Overcoming Analysis Paralysis: Effective Retail Strategies for Data Utilization

Do You Suffer From Analysis Paralysis?

Today’s information technology is so comprehensive that some retailers are not taking full advantage of the knowledge available to them. Too often I see retailers make big investments in elaborate systems that end up being used for little more than expensive ticket printing machines with cash drawers or printing presses for volumes of reports that are seldom used.

Case Study: A Latin American Shoe Retailer

Take the case of a large Latin American multi-store shoe retailer we know. They knew they had an inventory problem and needed to reduce stock levels by 20%. Since all of the corporate planning was being done top-down 20% cuts were mandated across the board. The immediate results were disastrous and here’s why.

The only data piece visible to management was a top-down view of sales at the class level across all stores—a total company view if you will. I would equate this to solving a ground floor problem from 5000 feet up. In actuality the merchant did have availability to the proper tools but didn’t know how to accurately interpret the information or how to implement a successful strategy.

The end result was that good performing stores in the chain that desperately needed product endured inventory reductions of 20% which immediately stopped sales growth. Poor performers also received stock reductions but not always in the right areas leading to even weaker performance.

Inventory Strategy Improvement

Once our team was able to gain visibility at the classification level by store we quantified to management exactly how much business was being lost in all of the stores by using the current inventory reduction strategy.

The good news is that given an accurate merchandise plan and proper guidance this retailer was able to rebalance inventory supplying fresh new merchandise to the stores needing it. Older styles sizes and colors that had been one of the major causes of the inventory problem initially were identified and marked for immediate clearance.

Positive Outcomes of the New Strategy

• Slow sellers were dealt with aggressively releasing much-needed cash into the organization.
• The new cash was used to chase hot selling styles which raised sales.
• Margins increased because the merchant now had visibility at the store and class level to what was and was not working.

Class level information coupled with vendor performance and style selling reports helped them target trouble spots without taking blanket markdowns on an entire class of merchandise or for that matter the entire store. This is what I have termed the Lazy Markdown.

The Lazy Markdown

Markdown Strategy

This is a markdown strategy used by some retailers in an attempt to generate increased traffic and quick cash both of which are in most cases short-term solutions to longer-term merchandising issues. You can see examples of the Lazy Markdown by opening your local paper or simply walking down “Main Street”. The ad or sign in the window will read something like this… 20% Off Everything in the Store! This is in most cases a knee-jerk act of desperation. The sign might as well read Help! I need Cash fast!

The usual results are that the prime inventory is “creamed” with the best styles sizes and colors being quickly snatched up. What is left is broken size runs of good sellers and complete size runs of styles that the retailer was hoping to move in the first place. Aside from perhaps seasonal clearance times there is one time this type of sale should be used…when you are starting your Going Out of Business Sale! A more effective strategy would be to target the trouble spots and be more aggressive with the discount. Remember the old adage “The first markdown is the cheapest?” That’s true…as long as it works!

Drinking out of a Fire Hose

Today even smaller less sophisticated POS systems can provide retailers a level of detailed information that in previous generations one could only imagine. Unless you know what you are looking for where to find the information how to interpret the data and how to set up an action plan the flow of information can quickly become akin to trying to drink out of a fire hose.

Superfluous reports generated simply because you have access to data that doesn’t have a positive impact on your business are meaningless. Employ the KISS method (Keep It Simple Stupid) whenever possible; the simpler the better. Separate the Need to know from the Nice to know and you will be able to make better use of your system. Some of the best merchants I know only use a fraction of the data that their systems are capable of generating.

Get Training

Most likely you have invested a great deal of money time and manpower in your current system. Sometimes you have had to do this more than once before getting it right. For heaven’s sake make certain that you understand the functionality of the system. I hear too many retailers complaining about their POS systems when they haven’t fully taken the time to learn all of the capabilities. True some systems are better than others and all systems have strengths and weaknesses. By this point your investment in the POS system is a “sunk cost” so make the most of it!

Analysis Paralysis

With the amount of data available from today’s systems it is easy for some merchants to fall victim to a syndrome I call “analysis paralysis.” This is recognizable by the merchant who analyses data six ways from Tuesday yet still makes poor buying decisions. Worse yet is the person who can’t or won’t make a decision until they “run more reports.” This reminds me of the golfer who shows up on the first tee with the best equipment the most fashionable outfit takes ten practice swings before every shot yet can’t hit the ball. Focus on the areas that will give you the greatest return. Do reasonable quantitative research and take action. It ain’t rocket science so don’t make it that…Buy the best and Pass the rest!

Ritchie Sayner

Ritchie Sayner

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