Harnessing Retail Data to Deliver a Profitable Seasonal Range
Brick-and-mortar stores, once seen as an asset for many retailers, are increasingly becoming liabilities. Retailers must face the need for digital transformation and harness the power of data and insight to ensure the right decisions are made across all channels of their businesses. With the continued development of digital retail and the onslaught of online retailers, customers are no longer loyal to one retailer. In fact, they frequently shop around to get the best deal. Just as their customers are benchmarking the selling prices of products using multiple tools, retailers also need to have full visibility and understanding of product pricing to ensure they're buying from the best source at the best possible costs. Traditional sourcing methods are no longer sufficient; retailers have to adopt new methods to stay ahead or stay relevant.
The objective of seasonal ranges, and a successful promotional event, is to draw consumers into the store and seize market share from competitors while encouraging them to shop nonpromoted ranges across the entire store. Seasonal events such as Christmas, Easter and Halloween drive significant turnover and customer footfall. The success of seasonal events is often the deciding factor on whether a retailer delivers sales and profit growth for the financial year. Getting these events wrong can be incredibly costly.
So, how can we use data to maximize the outcomes of these events? Consider these steps:
It’s often said, “Fail to plan, plan to fail.” This is very true when it comes to developing and delivering a successful seasonal range. Time and effort spent planning will ensure an efficacious and timely launch, as well as a profitable performance in the later weeks and months of the season. First and foremost, a retailer needs to analyze and have an in-depth understanding of how it performed in previous seasons. From this, decisions can be made about the shape of the range for the current season. Lack of knowledge of historical performance will lead to buying the wrong range and, ultimately, poor sales and profit. The biggest call out here, and often the one overlooked by retailers that leave value on the table, is that planning should start early, particularly for seasonal campaigns with no flexibility of delivery dates.
However, many don’t, and the rush to get the product on shelves results in poor range selection. Furthermore, suppliers then have the power in negotiations further down the process as a result of the retailer's inability to develop an effective sourcing strategy. The end result is cost of goods sold (COGS) being higher than they should be. Cost models may also be developed at this point using data gleaned from previous procurement and sourcing activity, as well as knowledge of manufacturing processes that will provide context to supplier pricing. This adds the ability to focus on COGS and drive margin from a third dimension.
Step one is to send detailed buying briefs to all suppliers using an e-sourcing platform. The briefs should enable suppliers to understand your requirements and put forward their best proposal to meet your needs and expectations. The submissions should meet your requirements specified in the original buying brief, reject those that don’t, and ask suppliers to review and re-submit. Once all proposals have been reviewed, decide what your range will be for the season using data and insights.
Forecasting is best done on a line-by-line basis as products within a subcategory can be different. Even variations of one product's color or flavor can perform differently. By its very definition, a "forecast" is just that. It can never be 100 percent accurate. However, using data insights effectively can lead to an accurate forecast and prevent over or under buying. If you buy too much, you risk mark down, and if you buy too little, you risk lost sales opportunities and disappointed customers.
With forecasting done, the final numbers need to be rolled up to give you a view of what the season looks like in terms of sales, margin, year-over-year performance, and other key financial metrics. Have suppliers agree to all funding for the season – e.g., retro payments, promotional support, gate fees, markdown/clearance support, etc. Formal, written agreements will prevent any disputes at a later stage. Then confirm all volumes, intake and stock phasing plans with suppliers, as well as policies for any potential stock decommitments or overbuys. Also, set up weekly conference calls with the supplier’s supply chain team.
Trading is the most critical phase of the season. It delights customers and brings sales and profit in! The hard work put in during the earlier stages can easily be undone if trading doesn’t follow the original plan with enough flexibility to adapt due to changing needs of the business. It's critical to monitor all financial performance during the trading phase. Doing so will ensure a retailer is driving proactive rather than reactive decisions. Identify over- and underperformance using sellthrough percent. For lines underperforming, investigate the reasons for poor performance and take action to rectify and review what lines volumes need to be reduced and which ones require additional volume.
From deriving the optimum amount of stock to buy through to effectively trading the range and taking proactive actions to drive sales, the expected outcome should be very little stock left at the end of the season to exit or mark down. Excess stock is a strong indicator your plan processes aren't working, and using this outcome to inform the next seasonal approach will prevent this from happening again. Nonseasonal stock can be returned to its home on the fixture, while seasonal lines should be applied a retail price markdown to help clear the stock. Remnant seasonal stock can cause serious issues for a retailer. At the store level, stores won’t have anywhere to sell the products once the event has finished, and any unsold product will take up valuable space in the store’s backroom. At head office level, any stock left over in distribution centers will take up space on racking and tie up cash flow. For perishable products, long-term storage isn’t an option. Even nonperishable products can cause issues if a retailer must launch "old" product with new products next season.
The use of data and insights in retail is by no means a new concept. However, the way successful retailers are harnessing data and insights is continuously developing. In a digital world, data doesn’t just offer greater visibility – it can offer enrichment, automation, machine learning and other new ways of working. When all these facets are pulled together, it enables a retailer to truly understand their customer and deliver the right proposition, both in terms of ranges and how customers choose to buy, now and in the future.
Jeremy has more than 20 years management consultancy experience working with CFOs, Commercial Directors and Procurement Directors to deliver transformation and margin improvement. Since joining 4C in 2011 he has worked across a wide range of industries including Retail, Private Equity, Consumer Products, Manufacturing and the Public Sector. His projects have covered operating model re-design, process transformation, capability development, margin enhancement, cost reduction and operational improvement.