Online Data and Analytics Helping Boost Brick-and-Mortar Profits

Jul 19, 2012

Topic: Technology

Data analytics is having at least as profound an impact on helping retailers hone their brick-and-mortar operations as their online marketing. From reducing out-of-stocks to trimming shipping costs and dialing in local assortments, data analytics are yielding benefits up and down the supply chain.

Zumiez executives attributed the retailer’s astounding 12.9 percent comp store growth in the first quarter not just to the quality of its store employees but to the ability of its merchants to micro merchandise product assortments.

“As a multi-branded retailer, that really is trying to capture each of the micro trends as they are occurring, it really takes a dedicated, very hard focus on the data, and really trying to keep everyone of those hot products in stock,” said Marc Stolzman, Zumiez’s CFO.

Zumiez CEO Rick Brooks said the action sports retailer monitors POS data on a daily basis to keep inventory and demand aligned.

“We really make sure that whatever the trends are telling us, we’re reacting in real-time to have the right product in the right location in the right channel to serve our customers,” Brooks said in May.

When data showed many customers passing over boots and outerwear to shop warm weather gear in the fourth quarter, Cabela’s worked with vendors to halt replenishment of winter products and move up deliveries of spring merchandise. The move enabled the retailer to grow comp store sales by 4.2 percent and merchandise margins by 150 points in the first quarter even as other retailers were slashing prices to clear surplus winter merchandise.

Cabela’s recently told investors and analysts it has only just begun to tap the power of data analytics to streamline order fulfillment and replenishment and localize assortments. It is working toward a much more dynamic system that can fulfill or replenish from vendor warehouses, its own distribution centers or any of its nearly 40 stores in North America, depending on which is most efficient. The objective is to minimize the movement of inventory, said Douglas Means, an executive vice president and Cabela’s chief supply chain officer.

“We look at product in a vendor’s hands and we look at product in a store or in a customer’s hands and everything else in the middle is time and money,” Means said. “Whatever we can do to reduce that we feel is a win.”

For independent specialty retailers that lack the resources to develop data-mining tools in-house, there are POS and e-commerce vendors that offer order management systems as add-ons that can provide the kind of fulfillment versatility such as Cabela’s is seeking. Celerant Technology Corp., which provides retail management systems to several outdoor specialty retailers, offers “on-the-fly decision making logic” that enables retailers to pick the most efficient fulfillment channel.

“The logic kicks into gear and determines the most efficient means for order fulfillment,” reads a Celerant white paper. “If the ordered item is available in 10 different stores and a warehouse, for instance, the system uses predefined parameters, such as shipping costs, store staffing and inventory levels, to determine which location should field and fulfill the order.”

Outdoor specialty retailer Moosejaw is using data collected from online customers over the last 17 years to decide where and how to stock its first brick-and-mortar stores outside of Detroit and Chicago. The company also used online surveys to dial in assortments for its recently opened store in Boulder, Colo.  The retailer is developing an order management system that will enable it to ship from any store to fulfill online and catalog orders.

Macy’s attributed a 38 percent jump in first quarter profits in part to its My Macy’s strategy, which uses data analytics to tailor assortments at its more than 900 stores to local tastes. This has helped it speed up inventory turns, reduce discounting, raise margins and improve customer satisfaction. Now the company is pushing to become a true omnichannel retailer. In the first quarter, Macys.com began offering products that will be 100 percent fulfilled by its stores and is looking at ways to reduce inventory at brick-and-mortar stores to free space for expanded assortments that can be fulfilled online.

Big box retailers such as Target are relying more on data analytics as their ability to open new stores hinges increasingly on entering smaller markets with smaller stores and narrower assortments.

“We’ve got a lot of work to do to determine exactly by trade area, what assortment is going to be in and out,” Target Chairman, CEO and President Gregg Steinhafel told investors last summer in a discussion of the company’s plans to open 40,000-square-foot stores outside its traditional suburban markets.

Given the seemingly unlimited capacity of humans to come up with ways to collect and analyze data, it appears retailers are only just getting started.

Footlocker is already experimenting with heat mapping technology that allows it to visualize how much time customers spend in which sections of its stores. Stores that have too much blue and not enough yellow and red are targeted for improvement. It’s also vetting business intelligence systems in hopes of better serving Hispanic customers with smaller shoes sizes and neighborhoods that lean more toward the Sox than the Cubs.

“The system that we have, while effective, is not as efficient and effective as it could be,” Footlocker Chairman and CEO Kenneth Hicks told investors in March. “That’s why we’re evaluating new opportunities and that’s something we will put in place over the next couple of years.”