Turnaround Following Acquisition Case Study

CLIENT: An apparel chain with 400 stores

The challenge

In a highly SKU-intensive industry segment, this apparel chain had been purchased out of Chapter 11 a few months earlier by a private equity firm. The chain was underperforming and suffering from an antiquated merchandising technology infrastructure, following years of underinvestment by the prior owners. Comparable sales, margins and in-stock position were all trending negatively and been for some years despite a well defined and targeted niche. PwC Canada’s Retail Consulting Services was hired, on a sole source basis, to address these issues following a referral from a Board advisor.

Our approach

PwC Canada’s Retail Consulting Services performed a focused IT risk assessment review to help guide this company in its upcoming merchandising system replacement. As a result of this review, PwC Canada’s Retail Consulting Services recommended that the company implement this replacement in stages, based upon projected and measurable ROI outcomes, in contrast to the “big bang” approach recommended by the software vendor.

The retailer approved the vast majority of PwC Canada’s Retail Consulting Services’ recommendations, leading to a comprehensive merchandising ROI review, whereby PwC Canada’s Retail Consulting Services benchmarked the retailer’s merchandising processes, tools and cost with leading practices in the apparel sector. The merchandising and planning organization structures were redesigned by PwC Canada’s Retail Consulting Services to support strategic and business objectives as reflected by the newly developed and agreed upon performance accountabilities and key metrics. New key positions were created and staffed during the process.

PwC Canada’s Retail Consulting Services was then retained to lead the implementation of replenishment and allocation systems, as well as the related changes to business processes, organization structure and staffing, key performance indicators, management processes as well as the necessary change management activities. PwC Canada’s Retail Consulting Services also assisted in the revamping of the assortment strategy to focus on targeted customer attributes rather than the “average customer in the average store”.

The result

• The revamped assortment strategy more precisely customized the assortment to local customer needs, leading to sustained improved comparable sales, reduced markdowns and higher gross margins. The application of relevant leading practices in replenishment and allocation as outlined above allowed the client to materially reduce its out-of-stock rates while holding inventory turns unchanged. This resulted in improved comparable store sales and return on capital.
• Building on the strong replenishment and allocation foundation developed with PwC Canada’s Retail Consulting Services, the retailer more recently has leveraged this expertise to introduce compelling competitive offerings unmatched by its competition, including a guaranteed in- stock program on select key styles. This resulted in a comparable sales increase on these styles of more than 25%, with virtually no product given customers.
• Our work generated a meaningful earnings improvement, which contributed to a substantial improvement in the stock price. The strong foundation built during the initial engagement permitted the retailer to build strong competitive advantage. In return, the client has been an ongoing source of referrals for PwC Canada’s Retail Consulting Services.