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Similarly, the system was good for setting broad parameters for product groupings such as cosmetics, perfume and shoes, but it was extremely labor-intensive to set replenishment parameters for an individual product. In the high-end retail business, where purchases often are emotional, that's a definite disadvantage. Unlike selling boxes of Tide detergent, selling high-profit items like perfume and jewelry is a science. Walls says experience has shown, for example, that when women shop for expensive perfume like Christian Dior's J'Adore, they are more likely to make the purchase when there are five or six bottles on the shelf. If there is only one bottle left, they'll often take a pass.

"I can't explain it, I just know that it's a fact," she says. "It's the same with products like towels--nobody buys just one towel, they'll buy at least two. And they'll likely buy hand towels at the same time. Having the right quantities of products is a key factor to success in this business."

Ever since I read In Sam We Trust: The Untold Story of Sam Walton and Wal-Mart, the World's Most Powerful Retailer, I've been fascinated with supply-chain systems. Keeping shelves stocked with enough products seems to be one of the biggestchallenges in large-scale retail; I'd always thought the economics notion of not being able to meet demand (resulting in empty shelves) seemed like a false problem--if you're selling out all of your stock, my thinking went, you must be doing great--but, clearly, it's a huge issue. More interestingly, as the above excerpt explains, it's not only keeping shelves stocked, but stocked in the right way per product.