Ted Baker announced earlier this week that it had overstated the value of its stock by between £20m and £25m. It seems incredible that it could have got it so wrong. The company has appointed law firm Freshfields Bruckhaus Deringer to investigate the situation, who in turn say they will appoint independent accountants to carry out a “comprehensive review”. It will be interesting to find out what they discover. Ted Baker wasn’t giving much away other than to say the error would have “no cash impact” and relates to prior years.
It is hard to imagine how Ted Baker’s stock systems can have failed so appallingly. If it was an error on input, then presumably it should have been picked up when it carried out its stocktake. Perhaps items have been costed incorrectly, or slow-moving stock has not been written down. Maybe there are more nefarious reasons that will come to light some time down the road.
Ted Baker’s shares fell 11.5% when the news was announced. As City AM pointed out, bad as this failing is in its own right, “Ted Baker’s error could cost it a lot more simply by scaring investors into thinking it does not have a tight grip on other areas of the business”.
This is what would concern me as an investor. Keeping control of inventory on hand is essential for the profitability of any retailer. The most basic metric is knowing precisely what stock you hold and what it is worth.
What else is Ted Baker missing?
If Ted Baker is getting this wrong, what else is it missing? I would want to know whether Ted Baker has real-time data analytics in relation to its stock. Not only what stock it has, but up to the minute information about what products are selling well or not so well and how fast each item of stock is selling at every one of its stores.
Running low on profitable stock that is selling well is an absolute no-no, so the company should be using analytics and predictive analytics to help with its buying. Do some items sell well at certain times of the year or in specific regions at a particular time or when the weather changes, for example? Information gleaned from predictive analytics should be informing its buying decisions so that it maximises it profitability and avoids disappointing its customers.
How effectively is Ted Baker using data analytics in other areas?
Ted Baker’s stock failure also begs the question about how effectively it is using data analytics in other areas. Does it know how many potential customers are walking past its shops and not coming in? Has it considered what steps it can take to get customers through the door by improving its window displays or putting up enticing offers? Is it using its stock information to identify if it is promoting the right merchandise in each particular location?
Similarly, are people coming into the store and not buying? If not, why not? Is the product placement poor, are its prices out of sync, do the staff require better training? Is the company tracking in-store footfall and does it know where each shop’s dead spots or hot spots are?
All this is basic analytics data every retailer should be using, especially at a time when online retailers are eroding so much of the traditional high street retail market.
Barry Dass, a director of Modus whose extensive retail experience includes the former role as managing director of Sterling Cooper, says of Ted Baker’s stock debacle: “I find it quite shocking that a retailer as well-known as Ted Baker, a public company listed on the Stock Exchange, can have failed so alarmingly in something so basic as stock control. If I were an investor in the company, it would set serious alarm bells ringing with me. I know the company has had management issues in recent months, but this hints at fundamental failings in the analytics it is using to run its business. The use of data analytics should be second nature to retailers in this day and age, and any retailers that are not on top of their game when it comes to data and analytics is, in my opinion, bound to struggle.”