Intelligence at Every Step of the Merchandise Life Cycle Intelligence at Every Step of the Merchandise Life Cycle Presented by Tim Combs VP Planning for Luxottica Retail SAS Forum

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Intelligence at Every Stepof the Merchandise Life Cycle

Presented by

Tim Combs

VP Planning for Luxottica Retail

SAS Forum 2007

Stockholm

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Agenda• Company Introduction/Background• Merchandise Planning Environment• Planning Process Overview• Advanced Planning Approach• Summary and Future Direction


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AgendaCompany Introduction/BackgroundMerchandise Planning Environment

Planning Process Overview

Advanced Planning Approach

Summary and Future Direction


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How is Luxottica Organized?

Introduction & Background

A Vertically Integrated Organization

• Parent Company (worlds largest frame manufacturer)

- Sales & Marketing Office in Milan, Italy

- Manufacturing Headquarters in Agordo, Italy

• North American Retail Division

- Headquarters in Mason, Ohio

- Five Distribution Centers

- Nine Central Lab Locations

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Who is Luxottica Retail?


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What does Luxottica Retail look like?


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Where is Luxottica Retail?

720Stores 420

Stores

4,900stores

260Stores

70Stores


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North America Store Count by Format

950

300

160

Sears Optical License Brand - Host Environments

Target Optical License Brand - Host Environments

BJ’s Optical License Brand - Host Environments

4,905Total Store Count

520

430

Pearle Vision Regular Owned

Franchise

1,200

160

5

220

Sunglass Hut / Ilori Regular Owned

Outlets

SGH (licensed by Hudson Group) Retail Consignment Shop

SGH (in Macy’s Department Stores) Store in a Store

950

10

LensCrafters Regular Owned

Macy’s Optical Store in a Store


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AgendaCompany Introduction/Background

Merchandise Planning EnvironmentPlanning Process Overview




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Product Group Roles & Responsibilities

- Negotiate terms and agreements

- Select brands, styles, colors sizes

- Build assortments by classification and cluster

Assortment Management

- Plan store sales & inventory by classification

- Determine correlations and build store clusters

- Manage lab inventory to provide service level commitments

Location (Store/Lab)

Planning

- Forecast financial implications of assortment

- Plan factory/vendor production needs

- Purchase stock and manage the Open-to-Buy

Financial (Product)

Planning

- Plan new product development/introduction schedule

- Forecast production requirements by factory and material

- Balance retail demand across product lines and factories

Factory (Production)

Planning

- Select factories and establish quality standards

- Review designs and approve prototypes

- Determine materials & component parts

Product Development

Planning Environment

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Key Planning Factors by Division

- Sell from the store stock and

central lab

- Turn around time differs

depending on job

- Moderate range of store

sizes

- Includes Franchise locations

Pearle Vision

- Maintain presentation stock

only and supply finished

goods from lab stock

- Several days to turn around

order

- Narrow range of store sizes

- Sell inventory from store

stock

- Same day service

- Large range of store sizes

Sears, Target, and BJ’s Optical

LensCrafters and Sunglass Hut


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Product Flow within the Retail OrganizationDivision Primary DC Secondary DC Retail/Lab Destination

Atlanta 2

Atlanta 1

Dallas

Atlanta 3

SGH

LC

PV

Sears

Target

Winnipeg

Toronto

Columbus

Atlanta 3

Lab (2)

US Stores (825)

Canada Stores (70)

US Stores (1,600)

Canada Stores (60)

US Stores (325)

Franchise Stores (440)

Canada Stores (125)

Lab (6)

US Stores (865)

Canada Stores (81)

Lab (5)

Target Stores (260)

BJ Stores (160)

Columbus


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Key Planning Factors for Product

-Varying Degrees of Fashion (changing trends)

-Capacity & Presentation Driven

-Longer Lead Times (90-150 days)

-Range of Life Cycles (6 mos. – 3 years)

-Affected by Seasonality (BTS, Holiday, Insurance)

Frames, Sunglasses,Watches & Accessories


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Unique Planning Challenges

• Small corporate staff with many store locations

• Desire to plan at high level, but implement low (store/sku)

• Several store formats and many different sizes

• Vertically integrated business (manufacturing, wholesale & retail)

• Need for alternate hierarchy on same items

• Planning for replacement items (shift between suppliers)


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Merchandise Planning Environment

Planning Process OverviewAdvanced Planning Approach



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Timing and Frequency of Planning

In-Season• Financial/Product plans reforecast monthly

• Location plans adjusted on an exception basis (rotation)

• Assortment plans built each month for leadtime

• Vendor/Factory production plans reforecast quarterly

Pre-Season• First draft completed 4 months prior to BOY

• Final plan completed 1st month of the year (frozen)

• Includes only Financial & Location plans, not Assortment

Process Overview

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Planning Dimensions

Primary

Secondary

• Year

• Month

- Week

- Quarter

- Lead time

• Total Division

• Business Format

• Cluster

• Store / Lab

- Store Attributes

• Commodity

• Department

• Sub-Dept

• Classification

- Item Attributes

- Style

- Sku

TimeLocationProduct

Process Overview

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Logical Flow of Functional Planning Modules

Top Down

Middle Out

Bottoms Up Store / SKU Detail Plan

CLUSTER

Financial Plan

Assort.Plan

LocationPlan

Process Overview

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• Establish and monitor corporate financial objectives(Driven by units and extended to cost and retail)- Monitor for trends or missed opportunities- Plan impact of promotional events- Plan seasonal curves by classification

Step 1:Financial Planning – Top Down

Store / SKU Detail Plan

CLUSTER

Financial Plan

Assort.Plan

LocationPlan

Process Overview

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• Establish individual store inventory plans to achieve sales(Limited by store fixture capacity and assort. minimums)- Determine store mix across classifications- Plan backstock based on store volume and seasonality- Cluster stores to have same assortments

Step 2:Location Planning – Middle Out


CLUSTER

Financial Plan

Assort.Plan

LocationPlan

Process Overview

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• Group stores into clusters based on commonalities such as:- demographics (customer type)- sales volume - store capacity (plan-o-grams)- other attributes

Step 3:Clustering – Middle Out


CLUSTER

Financial Plan

Assort.Plan

LocationPlan

Process Overview

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• Establish assortments for each cluster by creating mix of:- Styles, colors and sizes- Technologies, materials, service items- Brands, price points…

Step 4:Assortment Planning – Middle Out


CLUSTER

Financial Plan

Assort.Plan

LocationPlan

Process Overview

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Step 5A:Store/SKU Plan – Bottoms Up

• System process that uses parameters from higher levelplans to generate monthly store/sku inventory & sales plans- Includes detailed inventory roll forward thru leadtime- Automatically sets depth based on store open-to-assort- Forecasts sell thru of discontinued items


CLUSTER

Financial Plan

Assort.Plan

LocationPlan

Process Overview

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• Analyzes DC inventory need through leadtime periodand provides:- SOQ (suggested order quantities)- SIR (suggested inventory reductions) - Open-to-Buy evaluation from Financial plan


CLUSTER

Financial Plan

Assort.Plan

LocationPlan

Step 5B:Store/SKU Plan – Bottoms Up

Process Overview

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• Comparing tops down, middle out & bottoms up:- Evaluate difference and determine where to adjust


CLUSTER

Financial Plan

Assort.Plan

LocationPlan

ONGOING:Balancing – All Directions

Process Overview

Am I over assorted, causing

low ROS in the SKU detail?

Do I have enough stores

in cluster to support the

financial plan?

Does the assortment

plan built deliver on the

financial class plan?

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Advanced Planning ApproachSummary and Future Direction


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• Using Multiple Hierarchies to Plan Different Channels

• Considering Individual Store Fixture Capacities & Sale Volumes

• Developing Assortment Plans Based on Store Clusters

• Balancing Breadth vs. Depth in the Assortment

• Adjusting Stock Levels By Store – Tailor the Assortment

• Planning Around Discontinued Inventory

• Planning Replacement or Substitute Items

• Having Controls in Place to Manage Product Flow & OTB

• Managing the Assortment with Different Leadtimes

• Translating Assortment Plans into Vendor Forecasts

Advanced Approach

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Alternate Product Hierarchies

Created a separate planning environment for each division and used sku attributes in host system to interface alternate hierarchies.

Solution

Divisions are targeting customers, merchandising product and promoting differently. Need to analyze and plan with unique product structures.

Business Need

Luxury Premium Diffusion

Frames

LensCrafters & Pearle Vision

Good Better Best

Frames

Sears & Target Optical

Advanced Approach

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Assortment Comparison Across Divisions

Process Overview

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Using Clusters to Manage Large # of Stores

• Grouping stores to receive

same assortment

• Implementing plan changes

• Structuring data analysis

Uses of Clusters

• Customer Type – demographics

• Volume Groupings – units or $

• Space Planning – facings,

plan-o-grams, square footage

• Store Attributes – kiosk vs. mall,

beach vs. airport, mall rating

Parameters for Clustering

Advanced Approach

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Assortment / Store Cluster Pyramid

Advanced Approach

PremiumBurberry

DiffusionDKNY

CoreRayBan

LuxuryChanel

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Developing Store Inventory Plans based on Fixtures

Advanced Approach

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Implementing Store/Sku Assortments w/Clusters

Location AttributesUsed During Clustering

Store Design / FixturesCustomer TypeSales Volume

Advanced Approach

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Product AttributesUsed During Assorting

Brand Presentation MinimumsFrame Material & Lens TypeStyle Shapes, Colors, Sizes

Price Point Mix

Advanced Approach

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Advanced Approach

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Balancing Breadth vs. Depth

• Inventory plans broken into facings & backstock

• Minimum assortment levels established and

balanced across classifications

• Assortment Managers evaluate the number of

unique sku’s assorted as a percent of total facings

available (cluster avg.)

• Product ROS (rates of sale) are recalculated based

on # of sku’s assorted and planned sales volume

Solution

Providing the Buyer a view of how many unique items can be displayed in the assortment and how additional items will cannibalize sales within a class.

Business Need

Advanced Approach

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Automatically Adjusting Stock Levels by Store

Maintaining inventory roll forward by store vs. plan to calculate an Open-to-Assort, which is used to adjust depth along with sku parameters.

Solution

Establishing depth at the store/sku level to account for differences in fixture capacity, unit volume, sell through rate and replenishment frequencies.

Business Need

Advanced Approach

5D 7C

3B 7

A

SKUDepth

1D

5C

1B

3A

SKUDepth

7D 9C 6

B 8

A

SKUDepth

30

22

10

OTA Stock NeedStore

High Volume,

Large Capacity

3

Medium Volume,

On Plan

2

Low Volume,

Overstocked

1

Store 1 Store 2 Store 3

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Planning Around Discontinued Inventory

-Store/Sku plan projects sell thru using cluster

average ROS and total store volume

-Store specific open-to-assort adjusts in future

periods as sell thru is anticipated

-Depth is automatically assigned to fill holes if

new product introductions don’t cover the need

-Store discontinued percentages are evaluated

against cluster average in the location plan

Solution

Considering projected discontinued ownership when assorting future periods and setting depth.

Business Need

Advanced Approach

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Planning/Distributing Substitute or Replacement Items

Linked the replacement items in host system and interfaced into planning system as a single master item. Marked replacement items with “activation date” so that SOQ’s can be interface back.

Solution

Avoiding duplication of inventory when same item is sourced from a secondary supplier due to limited production capacity.

Business Need

Host Merch. System

AD B

CA=1,B=1B=2,C=1A =32

B=2,D=3A=1,D=2A =43

A =1

A =2

Stock

Plan

C=1,D=1

A=1,B=1

EOP On

Hand

A=21

C=1,D=24

EOP

SalesStore

A=2A=3A =32

A=5A=3A =43

A =1

A =2

Stock

Plan

A=2

A=2

EOP On

Hand

A=21

A=34

EOP

SalesStore

Planning System

Amaster

Advanced Approach

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Product Sourcing by Division and Leadtime

LensCrafters LensCrafters & Pearle& Pearle

Sears &Sears &TargetTarget

Sunglass HutSunglass Hut

Created separate plans by division with each having their own assortments, SOQ/SIR (based on vendor quoted leadtimes) and OTB analysis.

Solution

Allowing each division to react independently to assortment needs based on their leadtime constraints.

Business Need

90 Day

s

120 D

ays

150 D

ays

120 Days 150 Days

90 D

ays

90 D

ays

150

Days

120 Days

Process Overview

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Managing the Assortment with Different Leadtimes

Janu

ary

Feb

ruary

March

April

May

June

July

Aug

ust

Sep

tembe

r

Octob

er

Nov

embe

r

Dec

embe

r

Normal Cycle

August Close

TriStar

Chinese New Year

Normal Cycle

China Outsource

Chinese New Year

Normal Cycle

Luxottica / Italy Sourced

Delivery in 60 - 90 Days

Assort. in stores 120 Days











Advanced Approach

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Locking Down the Assortment (controls in place)

After monthly plans have been approved and orders

placed, assortments are locked.- Director approval required for changes within leadtime

- What-if scenarios evaluated to access impact of

changes on DC flow and Store stock levels

- Approved change file transmitted to factory weekly

Solution

Insuring raw material orders, WIP and product flow in-transit will match assortment plans & fulfill need.

Business Need

Delivery Issue

Psychic said “NO”

Reason

Heart’s not in itDon’t like anymore

Additional StoresMarketing Shift

ReasonReason

Advanced Approach

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Translating Assortment Plans into Vendor Forecast

Developed extracts from retail planning system that are interfaced into factory production systems, providing data direct from assortment plans.

- Monthly stock changes (additions or reductions)

- Store count changes (increases or decreases)

- Expected sell thru of excess inventory

Solution

Sharing data to maximize benefits of being vertically integrated with a manufacturing division.

Business Need

• Forecast Sales• Plan Inventory

• Order Raw Materials• Adjust Capacity• Plan Production

Demand Change

Forecasted Shipments

Retail Factory

Advanced Approach

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Lessons Learned

• Drive for the right solution- Meet your business needs and plan for new concepts

- Different is okay and maybe even better

• Design your business process first (blueprint)

- Know the process before selecting a system

- Test the concept (prototype)

• Dedicate a team to the project- Create your own experts for future training and support

• Restructure if necessary- Don’t be afraid to adjust to match a new business process

- Reallocate recourses between functional responsibilities

Summary & Direction

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Business Benefits

• Increased Revenue and Sales- Better targeted assortments with clusters

- Higher average $ sales with financial plan

• Reduced Inventory Cost- Unique store inventory plans based on actual facings

- Tighter managed product life-cycle (discontinued)

- Eliminated duplicate stock with substitute/replacement

• Increased Productivity- Consistent tools and business processes across divisions

- Automation allowing for lower level decisions/execution

Summary & Direction

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Future Direction and System Advancements

Continue global rollout of planning system

Additional integration between retail and manufacturing planning processes (vertical organization)

Further development of space planning model and criteria

Investigate of “Smart Clustering” tools and opportunities to improve

Summary & Direction

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Any Questions?

…SAS Merchandise Planning

…Luxottica Retail

…Our Planning Process

…The System We Use

Merchandise Planning

Documents

Intelligence at Every Step of the Merchandise Life Cycle Intelligence at Every Step of the Merchandise Life Cycle Presented by Tim Combs VP Planning for Luxottica Retail SAS Forum