As the retail industry gears up for the holiday season, a number of local stores are implementing the science of merchandise optimization to better reflect their customers' needs and stay competitive in a heated market.
"Retailers are always trying to find out about the lifestyle patterns, not only how much you spend, but what and where," says Barry Nabatian, general manager of Ottawa-based Market Research Inc. "The more retailers know, the better they can attract and keep their customers. It's gold for retailers."
Each time customers use their store "points" card or fill out an information request, the details are then put into a database. Mr. Nabatian says this "data mining," as it's called, is more prevalent than most consumers realize, with many companies buying and selling each other's databases.
The newest use of this information is applying it to retail strategies, which take the customer information to add improved merchandise selection and distribution, predict promotional pricing and improve accuracy for customer demand.
Reitmans Limited Canada purchased an "assortment execution solution" from U.S.-based software firm ProfitLogic in May to help its merchants with decision-making and better manage each season's clothing collection.
"Having the right assortment of merchandise in the right sizes in each store every time customers shop will be of significant benefit for our high volume/low-square-footage stores," says Doug Deruchie, Reitman's CFO.
Hudson's Bay Company (Hbc) also recently made the move towards merchandise optimization through its purchase of SAS Canada's merchandise intelligence software for Bay, Zellers, Home Outfitters and Designer Depot stores. Lori Schafer, vice-president of the global retail practice at SAS, says companies like Hbc are purchasing their software to become market leaders in precision retailing. Other SAS customers in Canada include Mark's Work Wearhouse and Sobey's.
"These tools have really taken off in the last two to four years because up until now it's taken a long time for all of these companies to gather all of this data and get those systems in place," says Ms. Schafer. "Hbc, for example, has gone through a lot of changes and its new management has said we need these new analytical systems to help us drive profitability."
The software provided by SAS helps a retailer determine its assortment planning, merchandise forecasting and revenue optimization. Along with improving merchandise selection and allocation, the solution suite analyzes and predicts how promotional pricing affects the company's bottom-line and improves accuracy in predicting customer demand.
"The partnership between Hbc and SAS will ensure that people, process and technology work in concert to enhance the experience of our customers," says Michael Rousseau, Hbc president. "In order to enable best-in-class merchandise at Hbc, we had to find a strategic partner like SAS that had the retail domain expertise and the best retail software applications on the market."
He adds that the company believes the retail intelligence software will help the company implement effective planning and get a better understanding of the entire life cycle of its merchandise.
While the cost of implementing these software solutions hasn't been disclosed by Hbc, Ms. Schafer says cost benefit analysis for SAS's products is an easy sell.
"Is it expensive? Well, the business case in terms of the profitability improvement relative to the cost is so high that it's a no-brainer, but that being said, sure, software is expensive," she says.
The explosion of big box stores has created a highly competitive market and each retailer is searching for an edge to keep their sales up. Ms. Schafer says retailers are moving away from a concentration on supply chain and efficiency towards a trend of localization.
"Retailers were building many stores around the country, so they had to have the ability to be more efficient, but at the same time you tend to get away from being individualized to the consumer," she says. "Now what's happening is more consumerization or localization. Basically what it means is retailers are saying how do we get back to making every customer feel like they're an individual, but still have the large scale. And that's what our software does."
Mr. Nabatian agrees, saying retailers are moving towards software solutions, such as the SAS suite, because many times the software providers guarantee minimum increases in a retailer's market share through the use of their products.
"(Market research) is all very complicated," he says. "Figuring out customer's shopping habits is the most expensive cost item for retailers because they're all trying to retain their customers and increase their clients at the same time."
