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How Lucky Brand Optimized Allocation and Store Fulfillment with Advanced Analytics

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Presentation from NRF 2019 Retail's Big Show

John Andrews, CEO, Celect
Vivek Farias, CTO, Celect
Michael Relich, COO, Lucky Brand

Published in: Retail
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How Lucky Brand Optimized Allocation and Store Fulfillment with Advanced Analytics

  1. 1. How Lucky Brand optimized allocation and store fulfillment with advanced analytics
  2. 2. What if you could predict the future? © 2019 Celect, Inc. All Rights Reserved.3 Los Angeles, CA • Customer: Susan • Will Buy: Black Purse • On: February 2, 2019 • At: Los Angeles Store
  3. 3. Now it is just a logistics issue © 2019 Celect, Inc. All Rights Reserved.4 STORE A STORE B STORE C STORE D STORE E STORE F
  4. 4. DEMAND PREDICTION OPTIMIZATION Plan Buy Allocate Fulfill Markdown The Impact throughout the Product Lifecycle © 2019 Celect, Inc. All Rights Reserved.5
  5. 5. © 2019 Celect, Inc. All Rights Reserved.6
  6. 6. + Celect Michael Relich – COO January 2019
  7. 7. Company and Customer Overview
  8. 8. LUCKY BRAND TIMELINE 1990 1999 2010 2014 o Lucky Brand founded in Los Angeles by Gene Montesano & Barry Perlman o Acquired by Liz Claiborne o Sold primarily through “mom & pop” specialty stores and The Buckle o 12 free standing stores o Sales of $387 million o New team joined Lucky Brand o Gene M. and Barry P. exit o Adjusted EBITDA of ($8) million Learning: o Customer o Culture o People o Product o Real Estate o Brand 2015 Validation: o Employee Engagement o Assortment Expansion o Real Estate o Marketing o Financial Performance o TSA/Leapfrog Pre Acquisition Post Acquisition 2016 Execution: o Operational Efficiencies o Inventory Management o Capital Optimization o Real Estate o E-Commerce Growth o Licensing Plan o Marketing Plan 2017 Brand Transformation: o GTM Calendar o Clustering o Good/Better/Best o Channel/Assortment Optimization o Omni-channel o Direct Mail o Big Data 2018 Business Model Transformation: o Customer Centricity -Lucky Rewards -Lucky Direct -CLV o International Expansion -Canada o Planning & Allocation Optimization
  9. 9. LUCKY BRAND HIGHLIGHTS • Strong brand power with heritage appeal and differentiated brand opportunities • Attractive and loyal customer base • Balanced multi-channel distribution, including best-in-class wholesale partners and licensees • Accomplished leadership team
  10. 10. LUCKY BRAND BUSINESS OVERVIEW  Apparel lifestyle brand founded in 1990: • Complete apparel offering, rooted in denim (40% of sales)  Multi-channel distribution network: Full Price Specialty 159 Stores Outlet 92 Stores Wholesale 1,050+ Doors Specialty Accounts 375+ Doors LuckyBrand.com 2017 NET SALES BY CHANNEL 2017 GLOBAL NET SALES *Represents management’s estimates of retail selling price of goods sold through wholesale and licensing goods Channel Net Sales Retail Sales Equivalent * Specialty $173mm $173mm Outlet $119mm $119mm E-Comm $73mm $73mm Wholesale $241mm $482mm Licensing $10mm $337mm TOTAL $615mm $1,184mm Specialty, 28% Outlet, 19% Ecom, 12% Wholesale, 39% Licensing, 2%
  11. 11. STRONG BRAND AWARENESS IN EXCESS OF CURRENT SCALE Lucky’s brand awareness compares to that of multi-billion dollar brands and is significantly stronger than other premium denim brands, demonstrating our unique lifestyle brand positioning beyond denim 99% 98% 97% 97% 95% 87% 77% 56% 48% 33% 24% 20% 15% GAP LEVIS GUESS BANANA REPUBLIC A&F J.CREW LUCKY BRAND TRUE RELIGION 7 FOR ALL MANKIND FREE PEOPLE J.BRAND JOE'S JEANS AG JEANS WOMEN'S BRAND AWARENESS - AIDED 37% 37% 19% 11% 12% 5% 8% 3% 3% 2% 0% 1% 0% 67% 33% 10% 25% 3% 10% 0% 7% 5% *$5.9B $3.9B $2.7B $2.2B $2.1B $2.4B $0.5B *Fiscal 2012/2013 gross annual sales UNAIDED UNAIDED SALES *$6.9B 98% 96% 94% 92% 82% 58% 56% 48% 38% LEVIS GAPBANANA REPUBLICPOLO J.CREWLUCKY BRANDTOMMY BAHAMATRUE RELIGION7 FOR ALL MANKIND MEN'S BRAND AWARENESS - AIDED
  12. 12. THE LUCKY BRAND CUSTOMER Lucky Brand enjoys a stable and loyal customer base, appealing to fashion- conscious, free spirited individuals who are young at heart. Our customers are generally middle-aged, upper-middle class to affluent, established and family oriented. Our customer is not an individual but a family. – 79% are 35 and older – 57% have income over $80,000 – 66% have children (70% of which are over 6 yrs old) – 68% are Female and 32% are Male – 61% are Married – 79% are employed – 77% are college educated, including 24% with graduate degrees Today’s Customer HH INCOME 15% 15% 13% 15% 16% 26% $125K+ $100-<$125K $80-<$100K $60-<$80K $40-<$60K <$40K 4% 2% 3% 3% 5% 8% 10% 8% 8% 9% 7% 9% 63% 61% Store visitors Database Employed FT Employed PT Self employed Student Stay-at-home parent Retired Other EMPLOYMENT 57%
  13. 13. $67 , Men's Apparel $96 , Women's Apparel $81 , Men's Denim $85 , Women's Denim $40 , Accessories & Other (1) WHOLESALE SHIPMENTS ($ in millions) BALANCED BUSINESS MIX – PRODUCT CATEGORIES Lucky Brand is rooted in denim but has expanded beyond these roots to offer a broad and diversified lifestyle product collection across men’s, women’s and accessories – A vibrant and growing licensed business supplements the product portfolio, including licensed categories of footwear, handbags, and kids Women’s 58% Men’s 42% Denim 45% Apparel 44% Accessories & Other(1) 11% Represents gross shipments DIRECT-TO-CONSUMER NET SALES ($ in millions) 1. Accessories & Other includes Kids and Plus. 2. Data 2017 full year sales 18% 26% 22% 23% 11% $20 , Men's Apparel $130 , Women's Apparel $61 , Men's Denim $20 , Accessories & Other (1) $35 , Women's Denim 13% 8% 49%23% 7% Denim 36% Apparel 56% Accessories 7% Women’s 70% Men’s 30%
  14. 14. ECOMMERCE SALES 2014 - 2022 Billions, % change and % of total retail sales 2014 2016 20172015 2018 2019 2020 2021 2022 $298B $396B $457B $342B $524B $600B $684B $787B $891B 6.4% 8.2% 9.2%7.3% 10.2% 11.3% 12.5% 13.7% 15.1% 14.4% 15.7% 15.2%15.0% 14.8% 14.4% 14.0% 13.9% 13.3% Brick & Mortar 84.9% Ttl Retail Sales!!!
  15. 15. LUCKY BRAND SYSTEM LANDSCAPE Do we want to focus in on anything specific here?
  16. 16. STORE EXPERIENCE
  17. 17. THE POINT, EL SEGUNDO, CA
  18. 18. THE POINT, EL SEGUNDO, CA
  19. 19. THE POINT, EL SEGUNDO, CA
  20. 20. THE POINT, EL SEGUNDO, CA
  21. 21. THE POINT, EL SEGUNDO, CA
  22. 22. THE POINT, EL SEGUNDO, CA
  23. 23. THE POINT, EL SEGUNDO, CA
  24. 24. STRATEGIC PRIORITIES
  25. 25. RETAIL INDUSTRY STRATEGIC FOCUS •International •Ecommerce •Wholesale •Licensing •Full Price vs Outlet •Omni Capabilities •Wholesale Drop Ship •Vendor Direct •Focused Assortments •Brand Partnerships/Co- Creation •Product Development Speed •Retention – Loyalty & Credit Cards •Acquisition •Personalization •Localization •Store Experience CUSTOMER PRODUCT DISTRIBUTIONTECHNOLOGY
  26. 26. 1. Clearly define and communicate Lucky Brand’s vision and positioning 2. Elevate product aesthetic, improve product flow and implement assortment optimization strategy by channel 3. Grow Direct to Consumer, Wholesale and Licensing businesses profitably 4. Improve profitability by channel, store, customer and product category 5. Optimize inventory management and promotional strategy to deliver better margins, increased service levels and improved inventory turnover 6. Streamline operations and reduce cost structure, including sourcing, distribution and overhead platform 7. Optimize the Company’s capital structure and position Lucky Brand for growth LONG RANGE PLAN Key Strategic Objectives
  27. 27. INVENTORY MANAGEMENT
  28. 28. INVENTORY MANAGEMENT CHALLENGES TO SOLVE  All planning tools are excel • Labor intensive and room for errors • Automated system driven by analytics  Facilitate end – to- end planning, utilizing one system (approach) • Pre-Season targets –> Style Planning -> allocation -> fulfillment  Reduce the total amount of inventory carrying costs, especially in e- Commerce and Canada  Dynamic denim replenishment (50% of the business) driven by demand forecasting  Utilize attributes to influence depth and assortment allocation by store  Store specific optimized assortments Planning and Allocation
  29. 29. BIG DATA
  30. 30. WHY CELECT?  New generation technology driven by advance analytics and machine learning  Celect allocation new approach • Shuffling the deck by looking at everything available in the DC and matching it to store need to provide optimized store specific assortments • Concept of over-recommending stores – Celect recommending more stores or different stores than the original intent • Allocation decision is being made real-time and is product-specific • Store tiers assigned at style level, not department  Enhanced store ecom fulfillment • Water-fall based decisions – to an algorithm • Multiple factors, including WOS & customer proximity
  31. 31. CELECT IMPLEMENTATION – 3 MODULES 1. Plan & Buy  Target inventory investment to optimize product categories (by channel) with largest potential for ROI. Go live with Fall 19 season plans  Buy appropriate style quantities to decrease markdowns and improve inventory turns with the goal of creating store specific optimized assortments. Go live with Fall 19 season plans 2. Allocate  Allocate and replenish styles to the appropriate stores to maximize sales and margins. Implemented 8/14 for Fall3 18 allocations 3. Fulfill  Optimize store fulfillment for ecommerce orders to select stores with the highest probability of markdown, while also minimizing stockouts in stores with a high propensity to sell. Implemented 5/1. On track to achieve or beat Celect’s $2.4M - $2.7M first year sales increase projection Updated to condense a bit and reflect recent Celect positioning.
  32. 32. IMPLEMENTATION CADENCE  Module implementation order reversed to immediately realize ROI • Fulfillment May 1st, 2018 • Allocation August 15th, 2018 • Plan/Buy – November 2018 for Fall 2019 Buying Cycle
  33. 33. IMPLEMENTATION CHALLENGES  Timeline – more thorough discovery prior to landing the timeline by module  Fulfillment was on-time without much support needed  Integration with a 3rd party OMS  Integration with JDA Allocation  Integration of master data from Netsuite and JDA into Celect • JDA is the system of record for most store groups • Netsuite for all product information • GBB Stores  Lack of reporting to monitor success  Translating Retail language and terminology into engineering speak
  34. 34. IMPLEMENTATION BENEFITS/ROI  Fulfillment prioritizing slower turning stores vs prior to implementation • On-track to hit initial YR1 ROI of $2.7m in sales upside  Stores providing extremely positive feedback regarding replenishment • Optimized size replenishment in denim • “Every replenishment carton counts! Previously, we would ‘sort’ through the replenishment to find what we really needed and get that to the floor first! Now all styles matter!”  The first season (fall3) that was allocated via Celect just hit end of lifecyle • ROI TBD
  35. 35. IMPLEMENTATION LESSONS LEARNED  Implementation team structured with a business lead from P&A, and an IT lead • Key learning – identify one owner from the business who has IT knowledge  The integration is 100% dependent on how easily data flows between systems  Completely surprised by the adoption success with allocation • The team loves the tool! No pushback around adoption – on-board from day 1! • It’s making them smarter and working faster!  The plan tool utilizes cost available as the metric to toggle, and all of the output is in regular price • We needed to update our planning tools to utilize Celect recommendations  The department recommendations in plan are in line to what our teams planned • The opportunity Celect identified was in style buy quantity and channel placement
  36. 36. NEXT STEPS  Working through enhancements • Replenishment by size for fashion goods • Use of Celect as basics management tool, and optimizing the pre-pack percent as well as the initial commit %  Finalizing reporting ROI metrics  Upgrading to version 2 of plan and buy  Reduce some of the constraints in the system (e.g. store groups) and potentially test a channel with fewer constraints for Spring
  37. 37. OVERALL THOUGHTS  The Celect team is open to feedback and committed to evolving their tool • Very simple changes were made to the UI that are huge timesavers for the allocation team  Very customer service focused and committed to client’s success • Quick calls for trouble shooting, validating data • Celect is incorporating our feedback into the new version of plan and buy
  38. 38. THANK YOU! Lucky Brand Look good, feel good, do good Inspiring everyone to lead a Lucky life
  39. 39. Thank you! WANT TO SEE YOUR ROI? 👉 www.celect.com/roi 40 © 2019 Celect, Inc. All Rights Reserved.

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