By Paula Rosenblum, Managing Partner
February 23, 2010
A month after attending the massive event that was NRF’s Big Show in cold New York, it’s refreshing to attend a more intimate, accessible event in Miami, right in my own back yard. So with great glee I headed off to RetailConnections Third Annual Business Executive Summit at the Fairmont Turnberry Isle Resort. The content did not disappoint.
Predictive Analytics in a Down Economy
Sunday, I attended an analytics roundtable, where I had a really interesting exchange with the CIO of a major jewelry retailer. I asked a question of the retailers present “What good could predictive analytics possibly have done for you in 2009? After all, no one had a clue what demand was going to be.” The answer I got was fascinating. In this CIO’s view, predictive analytics had been completely helpful to his company: sales were trending low, so retailers bought based on those trends, and essentially sold out to the walls. In many ways, 2009 was a very profitable year, with little excess inventory.
That really gave me pause for thought. All year we thought retailers were under-buying. And no one really predicted aggregate holiday sales with any degree of accuracy. The NRF thought “flat”, PwC: “up 1%”, me: “up 2%.” I think the final number was, in fact, up 2%, but not driven by the categories I thought they’d be. So if we couldn’t predict aggregate demand with any sense of confidence, how could an analytics engine predict sales by sku? I suppose the difference is in the desired sell-through rates. Average seasonal sell-through rates are typically about 65-75%. Apparently retailers gave themselves the opportunity to raise that rate into the 90’s. And it was good. Yet this year, port traffic is back up, and retailers appear to be buying up again. Even so, no one seems to have their arms around aggregate demand yet. So have we decided to drop sell-through rates again? If so, why? If you have some thoughts about this, please do let me know. It’s one of those retail paradoxes that I can’t quite figure out.
Social Networking: The Next, but not the Last Big Thing
Much of Monday’s content focused on the opportunities associated with social networking. I learned about uber social network blasters like “hootsuite” that make “TweetDeck” seem simplistic. And everyone is juiced about the sales and loyalty opportunities associated with keeping up with customers in their social environments. One retailer reported a greater than 10% sales improvement directly attributable to user-generated content. That’s a serious number. RSR knows that at least half the “magic” in social networks lies in aggregating and structuring user-generated data into “sentiment” as the new psychographic… but there is clearly a top-line opportunity as well.
No question: social networks bring huge opportunities of all sorts. The consumer is, in fact, always connected. BUT… where we still fall short as an industry, I think, is in believing this next big thing is the LAST big thing. Retailers are scrambling to get their social network houses in order, completely unaware of what will come next. And we can be sure something is coming. We don’t pretend to know what it is, but we know it will be real-time, and probably be “hot” for a really short period of time. And we also know that retailers are still not particularly technologically agile. We still live in implementation cycles of a year or more, and ROI of a year. But a year is a lifetime in real-time. Would any retailer dare to completely revamp the user interface of its web site the way Facebook seems to do every six months? Could any retailer actually even get that done?
As an industry, we have to start designing technology for agility. Yes, our employees matter. Yes, our stores have to be spot-on in synch with our other selling and reviewing channels. But our technology infrastructures really do have to become extensible. The “hairball” legacy architectures most of us have will not serve – nor will any architecture that imposes serious inhibitors on change and evolution. We have to remember that we don’t know what we don’t know… and BUILD for it. I’m not sure we’ll have time to make standards for these new technologies that come along. Instead, we’ll have to adjust to them, rather than them adjusting to us. That’s scary, but it’s actually really, really cool. And scary or not, it’s the way it is. We live in VERY interesting times.
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