Fri 5 Apr 2013
Making good retail decisions is about more than just gathering lots of data. It requires a gift to tease trends and insight from that haystack of data. How many transactions are there in your business each month? How many orders are placed each season? How many markdowns are taken? With the POS system collecting all this data, there are many opportunities for random patterns to appear.
Forecasting the result by finding the trend is what makes for better decisions and a successful business. Hindsight is 20/20. It is much easier to pick out the trend when you can work backward from the result. But that’s too late.
When retailers try to identify the trends, there is a tendency to put way too much emphasis on the immediate past and last year. Ask a menswear retailer how business is and his answer is shaded by how long it has been since he sold the last suit. Every retailer I know looks at sales and compares to last year to determine an overwhelming amount of data upon which his decisions are made. Often, these analyses are fueled by emotion and lack rigor and objectivity, leading to panic rather than planning.
This is especially true when it comes to buying decisions. When retailers buy without the knowledge the data is capable of providing, the decisions made at market turn to panic when all that merchandise shows up in the store. Then the task of digging out from the bad decisions falls to the sales staff! More often than not the bad decisions come in the form of overbuying and panic can be seen in the form of markdowns. The more inventory the higher the sales goals must be to turn a profit and pay for the goods. When those sales goals are higher than reality it leads to a situation where the sales staff cannot be successful. That then deteriorates into a stressful environment that affects customers, staff retention and the success of the business. The flip side is when the bad decision is to under buy the merchandise needed in a key classification. The sales staff is forced to sell when there is not sufficient selection or merchandise to sell. When you talk about stress, there is nothing more stressful for a salesperson than watching a customer walk out the door toward the competition!
Objective, statistical, and professional analysis of all the events and data points that occur during the month gives a much clearer forecast of the trends. Statistical analysis of the data based on classification information allows retailers to base decisions on a proper weighting of the signals the customers are trying to tell the retailer with each purchase. The objective techniques allow the analyst to separate the signal and trend from the noise and randomness. If the last suit was sold 10 minutes ago but it was the only one for the month, business is not necessarily great!
There are certainly different statistical methods and a huge variation in the quality of the analysts who can connect the dots into a useful picture. At Management One® we have a team of 10 professional planners that review and adjust each classification based on an accurate forecast of future demand for that classification in each location. There is a planner for every 5 retail consultants. Each consultant is trained to analyze the output from the planner to be certain the right decisions are made by his clients. A retailer that uses subjective or inferior analytical techniques must HOPE he can make the right buying decisions every season. In retail today, HOPE is not a great strategy.