Challenges and Solutions for smart In Season Management in the Retail Non Food Industry

1. Price Management for Non Food Retailers
Challenges and solutions for
In Season Optimization
Ariel Aubry - EBC Business Consulting

2. Content
Challenges
Principles
Benefits
Price Management for Non Food Retailers
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3. Non Food Retailing is undergoing profound changes
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
Purchasing patterns for seasonal goods are evolving drastically
In the Apparel market for instance
• Markdowns account for close to 30% of sales revenue in some European
countries.
• Only 25% of all goods at sold at their introductory price, during their 1st month on
the market
• Most goods are sold at a discount price during sales, and 20% end up in unsold
goods
In the Electronic goods market, the growth of ecommerce and shopbots on the Internet
triggered a price war on many categories
…
Consumers are becoming professional purchasers, hunting more for bargains than for the
required product, the best quality, the right Brand, or the proximity
In some Market, like Apparel for instance, the competitive landscape has changed
durably with the success of International Chains (such as H&M, )
With their influence, far greater than their actual weigh on the market
With their low cost positioning, triggering impulsive purchases, and their highly
efficient marketing campaign with VIP and famous designers
With their large number in season collections, enabling to renew constantly their
assortment and to acquire more customers
Price management for Non Food Retailers
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4. … which calls for more reactivity in Planning and In season
Management
BEST inventory OUT
BEST
SLOW
Measure Top seller /
worst seller
POS performance
Benchmarks
Promotions Inventory
Sales Drive Analyze Engagements
YTD /Target
Replenishment
Updates
Engagements Simulate
Assortment Strategy
14
12
/ Decide POS Engagement
10 Prices and markdowns
8 Sales Forecast
6
4 OTB reassignment
2 Reconciliation with the financial planning
0 1 2 3 4 5 6 7 8 9 10
Price management for Non Food Retailers
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5. Price Management becomes one of the key challenges …
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.
To achieve this, retailers require excellent execution in Product Lifecycle
Management, and therefore in Price Lifecycle Management and markdowns. The
key becomes being able :
To select the best product to markdown
To assess the depth of the markdown to reach the Financial Target
To select POS where the markdowns should be effective
To Plan the best timeframe to offer the markdown, per POS
To synchronize all operations (flows, contracts)
To optimize the performances of all markdowns, following costs, ROI, Price image,
loyalty.
Price management for Non Food Retailers
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6. … in a difficult context
Hurdles are indeed numerous
Volumes are extremely large, in particular in the Apparel Industry which
has to deal with size and color variants per POS
Cycle times are getting shorter and shorter requiring extreme reactivity
Estimating the Financial Impact of a markdown on revenue and margin is
complex
Analyzing multiple markdown scenarios (product, POS, time) is
exponentially complex, making manual computation impossible
Must have data are often distributed in multiple heterogeneous systems
Data analysis is complex and filtering out the impact of seasonality, local
competition, weather, local promotions, etc. is difficult
Organizations rarely have the capacity to enforce strict pricing processes,
among a large number of actors (central, local) with the right skills and
data.
Demand forecasting on products with a short life cycle is a complex task
The scorecard of each scenario highly depends on the capacity to analyze
and act at the finest level of detail (item/POS)
Price management for Non Food Retailers
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7. Markdown Management is one of the key In Season Activities
Assortment Assortment
Financial Planning Allocation
Strategy Planning
• Planning (Sales, margin, • Assortment • Product Demand Plan • Item/Store/Time
receipts, inventory, guidelines (collections • POS Buy/Receipt Allocation
inventory turn, markdown) and themes) Plan • Inventory
• Product and Location • Assortment Depth • Item Lifecycle Plan
Financial Planning and Breadth according • Item/week/store
to Store capacity Plan
INITIALIZATION
IN SEASON OPTIMIZATION
Markdown
Optimization
1. Item/POS Demand Forecasting
2. Performances Analysis
3. Scenario Analysis
4. Optimal Scenario selection
Price management for Non Food Retailers
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8. Markdown Optimization
1 – Demand Forecasting at the POS level
Demand versus price
variations
Natural Demand item POS
1
1,200 $25.00
Seasonality
1,000
$20.00
UNIT SALES AND UNIT INVENTORY / 10
800
$15.00
PRICE
600
$10.00
400
Tract
$5.00
200
Démarque
4/1/2000
- $-
4/15/2000
1/8/2000
1/22/2000
5/27/2000
6/10/2000
7/8/2000
8/5/2000
9/2/2000
9/30/2000
9/18/1999
2/5/2000
2/19/2000
3/4/2000
3/18/2000
4/29/2000
5/13/2000
6/24/2000
7/22/2000
8/19/2000
9/4/1999
10/2/1999
10/16/1999
11/27/1999
12/11/1999
12/25/1999
9/16/2000
10/28/2000
11/25/2000
11/13/1999
10/14/2000
10/30/1999
11/11/2000
Other (oos, weather) Noël
Demand item POS
2
Triggered Demand item POS
1. Forecast the Natural demand at the item POS level based on
The relationship between demand and price variations (elasticity)
The seasonality
External events
2. Forecast the Triggered Demand at the item POS level taking into account
The natural demand
The commercial Plan
Planed markdowns
Price management for Non Food Retailers
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9. Markdown Optimization
2 – Performance Analysis
Natural Demand – Initial estimate Top performing Items
Actual sales
Natural Demand – Reviewed
Under performing Items
Item/POS performances follow up
- revenue
- inventory
- inventory turn
- POS benchmarking
- OOS
Re calculation of the Demand Curve Under performing items detection
Permanent update of the Demand forecast to detect under performing items
Price management for Non Food Retailers
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10. Markdown Optimization
3- Scenario Analysis
Triggered Updated Demand Markdown Strategy
frozen periods, minimum time between 2 markdowns
min/max level for initial and consecutive markdowns
maximal number of markdowns
…
1 – Automatic recommendation of the markdown for the under
performing items
2 - Creation of optimization scenarios
3 - Analysis of the estimated performances for each scenario
4 – Optimization within the available markdown Budgets
From the updated demand, creation and analysis of scenarios enabling the optimization of
the under performing items
Price management for Non Food Retailers
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11. Markdown Optimization
4-Optimal scenario Selection
Inventory
Initial inventory
Forecasted margin 25%
Optimized margin 35%
Excess inventory
Target margin 40%
Final inventory
Time
Actual sales / Forecasted sales
Sales optimized with the markdown
Target sales
Selection of the scenario optimizing the performances of the revenue, the margin, the
inventory, within the markdown budgets
Price management for Non Food Retailers
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12. This approach requires strong analysis and simulation capacities
Understand the « elasticity » Price Sale,
Make an estimate as reliable as possible of the future performances
according to the past performances
Compare at multiple consolidation levels, actual performances with
targets
Estimate the impact of the markdown on the demand, revenue, GM and
inventory level
Follow and analyze performances with each of the key axis (inventories,
revenue, GM, POS)
Compare actual performances with targets performances
Manage efficiently large volumes of data
Encourage collaborative work to accelerate the decision making process,
and assure its follow up and traceability
Enforce any decision quickly to maximize its impact.
Price management for Non Food Retailers
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13. Standard Operating Procedures
R : Responsible
A : Accountable
C : Consulted

14. Benefits of an approach with a Markdown Management Solution
Improvement of the Profitability with margin increase, inventory decrease
(gross margin improved by 5 to 15%)
Improvement of revenue and margin forecasts with detailed demand
modeling and follow-up
Improvement assortment rotation, with a better inventory flow (improved
by 5 to 20%) and an optimized management of the end of life items
Improvement of operational efficiency by an optimization of the number of
price changes and an overall consistency
Return on investment is less than 6 months
Price management for Non Food Retailers
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15. About EBC Business Consulting…
EBC Business Consulting is a Management and Operational Strategy consulting
firm, specialized in the Service Industry (Retail, Insurance and Assistance, HR, etc)
EBC Business Consulting help C-level executives execute their strategy, helping
them shape their vision into strategic initiatives and deploying them throughout
their organization.
Our services offering encompasses Operational Efficiency Improvement,
Company or Key Program turn around, IT Strategy and planning, Business
Process Optimization, Change Management
EBC Business consulting is an independent management consulting firm with
locations in Paris, Boston (USA) and Calcutta (India)
For more information, please visit our website at www.ebc-businessconsulting.fr,
consult our white papers or follow us on blogs and social networks
Price management for Non Food Retailers
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16. 64 rue du Ranelagh
75 116 Paris
France
Phone: +33 (0)1 56 90 50 40
Mail: ariel.aubry@edifixio.com