Turn Markdowns into an offensive weapon

Turn Markdowns into an offensive weapon Copyright Revionics 2012 Agenda • Why is Markdown Optimization important? – Industry Trends • Markdown Opt...
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Turn Markdowns into an offensive weapon

Copyright Revionics 2012

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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