The Importance of Inventory Accuracy for Retailers Worldwide

Everyone and welcome into the Market Scale Studios. I'm Tyler Kern. Thank you so much for joining us today. We have a fabulous guest. His name is Adrian Thomas. He's the president and CEO of DataScan. Gonna be discussing the importance of inventory accuracy for retailers worldwide. So Adrian, thank you so much for joining us. Pleasure to be here. Thank you, Tyler. Excellent. Absolutely. Absolutely. Excited to talk about this topic because I think this was an important topic before, but COVID nineteen has really brought this to a larger level of relevance these days. Because it's forced all of us to adjust our routines and what our normal looks like, especially as it as it relates to retail. So how have you seen buyer behavior trends emerge during COVID nineteen and maybe shift and change during this time. Yeah. I I think it goes actually back before COVID. I mean, I think bio behavior was changing probably two years before COVID. And really, that was through the drive that Amazon and other online retailers were driving behavior that people were researching items online. Prior to COVID, I think we were we'd gone through a period where people were researching online and retailers were responding. Not non ecommerce pure e commerce retailers were responding by saying, okay, we can ship now from our stores or we can ship from a DC. And we can manage retail inventories accordingly. What changed in the sort of six months prior to COVID was that model was becoming cost prohibitive. Mhmm. And I think there was the the returns costs and the shipping costs that retailers were experiencing from that model was having making them take a look at how do we change it It was also reducing the foot traffic through through stores. And that's critical if you've got a retailer with lots of brick and mortar stores. So the model was beginning to change to something called buy online pickup in store or BOPis, where we as consumers were really looking at items to buy online doing our research, and then we'd place an order, and this the retailer would say, yes, I have that in your local store. And it would it would then require you to drive to the store, pick up the item. You were placing your order and paying it prior to you actually going and physically picking up the item. And what it meant for the retailers is it was achieving two things. It was reducing the cost of the transaction. And it was getting a consumer into their physical store where the likelihood is you're going to buy something else. So there was a cost reduction driver and a a sales revenue driver that was taking us down this path to to Bocus. COVID has really just accelerated that. And I think now we're going to see as we transition through the sort of initial COVID impact and and to the post sort post COVID impact, what buyer behavior will be to say, well actually sanitation for me has now become a really important issue. And I do not want to be in a store where there's lots of other potential harmful bacteria and will BOPIS continue as it is today. But we're seeing more and more retailers driving their business model towards BOPIS rather than ship from store or ship from DC, and I think we'll see that trend continue. That's really interesting. And and like you mentioned, many retailers were already trending that omnichannel approach before COVID, but and you you kind of hit on this a little bit, but but COVID really served as a a shot in the arm for some more of those strategies like BOPUS like you mentioned. So it it really accelerated in a short period of time. Something that maybe we would have seen over a couple years' worth of innovation. I think so. And I I think also it varies from from vertical market to vertical market. If you look at if you look at grocery for most people buy their groceries by physically going to the store. But we saw a huge explosion of buy online either pickup, you know, curbs curbside pickup or you'd have a a, you know, an Uber Eats delivery or whatever it might be to to your home. Right. I know I know we did it and from Costco, which we've we've never done that. Before. Right? We've always gone to Costco and visited there and and come home with the with the carload of of product. I think, so for grocery, there is a change you've then got what I would call the discount retailers. Mhmm. You know, the the dollar the dollar stores. And then if you if you go into the discount fashion and at home good retailers, they rely on foot traffic. Much more difficult for them to adopt a BOPUS model. BOPUS really is in those specialty retailers where they have a a control supply of inventory through their store footprint, where you can be relatively confident that you're gonna have the item that you need in the store at the right time. Right. So as we talk about BOPIS and and online shopping and things that with that being a a wider trend these days especially in the mid COVID post COVID world. How does that then accentuate the importance of inventory accuracy? And maybe does that create more challenges for that when it for retailers? It it absolutely does. I mean, the the the challenge for the retailer is historically, they only count their inventory once or potentially twice a year. And that is the time when they will adjust their inventory records to reflect physical inventory. And so they've got a hunt, you know, very, very close to a hundred percent accuracy at that particular point in time. What what the data proves and and we're an inventory counting company, got lots of data to prove this, is inventory act receive degrades over time. And and it can be as much as three percent a month for certain categories of product that move very quickly or have high shrink. So So immediately the month following your inventory count, your inventory is inaccurate. So if you're relying on inventory accuracy to be able to support a BOPIS strategy, you need to be counting that inventory more frequently. And I think that's the change that we're seeing because what it what what retailers have found yes, BOPis is nice. Consumers like BOPis as a concept. But if I go online and I order a short shirt in a particular size and a color, and the inventory's inventory record in the retailer tells them, yes, it's in Adrian's store five miles away, I'll place my order. On Saturday, I'll go down to pick it up. Guess what, if it's not there because the inventory record is inaccurate, not only have they lost a sale, but they might have upset a a customer, loyal customer. So Inventory accuracy sort of philosophy is now raising its its position within a retail environment. C Suite executives are now saying, we certainly don't want to lose revenue and we certainly don't want to impact customer satisfaction. And inaccurate inventory records potentially can do that for us. So we need to be looking at driving greater inventory accuracy. Right. Because customer experience these days has become, you know, a buzzword term for lack of a better word across the retail industry. Right? Everyone's looking at how do we improve the customer experience? How do we give customers the best experience, whether it be online, in store, a mixture of the two? And so having inventory accuracy issues certainly elevates that that elevates the problem. Right? Because like you mentioned, an an upset customer because you don't have the shirt that they ordered. All of a sudden, this is now a larger issue than just inventory accuracy problems that they would have normally experienced like you said, a month after counting anyways, now this is an elevated issue that that is a bigger problem for retailers to try to It's a bigger problem. So one one response could be, well, I'm gonna elevate my buffer stock. Mhmm. Right? So whereas, typically, I would a minimum minimum quantity in the store of three or five or whatever the whatever the retailer might set as a buffer stock. In order to absorb this potential inventory and accuracy I'm going to make that six or seven. So what that means is they're now carrying more inventory in the store, the Costco. Up. So I think there's a trade off between, do I perform more inventory counts more frequently? And there's a cost to that, obviously, in order to maintain a higher level in accuracy, or do I change my the way I manage my inventory in my supply chain and have more inventory in the store rather the DC or or about manufacturing. So data scheme provides a lot of data to retailers on their inventory accuracy. Right? So me a little bit more about the data provided to retailers, maybe some of the actions they can take as a result of the data that that you provide. So when retailers perform an inventory, obviously, there is a comparison between the the inventory in the books and records of the retailer prior to the count, and then the physical count. And there will be discrepancies. And so part of the the data result is they will research those analyses to understand what caused either a a positive variance or a negative variance in certain items. And as you count them more frequently, you can begin to track that behavior and identify what in your supply chain or what in your loss prevention, you know, protocols are causing inventory inaccuracies in certain categories of product within your store. So we're able to provide that data by allowing the retailer to research the variances on the book to physical imagery counts. And the more frequently they count, the better data they get. Interesting. So when it comes to inventory tracking and and and figuring out exactly what you have in a store. Is this a one size fits all kind of solution or do different retailers, for instance, grocery versus, you know, a big box retailer. Do they need different solutions when it comes to their inventory accuracy? Yes. I mean, the the the the solutions vary across the industry. So in grocery, for instance, and and in some big box, the the volume of items in store are so great that they physically can't have enough people from of their own staff to be able to perform the count. So they need to be able to be bringing third party's new staff into the store to perform the count. Equally, If you go along in a grocery store and that there's a shelf of, you know, tins of beans, you don't need to be scanning each individual tin of That would take you all day. It would take yes. It would take way too long. So there is something called bulk entries. So you you scan one and then you do a physical count and you enter thirty five or fifty or it might be. That model doesn't work in a in your high end department store where you want to be tracking size, color, style, etcetera, where you need to be scanning each individual item. Equally in in those stores, in some of the specialty stores, you've got, you know, sporting goods stores, you've got shoe stores, excuse me, home goods stores, The density of product versus the density of staff is right that the retailer's own staff can perform those counts. And they'll do them with more knowledge about the product. So if they under they they will understand if if this style is different than this style or maybe there's a mislabeling that they pick up on, which a no disrespect to the third party counters, but they won't notice that. It's not their product that they're counting. Right. So I think There are retailers which are well set up to perform self scan counts with their own staff, and there are retailers where the model doesn't work for that. And they'll need to continue use the third party service. What's changing in some of those bigger box stores is they're identifying product groups or or product areas that need more regular accounting. So that transitions the thinking from I'm going to do a once a year, twice a year full physical inventory across the whole store. To I need to make sure that those particular categories those particular products are kept accurate. Mhmm. And they'll do something called cycle counts. Or potentially category counts. And that that is another big change that's going on in the market where Brito is saying, I don't need to count everything at fifty cents in my store. I need to count the five, ten, twenty dollar items in my store. And in the case of sort of higher end fashion, I need to count the higher value items to make sure those are accurate. So for instance in a store like a a Walmart that has something of everything. You might have different cycles and different different time intervals that you are counting certain departments or certain -- Yes. -- items within certain departments. So then that cycle repeats on a regular basis but depending on the department, depending on the product. Yeah. I think perpetual inventory accuracy is not a new thing. Mhmm. So if you go to any sort of well run warehouse, they're performing true cycle counts throughout the year. That means they'll count everything in the warehouse at least once and and probably more than that over a period of time. It stores are not really doing that yet. We may get there, but they're not doing it yet. What they're doing and and what retail calls cycle it in the in the store environment is we want to count specific categories. Mhmm. So it might be, you know, your high shrink items. So we come back to this notion of we perform a physical imagery count and you've got your book record and your physical record. And as you build up that inventory data over time, you can see, well, this particular product group is consistently bad. There's a consistent variance. We need to count that more regularly to understand what's going on there. It might be high value items. So particularly in in a Walmart or a Target store, you might say, well, I'm gonna count my higher end electronics. Mhmm. Because that's a significant value of imagery in the store, and it may be it has a high potential for loss prevention. So they might do that. Or they might say, well I've got a seasonal product mix coming in that's going to be a high volume seller over a period of time. I need to be counting those. So I know how to replenish those when you know, so that I don't get out of stock. So I think retailers in the store are looking at a number of different ways to count items in the store that won't necessarily drive us to sort of full store physical inventories being done on a regular basis. Does having a better understanding of your your inventory accuracy allow retailers to then be more efficient when it comes to reorders or what you need at a Pacific time. Can that help retailers really create some efficiencies that then drive greater revenue and maybe bring some costs down in that sort of thing? Yes. It it ups absolutely does. And I I you know, you know, if you look at the the sort of major costs for a retailer in it with a brick and mortar footprint, labor is a big big driver. So I think retailers are looking at how do they make best use of their labor within a store. And then the the second biggest one is their inventory carrying cost. And that really stems from how do they manage their inventory from all the way through their supply chain manufacturing distribution and down to the store and then out to the consumer. They're looking to summarize the volume of sales based on the minimum volume of inventory they have in their store. Right. So this comes back to the notion of, I don't want to be carrying too much because it's not going to move. It's just going to sit there and take up real estate. And I want to get that product to be churning through the supply chain. So think they're they're looking at how do they maximize the efficiency of their inventory throughout that whole supply chain. And that might be cutting out, you know, cutting out a set of product that comes through a DC and have it shipped direct from manufacturing direct to the store. Mhmm. Now that introduces another area of risk. But that's something that each relay retailer can judge to say, do I trust my my manufacturer to send me the right product to the right store? Do I trust my store management and my inventory management systems to be placing the right replenishment orders when they're needed. And that all stems back to is my imagery accurate. Right. Right. So you you took me right where I wanted to go and that was talking about the entire supply chain. As a whole, and taking a look at that, is there value in viewing the supply chain in total and not just focusing on specific aspects of it, but really looking at it in its entirety? Yes. And I I wanted to touch on another subject which is I mentioned loss prevention -- Yes. -- before. And loss prevention is really focused on you know, how do we how do we eliminate or reduce, you know, shrinkage within the store? Mhmm. And it's traditionally been looking at malicious and non malicious theft, if you like, within the store environment. More recently, that concept has been extended. And when you talk about shrinkage and loss prevention, it sort of has a negative connotation. We're trying eliminate something that's bad. There is a new class of discussion going around something called total retail loss. Which is looking at where are their risks in the whole supply chain. And and I was talking to somebody this week and they were telling me that even total retail loss has a negative connotation because it has that lost word in it. Yeah. Yeah. So should we not be calling it profit maximization? And I think that's a very good description of what is now changing in the retail environment. And that's really looking at four key areas within a within a retailer, you've got your your corporate functions. You've got your ecommerce functions You've got your distribution functions and you've got your on premise brick and mortar functions. And they're now looking at probably forty different risk points within each of those four areas of the company, not necessarily only related to inventory, tracking, and inventory accuracy But where is there risk in the supply chain that we could be by the risking a cost component that we want to be have better control over over or where are we driving more? Where could we potentially drive more revenue? And that that I think is now a seed change in the sort of traditional loss prevention function within a retailer to looking at profit across the whole organization. That's interesting. That that's really interesting. I want to take a pivot real quick and talk about RFID because it's it's been a trend that's been discussed for for quite a while now. But where does RFID currently stand in terms of the value you can provide or being a viable solution for retailers? So This is a really interesting one. I've got the gray hairs to sort of show you that the age of the discussion here, but I remember going back to the late nineties. Mhmm. When there was this panacea in grocery that you would be able to put all of your grocery products in in your cart, wheel it through an arch, and everything would be fine. And here we are over twenty years later and it it hasn't happened. Right. There's been a lot of initiatives and around the RFID world, not only for retail, but in other sectors of the market. That has driven tremendous technological advancement. I think we're now – a lot of the history around RFID adoption and the sort of lack of RFID adoption in retail was driven around two things. One was the cost component. Mhmm. And can you afford to put a an expensive tag on every single item? And then there was this the disruption from systemic standpoint about how do I utilize RFID and the data that RFID would create within my other systems infrastructure. You know, what what inventory management system did I have, what POS system did I have in the store, what ERP system did I have, and can they all talk to get So I think that was an inhibitor up until probably the last two years. I think we're seeing now we were right on the pre pre COVID We were right on the cusp of a real acceleration in the adoption of RFID at the unit level in store. And we had a number of retailers and making announcements that have come out. I mean Macy's has been in the RFID world for a long time. Nikey, I think two years ago came out with a statement that they were looking to be in the RFID market and we're gonna drive RFID adoption in their store level and others that have come out and said the same thing. COVID has has really stopped that. And I think, you know, retailers now face the challenge of what do I need to do to get my my brick and mortar investment back to profitability. And that's really around driving volume – sales volume through that that sort of resource. And I don't know yet whether there's a willingness to continue to accelerate the adoption of our FID implementations within the store environment. I think that will come. We're seeing costs of tags now down in three percent to zero point zero five dollars range. We are seeing developments in the sort of historical challenging areas of products such as metals and liquids. The RFID technology is now beginning to, you know, cope with that challenge. Mhmm. I was with talking to another retailer recently and, you know, they were challenged around how well, how do I tag my cosmetics? You know, we've got strange shaped units. It's not all in nice little, you know, oblong boxes. We've got liquids that we have to deal with, how do we how do we tag those items and get an an an accurate inventory? So to answer your questions, Tyler, I think that that as we come through this next sort of impact of COVID on our retail world, I think absolutely, retailers will be looking to accelerate the adoption of RFID -- Mhmm. -- simply because RF does RFID reading of inventory in the store does give you that ninety eight percent accuracy of your inventory counts. So the Panace see here. And I talked to two or three CEOs of convenience store chains. They had challenges around inventory accuracy. This same way that what that others do. And I was talking about, well, how do you perform counts? And and they really said, well, you're you know, we we use a service so we bring a service in and we count our stores. But our I our panacea is I want an RFID reader in the ceiling and I want to come in the morning and press a button and it reads everything in the store. Okay. Wonderful. We all want that. We're not yet we're not yet there. But I see that there is an interim stage where you will get items that are tagged at manufacture to the retailers accepted standard that will be tracked through their supply chain down to store, and then you will have RFID reads going on in the store. How much do you see changing store models maybe disrupting or affecting inventory accuracy. I I think for instance, the the Amazon stores, right, where you, you know, just put your basket and you walk out or the Sam's Club has has one of those here in here in Dallas as well. How do you see stores like that maybe changing or or shifting some paradigms or or does it present any new challenges when it comes to inventory accuracy? I think there's two things there in terms of the the inventory Sorry, the the retail experience is what we as consumers are looking for. And I think that is going to continue to evolve and there is this word experiential, right, that retailers want now to bring or trap people into their store stores through a better experience or a different experience. Mhmm. So you're seeing people retailers now adopting a different model for their stores And we're seeing people like Tommy Bahama, for instance, if you go out to their store in legacy West, they have their rest right next door to the store and there's a big opening between the restaurant and the store. So you've got shoppers coming in to eat, shop up at the same time. There is a very interesting new store over in Southlake that Macy's have opened. I don't know if it – your viewers have been there yet. That is a totally new concept for a Macy's, you know, traditional Macy's store that is adopting different and new technology about how do they bring people into the store and sell product. So the changes that are going on in the way retail stores are designed are are are there to attract people to the store. Mhmm. It still doesn't get over the fact that you still need to count inventory for it to be Right. So I don't think the different the different experiences that retailers are trying to create for for retail for for consumers will actually change their behavior in terms of wanting to keep the inventory accurate. Technology will help that process will help that and and and that's processed throughout the supply chain. Well, nothing makes me want to buy a Tommy Bahamishert more than drinking a piña colada. So if I could get both of those at same time, you know, that's It's it's it's interesting. I mean, you you can tell by the accent that I'm I'm not from from Texas originally, but So I grew up in in the UK, and and I'm, you know, still keeping contact with what's going on in retail in the UK. And you're now in in London, you're seeing, you know, you've got Prosecco bars opening up in in in stores. You've got gyms. Being opened up in a store. So people are trying to attract consumers to a brick and mortar environment. That may – you may be doing more than just going into shop. And I think we're seeing that. I mean, my local whole foods here, they have a wine bar, you know, in the store. Yeah. And you can go in and have a glass of wine, have a glass of beer and watch the game. Right? Can't do it now because it's closed -- Mhmm. -- but pre COVID and post COVID, you could. So I think, you know, buyer behavior is going to change and and, you know, trap more people into the store to buy. They can only buy if the right inventory is there at the right time. And that's this challenge that retailers have around inventory accuracy. Do retailers have a sense of how they expect buyer behavior to change again once we are more further beyond COVID nineteen? Do they expect BOPUS to stay as high and popular as it's been during this time? Or do they that maybe things level out and there's a middle ground between where we are now when it comes to ordering online and and then, like, actual physical visitors within the and mortgage space? I think that the the current view is that BOPUS is is going to be a trend that will be adopted by many more retail us over the next twenty four, thirty six months is our expectations. What we're hearing from our client base those that adopted it early have seen very good results. And I think, you know, they are the sort of more transformative retail retailers. Those that have are are reacting as a result of sort of COVID impact, I think they will just accelerate that strategy within their organization. Interesting. So, yes, I think BOPUS is the next sort of big thing for retail. I think there is a generational generational component too in terms of whether I'm willing to just purely buy online and have it shipped to my home. And I'm gonna take the risk that it that it doesn't fit or I don't like it or whatever it might be. And and I'm just gonna return it all. So there is a generational component as to how different generations want to interact with a retailer. We're seeing a huge obviously, Amazon and Walmart's online presence is just enormous. Mhmm. I think that will continue to grow. And I think that, you know, Amazon and and and and and Walmart will be a great channel too. I mean, one things we don't necessarily talk about is Amazon is a fantastic channel for small and medium sized manufacturers. And that that that channel is really growing fast. And I think that that will continue to be a trend. Think we we will still see need to see brick and mortar shrink. Mhmm. I think there will there's unprofitable stores within a lot of retailers and you're seeing that that press is is sort of every every week. Another retailer is announcing either some sort of store closure And I think that will continue until brick and mortar reaches a sort of equilibrium. Mhmm. But we are still as human beings and consumers, I I feel that way, still wanted to go and touch and feel product. And we may do the research online beforehand we may place an order online beforehand. And this is another new trend is BOPis was buying online line. So you you go online, you'd research your item, you place your order, you pay for it -- Mhmm. -- and you then then you get it confirmed. The new one that's coming out is you simply reserve it online. So you're not actually paying for it. Right. You're not you're not actually making that transaction until you get into the store. And it'll be interesting to see whether that changes anything within the sort of consumer retailer relationship. Whereas retailers are thinking, well, if you only reserve it, you're gonna have to come into the store. Mhmm. Right? It still accomplishes that goal of getting people in the store. Yeah. So it comes back to that same philosophy be that you have in a grocery store where they'll, you know, they'll put items next to the checkout that they think you're gonna pick up on on just on spec. Right? So you go in and pick up a pack of gum or some sort of drink or a magazine, you're going to do that while you're standing in the queue. Not quite the same in a Nordstrom store, but you've got If you're in the store, you're much more likely to buy something else. Grab some sunglasses while you're there or something. Yeah. App And I think that that will also drive the whole the adoption of mobile applications and concierge. With the interaction of retailers with their consumers. So if they know they know that I've gone online and I've ordered this shirt, and I'm gonna be coming in to pick up. The interesting thing now is if I'm on if I'm on a favorite retailer's mobile app, there's the technology to on to know when I walk into that store. Right? And when I walk into that store, they will connect the fact that I'm coming in to buy the shirt or pick it up. And they might want to send me a message to say while you're in the store, Adrian, why don't you take a look at this pair of hats or or whatever else I've got in my buying, you know, background, that they're going to be trying to market to me through over the mobile application driven by the fact that I've I've initiated a transaction. This tie would look good with the shirt you just bought. Yeah. Why don't you put those two together? You could offer a discount while they're in stores. There's all sorts of couponing going on in that environment as well. So, yes, I think that that the use of mobile technology and the way mobile technology will enable retailers to communicate with with us as consumers is going to accelerate as well. That's fascinating. It's fascinating thing about the future of retail and -- Yep. -- everything that's coming down the pipeline. But as we wrapped up this conversation today, Adrian, I wanted to give you the opportunity just to provide a summary of the benefits of inventory accuracy and what you provide at data scan because obviously, we've covered a lot of ground today. We've talked a lot about the the current state of retail. But just to to give us a good summation of of where we are right now in terms of inventory accuracy and what data scan does. Thank you. First of all, thank you for the opportunity to come in today. Absolutely. I've enjoyed the conversation. It was a pleasure. So retailers have struggled with inventory accuracy for many years, and and they've been prepared to set some element of shrinkage and and they've driven new processes around how do we reduce shrinkage. And they've accepted the fact that imagery degrades over time, and they've adopted strategies to sort of mitigate that impact. What we're seeing pre COVID that was beginning and then driven accelerated by COVID is this very strong driver to have perpetual inventory accuracy. Maybe not in all items in the store, but in the high value, high volume, high shrinking items in the store. You need to count that -- Mhmm. -- to to be able to do that. You need to count frequently and be updating your inventory records frequently. To meet customer demand and customer expectations. What Datascan does is we provide – very simply, we provide count solutions. And that can be a full inventory across all of your store. It can be – I need to count you know, we're going back to school and I need to count footwear. So I'm gonna count footwear. Or I need to do what we talked about earlier, which is these cycle counts for specific categories in the store that you want to count more frequency. So we have clients that do the whole gamut. Our traditional base has been that physical inventory once a year, big bang count. We're now seeing the requests that we want to count categories. Specifically at times of the year. And most recently, now we want to implement some form of cycle counting, where we're counting this risk these risky, all the potentially risky categories on a more frequent basis. Mhmm. Adrian's on this and CEO of Data Scan. Thank you so much for joining us today. Tonna. Thank you very much indeed. Appreciate it.