Sizing Up the Data

How data analytics helps CFO Dennis Hernreich keep inventory levels balanced and boost operating margin at retail clothier Destination XL.
Taylor ProvostApril 29, 2013

A retailer specializing in big and tall men’s apparel, Destination XL Group, holds its products’ sizes above all other aspects of clothing retail – including price.

“It’s not the price of the items that get men into Destination XL stores,” says Dennis Hernreich, CFO of the company, formerly Casual Male Retail Group. “It has more to do with fit and comfort. Most retailers have small, medium and large. That’s easy. We have up to 13 sizes of tops and 54 sizes of bottoms with all the waist and seam combinations.”

Destination XL is in the midst of a huge transition, from smaller, less-varied Casual Male XL stores to more expansive Destination XL stores, which have many departments and sell private-label as well as name-brand apparel. “As we have been trying to expand our business, we’ve been expanding our assortments to cater to more guys,” Hernreich says.

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The company for the past three years has been in the process of closing more than 300 Casual Male XL stores and replacing them with Destination XL stores.

Even when Heinrich became the company’s CFO in 2002, it had a fairly robust set of offerings. He quickly realized the need for a sophisticated business-intelligence (BI) tool to help manage inventory and assortment, even though it couldn’t end up making that happen for a few years. Eleven years later, it’s a concern that’s facing a lot of retailers, as competition grows and the need to predict customer demand on the fly becomes more central to their success.

A March 2012 report by Deloitte pointed out a need for retailers to leverage analytics to manage inventory and increase collaboration with customers, merchants, and suppliers. Deloitte suggested retailers should integrate sales and inventory data from multiple source systems to identify items at risk of stocking out or of being overstocked. It also described how predictive analytics could be used to allocate incoming inventory to central points of demand and to shift excess inventory to alternate locations as needed.

Hernreich became CFO and chief operating officer of what is now Destination XL Group after his previous employer, Designs Inc., bought the bankrupt Casual Male Big & Tall chain of stores in a leveraged buyout. The move resulted in the company taking on a lot of debt. “It was choking our ability for a long time to vary the format quite as dramatically as we’ve done more recently,” he says. “But we lived through the [2001-2002] recession, took our lumps on the topline, pulled back and became very cash positive. By 2007, we were debt-free and finally able to execute this strategy.”

Along the way, the company acquired the smaller Rochester Big & Tall, which specializes in high-end, name-brand men’s apparel, such as Polo and Tommy Bahama. That was another catalyst for growing the company’s selection.

Destination XL began attempting to streamline retail operations in 2007. With the help of business-intelligence provider QuantiSense, the company has been building and perfecting analytics tools that update “size curves” – or the ranking of sizes according to what sells most – of each store on a monthly basis. That allows Destination XL to quickly manage individual stores’ stock levels. “The worst thing we can do,” Hernreich says, “is get guys into the store and then not have enough selection in their size. We can’t let that happen.”

Founded in 2001, QuantiSense uses its own brand of new technology to analyze buying, receiving, sales and other relevant data and determine the best course of action for a retailer to take. Every piece of data from Destination XL’s various systems is tagged and analyzed in a tool known as the Retail Exception Engine. The engine then spits out a specific action to be taken, such as canceling an order or shifting inventory to a different store. The actions vary according to the particular role the user plays in the business: buyer, marketer, allocator, planner or store owner.

QuantiSense CEO Jeff Buck notes that the software doesn’t replace other systems most retailers already use to conduct business, including ERP, CRM and merchant-management systems. Instead, he says, it augments them by feeding their data into one repository, where it is analyzed to form a complete picture of the retailer’s performance, right down to the stock-keeping units (SKUs) in a particular store.

Destination XL’s partnership with QuantiSense continues to evolve. The company recently began implementing a localized assortment-performance tool that lets Hernreich and his team look at stores’ performance more specifically than ever. The tool, he says, is already helping to increase in-season gross margins and make more productive use of inventory.

Using the tool, Destination XL constantly monitors stores’ size scales (the number of units of each size sold) using the customized localized assortment tool. “It’s all about having the right level of assortments for a particular area,” Hernreich says. “The sizes we sell in Phoenix are different from the sizes in Chicago. Their diets are different. For us to read that is very critical to our success.”

Predicting the most commonly sold sizes in a particular geographic area is important, but it’s not the only indicator of what clothes will sell. The breadth and depth of a customer’s lifestyle has as much to do with that as size, in any geographic zone. “In Phoenix they’re more outdoorsy, and the clothing is light, not only in weight but in color,” says Heinrich. “But in Chicago, it has to be mid-July for [men] to wear something light blue or yellow.” 

If the company sends too much Polo to its Natick, Mass., Destination XL store and not enough Tommy Bahama, the store suffers, the customers may be frustrated and inventory will be imbalanced. But QuantiSense can read the company’s sales and buying information and spit out, store by store, a suggestion of how many units of a particular item should be shipped there. Destination XL can then use the data collected from store performance for one season to predict what will sell next season.

Hernreich admits Destination XL has a ways to go before its name is as recognizable as Casual Male XL. Already, 100 Casual Male XL stores have closed this year, while 55 DXL stores are open across the country and 55 more will open by year-end. The company is readying its first national advertising campaign to get more of the nation’s big-and-tall-male population – which Hernreich estimates to be about 40 million – into the stores.

In 2007, shortly before it started using sophisticated retail analytics, Casual Male reported inventory of $114.5 million. But after it began using the BI tools, the company began to see a reduction of inventory investment, along with an increase in gross margin. By 2010, Destination XL had eliminated all of its debt and had a reported inventory of $90 million.

Asked about the ROI the company has achieved from its partnership with QuantiSense, Hernreich is reluctant to quantify it. “It transcends ROI,” he says. “It’s the fabric of our business. How could we manage without it?”

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