Inventory Traffic Control Plan Takes Off

Snow has been falling on Salt Lake City International Airport for several hours, and the long-term forecast is bleak. Icy conditions have closed one runway, several carriers have canceled flights – and stores are running low on embroidered red wool ladies’ jackets and turkey sandwiches.

It’s just another day for Chan Crismon, vice president of technical operations and store development for Air Terminal Gifts. “We’re in a different situation than mainstream retailers in that we have to react to change very quickly,” he says. “If Delta moves its Atlanta flight to a different concourse, we have to make sure we can meet the needs of the 200 plus people on that aircraft immediately.”

In business since 1961, Air Terminal Gifts (ATG) operates six store formats at one of the nation’s busiest airports – a highly challenging retail environment where the number of passengers, layover/delay times and competition for commercial space has spiraled over the years.

For Crismon, this means balancing aggressive merchandising with tight controls over inventory and the supply chain. To accomplish this, ATG has established a long-term relationship with Salt Lake City-based Tomax for inventory management, merchandise planning, operations and replenishment systems.

“Their ability as a small retailer to adopt advanced solutions is very impressive,” says Joanna Kennedy, senior marketing analyst for Tomax. “By having us manage applications and data, they can focus on their core retail business.”

ATG’s stores, including Your Planet, Zeta & Company, West of Brooklyn, Vistas, Crismon’s News & Views and On the Fly, carry as many as 30,000 active SKUs, and the inventory system has enabled the company to reduce out-of-stocks 15 to 20 percent. “Retail is hard enough, but even harder at an airport. Considering the limited shelf space, you really have to get things right,” Kennedy says, noting that the stores are able to forecast 52 weeks out and even account for conventions and other events likely to bring heavier-than-usual traffic.

Keeping up with TSA
But some things simply can’t be forecast. When the Transportation Security Administration places restrictions on what can be brought on board an aircraft, “the airport and the TSA do a pretty good job of notifying us of items they don’t want us to sell anymore,” Crismon says. “We had to take a lot of things off the shelf because of new regulations.”

By working with Tomax, ATG has the ability to do more with less. A new replenishment ordering system allowed the company to reduce purchasing staff, even as sales increased 10 to 15 percent. “The reordering system was tough for us to get through,” Crismon says. “We were never big on trying new things, but it’s been wonderful for repetitive categories like candy, water and souvenir apparel.”

This has significantly reduced instances of what Crismon calls “being a day late and a dollar short.”

“In 2001, we started asking ourselves why sales weren’t increasing the way we expected,” he says. “Airline traffic and fuel prices are things over which we have no control, so we focused on the question of whether people just didn’t want to buy – or whether we were just out of stock on things they wanted.”

In the areas in which ATG implemented reorder points, it experienced a 20 to 30 percent reduction in outs “and that’s being conservative,” Crismon says.

Additionally, the new system enables ATG to work more closely on assortment and selection at its stores. “That’s the key for us and we are now taking the next step with Tomax by getting into a merchandise forecasting program.”

The system keeps a running 52-week forecast that is regenerated daily, enabling ATG to have three years sales history on hand and manage the forecast using several algorithm engines. “Forecasting gives us a new edge by working off of actual sales and notifying us when we are above or below the curve,” Crismon says. “Even though we are a small retailer, we have to deal with the same variables as the big ones. And this is going to make us more efficient.”

This is all the more important in view of lease requirements for airport stores. “Airports require a guaranteed minimum or a percentage of sales – whichever is higher,” Crismon says. “We pay a percentage of every dollar we make and have to guarantee them a certain amount per year.”

Positive impact on shrink
More efficient forecasting and inventory management also reduces pressure on the company’s warehouse, an 11,600-sq.-ft. facility four miles from the airport (ATG also has approximately 5,000 sq. ft. of storage in basement rooms at the airport). “It’s more of a distribution center from the standpoint that 90 percent of the product is brought in, processed and put right back on a truck for delivery to the stores,” Crismon says.

Tomax’s Retail.net system also has had a positive impact on shrink. “When it comes to loss prevention, the issue is not inventory management but POS,” Crismon says. Retail.net has enabled ATG to design reports that show the status of cash drawers by site, by register and by employee, dramatically reducing shrink levels.

“We don’t even let employees count out their tills at the end of the night,” Crismon says. “It’s all bundled into a bag and processed in another room. By taking cash handling reconciliation away from employees, they have enough time to handle more important business – taking care of customers.”