ANALYTICS

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Why Retailers Need Big Data to Remain Competitive

By Jason Becker

The Platt Retail Institute says, “It has been advanced that retailers, as an industry, underinvest in technology."

While small and mid-sized retailers may not have the budget to keep up with big-box retailers, their ideas and ambitions can be just as big. Retail technology that collects mass amounts of data enables these retailers to be competitive. This data - ranging from last year’s sales numbers to current inventory turn rates to the number of times a customer visits the store in a three-month period - empowers retailers to make educated decisions that are based on their own stores’ performance. Gut instinct is no longer enough to drive business decisions.

 

Simply put, those who haven’t adopted technology that allows them to measure key performance indicators and organize data in a way that promotes methodical decision-making will fall behind the competition. Customers are already intent on shopping around for the best deal, using data to make purchasing decisions. Retailers must do the same.

So, how do they do it? Here are five steps:

Analyze data using retail technology solution. Frequent, in-depth data analysis allows business owners to react to trends and capitalize on growth opportunities without expending significant time or resources. It is, however, impossible to collect and analyze such a large amount of data manually. Retail technology solutions have advanced to facilitate this. The system collects the data at the point of sale (for items sold and customer information) or receiving area (for inventory). The data is then securely stored, and then extracted in reports. These reports organize data in a way that makes sense and allows retailers to make decisions using the information provided. This prevents retailers from using anecdotal evidence to make misguided decisions.

Track data using Key Performance Indicators. Big Data empowers retailers with the tools and knowledge to set effective goals and benchmarks to measure future progress. Using data to monitor Key Performance Indicators, or KPIs, allows them to track store progress against goals and pivot if actual performance doesn’t align with the predicted results. Keeping track of KPIs allows retailers to forecast expected profits and quantify success.

Calculate ROI, and reexamine the strategy if the current one isn’t working. Return on Investment (ROI) provides the most accurate measurement of whether a product is profitable enough to be worth carrying. It is a specific method of using data to evaluate the success of a certain product. ROI is calculated by dividing profit by cost, and may be calculated on a product or store level over any length of time. Without Big Data, retailers are not equipped with the knowledge to accurately and precisely calculate ROI.

For example, if a retailer wants to calculate ROI for all products sold within the store during a certain sales period (month, quarter, or year), he divides his profit during that period by the cost of inventory. Without knowing exact sales and inventory data, it’s impossible for this retailer to determine which products are worth reordering and accurately predict what will be needed for the next month. In an industry that depends on having the right product at the right place at the right time, this can be fatal.

Make the customer experience memorable. Customers expect a personalized experience. If retailers want to remain in the game with all the possible purchasing platforms available, they must live up to that expectation. While the thought of personalizing experiences for thousands of employees may seem overwhelming, data makes it possible. Collecting customer information at the point of sale - name and email address - is the tip of the iceberg.

Retail management software stores detailed customer purchase history and can serve as a “black book” for store employees. “Hi Sarah! Are you in today for a top to match those pants you bought last week?” is far more compelling than, “Hello, how can I help you?”

Be strategic about customer relationship management. Use customer purchase history to differentiate top-spending customers from the people who only visit once a year to buy a pair of socks. Retailers should tailor promotions and coupons to these customers to maintain a loyal base. In addition, data within the retail management solution can be extracted and formed into mailing lists - both for email addresses and for physical locations - so these promotions can be sent out and used. Mailing lists can also be used to send informational material and updates about new products, sales, or events.

Using Big Data enables small and mid-sized retailers to compete with big-box stores. Robust analytics empower these retailers to make the right decisions for their businesses, and keep customers coming back for more.

Jason Becker is COO of RICS Software.

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