A lot of retailers already have the data they need to help maximise sales, but they don’t necessarily know how to use it. Joanna Perry reports.

What you should sell, how much of it you should stock and at what price are pretty fundamental questions in retail. When the tills are ringing, it is easy to overlook less than optimal results in terms of sales or profitability. But now that the economy has ground to a halt, decisions that were taken for granted are being reviewed.

There is no shortage of data on which to base answers to these big questions, but getting it to the right people in the right format is easier said than done. Here, Retail Week provides a couple of heartening examples of what can be achieved when retailers use data they already hold to question how they are operating.

New Look IT director Adrian Thompson says that its IT investments will help bring the fashion retailer closer to its customers. Last year, it was the first UK retailer to implement an inventory optimisation system called Q from Quantum Retail.

The software makes replenishment decisions, which are designed to maximise the level of stock sold at full price. It calculates potential demand for each product at store level, constantly reassessing decisions based on actual sales. The idea is to increase stock sent to stores where demand is highest. Thompson says that the project has resulted in both margin benefits and a reduction in markdown costs.

The system was new to market when New Look invested in it. Thompson says that the retailer felt it had an opportunity to implement something that would be different and innovative, compared with what competitors were doing.

However, he acknowledges that there was some risk in bringing in the system and says it is testament to the vision of the company’s management that the project was signed off. “It speaks volumes about our board and owners. There was a recognition [from them] that the story stood up and the proof of concept took place with real sales data,” he explains.

Its introduction has led to a cultural change in the buying and merchandising departments and Thompson says the system’s use is now business as usual. Buyers and merchandisers are notorious for not liking new technology, but Thompson says the introduction of the system did not cause problems because staff understood that it would lead to a sales uplift.

He explains: “It was about effective training and giving them confidence in what the system was going to do. We didn’t have to stop them doing things the old way, because they understood why we wanted to do it a new way.”

Store staff also had to get used to the changes – primarily, different replenishment levels than they were used to. Thompson explains that, in some cases, the system is making significantly different replenishment decisions.

“If you are a store manager and you get 15 to 20 gold bags delivered when you are used to getting between three and five, it raises eyebrows. Some rang up [about the contents of their deliveries], but they have got used to it,” he says.

He points out that the system actually supports store managers to serve their customers better, by making sure that they have the stock their customers are most likely to want to buy.

New Look intends to extend the use of Q to its e-commerce site shortly. The company is tracking some lines on the web site using the system and plans to begin using it to help with replenishment decisions in the next four months.

The system could also be deployed to assist with initial stock allocation decisions. However, Thompson says: “The challenge of initial allocation is bigger – we are thinking about how we will do that.” He explains that allocation decisions are more complicated because, to get it right, you must first have succeeded with your pre-allocation decisions, such as buying the right trends.

New Look chose to invest in new technology to help it make better decisions based on data that it already had. However, sometimes a fresh pair of eyes looking over existing data can work wonders.

Thresher Group has been working with consultancy ARC Retail since the end of last year to analyse core lines and levels of stock required. The company was brought in as part of chief executive Yvonne Rankin’s 100-day strategic review. She has vowed to double the retailer’s store operating profit to between£40 million and£50 million before the end of 2011.

Rankin says: “Historically, the company was geared towards pushing our products – rather like a wholesaler – as opposed to acting more like a retailer and listening to what the customer really needs.”

So, ARC Retail has been working with the information that is already available in the Business Objects reporting system that Thresher uses, taking cuts of data and manipulating it to provide a picture of what is needed to meet customer demand fully.

Already, the consultancy has helped Thresher decide which of its sites are best suited to each of the retailer’s three fascias: Threshers, Wine Rack and The Local. As a result of this analysis, Thresher plans to convert 190 Threshers off-licences to the Wine Rack format.

The analysis has also examined the success of decisions taken previously on ranges and use of space. These results have highlighted that too many products are being stocked and, in some stores, too much space is being taken up by lines that are selling poorly.

ARC Retail managing director Clare Rayner explains that Thresher’s stores vary in terms of space performance and one suggestion is to focus on bringing the bottom-performing quartile up to the level of the more average-performing stores.

Thresher is running range reviews to examine which products should remain and which it should stop stocking, as well as to find additional products that it should take on. This has already been undertaken for the category of beer and the retailer has now moved on to examining spirits.

The aim is to narrow down Thresher’s core range of about 6,000 products to 1,000 best-selling lines. Analysis of inventory has revealed that a saving of up to 10 per cent could be made by selling through the poor-selling lines.

Rankin hopes to achieve a 3 per cent increase in the return on space within 12 months of plans being implemented, working up to the 10 per cent figure in the longer term. She says: “Getting smarter in terms of how we use store space and cutting down on poor sellers is worth millions in savings.”

ARC Retail has also run “What If” analysis using the retailer’s sales data and estimates that a 4 per cent profit rise could be possible with small price changes on certain lines and better use of store space.

Rayner explains: “There is an opportunity to increase the productivity of some lines and then add new lines, or make it more of a destination store rather than a convenience store.”

She adds that decisions on how to use the space that will be created are unlikely to be made at store level, but more likely at a store cluster level with clusters determined by demand behaviour.

However, the project doesn’t end with the initial analysis and the insights that this creates – the decisions must then be tested in order to prove the business case for wider adoption.

Thresher has undertaken a store audit with six stores that have a normal sales profile to understand exactly what is in each store. Next, the stores have been re-merchandised with the new core ranges and anything that looks cluttered has been taken away. The idea is to leave them running for six weeks to give the retailer an idea of the results it can expect when it rolls out the trial to 60 stores.

Rayner says that the results from the 60 store trial will be significant enough to demonstrate what Thresher needs to focus on to improve the performance of its entire store network – whether it be replenishment, planograms or more work with store managers – rather than decisions being made based on assumptions.

This more informed decision-making is also being extended to promotions that Thresher puts on. ARC Retail will help the retailer decide on the most appropriate time frame for it to run its promotions over the peak Christmas trading period. This is bearing in mind that Thresher provides a convenience offer and may benefit from last-minute distress purchases resulting from customers not finding what they want during their main supermarket shopping trips.

The consultancy will also advise Thresher on software tools that it could purchase to assist with promotional planning and space management in the longer term.

Rayner concludes that her company’s work with Thresher is both tactical and strategic. The tactical decision-making, she says, should immediately address “the tail of slow-selling products”, while the strategic work will deal with the root causes.

Both New Look and Thresher prove that, largely, retailers already have the data they need to work out what it is their customers want. Whether it is technology or simply retail experience that enables a company to turn this data into insight, it is clear that retailers should be trying to harness the knowledge that they have at their fingertips to help them make the right decisions for their business.