Canadian Retailer Magazine January
2000
Party On!
By Denise Deveau
Ask Michael Shneer for the key to success
in merchandise planning, and he tells you: "It's not a
science -- it's a lot of instinct and art." But probe
deeper and you'll find that Shneer, President of Party City
Ltd., also relies on innovative technology to give instinct and
art some crucial help.
Expanding to Canada in 1995, U.S.-based
Party City is a leading retailer of costumes, party supplies,
decorations, greeting cards and other special-occasion items.
In its first two years of operations here, it opened three
stores. Once the company got the "lay of the land,"
it was time to expand in earnest, to the point where it now has
16 stores in Ontario, with an additional eight to 10 stores
slated to open this year (including outlets in Western Canada).
Finding the right merchandising mix is an
ongoing challenge because of the unique nature of his business,
Shneer points out. "We operate in a rather unusual
environment from a merchandising standpoint. Most retailers
talk in terms of four seasons. We talk of at least one season a
month -- sometimes more." In other words, each holiday
represents a selling season for Party City, with Halloween
being the busiest of all.
Party City operates under a decentralized
scheme, which means each store manager is responsible for
ordering products according to his/her specific market needs.
"Certain religious holidays will carry more weight in some
geographical or ethnic areas. That's why we have to get into
micro-merchandising at the store level to ensure we have the
right merchandising mixes in each location," says Shneer.
He adds that as a master franchiser of a
U.S. company, operating in Canada was not without its growing
pains. "We had to learn a few merchandising lessons in the
Canadian market. When we first opened here, we emulated U.S.
merchandising only to find out that the market for certain
holidays such as Thanksgiving was much less important in Canada
than the U.S. We had to go through a bit of trial and error the
first couple of years."
But Party City's merchandising strategies
are not hit and miss. Since opening in Canada, it has been
using Toronto-based Magstar Inc.'s fully integrated Retail
Enterprise System. The Magstar system was developed to
accommodate Party City's short- and long-range plans to manage
all its activities at both head office and store levels.
Pricing and product lists are generated at the head office and
downloaded to in-store processors that in turn communicate with
the POS terminals. POS activity is polled nightly by the
in-store processor and uploaded to head office.
Sounds simple enough. However, in addition
to the usual sales activity, report generation, and pricing and
inventory functions, the system also features a Min/Max
function that allows Party City to be more proactive in its
merchandising planning. The function -- which has been
customized for the company's needs -- uses a complex matrix of
multiple variables that correlate historical sales activities,
market trending and existing application data in order to
download Min/Max levels (which are adjusted according to the
season) to each store's processor. Purchase orders can then be
automatically generated for replenishment. These purchase
orders are reviewed by managers and forwarded to the individual
suppliers.
"It used to take three store managers
three days to write orders for a quarter of our vendors,"
Shneer reports. "Now a purchase order can be generated in
a matter of minutes. It has cut a huge amount of time out of
the buying process."
But when it comes to merchandise
forecasting, he cautions, there are never any guarantees.
"No matter how prepared you might think you are, it's not
always possible to forecast the 'hot' items a year in advance.
But you can at least find a way to build in early-warning
signals and track trends so you can adjust order quantities as
quickly as possible."
He cites the Pokémon phenomenon.
"No one predicted how big Pokémon was going to be.
A lot of retailers were bullish on Star Wars, which did not
perform as well as expected. They didn't bet on that from a
merchandising standpoint. With our system, we were able to see
these things relatively early in the season and respond by
adjusting orders. Even at that, we cleaned out the
suppliers."
Shneer adds that when it comes to
forecasting you also have to factor in the "cause and
effect" of certain trends. "It's simply not enough to
increase overall inventory by 10% to meet a growing demand. You
have to determine how a shortage in one item could impact sales
on another. People who could not get a Pokémon
[Halloween] outfit would maybe go for a Spiderman costume as a
second choice. But if the Pokémon costume was there, the
Spiderman one would not have sold. It can become a very complex
process that takes months of planning."
He does acknowledge, however, that Party
City is fortunate in that many of the items in its stores --
such as seasonal napkins and decorations -- can be carried over
year after year. Steven Greenwood, Vice President of Magstar
Inc., notes that with access to historical and trending
information, many mid-sized retailers can be much more
proactive -- and hopefully more accurate -- in their
merchandise planning.
"By tracking sales history and market
trends, retailers can better project types of sales and realign
budgets to optimize the movement of inventory. As sales are
recorded, inventory and forecasting can be dynamically updated
based on activity. With three years of trending information,
retailers can see if increased sales are a spike or a true
industry trend and adjust their inventory levels accordingly.
When dealing with a new product with no sales history, trending
can be done using similar product groupings. Party City uses
this type of forecasting to the nth degree with great
success."
