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Retail Trends Require Information Excellence

Building Business Intelligence

The retail times, they are a changin'. A few years ago, the consumer trend was toward Web-based purchasing, and it looked as though half or more of all purchases would eventually be transacted on the Web. That rosy prediction didn't materialize. In fact, the amount of Web-based purchases flattened out last year at around 15 to 20 percent, and it is only poised to go down if and when taxation hits the tax-free online stores. In the retail industry we are now seeing a reemergence of the importance of the physical retail shopping experience and a back-to-basics focus on store layout, managing inventory carrying costs, reducing out-of-stocks and targeting consumers with customer loyalty programs.

The top trends that will surely affect retail industry information management within the next year are as follows:

1. Gas price increases affect retailers! As gas prices increase, consumers become more concerned with retail site location. From the supply side, the food we purchase travels more than one thousand miles from its origin on average. Other retail goods move similar distances. This amount of transportation will need to be reduced as decreasing the company gas expense is emphasized. This will necessitate an intelligent limiting and redistribution of available product, because consumers are also pressed for time and enjoy one-stop shopping. If one size of store, product mix and inventory has fit all until now, that's about to change. This is a solid reason to have detailed sales information as well as inventory carrying costs readily available for analysis.

2. RFID me. There is a new horizon of information opportunity with the emergence of RFID technology. These devices are incredibly small and becoming less costly by the month. The retail industry has adopted a magic threshold of five cents, at which time we can expect widespread adoption. We could reach that threshold within the year. In the meantime, some early uses of RFID resemble bar code replacement. Tracking product movement is certainly a benefit of RFID, but it is the analytic possibilities, which require tracking of the data, that present a massive opportunity.

3. Frequent shopper, ad infinitum. Retailers need to track their customer behavior with frequent shopper cards because they understand it's not about everyday low prices or efficient supply chains anymore. In retail, information is the new frontier. Detailed customer information facilitates efficient use of promotions and service. While in the past, leading retailers may have categorized their customer base around metrics such as deciles, now they can - and need to - segment to a finer degree, using percentiles (100 categories), for example.

Call it the "TiVo effect," but bulk promotion by television, billboard and newspaper has an equal partner in the category of customized marketing. Some retailers now have grocery carts with monitors that identify who is pushing the cart by virtue of the frequent shopper card. Armed with historical purchasing information, the retailer can send the most appropriate promotions directly to a monitor while you are shopping. Toss in RFID chips on the carts, and the promotions can take into account your specific proximity to that product so that you receive the just-in-time promotion when your cart is close to the product location. Smart imputation of missing data (i.e., for new customers) in order to do accurate profiles is also a must. This translates to a real-time analytic application.

These trends dictate that leading retailers will have detailed transaction data in their data warehouse. Item-level detail is that large body of data from which useful summaries can be derived. Though not utilized as frequently as the summary data used for most pricing, promotion and product decisions, the detailed transaction data is valuable because that's where specific confirmation of those decisions can occur.

How long should you keep this data? Don't plan to delete any of it if the data warehouse is successful. Deleting older data from real-time access is an indication of an inability to exploit that data. The previously mentioned trends present excellent opportunities for retailers but only if their staff possesses good analytic capabilities. Retailers will need to optimize myriad factors including product mix, inventory levels, pricing, bundling, signage, promotions, store layout and numerous staffing dimensions. Analytic capability must also be applied to historical data. That said, POS data is among some of the toughest data to corral. Multiple, inconsistent formats and an inability to change POS systems at the store level make it difficult to work with. If remapping of the POS keyboard is allowed at the store level, effort will increase by as much as 50 percent in the data quality area to harness the data that is needed.

Data quality must become, in part, an extension of data loading in a retail environment. Freshly loaded data must be monitored for a number of potential data quality violations - for rules that have been violated and rules whose violation would cause erroneous analytic and operational results.

Though easily a much smaller volume than POS data, customer demographic data runs a close second in terms of importance for retailers. Promotions need to be tracked in real time, correlated to the appropriate product and stores affected, and acted upon to ensure the product is available to meet generated demand. Do not underestimate the intelligence to identify and weed out cannibalization.

Being prepared for the future is something we can achieve. Retail trends dictate that information management excellence is required. Starting, re-engineering or maturing an enterprise data warehouse is the best foot forward for retail success in the future.  


William McKnight is partner, Information Management, at Lucidity Consulting Group. William functions as strategist, lead enterprise information architect and program manager for complex, high-volume full life-cycle implementations worldwide utilizing the disciplines of data warehousing, master data management, business intelligence, data quality and operational business intelligence. Many of his clients have gone public with their success story. McKnight is a Southwest Entrepreneur of the Year Finalist, a frequent best practices judge, has authored more than 150 articles and white papers and given over 150 international keynotes and public seminars. His team’s implementations from both IT and consultant positions have won Best Practices awards. He is a former IT VP of a Fortune company, a former engineer of DB2 at IBM and holds an MBA. He can be reached at wmcknight@luciditycg.com

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