Turn Markdowns into an offensive weapon
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Agenda • Why is Markdown Optimization important? – Industry Trends
• Markdown Optimization – Solution Capabilities – Best Practices
• Product Roadmap – Product Direction – Roadmap
• Key Take-A-Ways • Q&A Copyright Revionics, Inc. 2012
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Market Trends • Decline in Retail Sales • Cautious Consumers • Elevated Inventory Levels • Gross Margin is at Risk
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Economic Trends “Consumer spending continues to be pressured by a soft macro environment (our "Empty Pockets" theme). Despite the warm weather (above average for July), retailers struggled to sell-through clearance merchandise”.
Deborah Weinswig Greater New York City Area - Managing Director at Citi Research
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Retail Trends “Marked-down goods, which accounted for just 8% of retail sales three decades ago, have now increased to around 20%”
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Wall Street News
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Retail Trends • Retailers that incorporate Demand Driven Retailing are achieving: – Higher ROA – More Inventory Turns – Greater Revenue Growth
Kevin Sterneckert The 2012 Retail Handbook for Becoming Demand-Driven Published: 12 April 2012 Copyright Revionics 2012
Technology Trends
Technology Enablement: Who's in the Market for What? Product movement data warehouse
16%
Regular price planning, forecasting, and management
14%
11%
Inventory management - availability as a price driver
8%
8%
Customer data warehouse
22% 16%
24%
Markdown planning, forecasting and management
32%
Promotions planning, forecasting, and management
22%
Rules-based pricing engine
16%
17%
Regular price optimization
22%
19%
24%
Markdown optimization
27%
End-to-end price lifecycle management
11%
32%
Promotion optimization
11%
24% 0%
5%
Evaluating/Selecting
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5%
10%
19% 15%
20%
25%
Exploring/Budgeting
30%
35%
40%
45%
50%
Markdown Optimization Demand sensing and shaping approach which responds to consumer behavior to improve the performance of your inventory
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Demand Drivers
Seasonality
Sales & Inventory Data by Location 1,200
Seasonality Holidays
Price Changes
How customers will respond to different merchandising strategies
$25.00
1,000
Price & Price Response (Base, Promo, MD)
PRICE
$15.00
600
$10.00 400
$5.00
9/16/2000 9/30/2000 10/14/2000 10/28/2000
11/11/2000 11/25/2000
5/27/2000
7/8/2000 7/22/2000 8/5/2000 8/19/2000 9/2/2000
6/10/2000 6/24/2000
3/4/2000 3/18/2000 4/1/2000
4/15/2000 4/29/2000 5/13/2000
1/8/2000 1/22/2000
2/5/2000 2/19/2000
12/11/1999 12/25/1999
10/30/1999 11/13/1999 11/27/1999
-
9/4/1999 9/18/1999
200
10/2/1999 10/16/1999
UNIT SALES AND UNIT INVENTORY / 10
$20.00
800
$-
reveals the behaviors of the past
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In-store Presentation Inventory Position in Store Assortment
Predicts likely behaviors in the future
Methodology
Inventory Sales Units
Inventory
Markdowns must be taken to stimulate sales and sell-through more inventory
Sales Forecast Sales Forecast
Markdown forecasts that there is residual inventory at the targeted outdate
Weeks
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Methodology
Inventory Sales Units
Markdown recommends a strategy by item/store to stimulate sales and clear non-performing inventory 25% off
Sales Forecast
50% off Weeks
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Achieving Maximum Gross Margin Dollars For This Item
75% off
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MD as a Weapon!
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MD as a Weapon! • Current Options • Revionics’ advantage – Portal functionality – PI reporting
• Best practices • Barriers to implementation
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Current Options • Basic - Set MD schedule – 25% for 30 days – 50% for 30 days – 75% for 30 days
• Intermediate - Average sales rate and inventory • Advanced - Markdown Optimization Copyright Revionics 2012
MD as a Weapon • Store level optimization – understanding customer demand at the store level • Adjusting MD schedule depending on weekly sales and inventory positions • MD can become an offensive weapon in the distribution phase – how and where to allocate inventory from DC to stores
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Markdown Process – the details Markdown Event Management Create Event
Define Rulesets
Create Event
Fulfillment
Assign vStores/Products
Allocate DC Inventory
Optimize Event
Markdown Event Management
Markdown Event Optimization
Assign Stores & Products
Define Rulesets
Optimize Event Execution
Markdown Recommendation /Forecast Review Review Cadence/Depth/Forecast By Event/Group
Review Cadence/Depth/Forecast By Group/Item
YES
Approve NO
Execution Financial Planning Store Memo
Performance
Re-Optimize Event
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What-if Analysis
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Markdown Event Define your markdown events • Initial step in markdown planning process • Launch point for managing markdown events
Event Description Event Duration
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Forecasted Event Performance
Markdown Group
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Markdown Rulesets Define your markdown rules • Within each ruleset define parameters: – Optimization Strategy – Pricing Rules – Timing Rules
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Markdown Optimization Generate markdown recommendations •
Initiated On Demand and/or as part of Weekly Processing
•
Forecasting by item-store-day to optimize markdown recommendations
Seasonality
• Localized forecasts take into account store-level specifics Product: LDS FURY BAGC SCARF (UPC: 60050039) Store: INDEPENDENCE MO02 (Number: 02605) 6 • inventory positions 5 • sales performance 4 • seasonal characteristics 3 2 Actual Model
1 0 09-12-2009
10-23-2009
12-03-2009
01-13-2010
• Simulates potential scenarios based on markdown rules/strategy • Recommends markdown cadence to meet strategy objectives 21
Markdown Process – the details Markdown Event Management Define Rulesets
Create Event
Assign vStores/Products
Fulfillment Allocate DC Inventory
Optimize Event
Markdown Recommendation /Forecast Review
Review Review Cadence/Depth/Forecast Cadence/Depth/Forecast Markdown Event Optimization By Event/Group By Group/Item
YES
Approve
NO
Markdown Recommendation /Forecast Review Review Cadence/Depth/Forecast By Event/Group
Review Re-Optimize Cadence/Depth/Forecast Group By Group/Item
Execution
Approve
YES What-if Analysis
Financial Planning
NO Performance
Re-Optimize Event
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What-if Analysis
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What-If Analysis
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Markdown Detail Review Review markdown recommendations by markdown group • View forecasted performance by Markdown Group • View recommended markdown cadence and discount
Product Details
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Step Details
Forecasted Performance
Markdown Detail Review Visibility to item seasonality
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MD as a Weapon! • Weekly re-optimization
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Markdown Process – the details Markdown Event Management Create Event
Define Rulesets
Assign v Stores/Products Execution
Fulfillment Allocate DC Inventory
Optimize Event
Markdown Event Optimization Financial Planning Markdown Recommendation /Forecast Review Review Cadence/Depth/Forecast By Event/Group
Review Cadence/Depth/Forecast Performance By Group/Item
YES
Approve
Execution Financial Planning
NO Performance
Re-Optimize Event
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Adjust Date/Depth
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Inventory Depletion
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Sales Over Event
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Stores at Discount
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Markdown Financial Review Review forecasted financial impact of markdowns • Visibility to performance measures • Visibility to multiple forecast versions • actual to initial forecast comparison • revised forecast during markdown event
• Ability to export to Excel Forecast Versions Performance Measures
Markdown Financial Review Customize your analysis • Event / Markdown Group • Markdown Step / Week • Product Hierarchy
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Markdown Financial Review Customize your analysis • Event / Markdown Group • Markdown Step / Week • Product Hierarchy
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Best Practices • Establish an out date that aligns with assortment changes and floor resets • Determine the objective of the markdown, your strategy drives your results: – inventory depletion – maximum profit – a blend of inventory and profit
• Re-optimize and evaluate recommendations regularly
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Barriers to Markdown Effectives • • • • •
Mimicking historical markdown cadence Not taking the recommended markdown Receipt of inventory Inaccurate OH inventory balances Store doesn’t execute markdown
Low Hanging Fruit
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Retail Trends • Reliance on Promotions – Shoppers are conditioned to wait for ‘deals’
• Omni-Channel & E-Commerce Presence – Personalized recommendations
• • • •
Layaway Programs Men’s apparel boom Environmental Sustainability Markdown Optimization has proven ROI – Market expansion into non tier 1 - Smaller players now embracing
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Direction • Softlines • Usability & Efficiencies • Industry Leading Science • YOU! – The customer
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How are Softlines Different? Softlines
Grocery/Hardlines
10-16 Week Lifecycle
Lifecycle months or years
Typically one time buy
Multiple replenishments
Incorporation of promotions
Vendor driven deals
Nimble, react to trends quickly
Slow Moving
Reactive – Need recommendations
Proactive – Execute known markdowns
Frequent Markdown Cadence
Cadence more event driven (Holidays)
Budget Driven
N/A
Visual Decisions
Analytical Decisions
Rules & Decisions driven by Department/Class/Attributes
Category Focused
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Eventless Process Vision
Define •
Rules/Strategy by Hierarchy
Decide •
40
Accept, Modify, Reject
Evaluate • • •
System Identified Markdown Budget What If Analysis
Approval • •
Management Execution
Future Roadmap • Future Vision & Roadmap
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Key Takeaways • Reveals consumer behavior • Recommends markdowns to shape demand • Improve performance of your inventory – Increase sell thru – Improve margins
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