• Federated Department Stores
• April 28, 2006

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Agenda

• Introduction
• Company Overview
• Business Challenge
• Business Solution
• Role of Technology
• Implementation
• Critical Success Factors
• Collaboration
• Change in the Supply Chain
• CPFR
• The Numbers Tell The Story
• Business Example
• Lessons Learned
• Future Plans

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About Federated Department Stores

• One of the nations leading department store
  retailers
• Acquisition of May Company will create 800 store
  operation with projected retail sales in excess
  of 27 billion in 48 states, Guam, Puerto Rico
• Operates under the names of Macys,
  Bloomingdales, Macys.com, Bloomingdales By Mail
• Support operation of Macys Merchandising Group
  is responsible for all aspects of Federated
  Private Label management of FDS merchandising
  systems

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Business Challenge

• Accelerate Federated Department Stores
• comp-store sales growth and increase the
  companys profitability levels

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Why Customers Dont Buy

• Have you ever gone shopping and found the perfect
  blouse / sweater / pants / shoes only to be told
  sorry, we dont have your size
• This is a missed sales opportunity of the worst
  kind when the customer is in our stores, wants to
  make a purchase, and cant because we dont have
  her size
• While alternate product offerings at the style or
  color level might be substituted to complete a
  sale, this is seldom the case for size stockouts

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Business Solution

• Federateds Size Selling Initiative was launched
  in 2002 to develop and implement solutions that
  resolve the issue of size stockouts
• Drive regular price sales
• Reduce markdowns
• Improve margins
• Create a better shopping experience

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Using Technology to Analyze Sales

• Phase 1 Best Single Prepack
• Size Profiling Application (SPA) developed by
  Macys Merchandising Group Federated Systems
  Group
• Adjust Fashion Prepacks to better match customer
  demand
• Track rate of sale on items to the size level

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Size Measurement Calculations

• Improve match rate between orders sales
• Analyze of sales by size
• Analyze of stock by size
• Objective Determine how did we sell the product
  when it first came in to our stores BEFORE we
  began to run out of sizes (Fresh Sales)

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Calculating Match Rates

• Variance Stock - Sales
• Match Rate 100 - Absolute Value of the
  Variance
• Example 100 - 20 80 Match Rate

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Applying Match Rates to Fashion Prepacks

• Fashion Prepack quantity 12 units

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Using Technology to Analyze Sales

• Phase 2 Multi-Prepack
• Create location level clusters based on
  historical sales patterns
• Every store doesnt need the same 12 pack but
  how many prepacks is the right number
• Every store isnt an equal contributor to sales
• Consider sales contribution by door cluster,
  volume of program, overall cost to supply chain
  when determining optimum number of prepacks

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How many ways can you sort a 12 pack?
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Why 12?

• Who was it that said 12 was the right number
  anyway?
• 12 is an even number
• As children, we learn to count by twos
• 12 hangars fits on a straight arm of a 4-way
• The box holds 12 pieces
• Sometimes a slightly smaller (10 or 11) or
  slightly larger (13 or 14) prepack quantity can
  yield a significantly better match rate

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Using Technology to Analyze Sales

• Phase 3 ROI Return on Investment
  Reporting
• Questions we were asking ourselves
• Did we make the right changes?
• Do we have additional opportunities?
• Are we making a difference?
• Evaluate sales performance against new prepacks
• Determine if further prepack refinement is
  necessary

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Using Technology to Analyze Sales

• ROI Reporting includes WAS / IS comparison to
  gauge ongoing impact of pack changes to key
  business metrics
• Regular Price Sales Sell Thru by Size
• Average Unit Retail by Size
• Stockout at X by Size
• Markdowns by Size
• By Location results are also available

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System Development Implementation

• Phase 1 Best Single Prepack (S02)
• Phase 2 Multi Prepack w/Location Clustering (S
  03)
• Phase 3 ROI Reporting (S04)
• Application currently deployed to approximately
  100 users across all Federated divisions

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Critical Success Factors

• Incorporation of size analysis into the daily
  business process
• Senior Sponsor (President, MMG)
• Size analysis is not a special one-time project
• Timing, coordination with market schedule
• Increased workload before market meetings
• Change Management ?culture change with
  significant impact to business process
• Clear definition of roles / responsibilities

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Critical Success Factors

• Collaboration
• After gaining experience with Private Label and
  having wins to talk about, Federated is
  actively analyzing size selling for branded
  vendors and sharing our findings with our vendors
• Buying and allocating the right sizes is only the
  beginning of the process
• A genuine partnership between retailer and
  supplier is critical in order to maximize sales
  by size

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Collaboration

• Introducing Change to the Supply Chain
• Vendors need to evaluate their ability to
  implement change in the supply chain to support
  multi-prepack offerings
• Resistance Obstacles to Change
• This is hard
• This is expensive
• Im not the right person to make this happen
• Can my company execute this accurately?

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Collaboration

• Achieving Change in the Supply Chain
• Vendors are migrating to a multi-prepack business
  model
• Vendors offering multi-prepacks have made
  modifications to reflect different / additional
  packs
• If there is only a national pack (best single
  prepack), FDS is defining the pack
• Mutual Benefits
• Our vendors will share in the benefits of the
  work being done with size analytics via increased
  regular price sales and improved margins

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CPFRCollaboration-Planning-Forecasting-Replenishm
ent

• CPFR diagrams slides are courtesy of
• Russ Brown, Russell Corporation
• Fall 2005 AAFA ISC Presentation

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CPFRCollaboration-Planning-Forecasting-Replenishm
ent
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CPFR involves more than you might think.
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CPFR - - The cycle expanded
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Where does CPFR fit in?
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CPFR starts with a joint agreement
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CPFR encompasses review and understanding of
strategies data on both sides of the partnership
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The forecast starts it all.Is size analytics
part of this process?
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CPFR - - Manage the exceptions

• Identify and resolve exceptions to the forecasts
• Orders
• Receipts
• Fill rates
• Sales

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What have we learned?

• Our work with size analytics is ongoing
• Customers sizes are ever-changing
• Size Specs matter
• When is a large not a large?
• Know your fit model
• Things to consider
• Vendor
• Lifestyle
• Price Point
• Personality of the product
• Its not just about the numbers
• Collaboration is key

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Current Sizing Priorities

• Collaboration with our market vendors
• Now more than ever, as Macys becomes a national
  department store, we need right product, right
  place, right time, AND right size
• The lead time to implement change in the supply
  chain is long, frequently 9-12 months. We need
  to work together to implement change faster.
• Integration of size analytics into Federated
  merchandising systems in order to gain workload
  efficiencies
• Ordering
• Allocation

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Discussion / Questions

• Gale Weisenfeld
• VP, Planning / MIO
• Federated Department Stores
• Email gale.weisenfeld_at_macys.com