THE NEW ERA 2006-05-08 (8)

MICHAEL GARRY

In these ultra-competitive times, retailers are looking for any means to improve sales and profits. Of course, great products, attractive stores and superior service are all necessary ingredients, but what about technology? Are there technology applications retailers can use to directly enhance their sales and profits?

Increasingly, the answer is yes as a cottage industry of vendors has emerged to provide optimization and other analytical tools retailers can apply to prices, product assortment and category management. The tools are giving retailers a greater ability to manage and even influence the elements that ultimately go into generating sales and producing a profitable enterprise. However, while this technology provides greater visibility into the merchandising process, it is still up to retailers to use the information wisely and strike the right balance between sales and profits.

One retailer using this type of technology is Save Mart Supermarkets, Modesto, Calif. The 125-store chain has for several years employed the ShowCase Suite, a business-intelligence and data-mining system that runs on the IBM eServer iSeries platform.

Used by about 250 individuals at Save Mart, ShowCase Suite, from SPSS, Chicago, enables the chain to "immediately understand how each store's categories are being affected by market conditions," said Sandy Strube, Save Mart's financial analysis manager. "It plays a large part in keeping Save Mart ahead of our competition."

ShowCase Suite includes Hyperion Essbase, an online analytical reporting tool that analyzes data; Query, which allows Save Mart's finance associates to access data; and Warehouse Builder, which builds the Essbase databases.

Essbase is the most widely used analytical tool within the suite at Save Mart, employed by the chain's category managers, store operations executives and store managers via an Excel dashboard. Information can be accessed within an average of 30-60 seconds.

Incorporating daily scan data, Essbase allows users to "see the Top 10 categories, and performance of categories or departments over time, or compare locations," Strube said. "If competitors come in, we can analyze what items are selling or not selling, and whether promotions are working."

With this information, Save Mart associates can make decisions on shelf space, product deletions, price points and promotions that enhance the chain's profitability, Strube said. "Our people have better information to make informed decisions."

Save Mart has used Hyperion Essbase since 2000 at the corporate level but boosted its effectiveness about 18 months ago when the chain rolled out the system to store-level managers. Store managers are in a position to see what is selling in their stores vs. other stores in the chain and can "help the [category management] process," Strube said.

Overall, she added, the ShowCase Suite, primarily Essbase, has been "a phenomenal tool, changing the way we look at our business."

Buy For Less, a 10-store chain based on Oklahoma City, also employs a tool - Category Analyzer, from Retalix, Plano, Texas - to manage its inventory more profitably. Based on analysis of daily sales movement, the system "helps us get rid of slow movers," said Steve Black, the retailer's IT director and Center Store purchasing and pricing director.

Category Analyzer also breaks down each item's movement by whether it was on a regular price, an ad or a temporary price reduction. "We can see where the movement is coming from and the contribution to gross margin by price type," Black said.

Black also uses the system to determine whether prices should be adjusted based on an item's performance within its category. "If an item is ranked No. 1 in its category, we may need to do more homework before changing its retail price, like checking the competition," he said. "We may have to absorb the cost, which we wouldn't know if we didn't have the movement data from Category Analyzer."

Space Qualifications

Another retail technology application that helps retailers track and increase sales and profits is space management. This system, offered by such U.S. vendors as JDA Software, Information Resources Inc. and ACNielsen, assesses the sales and profitability of each item and determines the amount of shelf space it merits, assigning facings in a planogram used to stock shelves.

In this area, Food Lion, Salisbury, N.C., made a departure from the norm in January when it became the first U.S. food retailer to select an assortment and space planning system from a U.K.-based firm, Galleria, which has a U.S. office in Chicago.

The impetus for this choice was Food Lion's new multi-banner and customer segmentation strategy, which includes Food Lion, Bloom and Bottom Dollar stores. "Our goal is to significantly increase customer satisfaction levels with the Food Lion brands," said Dennis Post, vice president, solutions delivery. "To accomplish this, we needed a more granular, synchronized assortment and space planning solution that would enable us to effectively support the resulting business changes."

The Galleria system uses 13-52 weeks of sales data to determine the sales and profitability of each item while overlaying some human rules. It tells how many facings of an item will be needed to satisfy demand for seven days.

Post agreed with Galleria's contention that its system can automate the creation of granular, store-specific planograms whereas other systems do this manually.

According to Shaun Bossons, executive vice president U.S. Galleria, Food Lion will go live with the system by September. Food Lion declined to comment on its rollout plans.

Another company using advanced assortment planning system is Supervalu, Minneapolis, which employs Lawson's efficient assortment, strategic pricing and library applications (see story, Page 141). The assortment system allows retailers to allocate items to stores based on revenue and margin objectives, as well as space, competition, merchandising themes and other considerations, said Scott Erpelding, business consultant for Lawson, Minneapolis.

Palmer & Harvey Mclane, a U.K. wholesaler serving convenience stores, was been able to increase sales in some of its company-managed retail outlets over an eight-week period by up to 30% by using Intactix space planning tools from JDA Software, Scottsdale, Ariz., according to Dennis Scott, marketing manager for the Palmer & Harvey Symbol division. "Equally important is that a number of our retailers have seen profit improve from better stock turn," he said. Launched last year, the space management system will begin rolling out in July.

Planograms developed through the system, Scott said, "are very close to being store specific as they will fit the fixture size/profile, are appropriate for the store type and are based on geo-demographic data."

Predicting Demand

Price optimization is an emerging technology that may hold the most potential for positively impacting retail profitability. Using advanced mathematical algorithms, this application analyzes sales history and a host of other factors to predict the impact of price changes on demand, along with cross-selling and cannibalization effects. The goal is to maintain profits without adversely impacting sales or price image. Vendors offering price optimization include DemandTec, SAP (Khimetrics), KSS and Teradata.

One retailer that began rolling out price optimization last year is Brookshire Bros., a 70-store chain based in Lufkin, Texas, which is using the PriceStrat system from KSS, Florham Park, N.J. In its initial test of the system, Brookshire was able to improve sales and profits in key categories, according to Kevin Flanagan, vice president of marketing for the chain.

Brookshire leverages PriceStrat's predictive capability to "evaluate different merchandising decisions before we apply them," Flanagan said in a statement last year. This can come in handy during promotion discussions with manufacturers to quickly forecast the impact of particular promotions on category profitability, noted Lyle Walker, vice president of marketing, KSS. "It helps you figure out what products to promote."

Teradata, a division of NCR, Dayton, Ohio, is a new player in the price optimization field, having introduced an application that runs on its data warehousing system in Madrid last month.

The first retailer to use the Teradata application is Bottega Verde, an Italian retailer of cosmetics and beauty products with more than 250 stores. In a test of the system last fall focusing on its catalog operation, the retailer reported boosting orders by 16% while contributing a 25% increase in net profits. The system is now being applied to store operations.

Judy Bayer, director of advanced business analytics, Teradata Europe, Mid-East and Africa, attributed the success of Bottega Verde's pilot to the system's ability to "generate a lot of extra cross-selling while minimizing cannibalization."