DemandTec Customer Case Study: Gordmans


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DemandTec Customer Case Study: Gordmans

  1. 1. A DemAnDTeC CusTomer suCCess sTory Real-time markdown technology results in 7 percent gross margin improvementsCusTomer overview Gordmans features a wide range of merchandise including apparel, accessories, footwear, home fashions, gifts, designer fragrances, fashion jewelry, bedding and bath, accentGordmans is an exciting, fun-to- furniture, and toys. Headquartered in Omaha, Nebraska, the privately held companyshop store that offers savings of up operates 65 off-price department stores throughout the Midwest with 4,000 associates andto 60 percent off department and annual revenues in excess of $400 million.specialty store prices. Headquarteredin Omaha, Nebraska, Gordmans Over the past four years, Gordmans has aggressively expanded, opening 24 storesoperates 65 retail stores in 16 and posting year-over-year average sales growth of 10 percent. In turn, that double-states featuring a broad selection digit growth generated expansion of the existing technology infrastructure, including anof name-brand clothes for all updated distribution center management system, new POS hardware and software, aages, accessories, footwear, gifts, state-of-the-art information support exception query and drill-down tool, and storage areafragrances, fashion jewelry, accent network and blade server hardware with virtual server, and home decor at big rapid growth requires solid business processes and everysavings every day. competitive advantageChallenge With the new infrastructure in place, Gordmans executives turned their focus to updatingStreamline the markdown process back-office applications. The team identified lifecycle price optimization software as thewhile increasing margin and next step in streamlining business processes.maintaining store level sell-through Gordmans “…faced unique challenges with the merchandise mix due to a broadrates. assortment of softlines apparel and hardlines home decor,” said Michael James, chief financial officer, and the traditional method of national-level markdown pricing wasn’tSolution providing the necessary competitive pricing edge.A software solution that optimizesmarkdowns in real-time and delivers In early 2006, a formal review of lifecycle price optimization solutions was launched and included the following stipulations:bottom-line results. n Pricing scenarios had to maintain consistent sell-throughs by storeKey Benefits n Markdown processes were to be streamlinedAbility to take every store’s unique n Process efficiency and methodology required definitionselling and traffic pattern intoaccount through store/item level By year-end, Gordmans partnered with DemandTec (then Applied Intelligence Solutions,optimizations with precise markdown or AIS) to install best-of-breed lifecycle price optimization technology.recommendations. Standard markdown procedure with the existing system meant managing multiple spreadsheets and legacy “green screen” applications across multiple locations. Pricing decisions were based solely on historical sales data shared via paper reports. Finally, unclear metric parameters made it difficult to select optimal and timely price points orCompAny snApshoT define the most efficient use of markdown budget dollars.n Revenue: $400 Million markdown recommendations prove invaluable in an uncertain economy After 12 months of intense product review and on-site presentations from three finaln Market Sector: Department Store software vendors, the management team and merchandising group selected DemandTecn Geography: Midwest USA Lifecycle Pricing for Softlines (then Applied Intelligence Solutions MarkdownXpert™) as the technology of
  2. 2. CusTomer suCCess sTorySelection was based on the following criteria: Gordmans “…faced uniquen DemandTec provides focus to a company of Gordmans’ size challenges with then DemandTec provides flexible grouping and filtering of stores, regions, and other attributes merchandise mix due to an DemandTec forecast techniques work at the store / SKU level broad assortment of softlinesn DemandTec optimizes in real-time so users can make changes and reoptimize on the fly apparel and hardlines homen DemandTec’s streamlined user interface delivers faster reporting and decision-making decor.” An aggressive capabilities approach to pricing wasThe project kicked off with DemandTec professional services and the Gordmans’implementation group defining optimization targets based on corporate business goals. the necessary next stepBased on those guidelines, the DemandTec analytic team configured Lifecycle Pricing to streamlining markdownfor Softlines to recommend optimal clearance price and timing strategies while tuning the decisions.solution to optimize multiple targets such as turnover goals for disparate merchandise,opportunity cost, and inventory turnover. Michael James Chief Financial OfficerFor the next 90 days, Lifecycle Pricing for Softlines provided recommendations for all price Gordmansreduction decisions and generated weekly views of item performance alongside forecastsbased on data from the item and store level. Weekly/monthly markdown budget usagereports identified (a) SKUs requiring urgent action, (b) optimum price points and timing, and “we verified significant(c) recommendations of which stores required price reductions versus those that didn’t. increases in gross marginFinally, the “real-time” optimization engine recommended pricing scenarios fully supporting by processing data typicallyexisting business constraints. not taken into consideration.Data gathered over the first three months was then used to further tune the engines. Lifecycle pricing for softlinesKey performance indicators were refined to:n Maximize incontrovertibly demonstrated actionable and measurable performancen Drive an unparalleled capacity comparable store sales increases across all divisions to maximize performance by location for processing massiven Reduce the time spent reviewing prospective markdown opportunities amounts of data to get then Establish a streamlined markdown process most precise forecasts andn Increase consistent decision making throughout the planning organization recommendations.”n Enhance markdown methodology and execution productivity and Pavel Zelinskyn Increase the sales margin while maintaining residual inventory margins Sr. Director, Science Engineering DemandTecBenefits for GordmansOptimization at the store/item level combined with precise recommendations in the timingand depth of markdowns presented Gordmans with an unprecedented capability to takeevery store’s unique selling and traffic pattern into account (See table below). Data revealedthat a “one price fits all” approach typically used in national pricing didn’t fit most stores.Instead, different selling patterns per store required different markdown levels at differenttimes. Stores with slower sales patterns required a completely different markdown approachthan stores rapidly moving inventory. Analysis of Store Groups by Sales Patterns—Slow, Normal, Fast Deeper markdowns provided faster sales andStores with SLOW sales pattern inventory turn Balanced markdowns provided sales and marginStores with NORMAL sales pattern improvement Shallower markdowns provided higher margins,Stores with FAST sales pattern maintaining sales rate Source: Lifecycle Pricing for Softlines Implementation Overview, March 2008 DemandTec, Inc. One Franklin Parkway, Building 910 n San Mateo, CA 94403 tel 650.645.7100 12/10