6 ways retailers can use their data to minimize the impact of COVID-19
This crisis is of an unprecedented nature and without a verified playbook. However, what retailers should be doing, hides in their data. We thoroughly believe that these 6 takeaways are crucial when looking for answers in that data.
Communities and governments are hard at work to stop the spread of the Coronavirus. Measures being taken have had a tremendous impact on the retail industry. Some have seen revenue going up, but most have had to deal with a steep decline in sales.
There is no playbook
This crisis is of an unprecedented nature. The main lesson history teaches us that in times of crisis retailers who survive are those who act quickly and decisively, taking both defensive and offensive measures to deal with the situation.
If there is no playbook for this situation, where should hastily assembled ‘Corona Taskforces’ direct their attention to in order to make informed decisions?
Their retail data. Their massive amounts of proprietary transaction data, inventory data, customer data, etc. A source of information that would make other affected sectors envious.
Retailers’ data is crucial
Stating that retailers data is crucial for steering the organization through this crisis seems an understatement. The actions you as a retailer need to take can be distilled from thoroughly analyzing various datasets. Online might be your only channel towards your customer for the coming weeks. How are you going to make most of it?
The number one action we see retailers therefore taking is making more data readily available for analysis and extracting critical insights from such data. Management-driven ‘Corona Taskforces’ are tasking their business analyst with solving a broad variety of questions. Some on a daily basis, others require deeper analysis.
Six key takeaways, when looking for answers
We thoroughly believe that these 6 takeaways are crucial when looking for answers in your data:
1. Assess and understand your situation, daily
The impact of the crisis is going to vary significantly and evolve quickly. The quicker companies are able to quantify this impact, and the more accurate estimates are, the better the quality of the decisions is likely to be.
Yes, in order to take both defensive and offensive measures, a retailer, therefore, needs to assess and understand its situation on a daily basis.
The main questions to answer with regard to sales & inventory, for instance, are:
(i) How are sales performing on a product, channel and location level? By how much are sales slowing down or accelerating in various categories?
and (ii) How much will my inventory depreciate, and what kind of write-offs can I expect depending on how long this slowdown lasts?
This also means letting your analyst conduct scenario analyses. Use the most recent information to create positive, negative and most likely scenarios and judge what kinds of actions should be taken in those cases.
2. Don't push discounts indiscriminately
In the given situation, a lot of customers are changing their purchasing behaviour. As a retailer, those are the ones you want to target right now.
Yet, subsets of your customers already demonstrate the behaviour you are looking for. They would anyway be buying at the full price, for instance as a result of strong brand loyalty. Or it might be unnecessary to apply discounts to lure them into purchasing online if they are already an online client, familiar and satisfied with your online offer and fulfilment.
So let your business analyst make a clear distinction between those groups, before triggering certain actions. This will ensure that margins are not cut unnecessarily.
3. Increase prices, where possible.
A lot of retailers are reluctant to test price elasticity. By nature, humans are risk-averse, focused on reducing losses rather than having an eye for potential gains. Retailers are concerned about the response of their customers and / or lack the tools to do so (f.i. due to the use of fixed price tags in stores). As a result, in normal situations, most retailers decide not to increase prices.
But in time like these, where every bit of margin makes a difference, might be the ideal time to carefully test such elasticity. Especially now that most of you are pressed to close stores and focus on online sales solely.
One of our customers has been experimenting with this and was able to substantially increase its margins on a broad set of products and increase profits.
So, get the most out of your exceptionally high rotating products. Let your business analysts dive in the data and list the products that are rotating exceptionally high. Use data science techniques to predict how much you can you increase a given price and test accordingly.
4. Get a grip on your inventory levels & rotation
The crisis portrays both extremes. Some retailers are confronted with a well of products running dry in the blink of an eye, others see their items untouched for days, possibly weeks. Some retailers are preemptively kicking off the (mid-)sales season, in order to see whether they can detect an uplift in the rotation of a given product that is currently piling up.
Have your business analysts detect which products are rotating exceptionally slow. Have them apply data science techniques to predict how much discounting is required to maintain a confident level of sales and follow up accordingly.
5. Prepare a solid discounting strategy & start your sales season early
Especially for retailers selling seasonal products - such as fashion retailers - the lockdown has effectively reduced the length of the sales season. Whereas a fraction of demand will simply be shifted in time, it can also be expected that there will also be a reduction in demand that will not be made up for in the weeks following the outbreak.
So, start preparing your sales season as soon as possible and assess for what goods it would make sense to start early. Your current inventory represents a sunk cost, as well as a significant lock-up of capital, so there is no time to waste.
Deciding on a solid discounting strategy is now of paramount importance. Even more than during other seasons it will be essential to carefully judge what to discount, how much, at what point in time.
So, provide your teams with the necessary analytics tools to decide how much you need to discount in what week to maximize revenue (step-by-step approach).
6. Experiment, measure, stop/proceed. Embrace rapid testing.
Once you’ve had your business analyst present insights on more specific actions, its time to experiment, measure and adapt. You have implemented a list of actions (e.g., free shipping, more discounts, extra mailings), now let’s perform some science.
The data will show what is working and what is not, and allow you to finetune your strategy as time progresses. While now is not the time to set up complex long-running experiments, have your business analysts look at preliminary figures and report quickly. Such is essential to enable the Management Task Force to take deliberate action.
We can help
One cannot emphasize enough the importance of taking data-driven defensive and offensive measures in a time of crisis. As this crisis is without precedent, Crunch Analytics has taken the deliberate action to listen to its network.
As retailers shared their views, we shared our take on the situation. We aim to disclose our insights to anyone looking for inspiration. We'll kick off by sharing our views on the Podcast Series 'Team Retail'.
Have your teams prepare the appropriate analyses. If you need help in pinpointing what analyses your business analysts should be making, then do not hesitate to reach out.
If your team of business analysts is understaffed for the challenge at hand, f.i. due to illness or performing other tasks, let us know as well.
We employ a team of skilled - data-science trained - retail analysts that in normal circumstances apply their knowledge to build tools for retail business analysts to use. But they are pretty badass retail analysts themselves, that have the advantage of being able to work with the new broad variety of data science & AI-techniques to quickly distil insights and present them.
Retail will in the next few weeks be won by gaining that ‘first-mover advantage’. By setting the right prices, discounts or managing inventory in uncertain circumstances.
Uncertainty is your most daunting opponent in the coming weeks, maybe months.
Let’s have a talk on how we can battle it together.
Laurent Mainil
CEO Crunch Analytics
Tel: +32 496 53 70 14
lmainil@crunchanalytics.be