By Deena M. Amato-McCoy
Through special arrangement, what follows is an excerpt of a current article from Chain Store Age magazine, presented here for discussion.
Currently, last-minute shoppers are navigating among dwindling stock levels and price slashes in hopes of completing their gift-giving obligations. And retailers are probably relying on two solutions to lure in harried shoppers, generate sales and lift their own holiday spirits.
Some chains are relying on assortment-planning solutions. By analyzing sales targets, shelf space and allocation rules, the solution enables planners to distribute the right mix (and amount) of products at store level.
For others, markdown optimization is the top choice. Here, chains use item-movement data, consumer shopping behavior data and other metrics to analyze and manage prices, promotions and markdowns on merchandise.
While both solutions help retailers target merchandise to consumers and move product, there is a strong debate about which is the superior option. In fact, this topic prompted two lively discussions during the SAS User Conference, BetterManagement Live!, held in October.
An informal survey of 13 retailers conducted during one session revealed three chains used a revenue-optimization tool to support markdown strategies. Meanwhile, 10 chains seemed wedded to assortment planning.
Those in the assortment-planning camp made compelling arguments.
Kevin Murphy, an executive from Bed Bath & Beyond, reported, "If you can create the right assortment to meet shoppers' needs, there is no reason for markdowns."
Ken Brame, CIO, AutoZone, stated, "Our shoppers are not trained to look at markdowns. If they need a starter or another part, they would rather it is in stock."
Conversely, retailers that handle short life-cycle merchandise, such as apparel, were bullish on markdown-optimization solutions. An executive from The Children's Place said, "We can't predict the weather. If we stock a seasonal assortment and the weather patterns change, we need price optimization to account for that change."
Some retailers are even upping the ante and using price optimization in hopes of connecting with some new shoppers.
The Athlete's Foot knows when a new athletic shoe hits the market, chances are that teens and twenty-somethings have no problem paying $150 or $200. But a pre-teen's mom who balks at paying full price may be more willing to spring for last season's Air Jordans on sale for $80 or $90.
I tend to agree. While it makes complete sense to analyze data to forecast the best merchandising mix, execution can be tricky.
Maybe retailers need to look beyond the "price slash" stigma markdown-optimization software invokes. Rather, I think retailers opting for the "scalpel" approach provided by markdown-optimization software are taking a proactive step to improve turns, reach more shoppers and hopefully build new shopper relationships.
Surely, I don't expect my opinion to end this ongoing debate, but the argument has opened my eyes. As I finish my shopping though, I will wonder whether I am fulfilling an intricate assortment plan, playing into the deep-discount game or adding a new favorite retailer to my shopping list.
Discussion Question: What is your perspective on the assortment planning versus markdown-optimization debate?