This White Paper outlines how retailers can overcome the challenges of the new retail market to stay competitive and pull ahead with localized inventory planning and assortment and sku rationalization.

1. Adapting to the new retail market
How to balance the complex challenges of inventory planning,
assortment rationalization and localization
By Chris Allan // Chief Strategy Officer, Quantum Retail
The current market is asking retailers some very
difficult questions - questions that their existing
processes and tools do not have the answer to.
The only certainty is that consumers are less
predictable than ever and buying patterns are
changing at an exponential rate.
It takes the proper mix of science, retail
intelligence and merchandising art in order to
ensure that every store in a supply chain carries
the right inventory, while maintaining a high
service level and market share. In order to adapt to the new market, retailers need to
respond to the demands of the consumer and rationalize their assortments at a local
level.
THE MARKET IS ASKING NEW QUESTIONS
The retailer faces new challenges in the current economic climate
Assortment Rationalization - The single biggest challenge that retailers face is aligning their offering to local
market demand. Grouping stores together, based on size, shape or sales performance will only deliver average
results. Retailers need to monitor the changing demand at every store, so they can align their assortment in the way
that is most profitable and most strategic.
Localization - The current state of the economy has driven the desire to understand the needs of the market at a
lower level of granularity. It has caused a need to create local assortments and inventory fulfillment that reacts to
local needs. Most retailers' existing processes and systems were developed to meet the needs of the average, not
the individual. In order to increase demand in today's markets, the next step for retailers is to take on the challenge
of localization.
Channel proliferation - An increase in the number of ways that a retailer can reach out to their customers.
This is putting a strain on existing forecasting and replenishment processes, in many cases, significantly increasing
the inventory investment required to support the business, with each of the channels being operated semi-
autonomously and little to no sharing of information or consistency of customer experience.
Internationalization - In order to maintain growth, many retailers are looking overseas, away from their
congested home markets. This has led them into unfamiliar channels, with entirely new supply chain challenges and
constraints, from lead-times and delivery frequencies to a new customer that looks and acts very differently than
they expected.
© 2010 QUANTUM RETAIL TECHNOLOGY INC. ADAPTING TO THE NEW RETAIL MARKET 1

2. Supply-chain complexity - The world is not so simple anymore. Whether it is creating new supply-chains to
be more reactive to the consumer or off-shore/near-shore sourcing, the supply chain is no longer a simple hierarchy
for moving product from vendors to stores. It has become a complex supply network with bi-directional logistics,
milk round deliveries and inter-store stock movement, serving franchise partners direct from overseas suppliers and
at the same time, ranging domestic product to them on a long lead time.
How retailers can overcome these challenges?
Inventory is one of the most significant investments that a retailer makes and, in many cases, this
investment is a bet - will their offering be successful or not? The costs involved in placing those inventory
chips in the wrong place is substantial, so retailers are trying to get smarter about understanding where
products are likely to sell and why - this does not mean better forecasting, but understanding how to deal
with the uncertainty inherent in the retail environment. This is requiring retailers to be more reactive to
changes that they are seeing, which in turn places more pressure on the people, processes and systems
that are programmed to function on models from the last century. The new retail market requires an
entirely new approach - one that takes embraces and understands the unpredictability of local demand.
There are two main areas that retailers should focus on right now
1. Assortment planning and rationalization - Looking forward in time and planning how to bring
inventory into the business based on localized customer demand is essential in deciding how to rationalize
a retail assortment. When a retailer can track customer needs in real-time, they can keep their assortments
flexible to monitor the profitability and performance of each product. In time, each store will reveal its own
patterns and tell the retailer how to best align with the specific needs of customers.
2. Localizing inventory - Removing the simplifications from the inventory planning process and focusing
on real-time local demand. Retailers need to create an agile inventory plan that is highly reactive to local
demand fluctuations, allowing the retailer to be flexible and respond to how their customers are behaving
now. This allows the customer to have product availability when and where they want it.
Some minimal things companies can do to stay competitive
Optimizing inventory: Retailers need to focus on optimizing their assortments and choosing their stock based
on the financial and merchandise performance of those products. Many retailers are focused on decreasing their
assortments, but less of the wrong products will not create more sales, it will only frustrate customers. Investing in
the right brands and the right products will ultimately bring new energy to the retail market.
Better placing inventory: Placing inventory that has already been purchased to the location where it can best
support the retailer in achieving their goals will allow them to increase their profits and create less markdowns.
Increasing availability: Focusing on which products need to be made available at what locations and when is
a difficult task. But when the right products are available, in the right sizes and colors and in the right amounts,
stores increase sales and increase customer service levels.
Focusing on the intelligent consumer: The market has shifted with the intelligence of consumers. The
economy has further focused the customer on seeking out the highest value for the lowest cost. The environment
has also brought to light new values and new criteria that the customer has begun to judge products on. Retailers
need to recognize the needs of their customers and give them products that meet these new expectations - and
remember, these expectations will continue to change.
Focusing on newness: If a retailer can continually have something new for the customer to see, it will
increase the frequency of customer visits and increase turn rates. This is especially important in fashion and
consumer electronics, where customers have become increasingly savvy and particular. If a retailer can keep up
with the pace of fashion, they'll be able to keep their inventory fresh and unique.
© 2010 QUANTUM RETAIL TECHNOLOGY INC. ADAPTING TO THE NEW RETAIL MARKET 2

3. Focusing on inventory placement: Some of the best retailers have not scaled back on their investments
at all, but focused instead on where to place their inventory. In a recession, flat is the new 'good', but by putting
inventory where there is demand, retailers can increase their sales and profit, while better serving their customers at
the same time.
Investments that will help retailers pull ahead
The best retailers are prioritizing their investments with processes and tools that will have the largest
impact on their business. While initially concerned with maintaining store comps at the expense of
margin, retailers have now turned their attention to being profitable. This has meant a focus on
inventory - one of their single biggest investments. Retailers need to find ways to better align the
inventory that they purchase with their customers.
Retailers need to look at some of the simplifying assumptions they are making in their supply-chain and
challenge them. They treat groups of stores the same because it makes maintenance quicker and
easier, but does it lead to a better result? Very few stores align with "the average", so does it make
sense to use a single pack configuration? It may seem difficult to allocate on local demand, but there are
tools that can help each store achieve this. In turn, this kind of process will increase sales by having an
offering that fits the space and aligns with the buying habits of each store.
Retailers also need to have the ability to monitor the profitability of every product in every store. It comes
down to building strategic financial and merchandising objectives for each product in their inventory and
empowering customers to drive the assortment, ranging and depth.
• Technology that helps retailers align their assortments with their customers
• Technology that monitors local demand in real time
• Technology that can track performance based on the strategic business goals
Positioning retail for an economic turnaround
The current economic environment is a gift for the good retailer. It does them the great service of
highlighting all the shortcomings of their supply network and giving them the opportunity to address
those challenges. This means removing the assumptions from their processes, taking away the
simplifications and dealing with the details. Retailers that embrace the fact that their customers have
changed - and that past trends are no longer relevant - will be successful. To do this, they need to align
their supply network with what customers are asking for now, not what the retailer assumed they were
going to ask for. Retailers need to have a holistic fulfillment process that reaches the length of the supply
network and to be built around aligning their inventory investment with local market needs.
Retailers that address these issues will make it through this downturn and position themselves as strong,
profitable, successful and reactive market leaders of the future. Those who do not take the opportunity to
address their issues will have a very challenging time ahead - whether that challenge comes from the
economy in general, or from the better, faster and more innovative competition that this economy will
create.
An opportunity for channel growth
The current environment is seeing a growth in retailers online businesses. While this is important and
aligns well with the customer, it is indicative of the broader trend of channel proliferation. It might not be
enough to have the products that a potential customer needs, but retailers may also have to align with
how, where and when the customer wants to make their purchase decision. This is currently being seen
in online growth, but the target market might have different ideas on how they chose to do business -
shopping center, web store, mobile phone, catalog, call center, kiosk, Ebay, Amazon, etc.
The real challenge is going to be in maintaining the brand promise across these channels in a consistent
way that addresses customer needs. In addition, customers have little regard for the boundaries
© 2010 QUANTUM RETAIL TECHNOLOGY INC. ADAPTING TO THE NEW RETAIL MARKET 3

4. between these channels. If retailers want to keep their loyal customers, they will need to blur the
boundaries too. This will mean an increasingly complex supply network environment to fulfill the brand
promise to customers, regardless of how they choose to interact.
Retailers that successfully align their supply network to support the complex multi-touch customer
environment of the future will reap the rewards of that investment. How does a retailer expect to manage
a supply network of this complexity if they have yet to master aligning to local market needs? These two
challenges go hand in hand.
TECHNOLOGY FOR THE NEW RETAIL MARKET
Assortment and Range Planning technology that keeps up with the new
pace of retail
Assortment rationalization and inventory localization sound great in theory, but how does a retailer
create a supply chain that is able to implement these strategies? The truth is, most retailers need better
information and guidance before attempting a complicated feat such as this. Because product demand
changes every day, retailers need to continuously monitor the behavior of the line in every store and
every channel. This will take more time and more analysis than a retailer has available to make a
substantive impact. Unless retailers want to hire hundreds of expensive analysts to scour over sales
data, they need to seek out the right technology to help rationalize their product offering.
Quantum's newest module, Q: Assortment and Range Planning is running on the award winning Q
platform. This will enable retailers to optimize the way they approach the art of assortment and range
planning, financial reconciliation and product exit management.
The software has the smarts to perform all functions of product forecasting, assortment rationalization,
intelligent store clustering and behavior modeling. The module also offers advanced size, pack and
markdown optimization, focused on giving the retailer the highest return on the inventory they are
buying. It does this by analyzing the demand of each store individually and rationalizing the product mix
in each department to make recommendations to buyers as to which stores are over or under assorted
and identifying which products are holding back the category from reaching its goals. In turn, it has the
know-how to calculate the best strategy to manage a product exit and phase-in a new set of inventory.
The system is configured at implementation to a retailer’s specific merchandising goals and metrics,
enabling them to make strategic decisions on their assortments and letting them see the big picture —
things like profitability, sales and service levels.
When retailers align the breadth and depth of their merchandise offering with the localized demand of
their customer need, it increases full price sales and product availability, and ultimately lowers markdown
spend. Q: Assortment and Range Planning ensures that a retailer can create a product range that will
meet both the merchandise and financial objectives, simplifying the complex art of merchandising.
Quantum: Adapting to the new retail market
The market is asking new questions... you need new answers.
Q answers the new questions facing grocers and retailers today with solutions that enable them to profitably buy, move, and sell
merchandise, solving the most complex and costly problems they face - quickly and permanently.
Q is the answer for: Assortment and Range Planning - Forecasting and Order Planning - Replenishment and Allocation
Every Quantum Retail customer has achieved 100% return on investment in less than 6 months. For more information visit
http://www.quantumretail.com. Follow Quantum Retail on Twitter at http://twitter.com/quantumretail.
© 2010 QUANTUM RETAIL TECHNOLOGY INC. ADAPTING TO THE NEW RETAIL MARKET 4