Keeping Retail Businesses Profitable

Alec Gardner | General Manager, Advanced Analytics | Teradata AUS & NZ

This article appears in the Mar/Apr 2016 issue of Business Franchise Australia & New Zealand

There is no doubt that online retail is growing swiftly. However, the perception that it is beginning to overtake bricks-and-mortar retail outlets is misleading. There is a lot of life left in physical retail stores, and new technology, such as data analytics and mobility, is helping to establish a better business case for these shops.

In Australia, research has shown that the general public still favours physical over online stores. The latest research by the Australian Bureau of Statistics (ABS) shows that online retail turnover contributed just 3.1 per cent of total retail turnover in Australia during July 2015. Globally, the vast majority (93 per cent) of total retail sales worldwide still take place in-store, and customers are willing to pay 50 per cent more for items they can see and touch. While online sales are strong, market figures by the National Australia Bank  NAB) suggest they’re not growing as fast as you might think. According to NAB, online sales in Australia actually fell by 1.4 per cent in July last year, compared to the previous month.

Given these trends, it’s no surprise that retail franchises in Australia remain particularly strong, despite weaker growth in other sectors. Research by Griffith University’s Asia-Pacific Centre for Franchising Excellence found that the franchise sector in Australia has experienced net growth in franchise units and sales turnover, particularly in the retail franchises,  despite generally sluggish economic growth in the local market.

The strength of traditional retail Whether it is the ability to try on a jacket, hold a product in your hands, or get detailed advice from an assistant, physical stores retain a number of  advantages over digital outlets. Despite these traditional benefits, it would be foolish to think that the experience, on its own, is enough to protect bricks-and-mortar stores from the encroaching online alternatives forever. Online retail is growing and will continue to cut into real stores’ revenue.

So, what does commercial success require for physical stores in an age of online retail?

A good starting point is to have a close look at what physical stores can offer that online stores cannot: physicality and face-to-face advice, and service. Traditionally, one of the strengths retailers have had is the ability to know their customer on a face-to-face level, understand their habits, and preempt their desires. In today’s increasingly crowded,  metropolitan society, however, this has become an almost impossible task for physical stores that might have hundreds, or even, thousands of customers come through each day. At the same time, it is becoming easier for online stores to understand their customers, as they can easily track a customer’s shopping and purchasing activity on a website.  Fortunately, technology is now providing retailers with new ways to re-discover the physical customer, and understand the customer’s behaviours and desires.

The power of technology

Physical retailers have an unprecedented  number of digital tools with which they get to know their customers. Data analytics, along with mobility, are perhaps the most powerful tools  retailers now have at their disposal to truly unlock the secrets of customer behaviour. There is an increasing amount of information that bricks-and-mortar retailers can now draw upon thanks to the data-capture capabilities opened up by online channels, loyalty programs, electronic payment methods, beacon technologies, social media interactions, and mobile device activity. “Online retail turnover contributed just 3.1 per cent of total retail turnover in Australia during July 2015.”

In some ways, the mix of data physical retailers can draw upon is more diverse than much of the information pure online sellers generally use. This means they can increasingly know, rather than infer, how and why customers are behaving. The challenge, however, is to analyse that data effectively and act according to the insights that data delivers. The core  capability that can be leveraged by both online and offline channels to effectively understand all this information is advanced analytics. By using data analytics, retailers can begin to understand what customers want before they ask, and how they’d like to interact before they even walk into the store.

Professional services and analyst firm, PricewaterhouseCoopers (PwC), calls this ‘consumer adaptive retailing’. It is where businesses provide a seamless customer experience across multiple touch-points by integrating all processes and business systems. However, without adequate data and the analysis tools to understand it, this approach could leave retailers fumbling over how to adapt their approach to each customer. Many traditional retailers recognise the importance and value of the data produced by digital channels and e-commerce portals, yet few are leveraging its full potential. Retailers no longer have an excuse for not making the most of the information at their fingertips. They now have the tools at their disposal to integrate data analytics insights into business processes and systems. This way, they can better tailor their product offering, increase relevance and adjust their customer service methods. This tends to engender better customer engagement, improve service level and, therefore, increase sales.

There are four key ways advanced data analytics can transform physical stores’ profitability:

1 Have the right stock in the right place at the right time

Advanced analytics can help retail outlets understand what stock they should have available, and when it should be made available. Advanced analytics can also help inform retailers’ scenarios planning, which provides detailed information for decisionmaking as far-reaching as stock sizes based on  customer demographics, outlet locations, and range. Analytics can bring insight to variations in demand and act upon it. In the Australian market in particular, there is a significant opportunity to better optimise ratio pack provision to improve service levels and to reduce markdowns and wastage of over provisioned, irrelevant items.

2 Price it right

Despite the availability of fine, granular data around price and sales, many retail pricing decisions are still based on past experience and spreadsheet analysis of general data. If retailers use price sensitivity analysis on their fine data, they could be far more precise about how best to adjust prices, by how much, and at what time. This approach to pricing could yield incremental revenue for a bricks-and-mortar retail outlet. In store digital technologies can enable faster turnaround in on-shelf pricing.

3 Maximise the impact of promotions

One third of promotions don’t yield the results expected because of insufficient stock which continues to represent a significant area for  optimisation. Promotions should first and foremost be relevant to the customers expressed or predicted need. In bricks and mortar retail, many are set around special events, such as  Christmas, to take advantage of additional foot traffic at those times. Advanced analytics can give retailers the fine-grain information they need to determine the most appropriate  stock levels to align with promotions currently in market, be it Christmas, Easter, holiday seasons, or other special dates in the calendar. Traditional retail modelling techniques can  now be significantly enhanced and run at much larger scale to enable wider and deeper data sets to be brought in. This enables retailers to modify analyses to allow for specific anomalies in market conditions that could exist at the time of promotion.

4 Get value for money on marketing spend

Extra marketing spend doesn’t always translate into additional sales. Businesses must understand the factors that contribute to the success of marketing efforts. Advanced data analytics can work to understand how much return on investment (ROI) there is for marketing dollars spent and attribute the value across the full lifecycle of a multichannel campaign.There is an increased amount of data now available to real world retailers thanks to connected business equipment, such as electronic point of sales (POS) tools and inventory management platforms. It should be an easy leap to incorporate advanced analytics and use all of that valuable information to better engage with customers and drive profits.

Alec Gardner is General Manager, Advanced Analytics, at Teradata Australia & New Zealand. He is responsible for the Teradata Advanced Analytics line of business in Australia and New Zealand, incorporating Teradata Aster, Big Data Analytic solutions and the Teradata partnership with key Analytic partners such as SAS. In this capacity, Alec heads an expert team of Data Scientists and Business Analysts. Teradata (NYSE: TDC) helps companies get more value from data than any other company. Teradata’s leading portfolio of big data analytic solutions, integrated marketing applications, and team of experts can help organisations gain a sustainable competitive advantage with data.