In an era of unparalleled consumer power, multi-channel specialty retailers and brands are finding their success hinging increasingly on their ability to aggregate, analyze and act on the flood of customer data flowing through their sales channels.
And to the delight of many, big data’s biggest benefits are accruing as much to retailer’s brick-and-mortar stores as their e-commerce operations. In the last year or two, many retailing CEOs have gone from expressing alarm at the growing threat of showrooming to extolling the virtues of mobile technology — including the ability to send personalized marketing messages to customers as they step out of their cars at the mall parking lot and equipping store associates with mobile devices that enable them to better serve customers.
In a survey last year, Forrester Research found midmarket retailers were ramping up their IT budgets in a big way in a bid to compete with big box retailers. Fourteen percent of the survey’s respondents planned to invest at least 10 percent of revenues in IT capital projects. While some of this money was aimed at generating quick returns via online price optimization and promotions tools, Forrester found many mid-size retailers were setting aside significant resources to “develop deeper customer intimacy and to promote service-based competition” that will provide a long-term competitive advantage against big box specialty retailers that typically spend 5 to 7 percent of their revenue on IT projects.
In other words, the front line in today’s retailing war is coalescing around the ability to harness customer data to create more intimate bonds with their customers regardless of how they shop. It represents a huge effort to catch up with consumers’ diverse and rapidly changing shopping habits.
“The customer is in charge, and retailers and wholesalers alike need to tap in to more sophisticated ways to understand customer behavior by understanding what it is the customer values,” said Will Manzer, chairman and CEO for Eastern Mountain Sports and chair of the Outdoor Industry Association® (OIA) board of directors. “This is about knowing that the customer can purchase goods and services in ways they have never been able to do before and do it at an alarming rate of speed.”
Several trends have brought the industry to its focus on data analytics, including:
Commoditization. Multi-channel specialty retailers and brands have grown wary of the commoditization effect of major online retailers like Amazon. To sustain their business models and margins long-term, they are searching for ways to enhance the customer experience so they don’t have to compete on price. (See related story from OIA archives.)
Channel fragmentation. Consumers have adopted smartphones much more quickly than anticipated and now move effortlessly among online, mobile and brick-and-mortar channels. Yet most retailers operate these channels as separate silos that often don’t talk to one another. This sets up customers for disappointment if they arrive at a local store only to find the color and style they saw online is out-of-stock or being sold at a higher price. The bigger and more complex the retailer, the more vulnerable it is to disappointing customers. (See related story in this issue.) The need to present a uniform customer experience across all channels will only become more urgent with the aging of younger consumers — 18- to 34-year-olds — who have much higher expectations, according to some research.
Rising customer acquisition costs. Many independent retailers say they have halted their paid search advertising in the last 18 months as costs have spiraled. (See related story from OIA Archives.) As the cost of acquiring new customers rises, companies are working harder to earn more business from existing customers, who can be reached via email, social media and other low cost channels. One way to do this is to use customer data to anticipate customer needs, personalize marketing messages and create a more intimate brand experience.
Tough economy. Margin pressure and tight budgets have caused more executives to demand hard data before making or renewing investments, whether this is in a new line, a hire or an IT project. Data-driven decision making is touching virtually all aspects of organizations, from human resources to marketing and merchandizing.
Empirical evidence. Nearly nine in 10, or 86 percent, of top performing retailers use a business intelligence (BI) stack compared to 55 percent of retail followers, according to a recent report by the Aberdeen Group. The BI stack consists of data collection, analysis, reporting and dashboards that Aberdeen says can reduce decision time from 48 hours to as little as 20 minutes.
A dozen years after launching online stores, many U.S. retailers are coming to understand an important distinction: there is a big difference between being a multichannel and being an omnichannel retailer. The former may be able to sell through multiple channels, but the latter can aggregate data on customer behavior across all channels to anticipate demand, segment marketing and coordinate fulfillment in ways that differentiate their brand.
IT gurus call this “demand-driven retail” and say Tier 1 retailers have used it to chip away at mid-tier and specialty retailers’ business since the 2008-09 recession. Yet even Tier 1 retailers have yet to unlock the full value of omnichannel retailing, which involves mining the vast torrent of customer data retailers now collect to improve not only inventory management and online pricing but virtually all facets of the customer experience.
“Marketing today requires a clear change in perspective — from just driving acquisition of new consumers to a prioritized focus on retention and loyalty of existing customers,” writes Zain Raj, author of Brand Rituals and CEO of the digital marketing network Hyper Marketing Inc. “Much of the data analysis has been going into driving traffic, conversions and transactions rather than reinforcing bonds with existing customers. This has led to a short-term boost in sales, but a long-term threat to brand value. A higher number of bonded customers is not only possible but absolutely necessary if you and your company want to create sustainable brands that defy competitors for decades. In an age of universal price transparency, brand loyalty is harder and more important to gain.”
Research increasingly shows that the ability to collect, interpret and act on data gives retailers a competitive advantage across all their channels. While overall retail sales in the United States grew at an annual average of just 3 percent between 2006 and 2011, digitally influenced in-store sales grew at an average of 13 percent. Forrester Research reports that demand-driven retailers realize 27 percent greater return on assets, 23 percent more inventory turns and 26 percent revenue growth compared to their peers. Much of this is attributable to the ability to use data to personalize marketing offers, dial in-store layouts and assortments and otherwise create a superlative experience that keeps customers coming back even when they can find the same products cheaper elsewhere.
Yet 74 percent of multichannel retailers recently surveyed by the Aberdeen Group still operate their sales channels as separate silos that can’t easily exchange customer information. Nearly one in six, or 58 percent, report they have not integrated their business processes or technologies across these channels. This means customers may encounter different assortments, prices, loyalty programs and return policies depending on how they shop. This lack of consistency is undermining many brands and stands to worsen as more and more people opt to shop via smartphones and tablet computers, like the iPad, Aberdeen concludes.
The lack of integration is also inflating inventory costs, according to Celerant Technology Corp., which specializes in providing multichannel management software to rapidly growing small and mid-size retailers.
In the two years since Celerant helped Fontana Sports integrate its POS and budding e-commerce operations, the Madison, Wis., retailer has grown sales 15 to 20 percent annually with 20 percent less inventory. This has enabled Fontana to increase inventory turns from two to three to four times per year just through improved inventory management, according to a case study.
Celerant argues that retailers who were late to launch online stores — Fontana only began selling online in 2008 — may be able to leapfrog big box competitors because they don’t have to integrate separate inventory, warehouse and fulfillment platforms.
More and more POS vendors, including Celerant, are offering software that integrates all channels of a multichannel retail enterprise, including POS, warehouse, inventory management, sales back office, data mining, open-to-buy, mail order/catalog and e-commerce. This enables retailers to port gift registries, inventory management and other features between channels with a single interface.
“From the consumer’s perspective,” asserts a Celerant white paper, “the framework facilitates what so many retailers are striving for — a seamless customer experience at every touch point.”
Among marketers, the 2010s may go down as the golden era of data mining. Never before have marketers had access to so much information about their customers, and this data is enabling a transition to more personal and less promotional marketing.
Whether it’s tracking customers as they cruise websites, monitoring their comments on Facebook, or reviewing purchases registered through loyalty programs, retailers and brands are harnessing data to gain unprecedented insight into customer behavior.
“We know if you're one of our customers through our catalog or from dot-com,” Cabela’s CEO Tommy Millner told analysts in May. “We know where you live and if you have one of our credit cards. We also know what you spend, not just at Cabela's, but on other things. So that's a wonderful modeling tool that allows us to go where the fish are.”
While retailers and brands remain concerned about identity theft, consumers seem willing to volunteer personal information to brands they trust.
In the first quarter of 2012 alone, 350,000 people joined Sport Chalet’s Action Pass loyalty program. REI ended 2011 with 4.7 million active co-op members, up 300,000 from a year earlier. Cabela’s calls the loyalty program it offers through its Cabela’s Club Visa credit card, which is issued by a bank the retailer owns, “the glue that sticks customers to our brand.”
The flood of data has enabled marketers to identify trends based on how individual consumers research, and buy or don’t buy products. It is helping retailers identify and target niches such as backcountry skiers or shoppers who have abandoned an online shopping cart filled with disc golf equipment in the last 30 days. When done correctly, such data can be used to personalize marketing messages in a way that strengthens a brand’s bonds with its customers.
A 2011 survey by the Aberdeen Group shows retailers who personalize online marketing messages see 16 percent increase in retention rates and 15 percent increase in response rates.
Sport Chalet fully analyzes the buying pattern of each of its Action Pass loyalty club members by store and by season, down to how frequently they purchase specialty services like bike tune-ups or SCUBA lessons. This enables the company to understand how each item it sells performs in every store, by size and by color. It also helps it identify cross-selling opportunities, since research by The Outdoor Foundation shows how participants in some so-called “gateway” activities like camping and fishing are more inclined to try other sports. (Outdoor Industry Association® (OIA) is hosting a series of market research seminars at the upcoming Outdoor Retailer Summer Market.)
“We study our customers’ online behavior and how they use our website to learn more about the products and services we offer in our stores, as well as their online purchasing behavior,” reads Sport Chalet’s 2011 annual report. “All of these data collection points help us to understand our business within a diverse marketplace and to make more informed decisions relating to marketing, store assortments, employee staffing and training, and store location planning both on a short-term tactical basis as well as a long-term strategic basis.”
Having a better grasp on what products its customers are likely to buy has enabled Sport Chalet reduce markdowns, advertising and other promotional costs.
In May, Eddie Bauer announced it had outsourced its customer relationship management activities, including its customer database, to Merkle in a bid to transition to a more personal and less promotional marketing model.
“As our multi-channel marketing efforts progress, we were looking for a partner who could help Eddie Bauer integrate data from catalog, email and other offline and digital interactions; and then use advanced analytics to create insights that give us a 360-degree view of our customers’ needs, preferences and values,” said Eddie Bauer Senior Vice President of Marketing, Ecommerce and Creative, Adam Diamond. “We chose Merkle because of the team’s deep expertise in the specialty retail sector, and their ability to support Eddie Bauer’s move from a campaign-oriented model to one that is customer-centric in its approach.”
Will big box retailers’ embracement of advanced data analytics put smaller retailers at a disadvantage? Three independent outdoor specialty retailers OIA contacted for this story don’t seem to think so.
All three said the smaller size and less complex nature of their operations means they can sense the trends that are most meaningful to them with tools in their POS system, Google Analytics, their email vendor or through inexpensive online services they can use to automate and monitor social media feeds.
“You can spend so much time on analytics and not get anywhere with it,” notes John Hutchinson, president of Fontana Sports of Madison, Wis. “It often gets really confusing and it’s easy to lose track of the forest from the trees. Besides, data analytics only helps with what we do sell, but not with what we don't sell, such as stand-up paddleboards.”
For that Fontana takes advantage of free access to OIA VantagePoint he enjoys as an OIA member. Specifically designed for the outdoor industry, OIA VantagePoint tracks sales of outdoor products at more than 10,000 retail stores in seven channels, including online. (OIA VantagePoint Monthly Trend Report for June 2012.) Brands and retailers use the tool to spot and document trends early and gauge the potential market for new products or category launches.
“When it comes to analytics, the information we get from OIA is probably the most valuable,” said Hutchison. “Because its shows us what trends are building in the larger market place that we could not see otherwise.”
Data analytics is having at least as profound an impact on helping retailers hone their brick-and-mortar operations as their online marketing. From reducing out-of-stocks to trimming shipping costs and dialing in local assortments, data analytics are yielding benefits up and down the supply chain.
Zumiez executives attributed the retailer’s astounding 12.9 percent comp store growth in the first quarter not just to the quality of its store employees but to the ability of its merchants to micro merchandise product assortments.
“As a multi-branded retailer, that really is trying to capture each of the micro trends as they are occurring, it really takes a dedicated, very hard focus on the data, and really trying to keep everyone of those hot products in stock,” said Marc Stolzman, Zumiez's CFO.
Zumiez CEO Rick Brooks said the action sports retailer monitors POS data on a daily basis to keep inventory and demand aligned.
“We really make sure that whatever the trends are telling us, we're reacting in real-time to have the right product in the right location in the right channel to serve our customers,” Brooks said in May.
When data showed many customers passing over boots and outerwear to shop warm weather gear in the fourth quarter, Cabela’s worked with vendors to halt replenishment of winter products and move up deliveries of spring merchandise. The move enabled the retailer to grow comp store sales by 4.2 percent and merchandise margins by 150 points in the first quarter even as other retailers were slashing prices to clear surplus winter merchandise.
Cabela’s recently told investors and analysts it has only just begun to tap the power of data analytics to streamline order fulfillment and replenishment and localize assortments. It is working toward a much more dynamic system that can fulfill or replenish from vendor warehouses, its own distribution centers or any of its nearly 40 stores in North America, depending on which is most efficient. The objective is to minimize the movement of inventory, said Douglas Means, an executive vice president and Cabela’s chief supply chain officer.
“We look at product in a vendor's hands and we look at product in a store or in a customer's hands and everything else in the middle is time and money,” Means said. “Whatever we can do to reduce that we feel is a win.”
For independent specialty retailers that lack the resources to develop data-mining tools in-house, there are POS and e-commerce vendors that offer order management systems as add-ons that can provide the kind of fulfillment versatility such as Cabela’s is seeking. Celerant Technology Corp., which provides retail management systems to several outdoor specialty retailers, offers “on-the-fly decision making logic” that enables retailers to pick the most efficient fulfillment channel.
“The logic kicks into gear and determines the most efficient means for order fulfillment,” reads a Celerant white paper. “If the ordered item is available in 10 different stores and a warehouse, for instance, the system uses predefined parameters, such as shipping costs, store staffing and inventory levels, to determine which location should field and fulfill the order.”
Outdoor specialty retailer Moosejaw is using data collected from online customers over the last 17 years to decide where and how to stock its first brick-and-mortar stores outside of Detroit and Chicago. The company also used online surveys to dial in assortments for its recently opened store in Boulder, Colo. The retailer is developing an order management system that will enable it to ship from any store to fulfill online and catalog orders.
Macy’s attributed a 38 percent jump in first quarter profits in part to its My Macy’s strategy, which uses data analytics to tailor assortments at its more than 900 stores to local tastes. This has helped it speed up inventory turns, reduce discounting, raise margins and improve customer satisfaction. Now the company is pushing to become a true omnichannel retailer. In the first quarter, Macys.com began offering products that will be 100 percent fulfilled by its stores and is looking at ways to reduce inventory at brick-and-mortar stores to free space for expanded assortments that can be fulfilled online.
Big box retailers such as Target are relying more on data analytics as their ability to open new stores hinges increasingly on entering smaller markets with smaller stores and narrower assortments.
“We've got a lot of work to do to determine exactly by trade area, what assortment is going to be in and out,” Target Chairman, CEO and President Gregg Steinhafel told investors last summer in a discussion of the company’s plans to open 40,000-square-foot stores outside its traditional suburban markets.
Given the seemingly unlimited capacity of humans to come up with ways to collect and analyze data, it appears retailers are only just getting started.
Footlocker is already experimenting with heat mapping technology that allows it to visualize how much time customers spend in which sections of its stores. Stores that have too much blue and not enough yellow and red are targeted for improvement. It’s also vetting business intelligence systems in hopes of better serving Hispanic customers with smaller shoes sizes and neighborhoods that lean more toward the Sox than the Cubs.
“The system that we have, while effective, is not as efficient and effective as it could be,” Footlocker Chairman and CEO Kenneth Hicks told investors in March. “That's why we're evaluating new opportunities and that's something we will put in place over the next couple of years.”
As Facebook closes in on 1 billion users, social analytics is entering a new era, unharnessing the power of data to guide company decision making. A host of companies has emerged in the last five years to help brands identify and reward their most influential online ambassadors and get a better grasp of their return on investment in social media.
One common theme across these tools is that when it comes to measuring the value of social media, quality often trumps quantity. Brand managers are learning that likes, friends and posts on Facebook are a dime a dozen. To identify true online influencers requires closely monitoring social media streams. With five of every six online product searches resulting in a consumer buying in a brick-and-mortar store, it’s getting more important every day to identify and reward your online evangelists. A definite social media hierarchy is emerging that ranges from national celebrities, magazines and retailers to bloggers, athletes, outfitters, ski pros and store employees all the way down to local enthusiasts.
Fortunately, it’s getting easier every day to sort out the true influencers. Below is a sampling of data analysis tools companies can use to measure both their own social media influence and that of others, and to gauge general sentiment toward their brands. They range from solutions that cost tens of thousands of dollar per year to web-based tools that can cost just dollars a month and are often offered for free on a trial basis.