Hointer as Retail Technology: The Operational Impact
The Hointer system might be right for the customer, but that doesn’t mean it’s operationally feasible or smart. At first glance, the cost and space required to install an automated inventory system into a small denim store seems like a huge investment just so the customer can try on clothing easier. However, digging a bit deeper, the Hointer system has compelling operational benefits to inventory management, pricing & clearance, and staffing to be considered.
Inventory does not just move out of a store when it’s sold to a customer. Retailers know the impact of theft, damage, and loss. The bigger the retail store, the harder it becomes to accurately track inventory, ensure it’s in the right place, and control inventory losses. One of the benefits of online retailers is that their inventory is very controlled, organized, and condensed because it does not need to be on display for the customer. Inventory losses are much lower, and the space required for inventory is much less. The Hointer system improves inventory shrinkage because it reduces the number of customers that touch inventory (only if they try something on), reduces the number of employees that touch inventory because it is picked and stocked by the automated system, and keeps tight control of individual SKU’s through the software platform and RFID tags. The Hointer system is also not expected to increase the amount of space needed to store inventory, and potentially reduce it. Shouraboura estimated that she could fit the entire denim stock from a Nordstrom store in 1/5th the size of her Hointer selling floor [estimated 300 sq ft max] (Source: interview during store visit 1/04/13)
Another benefit the Hointer system brings to inventory management is eliminating the need to keep up a unit density for visual display purposes. Merchant inventory planners no longer have to send stock to a store just to keep racks full or maintain a visually pleasing assortment variety. A Hointer store could have 200 styles on display, but generate 80% of their sales from 5 styles, and optimize their inventory stock to support these sales with no customer experience impact. It makes no difference to the customer that 80% of Hointer’s back-room inventory is only 5 styles. But it makes a huge impact on the profitability of a store because they won’t have to clear out as much dead inventory.
Pricing and clearance
Price changes and clearance in a clothing store is messy, exhaustive work because the price tag of each article of clothing needs to be restamped. The bigger the retailer, the harder it is to make sure that all of the inventory with the price change is updated. Often big retailers have staff that is dedicated to price changes and clearing inventory. And when price updates are missed, customers either are frustrated or delighted when the price of an item at check-out is not the price on the tag. Either way, the inaccuracy is poor customer experience.
At the Hointer store, price changes only need to be made on the showroom items, which is significantly easier and more accurate. A Hointer store could potentially re-price their entire stock of inventory multiple times a day with little effort. A traditional denim retail store would need to bring in extra staff just to re-price all the inventory once. The pricing flexibility that the Hointer system provides is powerful, and suddenly a brick-and-mortar store can price compete with an online retailer. And as Shouraboura said, “I know the online retailer’s prices, but they don’t know mine.” With the Hointer system, being a brick-and-mortar retailer has a pricing advantage.
Every salesperson in the store, even the store manager, spends time restocking and straightening inventory. Although a salesperson or stylist was hired to sell to the customer, managing and straightening inventory is part of the job. As inventory sells out, department managers and sales staff need to ensure inventory gets pulled from the back or moved around to keep racks visually full. Dressing rooms also require a significant amount of resourcing to manage the constant flow of discarded items that need to put back out on the floor. Some retailers have their sales team manage dressing rooms, others have dedicated staff, but regardless it is a “behind-the-scenes” under-appreciated customer service.
The Hointer system eliminates most of the inventory management work from brick-and-mortar store operations. Stockists still need to “set” new inventory that’s delivered, and potentially reorganize inventory as unit levels change. However, the sales staff no longer needs to manage inventory on the sales floor or dressing rooms. That is a big change for the retail store staffing model. Sales staff can focus on what they are hired to do – focus on the customer and provide service. The headcount needed to maintain the same level of service would be significantly reduced. Behind-the-scenes stockists and pricing staff headcount would be significantly reduced.
However, installing new technology into a retail store creates the need for an engineer or technologist to maintain it. So while the staffing needs may be a trade-off in cost, the advantage of having sales staff focused exclusively on selling is a clear win from the Hointer system.
Despite the potential operational upside, an automated picking system in every store (store department) is a heavy retail investment with an unknown ROI. Even with the assumption that the system makes long term financial sense, investing in the Hointer system is a big commitment that may be too inflexible for retailers. Store business ebbs and flows, and chain retailers continuously evaluate their footprint. Managing inventory through staff, although less efficient and more costly, is likely to be more flexible than the Hointer system as staff can be adjusted fairly easily. The Hointer system is certainly not an “easy win”.
In addition, the Hointer system doesn’t apply to all categories of retailers. It is intended for high-touch categories that require physical exploration before buying such as fit-intensive clothing or high-end electronics – essential categories that are not necessarily easiest to buy online. Commodities and basic items generally do not fit into the Hointer model, however, a Tesco-style virtual storefront with a Hointer-style inventory system that places selected items into a basket waiting for you at the checkout could be interesting.
In sum, the Hointer store provides the operational benefit of a website and the peace of mind from physically inspecting and trying on purchases before making them. The meshing of a digital and in-store experience has rarely been so smooth. Hointer represents a new way of shopping and has designed its unique approach not through additional features, but by simplifying the shopping experience and unburdening its customers as they browse through the store. Given the advantages to both the customer experience and store operations, the revolutionary Hointer system model is one to watch.
About the Author
Loren Bors is a Manager at PK, where he helps businesses attract, grow and retain customers. Loren has worked with companies of all sizes and types, from the B2B software Fortune 50 enterprise to the four-person startup, and specializes in assessing market opportunities and designing programs that engage with customers on their terms.Tags: Hointer, Mobile, Retail