Casual Male CEO: Can IT Keep Inventory Fit?

By Larry Dignan  |  Posted 2005-12-06 Email Print this article Print
 
 
 
 
 
 
 

Casual Male's CEO finds that inventory systems that can't handle sizes and distribution did little to help keep the company out of two bankrupcies.

Casual Male has a 65% market share selling clothing to big and tall men, but until recently it couldn't get the right goods to the right people. A side effect: Two bankruptcies, one in 1991 and one in 2001, says chief executive officer David Levin. His fix: A $13 million, two-year total overhaul of the company's information systems.

Levin took the helm at Casual Male in May 2002 after his former company, Designs, which owned outlets for Levi's, Dockers and Candie's shoes, bought the retailer in bankruptcy proceedings. Designs changed its name in August 2002 to Casual Male and divested its other businesses to focus solely on the big-and-tall apparel business.

When Levin took over, he found that Casual Male's soon-to-be chief information officer, Jack McKinney—who had survived the previous incarnations of Casual Male as a technology executive—had a long to-do list, but no funding. "Our systems were homegrown and inflexible," McKinney says. Specifically, Casual Male had 8- to 10-year-old proprietary systems incapable of automating inventory replenishment, segmenting products sold to certain regions and tracking the 50 sizes—pants range from a 36-inch to a 70-inch waist, and tops are offered in XL to 8XL—needed to satisfy everyone from the 6'7" skinny guy to the 5'6" portly one.

"The biggest hurdle in the big-and-tall market is inventory management and how you manage sizes and demand," Levin says.

To overcome that hurdle, Levin and McKinney in late 2003 began installing a new inventory replenishment and merchandise planning system from JDA Software, and a warehouse management system from Manhattan Associates. Next up was new point-of-sale and customer relationship software from NSB Group.

According to Levin, these systems are necessary for Casual Male to sell to its loyal audience. "Often, these guys can't shop anywhere else," says Levin, who in 2003 inked George Foreman to a marketing pact and later gave him a board seat. "Fit is everything."

Indeed, the average Casual Male shopper plans his visit five to seven days before showing up to look for, say, a pair of George Foreman Waist-Relaxer pants and a George Foreman Neck-Relaxer shirt. Sixty-seven percent of Casual Male's customers are more than a 20-minute drive from one of the company's 500 stores and shop twice a year. Those hurdles are manageable as long as the items in demand are in stock. However, Casual Male discovered the products that accounted for 20% of its $365 million annual sales were out of stock 25% of the time. Meanwhile, the company's United Parcel Service tab was $1 million a year because it had to shuttle its inventory—say, a 3XL blue polo shirt originally shipped to Detroit that was needed in a Houston store where it had sold out.

Casual Male's new inventory visibility has allowed it to offer a guaranteed in-stock program, which began on Aug. 23. If one of the retailer's most popular items is out of stock, the company will ship it to a customer's home within five days or it's free. So far, 99% of the items have been in stock.

"If someone is going to make a 40-minute round trip and plan for a week, you'd better have what they are looking for," Levin says.

The CEO adds that Casual Male's biggest problem was its "shotgun approach" to inventory. All stores got the same assortment of styles and sizes. The approach, however, didn't fit. In a Miami store, size 2XL shirts were hot sellers and 6XLs would have to be marked down 50%. In Detroit, the opposite was true.

To match product allocations with sales data, McKinney focused on process changes in the warehouse and inventory management systems, as well as segmenting packages and bar-coding them by the style groups Casual Male targets, say, urban, dress and casual. Sales data from the point-of-sale and customer relationship management systems is poured into a data warehouse feeding the inventory systems.

One of Levin's goals was to reduce markdowns and in-store transfer costs, or the UPS bill to move inventory between stores. So far, so good; the company's annual UPS shipping costs have fallen from $800,000 to $200,000 since the inventory systems were installed. Casual Male's gross margins—sales less the costs of goods sold—improved to 38.5% for the quarter ended Oct. 29, up from 37.5% in the same quarter a year ago. The company, however, is losing money. On Nov. 17, Casual Male reported a net loss of $2.7 million on revenue of $291.7 million for the nine months ended Oct. 29.

Casual Male's next challenge is to segment its customer base. Levin notes that most retailers can tell you the demographics and preferences of customers, but Casual Male's research shows that its customers are hard to categorize. How do you segment a customer base whose only unifying factor is girth or height? "The only thing they have in common is that [some of them] are big and tall, with a 40- to 42-inch waist and 6'2" or taller," Levin says.

In early 2006, Casual Male will roll out what it calls a mobile guest intelligence system, which will store a customer's buying history on a salesperson's handheld connected to the point-of-sale system. That way, a customer who doesn't like to shop will have information on his size, favorite styles and fits readily available to ease the shopping pain.

Levin acknowledges that Casual Male is a work in progress, and some of the returns for his technology overhaul may not be readily quantifiable since the company's implementations are young.

But the best return may be ending Casual Male's streak of bankruptcies. "We didn't have a choice but to change," Levin says. "We couldn't continue on a path where we couldn't succeed."

BIG & TALL ORDER
Casual Male overhauled its technology infrastructure in a two-year blitz to manage multiple sizes and improve service.
EXPENDITURES 2003 2004 2005
Software costs* $500,000 $7,000,000 $5,500,000
Labor** $0 $72,000 $72,000
TOTAL: $500,000 $7,072,000 $5,572,000
SAVINGS
Distribution efficiency gains*** $0 $700,000 $800,000
Inventory reductions**** $0 $0 $2,500,000
Marketing costs***** $0 $0 $1,000,000
TOTAL $0 $700,000 $4,300,000
NET ($500,000) ($6,372,000) ($1,272,000)
NET in first-year dollars (2002)
Discounted to present at 10% a year
($500,000) ($5,792,727) ($1,051,240)
Dashboard Decision

GREEN LIGHT Go

YELLOW LIGHT Evaluate

RED LIGHT Stop

YELLOW LIGHT Time will tell on total returns.
NET PRESENT VALUE:
($7,343,967) Three years of net values
*Systems costs: distribution ($1.5m), merchandising/supply chain ($6m), store ($4m), marketing ($1m) and financial ($500,000). **In-house team of 9 at $80,000 each. ***Reduced manual processing; lowered shipping bills for store transfers. ****Reduced inventory per store from $125,000 to $120,000 across its 500 stores. *****Cut mailing, database management costs. Sources: baseline research, casual male


 
 
 
 
Business Editor
ldignan@ziffdavisenterprise.com
Larry formerly served as the East Coast news editor and Finance Editor at CNET News.com. Prior to that, he was editor of Ziff Davis Inter@ctive Investor, which was, according to Barron's, a Top-10 financial site in the late 1990s. Larry has covered the technology and financial services industry since 1995, publishing articles in WallStreetWeek.com, Inter@ctive Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism.
 
 
 
 
 
 

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