How Retailers Are Boosting Gross Margins Up To 37% Using Merchandise Analytics

In today's fast-moving, competitive marketplace, every retailer needs to have the right product at the right place at the right time in order to make the sale and recognize the greatest profit. Simultaneously, retailers and technology providers have recognized that it's not just about the price. Using a Suite of Retail Intelligence Solutions that can include Intelligence about Product & Assortment, and Predictive Analytics, as just two examples, retailers, according to Retalon* have seen an 11-37% boost in gross margin, increase of sales by 8-12% per quarter, and inventory reduction increase by 20-35%.*

Until recently, over-stocks and out-of-stocks were a plaguing and expensive challenge for retailers, who suffered from a phenomenon of their own making -- dubbed "Inventory Distortion" by research and advisory firm, IHL*, whose research revealed that inventory distortion COST retailers $818 BILLION globally -- and was growing every year.

(IHL Group defined inventory distortion as the combined cost of out-of-stocks and lost sales, and overstocks that retailers must discount deeply to sell).

Here's how inventory distortion occurred:

  • When products didn't sell well at specific stores, retailers would mark down that inventory in order to clear it out.
  • Where products were still in demand, but before inventory could be replenished, retailers lost sales.
  • When there was no more inventory in general in the distribution center, retailers lost sales of products that were still in demand.
  • When there were out-of-stocks, customers would turn to another competitor for immediate gratification, and purchase from them.

The net result was low sales at low prices. To make matters worse, the lost sales painted a distorted picture (of lower demand), so the retailer would order and allocate less inventory to stores in the future -- and… repeat the cycle.

Analytics to the rescue  

With the advent of  the whole range of retail intelligence solutions, including price and assortment intelligence, predictive analytics, lifecycle management, advanced trending, business scenarios, etc. retailers can now climb on top of the problem and plan ahead -- to make the wisest, most efficient use of their products and pricing, to realize the maximum value of their merchandise.  

Armed with accurate data and analytics, retailers can:  

  1. Intelligently (and looking forward) plan which merchandise to stock.
  2. Intelligently (and looking forward) plan which merchandise to stock in a location where there is greater demand.
  3. Decrease merchandise stock where there is less demand.
  4. Move merchandise from a low demand place to the high demand place, when necessary, to maximize the value of the whole inventory, decreasing the need for sales.
  5. See when a competitor is out of stock, and charge more for the merchandise that is still in high demand and you have it in stock.

Example:  

Two of a retailer's stores sell widgets. Each store has ten widgets in stock. In your first store, the widgets sell well; but they don't sell well in the second store. So you take some of the extras from the store where they're not selling well, and sell the inventory at full price where they are selling well -- thus getting top dollar and avoiding unnecessary markdowns of the low selling merchandise.

Research analysis company Retalon noted that a retailer with 100 stores and 1,000 SKUs faces 10 million possible inter-store transfers. Not even mentioning the different combinations of sizes, colors, distance between stores, merchandise pricing, the volume of merchandise available at each store, and the cost to transfer product. That's where technology helps manage the details.

Better yet, with predictive analytics, retailers can now plan ahead and put more stock where they know it will sell well to start with, save the energy and costs of moving it around, and recognize greater profit all around.  

Bottom line for your bottom line:  

Retail technology and optimization solutions are giving the Industry a completely new lease on the best ways to manage inventory and pricing, with the result of preserving, increasing, and maximizing their revenue margins.

With these solutions, retailers can make well-informed consumer-driven assortment, stocking and merchandising decisions, fine-tune supply, and, most important, minimize costs and costly mistakes, and maximize profit all around.

*Retail Intelligence Company, Upstream Commerce.

*Global research and advisory firm, IHL.

*Analytic services provider, Retalon.

 

 

 

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Naomi K. Shapiro

About Author

A seasoned market communications specialist, Naomi headed public information for several academic and professional associations and was the founder and CEO of award-winning agency, Creative Brilliance Strategic Marketing Communications. She created and published Brilliant Ideas for Publishers Magazine and authored popular newspaper trade reference, The Brilliant Book of Promotions, Sales Tools & Special Events. Simultaneously, Naomi savored the world as an adventure travel writer that included trekking on glaciers, fishing with saltwater crocodiles and swimming with piranhas. Naomi holds her M.A. from the University of Wisconsin, including participation in a unique industry-science-technical writing program.
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