Trans World Entertainment Corporation is one of the largest specialty music
video retailers in the U.S., operating nearly 1,000 mall-based and freestanding
stores under FYE, Coconuts Music & Movies, Strawberries and other brand
names. The company offers a wide selection of entertainment products, including
compact discs, prerecorded audio and videocassettes, DVDs and related
accessories that represent an inventory challenge in keeping pace with changing
consumer demand.
4R began working with Trans World on a consulting basis in the Fall of 2000
to analyze and improve the music retailers' in-house systems for inventory
management. Much of this work focused on ways to reduce store inventory while
maintaining high in-stock levels for products in sudden, great demand.
When new music titles first become available, there is usually a rush of
customers who want to purchase them right away. Running out of product in the
intensely competitive music retail industry not only means lost sales, but also,
in effect, pushes customers out the door and into competitors' stores.
At seasonal peaks such as Christmas or Valentine's Day, stockouts have
similar dire consequences, as customers are often unwilling to make substitute
selections. CD sales during seasonal peaks often reach 3 to 4 times the level of
the prior or following weeks. Remaining in stock for these seasonal surges
without carrying excessive — and potentially obsolete — inventory was one of
Trans World's chief concerns, especially with popular titles that tended to fall
out of favor without warning.
4R worked closely with Trans World to develop the best system for forecasting
weekly demand for each SKU at each store. 4R also designed and implemented a new
approach to setting model stock for each SKU at each store, and automated the
handling of special cases that previously had to be adjusted manually.
To test the improvements, Trans World ran an eight-week trial program, using
244 top music titles. Forty-one of these titles were managed under the 4R
approach, with the balance under Trans World's existing system. SKUs in the 4R
test group and legacy system group were matched by sales volume and type of
music to provide side-by-side comparison.
In the eight-week trial, the 4R SKUs averaged 0.76 percent stockouts,
compared with 1.39 percent for the legacy system group. Trans World's target
in-stock rate for these SKUs was 99 percent — a target that the 4R group easily
met while the legacy group fell short.
Store inventories of the 4R SKUs averaged 2.4 weeks of supply, or about 1/3
below the 4.8-week average supply for the legacy SKUs. This improvement was even
more dramatic for the highest volume titles, where TransWorld's existing process
proved excessively conservative. 4R's leaner stock of these items reduced not
only inventory carrying costs, but also obsolescence risk.
