Kx for Retail. Range Optimization. How to survive the retail revolution. Thomas Hill, SVP Retail Services

Transcription

1 Kx for Retail Range Optimization How to survive the retail revolution Thomas Hill, SVP Retail Services

2 Content 1. The changing retail landscape 3 2. The new data driven approach to assortment planning 3 3. Improving results with Big Data technology 4 4. Bringing science to the art of range optimization 5 5. Range or die! 6 2

3 1.The changing retail landscape In case you missed it, we are in a digital revolution and no industry is exempt. Banks, newspapers, travel and retail have to adapt to technology-focused business models with the key driver being changing consumer behavior. Change or die big names that are slow to adapt are being lost; Eastman Kodak, Borders Group, and firms such as Nokia and Blackberry losing their retail presence. The retail landscape has been shifting online for some time now and this is nothing new, but the pressure on traditional bricks and mortar retailers that have not adapted is beginning to show. Marks and Spencer continue to battle to arrest the decline in their clothing business, and Debenhams have finally accepted that sharp discounting and reliance on short term sales and promotions is not a sustainable model. Range optimization will be one of the most important decisions for retailers in the digital age. Get it right, and you enter a season of trading with buoyant sales and an efficient supply chain. You ve backed the winners, delivering growth through volume sales the champagne is well and truly out. But get it wrong and warehouses are bloated, sales are slow and you feel the pain of markdown and profit dilution. A fashion retailer losing 10% of revenue to markdown could see significant sales increases from just a small reduction in this figure. The changing physical environment is a key driver in the need for intelligent range planning in order to personalize ranges: 1. Shrinking physical footprint, and space being turned over to warehousing and concessions requires range reduction and optimization in store 2. Supplier integration and no physical constraints online deliver the opportunity for infinite range, but require merchandising capability to personalize the assortment to the individual Amazon delivers this, and continues to dominate the retail market today for one simple reason; the intelligent use of data through technology. Their mission statement clearly demonstrates their commitment to this and the sole purpose of leveraging this data and technology to deliver a customer centric range online: Our vision is to be earth s most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online No category is safe. Amazon s move in to food retailing with the acquisition of Whole Foods will concern the big players such as Walmart and Tesco. Retailers are making their own moves, with Walmart s purchase of Jet.com, and Morrison s tie up with Amazon. The food revolution is coming, and those that do not leverage technology and data to compete with Amazon s consumer-focused and targeted approach will fail. 2. The new data driven approach to assortment planning Merchants bring a human skill to the art of assortment planning that will never be replaced. Being able to review customer and market trends to spot the next big thing, whilst negotiating strong deals will always be a resource and skill required in retail. But the increasing volumes of data being generated can support and enhance this decision-making, providing merchants with a competitive advantage and help retailers adapt to the change. Retail is no longer about static ranges, with periodic pricing reviews during a fixed period. The right product, at the right price, at the right time has never been more crucial. Ranges need to be adapted online daily, and speed of insight is key. This new model requires flexible, fast and data driven range optimization. 3

4 The digitization of retail operations is opening up new, connected data sources that can be leveraged to drive optimized ranges. For example, in a recent report Supply Chain 4.0 in Consumer Goods, McKinsey discusses how supply chain opportunities can reduce operational costs by 30% and decrease lost sales by 75% through range and availability: 3. Improving results with Big Data technology So what s new? Many more data sources to start with. Connecting and leveraging today s data sources supports range decisions across channels: Social Media Customer Reviews Competitor/Market Data Sales/EPOS Data Browse Behaviour Basket Analysis Customer Journeys Cross Device Dynamic Pricing The true potential of data continues to be underutilized however, due to expanding volumes, complex outputs and long processing times required for product level range analytics. Nearly half of executives surveyed in a recent study by Harvard revealed that they are seeing operation improvements, but 23% have yet to see the value: Big data technology unlocks this potential, as it can be used to provide customer-centric metrics, in real time, to deliver a dynamic approach to merchandising and assortment planning: 1. Enables merchants to make customer-centric range decisions, by converting vast data volumes in to simple and actionable outputs 2. Delivers edited choice in-store, creating more cost effective operations 3. Targets broader ranges online to meet consumer needs through hyper-merchandised websites delivered in real-time Technology will empower merchants with key insight, delivering the next generation of assortment planning and merchandising. A combination of art and science, successfully applied, will see success: 4

5 4. Bringing science to the art of range optimization Within retail there are generally understood best practice methodologies for Category Management. However, the heavy data processing required to undertake these analytics often restricts the types of insight into seasonal or even annual updates that merchandisers rely on. The inability to run customer centric range analytics regularly is removed with the development of Big Fast Data technology. Kx delivers a range optimization engine that can provide answers to key questions in real-time. This is delivered on the full assortment, and can be automated to provide alerts of significant changes, enabling merchants to adjust range decisions in intra-season and intra-day: What products belong in the global range? Which stores/customers should see which products? How should space be allocated across the website and category in real-time? Our solutions are built using a combination of association and affinity analysis (complimentary vs. substitutable products) and clustering techniques, delivering simple and clear metrics enabling the merchant to optimize range: Range reduction key customer metrics at product level include substitutability, affinity and customer loyalty supplement sales and profitability with easy to interpret results Range expansion market and competitor benchmarking coupled with customer decision gap analysis enabling effective, ongoing optimization of range to meet customer needs and emerging trends Kx s customer centric range planning solutions enable merchants to deliver assortment which captures all shopper decisions supporting sales and profit growth through volume sales: 1. Product loyalty the importance of a product to a customer s overall loyalty, highlighting critical lines in the long tail 2. Product substitutability how happily shoppers would switch between products, enabling range reduction or edited choice 3. Product affinity products that are often bought with others, supporting bundles, and merchandising opportunities 5

6 Without considering a balanced scorecard of all these metrics, too often key products are removed that are vital to loyal customers. A great example of this relates to specific free from products in grocery, provided for customers with specific dietary requirements. Looked at in isolation, their relatively small sales volumes and low growth potential may lead a retailer to cut them from their range. However, remove the product, and you may well lose the shopper and their total basaket to a competitor. The biggest challenge for retailers under sales pressure is to avoid short-termism. Supplier funded short term offers, sales and stunt deals will only support sales growth for a short period of time. Retailers that deliver ongoing ranges to appeal to loyal customers, and attract new shoppers by capturing the evolving trends will deliver long term success. Customer-centric data driven decisions that leverage macro and micro trends can help retailers achieve this goal. 5. Range or die! The retail maxim of change or die is wholly relevant to range planning, with big changes seen in this space through the growth in data. The next generation of assortment planning will be driven by the big data revolution in retail: 1. The retail landscape is changing, and range planning to meet changing consumer behavior is critical. The next generation merchant needs to adapt to this change and leverage data to deliver consumer centric assortments 2. Data continues to expand creating a huge opportunity for effective category management, bringing science to the art of trading. Simple customer focused metrics from growing data sources will enable a personalized approach to range optimization 3. Technology needs to be powerful enough to process the data at pace. Big fast data capability that can process this volume of data in real-time will become more important, as merchandising becomes an intra-day activity online and delivers an edited choice, targeted to the individual consumer needs Merchants that leverage technology to manage and process the vast quantities of data and unlock the power this holds will stay ahead of the competition. In the changing retail landscape, those that apply science to the art of category management will thrive, and survive the retail revolution. To learn more about our cutting edge big fast data technology and category management tool, get in touch with Kx: 6

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