Why Walk a Tightrope? Business Analytics can Ease the Strain

Incessant introductions of innovative product labels, novel variations and complex combinations of base products targeting every possible consumer segment are some of the tactics that manufacturing brands adopt in order to cover a larger consumer base. While these definitely lead to increase in buying and work in favor of both manufacturers and retailers, the amount of brand and product variety complicates the stocking situation for retailers.

Large format grocery retailers have been riding the wave of health trends that have emerged over the last few years – green living, organic foods, and meals-on-the-run. In the US, many large format retailers are seeking small community corner lots to establish smaller convenience format stores to boost such trends. The example is set by the UK-based retail giant Tesco, operating a number of small format ‘Fresh & Easy Neighborhood Markets’ in the US. Walmart has opened several Marketside stores in the suburbs of Phoenix, Arizona.

Research indicates that an average customer buys only 340 new items in a year from a selection of a million items available. Intense product proliferation, multifarious buying behavior patterns coupled with the trend of smaller, niche, more consumer-friendly and intuitive stores, place greater-than-ever importance on shelf space utilization and choice of merchandise for retailers. Pareto principle or the 80-20 rule, which points out that 20% of the items in a store contribute to 80% of the total sale of the store, further reinforces the importance of focused assortment planning. Storing excess merchandise may promise 18-20% increase in opportunity for retailers, but may cause logistical and handling costs, product wastage of perishable goods, tied-up capital, and brand cannibalism. On the other hand, reducing the stock leads to a different set of more obvious hazards such as out-of-stock situations and loss of customer loyalty. Retailers must walk a tightrope to select the right assortment of merchandise.

Most retailers resort to ranking items based on obvious parameters such as sales, movement, return rates to suppliers and remove the seemingly underperforming items. However, the process of product rationalization involves innumerable variables, hidden influences and complex patterns. Simplistic approach to this precarious area of assortment management and arbitrary decision-making may cost the retailers their public image and brand value, let alone incurring monetary losses. Retailers are gradually beginning to realize the connection between an analytical approach to product rationalization and successful choice of merchandise.

Retail-centric business analytics supports effective product rationalization by providing the necessary information, reporting capabilities and analytical insights. These solutions analyze shopper demographics, ability of every merchandise to add variety in the category, transferable and associated demand and complex algorithms to arrive at an optimized assortment. Business analytics incorporates advanced statistical models, intuitive wizard-based, guided analytic processes to classify products based on multiple attributes. The products are assigned a degree of rationalization for accurate deletion rules and to identify underperforming products before they become a liability.

Use of business analytics in large format retail promises to be beneficial at multiple fronts. With structured and relevant information, detailed and timely reports, valuable statistics and helpful insights, large format retailers can achieve:

  • Successful assortments based on variety, quality and presentation
  • Optimized use of precious shelf space
  • Cost saving by avoiding overstock
  • Easy accessibility to products for customers
  • Higher customer satisfaction by cutting out confusing large assortments
  • Improved sales as a result of scientifically planned and managed assortments

In conclusion, business analytics emerges as the effective, swift and smart way of handling product rationalization for large format retailers.