Your 2019 Holiday Success Recipe: Two Parts Analytics, One Part Intuition

With the 2018 holiday season behind us, retailers are analyzing, unpacking and reacting to how the year turned out. While we're still in the first month of the new year, Spring 2019 collections are already baked, and most retailers are working on fall 2019 and beyond. Even though the die is already cast for much of the first half of 2019, retailers still have time to leverage learnings from holiday 2018 in order to make a positive impact on this year's holiday season.

There's a clear pattern emerging which differentiates those retailers seeing success from those that are struggling. A widely held view is that brick-and-mortar retail is dying and that e-commerce is the only way to succeed. But if that were true, retailers such as Zara, Kohl's and Old Navy wouldn't be outperforming the rest of the industry. Zara’s e-commerce business represents only 10 percent of its total sales, and online sales at Kohl’s and Gap Inc account for approximately 15 percent and 21 percent of sales, respectively. Yet these retailers, along with some others, are doing well in the specialty apparel and department store categories — two segments that have been under siege for the last several years. Why?

Kalypso, a leading product innovation consulting firm, recently performed a study which surveyed many of the largest retailers and brands in the world. The research showed that those in the “leading” category in terms of financial performance listed voice-of-the-customer (VoC) analytics and machine learning as their top two areas of focus. A full 59 percent of retailers are investing in these technologies now, or plan to in the next 12 months.

Kohl’s is a data machine, using science to drive decision making. The result has been a narrowing of its assortments, leading to increased sales with less inventory. Oliver Chen, retail and luxury analyst for Cowen & Co, said recently to Forbes, “We are seeing the transformation of the merchant in the buying role. Rather than solely relying on their gut, they're using data to make more informed decisions, allowing them to rationalize their ranges with more confidence.”

Zara succeeds through speed in its supply chain. There's power in short lead times, and Zara creates product in quick cycles in order to respond to fashion trends. Chen also stated: “This is huge as many retail supply chains are nine months to a year out; this is too long and is a significant risk factor. A lot can change in that time, including customer preferences.”

Data can also be used to identify new opportunities for growth. Payless ShoeSource recently created a test of a new brand — Palessi — which carried shoes priced up to $645. The catch was that it was the same footwear that typically sells for $20-$30 in the company's main line stores. The Palessi store was elegant and sophisticated, and created a high-end image of the brand. However, Payless used it as a marketing stunt, learning that there's an opportunity for a higher-end line should the company choose to pursue it.

In its 2018 study, How Analytics and Digital Will Drive Next-Generation Retail Merchandising, McKinsey & Co stated: “Winning decisions are increasingly driven by analytics more than instinct, experience, or merchant ‘art.’ By leveraging smarter tools — those beyond backward-looking, ‘hind-sighting’ analysis — retailers can increasingly make forward-looking predictions that are quickly becoming the table stakes necessary to keep up.”

The best example of this, of course, is Amazon.com. Amazon is fundamentally a technology company which happens to focus on retail — and now boasts the highest market cap of any retailer in the world. Amazon’s assortment decisions are made almost exclusively using data and ‘bots.’ The company has more data on more customers than any other retailer, and it uses this data to build tailored assortments and target them effectively to drive conversions. For Amazon, there's nearly zero intuition — it’s all about the data.

My Total Retail blog will cover the intersection of art and science in retail. While moving fully to an Amazon-style approach may not be realistic for most other retailers, injecting a pinch of data and a dash of analytics can help give merchants the confidence to make more accurate decisions. By focusing on it now, holiday 2019 will taste a lot sweeter.