Department stores see major savings in scanners
Boston — If every item sold by every store carried a tag with a bar code like those found on soap and soup on grocery shelves, $12.5 billion, or ``half of the waste of goods sitting in inventory, could be saved,'' says Joseph Cheines at Kurt Salmon Associates, a management consulting firm. About $25 billion worth of soft goods moves so slowly through the inventory pipeline that some of them are sold at heavy losses, or not at all, Mr. Cheines says.
Huge potential savings - to retailers, distributors, and manufacturers - are just one reason those beeping register scanners that have helped speed up grocery lines are rapidly finding their way into clothing and department stores.
The industry is finally ``taking a positive technological step forward for the benefit of all,'' says William Sumner, vice-president of information systems at Bullock's in Los Angeles.
Lasers that read the standard bar codes on food packages, or on price tags of clothing and toys, begin a process of electronic data interchange that links retailers, vendors, and manufacturers via computer.
Both flattop scanners in grocery stores and the laser guns zapping toys and records read the bar code pattern, which contains specific information such as the style, brand, color, weight, size, and price of the product.
This information is then passed among computers, often overnight, which means inventory orders can be received and filled in less than half the time.
Despite its initial cost, many in the industry expect ``quick response,'' as the system is commonly called, to soon become essential to all retailers and manufacturers.
In a worst-case scenario, where old registers have to be replaced and the most expensive laser guns bought, it could cost about $8 million to implement scanning fully, Mr. Sumner says. Filene's in Boston and Bullock's in Los Angeles, both owned by Federated Department Stores, fall into this category.
But this only affects 20 to 25 percent of retailers, he says. The majority already have equipment that is readily adaptable to scanning. They may only have to spend $150 for the cheapest light pen scanner for every register, or $1,000 for every moving beam scanner.
``It's a win-win situation,'' says Michael Pharr, vice-chairman at Mervyn's, a family-run soft-goods subsidiary of the Dayton-Hudson Corporation in Minneapolis. Since quick response was installed, Mr. Pharr says, Mervyn's restock lead time has improved 50 percent.
The store planned to spend three years installing the technology, Pharr says. Instead, it did it in six months, when ``it became apparent that the trend was so strong and the advantages so great.''
Transmission errors have also been significantly reduced, because the information being sent to manufacturers is only entered by one clerk, and not several along the way, says Robert Mercer, vice-president of management information systems at K-G Retail, a men's specialty chain based in Denver.
Those who don't follow suit will face increased pressure to do so, says Paul Benchener, director of retail electronic services at Levi Strauss & Co., one of the pioneers of this computerization.
``There will be a competitive disadvantage for any retailer or manufacturer who does not get involved in electronic data interchange over the next two years,'' he says.
Some retailers have already put pressure on their vendors to switch. A few have suggested they will drop their manufacturers unless they start shipping everything with a bar code.
``For us to do it [add coded tags] is a very time-consuming process,'' Mr. Mercer says. ``It would certainly hurt the relationship.''
``If you are a buyer for a major retail chain that uses the system, you're going to look for a manufacturer with the same system,'' explains Al McCready, national director for retail and wholesale trade at Deloitte, Haskins & Sells, the accounting firm.
Already, several major retailers have either begun to install, or have completed, some part of quick response or LeviLink, a package of electronic services developed by Levi Strauss. These include the J.C. Penney Company, Federated, Kmart Corporation, Wal-Mart Stores Inc., Sears, Roebuck & Co., and D.H. Holmes Company.
In every case where a quick response was tested, says Cheines at Kurt Salmon, ``sales increased and inventory decreased.''
One of Levi Strauss's retailers showed a 21 percent sales increase after installing LeviLink, Mr. Benchener says.
``When we first installed scanning in test stores,'' says Pharr at Mervyn's, ``we asked our sales people for their opinion. They thought we had had disastrous sales, because there were no lines. But as it turned out, the numbers showed we had done better than ever.''
``Our sales force was spending between 80 and 90 percent of their time doing manual order entry,'' Benchener says. ``Now, they may spend 10 or 20 percent on manual entry.''
Markdowns have also fallen in some cases.
At K-G Retail, there were 22 percent fewer markdowns at the end of 1987, Mercer says. ``We attribute 15 percent of that to quick response, which meant we didn't have to make huge blanket orders.''
``We can also offer more variety now,'' Mercer says, ``because we can place more frequent and smaller orders, closer to the time we need them.''
Manufacturers hope being able to respond more quickly to changing consumer demands will allow them to compete better with foreign operations. This unusual cooperation between retailers and manufacturers could even give domestic goods an edge over imports, according to a report by Deloitte, Haskins & Sells.
``It's a much more sensible way of doing business,'' Mr. McCready concludes.