At what point do you slash the price on those pre-ripped cargo shorts? Would those top-of-the-line barbecue grills still be hot in mid-August?
Many retailers use experience, common sense and plain intuition to answer such questions that could make or break their store’s revenue for the season.
But the Hudson’s Bay Co. (HBC) is adopting a “smarter” approach.
The Canadian retail giant is turning to business intelligence (BI) software developer SAS Institute Inc. for support on a more scientific approach to what it calls “precision retailing”.
“Precision retailing is a large-scale program that will give us the advantage on delivering the right assortment of merchandise to our customers at the right store and at the right price,” said Darlene Goren, senior vice-president of information technology at HBC.
HBC is embedding BI software into its business processes to facilitate decision making.
Goren said SAS Merchandise Intelligence software will support critical processes that cover revenue optimization. These include:
• Analyzing and predicting promotional pricing;
• Improving merchandise planning, selection and allocation; and,
• Merchandise forecasting, to predict customer demand accurately.
HBC began deploying the software suite early this month across its banner stores such as The Bay, Zeller’s, Home Outfitters and Designer Depot.
By integrating diverse but related information such as data on sales events, supplier prices, warehouse and shelf stock, as well as revenue figures, Merchandise Intelligence is able to forecast store performances, said Lori Schafer, vice-president, global retail practices at the BI software firm based in Cary, N.C.
“Using the revenue optimization tool for instance, will help managers decide when would be the best time to mark down a certain product to attract customers,” said Goren. But this will also help us identify when is the best time to get out of a product.”
For merchandise planning, the software collects historical sales data to guide decisions on matters such as what products and how many of them should be shipped to certain stores.
Predicting what customers will buy is still a combination of intuition, fashion sense and market savvy, but Schafer said SAS hopes to add science to the equation. “This is about bringing science to the art of merchandizing.”
This was a strategy employed with great success by Warner Home Video Inc. to accurately predict customer demand for new video releases.
Prior to deploying SAS, Goren said, the retailer cobbled together a host of in-house built spreadsheets from Microsoft Inc.’s Excel. “The spreadsheets didn’t provide an integrated banner view. They didn’t reconcile or provide a top to bottom perspective that was important for planning and forecasting.”
The use of spreadsheets is still prevalent in the retailer industry, according to Schafer. “Most retailers today have not effectively automated their processes. They are reluctant to leave spreadsheets behind.”
It is in the area of analytics that BI software proves its value, according to Schafer.
Joel Martin, vice-president for enterprise software at the Toronto-based research firm IDC Canada Inc. has observed the same trend. “Excel seems to be the number one business intelligence software in the world.”
“The average manager is very familiar and comfortable with the spreadsheet. It’s a challenge for BI developers to integrate data into an application that will look like Excel but provide more in-depth information,” he said.
Martin noted that traditionally, retailer operations would collect data on a spreadsheet and call in a business analyst to evaluate the information.
Financial companies were the initial adaptors of BI software in Canada but retailers followed fast, according to Martin.
In a recent study, IDC Canada found more than 65 per cent of Canadian retailers are using BI software for sales and marketing operations. Another 50 per cent also use the software for store operations and inventory management. A little over 20 per cent use BI products for customer care and about 15 per cent deploy the technology for merchandise planning and allocation.
Martin said retailers should take note of the strong forecasting benefits of BI software. “These tools can capture information at the point-of-sale, reconcile warehouse and store shelf stock on the fly, and facilitate collaborative as opposed to isolated decision making.”