By Kevin McAdam
VP Sales, One Step Retail Solutions

In today's volatile economic landscape it's harder than ever to create and maintain success. That is especially true in the consumer trend driven specialty retail industry where trends and therefore dollars can shift sometimes overnight.

Recent headlines certainly reinforce this. Everything from major retailers filing for bankruptcy like Mervyn's, Shoe Pavillion Inc., Sharper Image Inc., Steve & Barry's and Linens ‘n Things Inc. to decreasing retail sales numbers overall (Retail sales fall for first time in five months: July data show economic woes blunted boost from stimulus checks --Associated Press, Wed., Aug. 13, 2008) and a bleak outlook for holiday spending from America's Research Group, predicting that the industry is in for a miserable Christmas that will be followed by more bankruptcy fillings in the first quarter of 2009.

However, in the midst of this you have retailers like New York & Co. who reported better-than-expected earnings and raised its year-end outlook. This isn't a unique bright spot either. Many U.S. retailers reported July sales at stores open at least a year that were weaker than expected; yet some of these companies, including Kohl's Corp and Gap Inc stood by or even raised their earnings forecasts.

So what is the difference that is leading some to bankruptcy and others to increased earnings?

Of course the other question that begs to be asked is why is this the subject of an article from a technology company?

Let's answer the first before we dive into the second. When you look across many of these headlines and dig into the information behind them you find common themes in both on the economy. I don't think that anyone can argue that consumers have been pinched by the housing downturn, job losses, and higher costs for food and fuel. The difference is what different retailers are doing in response to that downturn.

Take a deeper look at the headline about New York & Co. which reported better-than-expected earnings and raised its year-end outlook as it kept a tight control on inventory in response to the expected consumer slowdown.

Then there is the headline about Kohl's and Gap that upon a deeper investigation reveals a very similar theme in those companies that are increasing profits:

Retailers have taken steps in the past year to slash inventory levels. Although they risk limiting their overall sales potential by stocking fewer goods, the effort is aimed at boosting margins and protecting profits.

Since last year's back-to-school season, retailers have peppered their conference calls with talk of inventory — how they are taking a "cautious approach to planning" and "managing inventory carefully."

The result of their actions was apparent on Thursday, when many U.S. retailers reported July sales at stores open at least a year, or same-store sales, that were weaker than analysts expected. Yet some of these companies, including Kohl's Corp (KSS.N: Quote, Profile, Research, Stock Buzz) and Gap Inc (GPS.N: Quote, Profile, Research, Stock Buzz), stood by or even raised their earnings forecasts.

The decision to cut inventory and have fewer goods on hand hindered July sales results, but it also helped retailers avoid being stuck with excess merchandise that would have required profit-crunching clearance sales.

"Our inventory levels in … clearance and transitional categories were significantly lower than last year, affecting sales results, but leading to improved gross margins," Kohl's Chief Executive Larry Montgomery said in a statement.

When the economy that fuels retail sales (consumer confidence, spending, home values) drops it will often follow that retail sales will be declining. Knowing this, why not focus inventory levels on those items that will ensure good margins and work to maintain the bottom line even in the face of a declining top line of sales.

Here is a similar perspective from a prominent independent retailer: "Now is not a time to push volume," said Andrew Rosen, Theory co-founder and president. "If we do a few dollars less than we could have, that's OK. It's safer to miss a sale than have too much inventory. When the economy is really rolling, you can take chances that wouldn't be prudent to take today."

We have talked about the vital necessity of effective inventory control during economic downturns in previous articles but it's always better to have it straight from other retailers who are succeeding.

Luxury retailers who have traditionally been thought to be immune from this are seeing the same thing. Burt Tansky, Neiman Marcus Inc. chairman and CEO had this to say: "This battle on price is just not our game but we got into more promotions than we liked because of our inventory levels, promotional activity [markdowns] will continue as long as the inventories are high. We are driving our inventories to our year-end plan and once we get there we intend to stay there. From our perspective, we hope the promotional activity will normalize. We would like to avoid them in the future."

Even deeper than the general need for lower inventory levels to maintain margin is the understanding of what categories are actually expanding and focusing in on those. For example a recent headline from the Associated Press: Menswear sales outpace women's business:

"In tough economic times, men are traditionally the first to cut back [but] over the past year, men have been on a clothes-buying spree, while women have pulled back even more.

Over the past year, the fashions, from body-conscious suits to leaner khakis, have been heavily promoted by an array of stores from conservative haberdashery Brooks Brothers to department stores like Macy's and Bloomingdale's.

Executives from those stores said menswear sales began outpacing women's wear last year. They wouldn't give exact figures because of competitive reasons. But the disparity has been widening, said Marshal Cohen, chief industry analyst for research company NPD Group Inc. According to NPD's most recent data, menswear sales rose 0.8 percent in the year ended in May, while women's wear sales fell 3.5 percent. In the three months ended in May, women's wear sales dropped 3 percent, while menswear sales rose 2.3 percent.

"You can throw out all the rules," said Cohen. Even in tough economic times, "this is a trend that you have to buy, otherwise you look outdated."

"Suddenly, a pair of cargo pants and a polo shirt doesn't look good anymore," said Wolfe, who sees the change being embraced by men in their 20s to men over 50 who don't want to look past their prime.

"Women's wear has painted themselves in a corner. By offering too many options and with everything a trend, it is very easy not to buy anything," Wolfe said.

The sluggish economy is playing a role too. Higher gas and food costs and fiscal uncertainties have clearly made both men and women cut back on in-today, out-tomorrow trends like wild printed tops. But the threat of layoffs has also forced many employees to dress more formally as a way to hold on to their jobs and look more serious, Cohen said. Women can go back to their closets to find dressier and classic alternatives, but men now have a reason to buy.

So while this is very interesting from a merchandising perspective and certainly points to a clear call to action for any retailer experiencing the pressures of our tough economic times, what if anything does this have to do with technology and why am I writing about it?

Inventory Control Is Utterly Dependent On Accurate Data from Your Point of Sale System

Whether you are a new retailer looking at getting a POS system because you know it looks better than a cash register or you are a seasoned chain who has been on a system for the last decade, understand this: How well you track your sales and your inventory and take action as a result of accurate data will determine how close you are to the bankruptcy side or the increased profits side of the equation we are looking at in this article.

It's the same economic downturn, it's just that some companies understand their sales and their inventory well and are making adjustments that are actually increasing their profits and some are not and are just blaming the economy while they seek bankruptcy protection. That may sound harsh but I truly believe that is the black and white of the issue.

For 25 years One Step Retail Solutions has been working with retailers on this very subject. I see it everyday. I see new retailers who know they need some "computer system" but don't take the time to understand that this is one of the most important decisions in their business and settle for a cheap system that no one will show them how to use and one which is just a step above a cash register. I also see old school retailers that have been around for ages with the same system but don't know how to use it effectively or don't have one that provides the right tools to them and therefore are struggling with these issues.

I even know a menswear retailer that is struggling right now (see note above on menswear!) because of a stale inventory and a stale use of their inventory control system. I know the product they are on and it can give them all the information they need but they for some reason haven't invested in working with a partner to show them how to use it properly. Therefore they continue to make merchandising decisions based on hunches, have no idea how much inventory or excess inventory they have, and now have markdown tags on virtually every piece in the store.

So what does this have to do with technology? Everything! Not just technology but the effective use of that technology to achieve the results you desire. Whole companies are built just on the professional services required to effectively understand these complex and powerful technology tools so that they can provide the competitive edge to be on the boosting profits side of the equation and not the bankruptcy side when times get tough like they are now. One Step Retail Solutions has been doing that for many years. It doesn't make sense to me why someone would not get the technology they need but it makes even less sense to get it and then not work with the experts who can make it pay off in spades.

So to sum up, the holidays are coming. They are coming and some retailers are dreading them and some experts are saying it's going to be a miserable one with more bankruptcies to follow in Q1 2009. Others however are increasing their earnings and profit outlooks. Technology and its proper use is the key to that and the time to get these two points working for you is right now.

Make sure you are on the side that is boosting profits.