EBC Business Consulting - Price management for non food retailers

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Due to both evolving purchasing patterns and competitive landscape, retailers face increasing challenge to meet their financial forecasts in terms of revenue and inventory.

Being able to propose the right offer at the right time becomes key, and can be successfully supported by a markdown management process based on constant measures, analyzes and adaptations to the environment.

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EBC Business Consulting - Price management for non food retailers

  1. 1. Price Management for Non Food Retailers<br />Challenges and solutions for in Season Optimization<br />Ariel Aubry<br /><ul><li>EBC Business Consulting - Partner
  2. 2. Mail: Ariel.Aubry@edifixio.com</li></ul>September 2011<br />To Download this presentation, please visit our web site EBC Business Consulting :<br /> - Blog – Here (Visit our blog)<br /> - Publication – Here (downlaod presentation)<br />
  3. 3. September 2011<br />EBC Business Consulting : Price management for Non Food Retailers<br />Non Food Retailing is undergoing profound changes<br />… which calls for more reactivity in Planning and In season Management<br />Price Management becomes one of the key challenges …<br />… in a difficult context<br />Markdown Management is one of the key In Season Activities<br />Markdown Optimization<br />Demand Forecasting at the POS level<br />Performance Analysis<br />Scenario Analysis<br />Optimal scenario Selection<br />This approach requires strong analysis and simulation capacities<br />Standard Operating Procedures<br />Benefits of an approach with a Markdown Management Solution<br />
  4. 4. <ul><li>In today’s competitive economy, retailers have to face profound challenges not only in terms of buyers purchasing patterns but also in their competitive landscape
  5. 5. Purchasing patterns for seasonal goods are evolving drastically
  6. 6. In the Apparel market for instance
  7. 7. Markdowns account for close to 30% of sales revenue in some European countries.
  8. 8. Only 25% of all goods are sold at their introductory price, during their 1st month on the market
  9. 9. Most goods are sold at a discount price during sales, and 20% end up in unsold goods
  10. 10. In the Electronic goods market, the growth of ecommerce and shopbots on the Internet triggered a price war on many categories
  11. 11. Consumers are becoming professional purchasers, hunting more for bargains than for the required product, the best quality, the right Brand, or the proximity
  12. 12. In some Market, like Apparel for instance, the competitive landscape has changed durably with the success of International Chains (such as H&M, )
  13. 13. With their influence, far greater than their actual weigh on the market
  14. 14. With their low cost positioning, triggering impulsive purchases, and their highly efficient marketing campaign with VIP and famous designers
  15. 15. With their large number in season collections, enabling to renew constantly their assortment and to acquire more customers </li></ul>EBC Business Consulting : Price management for Non Food Retailers<br />3<br />Non Food Retailing is undergoing profound changes<br />September 2011<br />
  16. 16. EBC Business Consulting : Price management for Non Food Retailers<br />4<br />Measure<br />Analyze<br />Drive<br />14<br />BEST<br />inventory OUT<br />12<br />BEST<br />10<br />SLOW<br />8<br />6<br />4<br />Simulate / Decide<br />2<br />0<br />1<br />2<br />3<br />4<br />5<br />6<br />7<br />8<br />9<br />10<br />… which calls for more reactivity in Planning and In season Management<br />Top seller /<br /> worst seller<br />POS performance<br />Benchmarks<br />Promotions<br />Inventory<br />Engagements<br />Sales<br />YTD /Target<br />Replenishment<br />Updates<br />Engagements<br />Assortment Strategy<br />POS Engagement<br />Prices and markdowns<br />Sales Forecast<br />OTB reassignment<br />Reconciliation with the financial planning<br />September 2011<br />
  17. 17. Price Management becomes one of the key challenges …<br /><ul><li>Marketing dynamics become more geared towards deals communication, where the key is to push the best offer at the best time, while optimizing financial performances in terms of revenue, GM, inventory.
  18. 18. To achieve this, retailers require excellent execution in Product Lifecycle Management, and therefore in Price Lifecycle Management and markdowns. The key becomes being able :
  19. 19. To select the best product to markdown
  20. 20. To assess the depth of the markdown to reach the Financial Target
  21. 21. To select POS where the markdowns should be effective
  22. 22. To Plan the best timeframe to offer the markdown, per POS
  23. 23. To synchronize all operations (flows, contracts)
  24. 24. To optimize the performances of all markdowns, following costs, ROI, Price image, loyalty. </li></ul>EBC Business Consulting : Price management for Non Food Retailers<br />5<br />September 2011<br />
  25. 25. … in a difficult context<br /><ul><li>Hurdles are indeed numerous
  26. 26. Volumes are extremely large, in particular in the Apparel Industry which has to deal with size and color variants per POS
  27. 27. Cycle times are getting shorter and shorter requiring extreme reactivity
  28. 28. Estimating the Financial Impact of a markdown on revenue and margin is complex
  29. 29. Analyzing multiple markdown scenarios (product, POS, time) is exponentially complex, making manual computation impossible
  30. 30. Must have data are often distributed in multiple heterogeneous systems
  31. 31. Data analysis is complex and filtering out the impact of seasonality, local competition, weather, local promotions, etc. is difficult
  32. 32. Organizations rarely have the capacity to enforce strict pricing processes, among a large number of actors (central, local) with the right skills and data.
  33. 33. Demand forecasting on products with a short life cycle is a complex task
  34. 34. The scorecard of each scenario highly depends on the capacity to analyze and act at the finest level of detail (item/POS)</li></ul>EBC Business Consulting : Price management for Non Food Retailers<br />6<br />September 2011<br />
  35. 35. EBC Business Consulting : Price management for Non Food Retailers<br />7<br />Assortment Strategy<br />Assortment Planning<br />Markdown Optimization<br />Financial Planning<br />Allocation<br />Markdown Management is one of the key In Season Activities<br /><ul><li> Assortment guidelines (collections and themes)
  36. 36. Assortment Depth and Breadth according to Store capacity
  37. 37. Product Demand Plan
  38. 38. POS Buy/Receipt Plan
  39. 39. Item Lifecycle Plan
  40. 40. Item/week/store Plan
  41. 41. Item/Store/Time Allocation
  42. 42. Inventory
  43. 43. Planning (Sales, margin, receipts, inventory, inventory turn, markdown)
  44. 44. Product and Location Financial Planning </li></ul>INITIALIZATION<br />IN SEASON OPTIMIZATION<br /> Item/POS Demand Forecasting<br /> Performances Analysis<br /> Scenario Analysis<br /> Optimal Scenario selection<br />September 2011<br />
  45. 45. EBC Business Consulting : Price management for Non Food Retailers<br />8<br />1,200<br />$25.00<br />1,000<br />$20.00<br />800<br />$15.00<br />PRICE<br />600<br />UNIT SALES AND UNIT INVENTORY / 10<br />$10.00<br />400<br />$5.00<br />200<br />-<br />$-<br />4/1/2000<br />1/8/2000<br />2/5/2000<br />3/4/2000<br />7/8/2000<br />8/5/2000<br />9/2/2000<br />4/15/2000<br />9/4/1999<br />1/22/2000<br />3/18/2000<br />5/27/2000<br />6/10/2000<br />6/24/2000<br />9/30/2000<br />9/18/1999<br />2/19/2000<br />4/29/2000<br />5/13/2000<br />7/22/2000<br />8/19/2000<br />10/2/1999<br />9/16/2000<br />10/16/1999<br />11/27/1999<br />12/11/1999<br />12/25/1999<br />10/28/2000<br />11/25/2000<br />11/13/1999<br />10/14/2000<br />10/30/1999<br />11/11/2000<br />Markdown Optimization1 – Demand Forecasting at the POS level<br />Demand versus price variations<br /> Natural Demand item POS<br />1<br />Seasonality<br />Tract<br />Démarque<br />Other (oos, weather)<br />Noël<br /> Demand item POS<br />2<br />Triggered Demand item POS<br /><ul><li>Forecast the Natural demand at the item POS level based on
  46. 46. The relationship between demand and price variations (elasticity)
  47. 47. The seasonality
  48. 48. External events</li></ul>Forecast the Triggered Demand at the item POS level taking into account<br /><ul><li>The natural demand
  49. 49. The commercial Plan
  50. 50. Planed markdowns</li></ul>September 2011<br />
  51. 51. EBC Business Consulting : Price management for Non Food Retailers<br />9<br />Markdown Optimization 2 – Performance Analysis<br />Top performing Items<br /> Under performing Items<br /><ul><li>Item/POS performances follow up
  52. 52. Revenue
  53. 53. Inventory
  54. 54. Inventory turn
  55. 55. POS benchmarking
  56. 56. OOS
  57. 57. Under performing items detection</li></ul>Re calculation of the Demand Curve<br />Natural Demand – Initial estimate<br />Actual sales <br />Natural Demand – Reviewed<br />Permanent update of the Demand forecast to detect under performing items<br />September 2011<br />
  58. 58. Markdown Optimization 3 – Scenario Analysis<br />From the updated demand, creation and analysis of scenarios enabling the optimization of the under performing items <br />EBC Business Consulting : Price management for Non Food Retailers<br />10<br />Markdown Strategy<br /><ul><li>frozen periods, minimum time between 2 markdowns
  59. 59. min/max level for initial and consecutive markdowns
  60. 60. maximal number of markdowns
  61. 61. …</li></ul> TriggeredUpdated Demand<br />1 – Automatic recommendation of the markdown for the under performing items<br />2 - Creation of optimizationscenarios<br />3 - Analysis of the estimated performances for each scenario<br />4 – Optimization within the available markdown Budgets<br />September 2011<br />
  62. 62. Markdown Optimization 4 – Optimal scenario Selection<br />EBC Business Consulting : Price management for Non Food Retailers<br />11<br />Actual sales / Forecasted sales<br />Sales optimized with the markdown<br />Target sales<br />Inventory<br />Initial inventory<br />Forecasted margin 25%<br />Optimized margin 35%<br />Excess inventory<br />Target margin 40%<br />Final inventory<br />Time<br />Selection of the scenario optimizing the performances of the revenue, the margin, the inventory, within the markdown budgets<br />September 2011<br />
  63. 63. This approach requires strong analysis and simulation capacities<br /><ul><li>Understand the « elasticity » Price Sale,
  64. 64. Make an estimate as reliable as possible of the future performances according to the past performances
  65. 65. Compare at multiple consolidation levels, actual performances with targets
  66. 66. Estimate the impact of the markdown on the demand, revenue, GM and inventory level
  67. 67. Follow and analyze performances with each of the key axis (inventories, revenue, GM, POS)
  68. 68. Compare actual performances with targets performances
  69. 69. Manage efficiently large volumes of data
  70. 70. Encourage collaborative work to accelerate the decision making process, and assure its follow up and traceability
  71. 71. Enforce any decision quickly to maximize its impact.</li></ul>EBC Business Consulting : Price management for Non Food Retailers<br />12<br />September 2011<br />
  72. 72. Standard Operating Procedures<br />R : Responsible<br />A : Accountable<br />C : Consulted<br />
  73. 73. Benefits of an approach with a Markdown Management Solution<br />Improvement of the Profitability with margin increase, inventory decrease (gross margin improved by 5 to 15%)<br />Improvement of revenue and margin forecasts with detailed demand modeling and follow-up<br />Improvement assortment rotation, with a better inventory flow (improved by 5 to 20%) and an optimized management of the end of life items<br />Improvement of operational efficiency by an optimization of the number of price changes and an overall consistency<br />Return on investment is less than 6 months<br />EBC Business Consulting : Price management for Non Food Retailers<br />14<br />September 2011<br />
  74. 74. September 2011<br />EBC Business Consulting : Price management for Non Food Retailers<br />

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