By Sahir Anand, VP Research & Principal Analyst, EKN
Last year, the National Retail Federation (NRF) reported an estimated drop of 11% in Black Friday sales compared to 2013 ($50.9 B in 2014 compared to $57.4 B in 2013). Due to consistently low gas prices and an improving job market this year; consumers appear ready to be lured by retailers again in the hope of access to great new merchandise, wider selections and timely deals and promotions.
In 2014, the industry and consumers cited several reasons for the lackluster performance on Black Friday. The primary reasons included, but were not limited to, early promotions by retailers that made consumers make their purchases prior to Black Friday, lack of attractive door busters and stiff competition from eCommerce players such as Amazon and others.
Black Friday, the weekend after Black Friday and Cyber Monday are like a marathon due to the fact that foot traffic and sales get spread over a several days, rather a single day. Candidly, consumers only care about the eye-catching merchandise and even more tempting promotions from online and brick & mortar retailers.
This begs the question as to why despite retailers employing tactics like merchandising and sales Big Data, sophisticated predictive trend modeling and demand signal repositories, 2014 sales comp predictions came up short. Our analysis shows that it wasn’t as much that the sales comp predictions were off, as much as retail’s lack of preparedness to respond to rapidly shifting consumer. In EKN’s Customer-Centricity: The Holy Grail of Omni-channel Merchandising report sponsored by JustEnough, retailers attribute strong importance to the following three capabilities that can aid their merchandising plans, assortment-mix, and space planning, pricing and promotions management:
Timely updates to demand forecasts. As pointed out in the 2015 merchandising benchmark report, without reliable forecasts, on the one hand retailers have to protect themselves against out-of-stocks, backorders and lost sales opportunity cost. On the other hand, in the case of an over-stock or high amount of un-sold stock situation retailers are unnecessarily tying up valuable resources that could be used in more productive ways to serve customers and grow the business. Developing accurate forecasts, continually updating them, and measuring their accuracy against actual sales offers retailers the greatest opportunities today to maximize their return on inventory or buy plan investment. It is also important to point out that merely using insights from structured transaction data does not address lack of forecast accuracy. Only a fifth of the retailers surveyed currently use unstructured mobile, social, and multi-sensory device data for demand forecasting, merchandise buys, assortment planning, and pricing and promotion optimization. Unstructured data may be difficult to collate and analyze but is often more predictive, insightful and can glean short-term demand shifts and appropriate demand response from retailers.
Getting promotions right. During seasonal merchandising, it is critical that retailers and brands don’t start their promotions too early. It is also imperative that the right categories and merchandise is targeted for pricing and promotion changes. For instance, there is little rationale in attempting aggressive seasonal promotions and pricing on top sellers. Instead, retailers can focus on new SKUs, slow-moving SKUs, attachments and basket promotions. 4 in 10 retailers indicate that using dynamic pricing and promotions for effective merchandise disposition (39%) is one of the top 3 merchandising execution capabilities being used by their organization. Dynamic and customer-centric pricing delivers incremental sales of 1 to 3% and incremental gross profits of 2 to 5%, while customer-centric promotions produce incremental sales of 3 to 6% and incremental gross profits of 5 to 10%. Applying promotions based on what-if scenarios and predictive capabilities help retailers develop more effective promotional and pricing plans by time of the day and by store that support tailored and localized assortments and sell through. Developing optimized and synchronized Omni-channel promotions and related messaging is a dire need in today’s Omni-channel retail environment so that there is one view of brand and coordinated share of wallet activities between marketing, merchandising, eCommerce, mobile and customer loyalty/CRM teams.
Adjust in-season management based on localized assortment and inventory levels. During Back-To-School, Black Friday and Holiday season retailers need to balance the need for localized and generic assortments. The ideal levels of localized assortments depend on several factors including in-depth store clustering analysis, ability to respond to short-term demand, lifestyle, affinity and preferences of all consumer groups in agile ways. This year a third of retailers indicate problems related to too much generic merchandise and too much on-hand inventory. In recent times, retailers have made efforts to super-segment and develop hierarchies for planned buys, assortments by cluster and type of store, allocation, pricing, and promotions in accordance with consumer and buyer categories such as boomers, millennials, generation Z, soccer moms, etc.. Despite such segmented plans, the inability to react quickly to in-season demand fluctuations based on high or low inventory levels is a problem. The reasons include: high number of back orders, inflexible lead-times, inability to change channel/store campaign execution, need for closer coordination with store operations, marketing and the supplier community who partake in direct drop shipment and vendor-managed inventory allocation/replenishment programs. Therefore, optimizing assortments per short-term demand patterns, pricing, promotions and consumer affinity is critical for ideal sell-through and mid/end-season markdowns.
Please do drop us a comment on this blog and other blogs. We value your comments and suggestions. In our forthcoming blogs on this topic, we will present some more solutions that can solve problems that retailers face. Follow us on Twitter @EKNResearch or @sahiranand.
 Customer-centric merchandising – a pipe dream or imminent reality?, Loyalty.com