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08/01/2007

Perfect Poise

Guess is poised for Growth. After five years of aggressive IT development on its back-end systems, Guess is ready to take on the world -- literally. The fashion house and retailer is on track to expand into Europe and Asia on a very large scale. In 2006, 125 international stores were opened and 107 openings are planned for 2007. Additionally, Guess has completed its transition from a "primarily wholesale" manufacturer to a high-end fashion retailer. The company's IT department has been instrumental in both the company's growth and its transition from wholesaler to retailer -- a fact CIO Mike Relich is not shy about mentioning.
 

                Guess By The Numbers

$1.19 Billion

2006 Net Revenue

$721.3 Million

2006 North American Revenue

413

Number of International Stores

336

Number of North American Stores

59

Number of Countries with Guess Stores
 
"I can honestly say it is more of us going to them," Relich says referring to the IT department's proclivity of approaching senior management with ideas for technological methods of improving efficiency and customer service throughout the organization. The IT mission at Guess is "to automate and support the growth of Guess worldwide," and the department, headed by Relich, takes its responsibility very seriously, and is unabashedly proud of its accomplishments.
 
"I am really proud of our infrastructure right now," Relich says. "We are very clean, automated and integrated and we are poised for growth. We could double or triple stores, or increase volumes and you aren't going to see a lot of stress on the systems side."
 
SEPARATION ANXIETY
Before Guess could tackle its global ambitions, the company first had to position itself as a stable retailer with a solid IT backbone in place. "We are growing so fast," says Relich. "We want to make sure the backbone can accommodate the growth." To do that, it was necessary to separate the wholesale business from the retail business. According to Relich, now that retail operates independently of wholesale, the overall business runs much more efficiently.
 
Prior to the separation three years ago, the wholesale division "owned" all inventory in the Guess warehouses. When the retail division needed inventory it had to "buy" from the wholesale division. "That worked okay when we had a few stores, but when retail becomes half the revenue -- we would sit in meetings for hours a week arguing over inventory and who got what." Now, although the original orders to suppliers are done in bulk, as merchandise comes in to the distribution centers, it goes to individual wholesale or retail areas. There is no intermixing, and the weekly inventory meetings are unnecessary since there is complete inventory ownership visibility by channel.
 
After the wholesale and retail businesses were separated, the U.S. and Canadian businesses, which were operated independently, were merged in order to allow management an aggregate view of its entire North American market. Relich and his team integrated the Canadian merchandising, planning and allocation systems with the U.S. system, while at the same time upgrading the entire JDA suite of merchandising applications, and implemented a MicroStrategy data warehouse. The IT team also automated all business intelligence reports driven by the data warehouse.
 
With an aggregated North American retail environment in place, supported by efficient merchandising and inventory processes, the IT department turned to systems critical to the company's ability to expand globally. Two of the systems on the front burner were product lifecycle management (PLM) and supply chain. "We try to make the supply chain as efficient as it can be, because we get better margins and lower lead times, which increases liquidity," Relich says. As part of its efforts to enhance the company's supply chain processes, the IT team identified a need to improve collaboration between buyers. Using a PLM system from Enovia MatrixOne, a subdivision of Dassault Systemes, the company implemented a "big repository with global access so everyone has the same view of products," says Relich. "It is a collaboration system that controls everything from concept all the way to adoption and creating POs. It is the glue that is going to hold us together globally."
 
In addition, Guess added EDI (electronic data interchange) to its supply chain operations. In order to simplify its supplier relations, the IT team implemented an EDI system from SPS Commerce. "Now we only deal with one party and they deal with all of the factories. We're over 95 percent EDI in terms of outbound POs and ASNs."
 
Though much of the IT department's efforts over the past five years have been on creating a solid infrastructure and backbone in order to support global expansion, the day-to-day operations of the North American division have not been ignored.
 
With this in mind, the IT department approached management about trialing markdown optimization. Two test groups were set up, one managed by Guess and the second managed using a markdown optimization system from Apex. During the trial, Guess sent its historical sales, markdown, demand and seasonal data to Apex. The software analyzed the data at the store level, and every Monday sent Guess a list of recommended markdown styles. Planners either approved the recommendations or not. If approved, the marked down prices were automatically sent to the POS system, eliminating the need to key in price changes. "We let that run for a couple of months, went back and evaluated the results and were very satisfied." The system has since been implemented to all retail concept stores. "We have seen improvements in margins because these systems see so much better than the human eye," Relich adds.
 
CONVERTING BROWSERS
While upgrading back-end systems and systems that increase the efficiency of the brick-and-mortar stores, Guess simultaneously enhanced its e-commerce operations. Specifically, Guess improved the search, navigation and merchandising (or searchandising) capabilities of its Web site.
 
According to Relich, "conversion rates doubled or more when people found what they were looking for" using the search engine on the company's Web site. But customers were not finding the items they wanted enough, so overall site conversions were low. To increase conversions Relich and his team implemented a search and merchandising platform from Mercado.
 
Since implementing the platform, "the actual use of the search engine has increased about 300 percent and our conversion rates have gone up," says Relich. "They have probably increased 30 to 40 percent." Relich credits several features of the system for its success: its retail focus, including a pre-built retail thesaurus; a built-in report system that indicates what terms people are searching under that do not get matches allowing merchandisers to create rules for those terms; and extensive color search and color crosssearch capability. For instance, a customer can first search for black handbags and then in one click find matching black shoes.
 
DRIVING STORE TRAFFIC
In spite of the extensive work that Guess has put into its Web site, there is still much to be done. "Right now the site works great for driving people to stores, but I think there is an opportunity to increase online sales." According to Relich, the Guess Web site has a very high multi-channel value index (which measures the effect of a Web site on offline sales overall) -- 68 percent of people who come to the Guess Web site have shopped in a Guess store two or more times in the last year. Relich believes that people still view the Web site as more of an online catalog than an online store.
 
"People come to our site to see what we have and if it looks interesting they make a trip to the store." The catalog browsers make up approximately half of the traffic on the Web site. "The next big chuck of online visitors come to look for a specific item" that they may not have found in a store in their desired color or size. All of this is well and good, says Relich, but looking forward he intends to concentrate on driving online sales.
 
Guess also is turning its attention to several customer-facing technologies. Currently underway is the development of a loyalty club/card. The loyalty club, which will be called the M club as it will start in their Marciano stores, is built on a platform from Datavantage. M club members will accrue points for every purchase and when they reach a specified spending goal, a discount will automatically be applied to their account.
 
Although the customer benefits from the loyalty club, the advantages to the retailer are driving the initiative. Currently Guess has no individualized transactional data for its physical stores (it does have this data for its e-commerce operations). The M club will enable the retailer to begin collecting this data, and eventually to segment customers and target them better.
 
Another customer-facing initiative in the works is a POS upgrade scheduled for next year. "We realize we need to upgrade our POS system," Relich says. Guess will install the Java-based XStore POS system from Datavantage, which will integrate completely with the loyalty club which is expected to go live this month.
 
More distantly on the horizon, Relich says, Guess will investigate cell phone payment options, especially in Asia, where the technology is more advanced. And with the company's IT infrastructure solidly in place, and global expansion already on the rise, the horizon may not be so far off after all.

 

                                                          Guess Tech Toolbox

Supply Chain:
Product Lifecycle Management:
Online Search & Merchandising:
Merchandising & Planning:

Financial Reporting:
Data Warehouse:
Loyalty:

TradeCard
MatrixOne
Mercado
JDA
Oracle
MicroStrategy
Datavantage