Wet Seal: Distribution at the speed of fashion

Editor’s note: Few industries have been as disrupted by the e-commerce revolution as retail. Online and brick-and-mortar retailers alike continue to invent creative new ways to break through the noise and capture a share of the market. That in turn has sparked the creation of order fulfillment solutions to support the new business models. In the January, February and March issues of Modern, we are looking at three hot retailers that are redefining their categories along with the solutions they’ve developed for their DCs. In January, we profiled the Gilt Groupe, an online retailer that brought the flash sale concept to North America. This month, we are highlighting Wet Seal, a brick-and-mortar retailer that has mastered fast fashion. In March, we will complete the series with a profile of rue21, a fast-growing retail chain that designed a distribution center to serve its unique retail concept while accommodating rapid growth.

Anyone with teenagers knows that fashion changes fast. And, Wet Seal has turned fashion fickleness into a thriving retail business.

The concept is simple: Each day, the chain’s 554 stores receive about six cartons of new, unique and trendy merchandise sold at value price points. Few items remain on the shelves for more than six weeks and only a handful of SKUs are ever replenished. That means a teen or fashion-conscious young woman looking for the latest in fun fashions will find something new on every trip. She also has to buy it now, before it’s gone forever.

To deliver on that concept, California-based Wet Seal designed a 215,000-square-foot distribution center capable of handling 970,000 cartons a year—60 million units—with very quick turnaround times. Since very few items are replenished, reserve storage was kept to a minimum, creating a space-conscious facility. Instead, Wet Seal relies on systems and processes designed to automatically receive, allocate and ship new merchandise among the chain’s stores within about 24 hours of receipt in the facility. In many respects, it is a sophisticated crossdock system.

Order fulfillment is powered by a compact bomb bay sortation system (SDI Industries, sdiindustries.com). Currently, three sorters are in place with room to add a fourth as the chain adds stores.

The sorters feature a unique double bin design that can handle up to 10,000 drops per hour per sorter if both bins are being used. “Each sorter has two trays that can open north to south like a normal bomb bay sorter to handle large items,” says Charlie Torok, Wet Seal’s vice president of logistics. “Or, it can operate with two trays that open east to west to double productivity.”

The compact design of the system allowed Wet Seal to install the three sorters in a very small footprint with room to grow as the chain adds stores. Those three can service up to 750 stores, or nearly 200 more spaces than are currently being operated. “Right now, two sorters are stacked on top of one another and the third is next to the stack,” Torok says. “They take up less than 70,000 square feet and we could add a fourth sorter on top of the third without taking up more space.”

The fourth sorter would allow Wet Seal to service 1,000 stores—or a significant increase in e-commerce business—without adding to its existing space. “Adding a fourth sorter requires a minimal investment because we planned for growth when we designed the system,” Torok says.

Changing with the times
The company that is now Wet Seal was founded in Newport Beach, Calif., in the 1960s. The original name was changed to Wet Seal in 1990 after the chain’s founder noted that a bathing suit model looked like a wet seal at a fashion show. The business grew both organically and through acquisition. In 1995, Wet Seal acquired 237 Contempo Casuals stores from Nieman Marcus. More recently, it acquired the Episode chain of stores.

Today, it operates two retail brands: Wet Seal, with 473 stores, targets teenage girls with trend-focused and value competitive clothing. The company also operates 81 Arden B. stores. These offer contemporary collections of clothing and accessories to 25- to 35-year-old women.

Like many retailers, Wet Seal has evolved with the competitive retail market. “When we were a stand-alone supplier of junior clothing, our price points were higher than they are now,” says Torok. “As competition has increased and retail has changed, we changed our model by reducing our price points, buying strategically and reducing our supply chain costs.”

With the new model, Wet Seal embraced fast fashion. “Our buyers are regularly visiting the apparel marts like the Los Angeles apparel mart, where fashion wholesalers will private label their merchandise,” says Torok. “When we find something that is fashionable, trendy and the kind of value our customer is looking for, we’ll provide our label and order a limited quantity.”

The idea is to bring in new styles that are appropriate to the season and get them distributed quickly to the stores. Wet Seal buys a limited quantity of a style and allocates the inventory across its stores. Denim designs, such as jeans, are designed in-house and may be replenished for up to three months before the next season comes along. “We only store about 10% of the product that comes in on a monthly basis,” says Torok. “The rest of the product comes in the door, is sent to a value-added services area where we put on a security tag and is then pushed out to the stores.”

Most merchandise is sold in six to eight weeks. As a result, says Torok, “there’s a freshness to our stores. We ship new merchandise to the stores every day.” The average store receives six cartons a day. In all, the facility ships out about 970,000 cartons a year.

Moving at the speed of fashion
The change in retail strategy had a direct impact on Wet Seal’s distribution processes. For one, lower price points meant that the retailer was shipping significantly more cartons and units to support the same level of revenue. Where Wet Seal once shipped about 36 million units a year with a manual item-level pick system, the retailer is now shipping 60 million units.

“Before the sorter, we had a carousel system and pick carts,” says Torok. “While it was labor intensive, we were able to keep up with the volume when we were picking 36 million units.” That system was not up to the task of picking 60 million units. Handling costs and picking errors went up with volume. At one point, the facility was about 80% accurate, says Torok.

One of the first approaches to address the increase in volume was to switch from picking individual items for each store to shipping pre-packs of merchandise. In a pre-pack model, vendors ship cartons that have been pre-packaged by the vendor with a range of sizes and styles. Instead of picking 12 individual items to a shipping carton, an associate simply picks a carton that already has a dozen items ready for shipment. From a picking standpoint, handling pre-packs in a carousel was very efficient. However, it didn’t allow a store to get an optimal range of sizes for the customers in its area. A store in one region of the country with larger sized customers might end up with too many small sized items that didn’t sell, while a store in an area with more fit customers might end up with too many larger sized items. That led to lost sales.

“Our CEO wanted us to return to a model where we are picking individual units to get the maximum size optimization to stock each store,” says Torok. “To do that, we needed a new distribution system.” What’s more, he says that the old system was paper-driven rather than bar code driven, which led to a significant number of picking errors.
All of this took place while the chain was expanding the number of stores it was operating.

The first step toward revamping Wet Seal’s distribution practices was to address shrinkage in the store with the installation of a tagging system. Rather than add the security tags to the clothing in the store, Wet Seal chose to do that function as a value-added service in a portion of a 150,000-square-foot mezzanine. Conveyors bring product from the receiving area to workstations on the mezzanine. The result was a 50% drop in the rate of shrinkage in the stores.

“When you’re looking at a company with more than $600 million in sales, it’s a significant savings,” says Torok. The value-added services conveyors and work area took up about 80,000 square feet of space on the mezzanine.

The next step was to bring in the bomb bay sortation system to increase throughput and minimize the cost of handling pieces. “We were looking for a sortation system that would allow us to minimize the labor to ship a combination of prepacks and individual units to our stores,” says Torok. “We also wanted to reduce our error rate. Finally, we wanted a system that would fit in a small footprint but still allow us to grow.”

According to Torok, Wet Seal compared tilt tray sortation with bomb bay sorters, which drop items into shipping containers, much like old aircraft bombers dropped bombs. In the end, the bomb bay sorters offered the best combination of throughput, accuracy and room. The double bin system, meanwhile, enabled Wet Seal to accommodate the wide range of products it carries—everything from small accessories to shoes and coats. “With this model, I can maximize my sales by shipping a combination of prepacks and individual units and keep down my operational costs,” says Torok.

He adds that the system has been in place for two years. Since then, there has been a 25% improvement in accuracy, from 80% to 99.9% while handling costs per unit have been reduced by 30%.

Scaling for growth
Today, Wet Seal is primarily a brick-and-mortar retailer. Stores account for 95% of its business. However, the retailer has ambitious plans to expand its e-commerce business. The bomb bay sortation system will accommodate that new strategy.

“All three sorters can sort down to the customer order level,” Torok says. “While the system allows us to service all of our stores now, it will also allow us to scale up for e-commerce.”

Torok also envisions adapting the system to multi-channel retailing. For instance, this would allow a customer to order an item in the store and have it delivered to their home. In addition to providing room to add a fourth sorter in the existing space to accommodate up to 1,000 stores, Torok says he could accommodate even more growth simply by adding another shift with the same equipment. “If you think about it, we’re only running 12 hours a day,” he says. “We could double our productivity in our existing footprint by running a second shift.”

System suppliers
System integrator and bomb bay sortation system: SDI Industries
Lift trucks: Crown
Pallet racking: Interlake Mecalux
Conveyor & shipping sortation: Accu-Sort Systems
WMS: Retek/Oracle
Mobile computing and bar code scanning: Motorola Solutions