Driving Profitability Through Merchandise Optimization Scott C. Friend Vice-Chairman & President...
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Transcript of Driving Profitability Through Merchandise Optimization Scott C. Friend Vice-Chairman & President...
Driving Profitability Through Merchandise Optimization
Scott C. FriendVice-Chairman & President
ProfitLogic
ProfitLogic Confidential2
ProfitLogic’s Mission
To help retailers transform their merchandising operations and practices with the help of Merchandise Optimization solutions, resulting in dramatically improved financial results and enhanced customer loyalty.
2
ProfitLogic Confidential3
Selected CustomersSelected Customers
bloomingdales
TARGET
Marshall Field’s
ProfitLogic Confidential4
Current Retail Environment is Demanding and Complex
• Demanding customers who have multiple choices for the same item
• Proliferation of stores and the geographies, demographics, and lifestyles of the customers they are serving
• Acceleration of fashion trends leading to shorter product lifecycles, more floorsets, more seasons, and more risk
• Increased competitive pressure as retail formats continue to merge and compete for the same customer, same dollar
• Retailers must provide a differentiated experience in terms of selection, presentation, availability, price, and service to retain customers and stay competitive
Merchandising is Getting Harder
How do you manage merchandising centrally while fulfilling unique customer demand and store requirements?
ProfitLogic Confidential5
But the fundamental merchandising challenge hasn’t changed
After merchants decide what to buy, they need to make the following critical merchandising decisions:
How Much Should I
Buy for each store?
How Much Should I
Buy for each store?
What stores doI send it to?
What stores doI send it to?
How Should I Price it?
How Should I Price it?
AssortAssort AllocateAllocate PricingPricing
How Should I Price it to
most profitablyclear it?
How Should I Price it to
most profitablyclear it?
MarkdownMarkdown
How Should I Promote it?
How Should I Promote it?
PromotePromoteMarkdownMarkdownPromotePromote
ProfitLogic Confidential6
Main Street
CEO Comp Store Sales Stock Price Profitability
CEO Comp Store Sales Stock Price Profitability
Retail really was a simple businessWall Street
Buyer: Men’s Casual Clothing
OTB Budget: $15M
Buyer: Men’s Casual Clothing
OTB Budget: $15M
Buyer: Women’s High Fashion
OTB Budget: $15M
Buyer: Women’s High Fashion
OTB Budget: $15M
Buyer: Women’s Shoes
OTB Budget: $20M
Buyer: Women’s Shoes
OTB Budget: $20M
ProfitLogic Confidential7
Wall Street
Fast changing assortments and large-scale expansion have made it a lot more complex
• 27 years old• Liberal Arts degree• 4 years in
merchandising organization
• Motivated by fashion and trends
• 27 years old• Liberal Arts degree• 4 years in
merchandising organization
• Motivated by fashion and trends
Main Street
ProfitLogic Confidential8
Budget: $18M
Women’s High Fashion
Budget: $18M
Women’s High Fashion
• 27 years old• Merchandising Management
degree• 4 years in merchandising
organization• Motivated by fashion and
trends
Would you trust this person to invest your life’s savings?
Main Street
Wall Street
ProfitLogic Confidential9
It’s no longer a simple business
Main Street
Wall Street
Retail is Detail1,000 Stores
X 50,000 SKUs
X26 Weeks
X4 Measures (Sales, Inventory, Receipts, On Order)
XPlan, Actuals, Last Year
X4 Seasons
Retail is Detail1,000 Stores
X 50,000 SKUs
X26 Weeks
X4 Measures (Sales, Inventory, Receipts, On Order)
XPlan, Actuals, Last Year
X4 Seasons
One Trillion NumbersOne Trillion NumbersSource: Fortune 50 RetailerSource: Fortune 50 RetailerSource: Fortune 50 RetailerSource: Fortune 50 Retailer
ProfitLogic Confidential10
And management by average doesn’t get the job done
• 27 years old• Liberal Arts degree• 4 years in
merchandising organization
• Motivated by fashion and trends
• 27 years old• Liberal Arts degree• 4 years in
merchandising organization
• Motivated by fashion and trends
Average Hot Store
Average Cold Store
Average Mall Store
Average Small Store
Average Urban Store
Average Suburban
Store
$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00
$3,400 $550.00
$100,000.00$70,000.00$5,000.00
$400
$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00
$20,000.00 $20,000.00$6,000.00 $5,000.00
$500.00 $900.00
$300,000.00$100,000.00$55,000.00
$3,400
$33,400 $1,550.00 $9,000.00
$100,000.00 $6,000.00$55,000.00 $7,000.00
$100,000.00$70,000.00$5,000.00
$400
$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00
$3,400 $550.00
$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00
$20,000.00 $20,000.00$6,000.00 $5,000.00
$500.00 $900.00
$20,000.00 $20,000.00$6,000.00 $5,000.00
$500.00 $900.00
$300,000.00$100,000.00$55,000.00
$3,400
$100,000.00 $6,000.00 $5,000.00
$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00
$3,400 $550.00 $50.00
$100,000.00 $6,000.00$55,000.00 $7,000.00
$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00
$3,400 $550.00 $50.00 $100,000.00 $6,000.00 $5,000.00
$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00
$3,400 $550.00
$100,000.00$70,000.00$5,000.00
$400 $300,000.00$100,000.00$55,000.00
$3,400
$300,000.00$100,000.00$55,000.00
$3,400
$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00
$3,400 $550.00
$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00
$3,400 $550.00
$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00
$20,000.00 $20,000.00$6,000.00 $5,000.00
$500.00 $900.00
$100,000.00 $6,000.00$55,000.00 $7,000.00
$100,000.00$70,000.00$5,000.00
$400
$20,000.00 $20,000.00$6,000.00 $5,000.00
$500.00 $900.00
$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00
$3,400 $550.00
$300,000.00$100,000.00$55,000.00
$3,400
$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00 $300,000.00
$100,000.00$55,000.00
$3,400
$20,000.00 $20,000.00$6,000.00 $5,000.00
$500.00 $900.00
$100,000.00$70,000.00$5,000.00
$400$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00
$3,400 $550.00 $50.00
$20,000.00 $20,000.00$6,000.00 $5,000.00
$500.00 $900.00
$100,000.00 $6,000.00$55,000.00 $7,000.00
$100,000.00 $6,000.00$55,000.00 $7,000.00
$100,000.00$70,000.00$5,000.00
$400
$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00
$300,000.00$100,000.00$55,000.00
$3,400
$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00
$3,400 $550.00 $50.00
$100,000.00 $6,000.00$55,000.00 $7,000.00
$300,000.00$100,000.00$55,000.00
$3,400
$300,000.00$100,000.00$55,000.00
$3,400
$300,000.00$100,000.00$55,000.00
$3,400
$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00
$3,400 $550.00
$20,000.00 $20,000.00$6,000.00 $5,000.00
$500.00 $900.00
$300,000.00$100,000.00$55,000.00
$3,400
$100,000.00 $6,000.00 $5,000.00
$100,000.00 $6,000.00$55,000.00 $7,000.00
$100,000.00$70,000.00$5,000.00
$400
$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00
$3,400 $550.00 $50.00
$300,000.00$100,000.00$55,000.00
$3,400$300,000.00$100,000.00$55,000.00
$3,400
$100,000.00$70,000.00$5,000.00
$400
Main Street
Management by AveragesManagement by Averages
Wall Street
Top-down controls• Open to buy
• Top-down merchandise planning
Top-down controls• Open to buy
• Top-down merchandise planning
Average Hot Store
Average Cold Store
Average Mall Store
Average Small Store
Average Urban Store
Average Suburban
Store
Sto
re V
isit
s
ProfitLogic Confidential11
Nor does simple automation
Average Hot Store
Average Cold Store
Average Mall Store
Average Small Store
Average Urban Store
Average Suburban
Store
Wall Street
• 27 years old• Liberal Arts degree• 4 years in
merchandising organization
• Motivated by fashion and trends
• 27 years old• Liberal Arts degree• 4 years in
merchandising organization
• Motivated by fashion and trends
Main Street
No Insight, Just InfrastructureNo Insight, Just Infrastructure
Implement Integrated Infrastructure
• Automation – Integration - Reconciliation
Implement Integrated Infrastructure
• Automation – Integration - Reconciliation
$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00
$3,400 $550.00
$100,000.00$70,000.00$5,000.00
$400
$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00
$20,000.00 $20,000.00$6,000.00 $5,000.00
$500.00 $900.00
$300,000.00$100,000.00$55,000.00
$3,400
$33,400 $1,550.00 $9,000.00
$100,000.00 $6,000.00$55,000.00 $7,000.00
$100,000.00$70,000.00$5,000.00
$400
$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00
$3,400 $550.00
$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00
$20,000.00 $20,000.00$6,000.00 $5,000.00
$500.00 $900.00
$20,000.00 $20,000.00$6,000.00 $5,000.00
$500.00 $900.00
$300,000.00$100,000.00$55,000.00
$3,400
$100,000.00 $6,000.00 $5,000.00
$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00
$3,400 $550.00 $50.00
$100,000.00 $6,000.00$55,000.00 $7,000.00
$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00
$3,400 $550.00 $50.00 $100,000.00 $6,000.00 $5,000.00
$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00
$3,400 $550.00
$100,000.00$70,000.00$5,000.00
$400 $300,000.00$100,000.00$55,000.00
$3,400
$300,000.00$100,000.00$55,000.00
$3,400
$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00
$3,400 $550.00
$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00
$3,400 $550.00
$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00
$20,000.00 $20,000.00$6,000.00 $5,000.00
$500.00 $900.00
$100,000.00 $6,000.00$55,000.00 $7,000.00
$100,000.00$70,000.00$5,000.00
$400
$20,000.00 $20,000.00$6,000.00 $5,000.00
$500.00 $900.00
$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00
$3,400 $550.00
$300,000.00$100,000.00$55,000.00
$3,400
$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00 $300,000.00
$100,000.00$55,000.00
$3,400
$20,000.00 $20,000.00$6,000.00 $5,000.00
$500.00 $900.00
$100,000.00$70,000.00$5,000.00
$400$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00
$3,400 $550.00 $50.00
$20,000.00 $20,000.00$6,000.00 $5,000.00
$500.00 $900.00
$100,000.00 $6,000.00$55,000.00 $7,000.00
$100,000.00 $6,000.00$55,000.00 $7,000.00
$100,000.00$70,000.00$5,000.00
$400
$100,000.00 $20,000.00 $20,000.00$70,000.00 $6,000.00 $5,000.00$5,000.00 $500.00 $900.00
$300,000.00$100,000.00$55,000.00
$3,400
$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00
$3,400 $550.00 $50.00
$100,000.00 $6,000.00$55,000.00 $7,000.00
$300,000.00$100,000.00$55,000.00
$3,400
$300,000.00$100,000.00$55,000.00
$3,400
$300,000.00$100,000.00$55,000.00
$3,400
$300,000.00 $200,000.00$100,000.00 $6,000.00$55,000.00 $7,000.00
$3,400 $550.00
$20,000.00 $20,000.00$6,000.00 $5,000.00
$500.00 $900.00
$300,000.00$100,000.00$55,000.00
$3,400
$100,000.00 $6,000.00 $5,000.00
$100,000.00 $6,000.00$55,000.00 $7,000.00
$100,000.00$70,000.00$5,000.00
$400
$300,000.00 $200,000.00 $20,000.00$100,000.00 $6,000.00 $5,000.00$55,000.00 $7,000.00 $900.00
$3,400 $550.00 $50.00
$300,000.00$100,000.00$55,000.00
$3,400$300,000.00$100,000.00$55,000.00
$3,400
$100,000.00$70,000.00$5,000.00
$400
ProfitLogic Confidential12
X
Typical LifecycleCurve
PlannedOut Date
ResultIncreased SalesHigher MarginsBetter Velocity
How Should I Price It?•Historical averages are used to determine markdown candidates•Gut feel is used to determine markdown timing and depth•Tendency to markdown items too late and too deep
In-Stock Date
How Should I Promote It?•Guess work to determine the expected lifts of different promotional events and vehicles•Tendency to promote whatever worked in the past and over estimate the expected lift
Time
Sales
X
How Much Should I Buy?•Stores are treated as an average in terms of sales and size profiles•Guess work to determine pre-pack quantities to fit required inventory•Forced to make big bets up front without visibility to future demand
Where Should I Put It?•Historical store averages are used to plan allocation quantities•Decisions are made at aggregate levels and spread down•Tendency to front load inventory with initial push
Order Date
X
Traditional Merchandising
Today’s merchandising processes do not reflect each store’s unique customer, demand, and capacity
ProfitLogic Confidential13
The Result Is Impacting All Retailers
• 8% stock-out condition*
• 21% overstocking condition*
• 40-50% excess inventory or non-performing SKUs**
• Cluttered stores
• Dissatisfied customers
Operational Effects
• Lost sales
• High markdowns
• Lost GM$
• Low inventory turns
• Lost market share
• Lost brand image
Financial Effects
* “Putting Products in the Right Places,” Retail Info Systems News, August 2000.** “Product Replenishment on Merchandise Policy Techniques,” www.stirlingdouglas.com, December 2000.
ProfitLogic Confidential14
Revenue $1,500K
COGS $1,050K -Merchandise -Markdowns -Shrinkage -In-bound LogisticsGross Margin $450K
Expenses $400K -Stores -Marketing -Buying -IT -G&AEBITDA $50K
300K40K
20K20K
20K
750K225K 30K 45K
Misalignment between business imperatives and I/T priorities has only made the problem worse
0%
25%
50%
75%
100%
Income Statement > Y2K IT $'s
Low High Stay-in-Business Strategeic
• Legacy systems run an efficient business– Suited for less complex times– Infrastructure, not insight. Automation, not
optimization.– Little impact on largest P&L lines
• Need new focus on effectiveness of decisions
Source: AMR Research
ProfitLogic Confidential15
The Solution: Merchandise Optimization The Solution: Merchandise Optimization
ProfitLogic Confidential16
X
Typical LifecycleCurve
PlannedOut Date
ResultIncreased SalesHigher MarginsBetter Velocity
How Should I Price It?
Maximize lifecycle gross margin by
optimizing markdown timing and depth
In-Stock Date
How Should I Promote It?Plan and execute promotions based on store level analysis
and forecasted lift
Time
Sales
X
How Much Should I Buy?
Maximize profitability and manage risk through local market assortments and optimal order quantities
Where Should I Put It?Minimize stockouts and overstocks
through optimal allocation quantities based on store level
analysis and available pre-packs
Order Date
X
Merchandise Optimization
How Does My Customer Buy?
Understand each store’s unique customer buying behavior to provide visibility to future demand
ProfitLogic Confidential17
Understanding the Customer
Price Changes
Sales & Inventory Data by Location
Inventory
-
200
400
600
800
1,000
1,200
9/4/
1999
9/18
/199
9
10/2
/199
9
10/1
6/19
99
10/3
0/19
9911
/13/
1999
11/2
7/19
99
12/1
1/19
99
12/2
5/19
99
1/8/
2000
1/22
/200
0
2/5/
2000
2/19
/200
0
3/4/
2000
3/18
/200
04/
1/20
00
4/15
/200
04/
29/2
000
5/13
/200
0
5/27
/200
0
6/10
/200
06/
24/2
000
7/8/
2000
7/22
/200
0
8/5/
2000
8/19
/200
0
9/2/
2000
9/16
/200
0
9/30
/200
0
10/1
4/20
00
10/2
8/20
00
11/1
1/20
0011
/25/
2000
UN
IT S
AL
ES
AN
D U
NIT
IN
VE
NT
OR
Y /
10
$-
$5.00
$10.00
$15.00
$20.00
$25.00
PR
ICE
Seasonality
How do customers respond to price
changes and promotions?
How do customers shop during different
seasons and holidays?
How do customers respond to
broken inventory levels?
Customer Behavior
How customers will respond to different
merchandising strategies
ProfitLogic Confidential18
Visibility to Future Demand
0
100
200
300
400
500
600
Sal
es U
nits
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Week
Last Year Sales Deconstructed
Markdowns
Promotions
Seasonal Lift
25% MD 50% MD
Circular BOGO
Christmas
0
100
200
300
400
500
600
Sal
es U
nits
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Week
Next Year Sales Forecast
Markdowns
Promotions
Seasonal Lift
25% MD
Circular
Christmas
50% MD
ProfitLogic Confidential19
Profitable, Predictable, and Efficient Merchandising Decisions
Optimization:
1.Evaluate a complex set of trade-offs
2.Analyze all possible scenarios
3.Asses the risk of each scenario
4.Determine the most profitable scenario that respects business constraints
Optimization:
1.Evaluate a complex set of trade-offs
2.Analyze all possible scenarios
3.Asses the risk of each scenario
4.Determine the most profitable scenario that respects business constraints
• Demand forecasts
• How customers will respond to different merchandising strategies
• Demand forecasts
• How customers will respond to different merchandising strategies
• Performance criteria
• Best practices
• Business rules
• Constraints
• Performance criteria
• Best practices
• Business rules
• Constraints
Optimal merchandising
recommendations
Optimal merchandising
recommendations
ProfitLogic Confidential20
Assortment Optimization
Store Clustering by Class Performance & Attribute Analysis Local Market Assortments
• Volume• Climate• Size• Seasonality• Demographics• Customer preferences
• Volume• Climate• Size• Seasonality• Demographics• Customer preferences
Store Group AStore Group A
Sales
GM%
• Volume• Climate• Size• Seasonality• Demographics• Customer preferences
• Volume• Climate• Size• Seasonality• Demographics• Customer preferences
Store Group BStore Group B
• Volume• Climate• Size• Seasonality• Demographics• Customer preferences
• Volume• Climate• Size• Seasonality• Demographics• Customer preferences
Store Group CStore Group C
• Performance objectives• Open to buy
• Performance objectives• Open to buy
Financial PlanFinancial Plan
• Item attributes• Flow dates• Planned pricing and
promotions• Store base
• Item attributes• Flow dates• Planned pricing and
promotions• Store base
SKU/Store ForecastSKU/Store Forecast
• Assortment breadth and depth by store
Local Market Assortments
ProfitLogic Confidential21
Assortment Optimization
Receipt Flow Optimization Order Optimization
• Purchase order quantities and shipments
• Initial allocations
Optimal Order Quantities
• Pre-season SKU/Store forecast
• Delivery frequency• Flow dates• Presentation
minimums and maximums
Store 3 Need
0
5
10
15
20
25
30
2 4 6 8 10 12 14
Size
Un
its
Store 3 Need
0
5
10
15
20
25
30
2 4 6 8 10 12 14
Size
Un
its
Store 2 Need
0
5
10
15
20
25
30
2 4 6 8 10 12 14
Size
Un
its
Store 2 Need
0
5
10
15
20
25
30
2 4 6 8 10 12 14
Size
Un
its
Store 1 Need
0
5
10
15
20
25
30
2 4 6 8 10 12 14
Size
Un
its
Store 1 Need
0
5
10
15
20
25
30
2 4 6 8 10 12 14
Size
Un
its
Store level size profiles
S, M, L, XL
Eaches
12 S, 24 M, 12 L, 12 XL
Prepack 1
16 S, 16 M, 16 L, 16 XL
Prepack 2
12 S, 12 M, 24 L, 24 XL
Prepack 3
ProfitLogic Confidential22
Allocation OptimizationV
olu
me
XXInitial Receipt Second Receipt
Promotion Promotion
Markdown
XFinal Allocation
X
Holdback Quantity
Push Pull Push
• SKU/Store forecast• Coverage period• Inventory levels• Min/Max presentations
• SKU/Store forecast• Coverage period• Inventory levels• Min/Max presentations
Need by StoreNeed by Store
• Multiple prepack configurations and eaches
• Min/Max holdback quantities• Min/Max allocations & shipments
• Multiple prepack configurations and eaches
• Min/Max holdback quantities• Min/Max allocations & shipments
Purchase Orders &DC Inventory
Purchase Orders &DC Inventory
• Allocation quantity and prepack – eaches configuration by store
• Hold back quantity
Minimize Stockouts & Overstocks
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Promotion Optimization
Objective
• Determine the the effect of promotional vehicles and offers
Analysis
• Evaluation of company wide events – department and class level lifts
• Evaluation of store wide events – department and class lifts
• Evaluation of circular driven events – front/center/back page, size, price
Recommendations
• Expected demand and profitability of events on the promotional calendar
• SKU/Store promotional lift for each promotional event and offer
• Halo and cannibalization effects of promoted items
• Optimal recommendation promotional events, offers, items, and stores to meet objective (margin, revenue, traffic, etc.)
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% Off Full Price
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Girl's Dress Shoe
Women's Sandal
Women's Boot
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Women's Sandal
Women's Boot
Company Wide Event
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Women's Sandal
Women's Boot
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5 10 15 20 25 30 35 40 45 50
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Girl's Dress Shoe
Women's Sandal
Women's Boot
Store Wide Event
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5 10 15 20 25 30 35 40 45 50
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Girl's Dress Shoe
Women's Sandal
Women's Boot
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Girl's Dress Shoe
Women's Sandal
Women's Boot
Circular
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Markdown Optimization
10/7 10/14 10/21 10/28 11/4 11/11 11/18 11/25 12/2 12/9 12/16 12/23 12/30 1/6 Exp. GM.
Scenario 217 $7.99 $3.99 137,232$ Scenario 218 $3.99 141,596$ Scenario 219 $7.99 145,960$ Scenario 220 $7.99 $5.99 174,327$ Scenario 221 $5.99 152,506$ Scenario 222 $3.99 159,053$ Scenario 223 187,420$ Scenario 224 $5.99 165,599$ Scenario 225 187,420$ Scenario 226 $7.99 $5.99 $3.99 207,059$ Scenario 227 185,238$ Scenario 228 167,781$
.
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Optimal Scenario
• Markdown timing and frequency to maximize lifecycle gross margin
• Min/Max markdowns• Markdown frequency• Price ladders• Outdates & salvage value
• Min/Max markdowns• Markdown frequency• Price ladders• Outdates & salvage value
Business rules and constraints
Business rules and constraints
ProfitLogic Confidential25
Assortment Optimization
I have 1000 Stores. What is the best assortment breadth for each of those stores?
Store 722 - Class: Mens formal shirts
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5 10 15 20 25 30 35 40 45 50
No of Styles
$$$ Sales $
Margin $
AssortAssort AllocateAllocate PricingPricing MarkdownMarkdownPromotePromote
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Case-Pack Optimization
I need to buy 50,000 units of a style in pre-packs.
What is the optimum configuration of pre-packs for the intended store distribution?
Large Medium Small
AssortAssort AllocateAllocate MarkdownMarkdown PromotePromoteMarkdownMarkdownPromotePromote
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Allocation Optimization
I have 75,000 units of a style to allocate to 700 stores.
Based on the latest performance of each store, how much should I allocate to each store so as to optimize the inventory balance, and how much should I hold back for a later allocation?
Hold BackPre-allocate
AssortAssort AllocateAllocate MarkdownMarkdown PromotePromoteMarkdownMarkdownPromotePromote
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Promotion Optimization
I want to promote a particular item on the front page of my circular, but I’m not sure what my sales lift will be at each of my locations.
How much inventory do I need to cover sales for this promotional period, and what will the impact of this promotion be on sales in related categories of merchandise?
AssortAssort AllocateAllocate MarkdownMarkdown PromotePromoteMarkdownMarkdownPromotePromote
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Markdown Optimization
I want to liquidate my inventory of a style by a certain date.
When, by how much, and how often should I mark it down in order to maximize my margin Dollars?
AssortAssort AllocateAllocate MarkdownMarkdown PromotePromoteMarkdownMarkdownPromotePromote
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Merchandise Optimization creates a merchandising organization that:
• Focuses on how the customer buys versus how they have bought in the past
• Uses science to support the art of merchandising
• Focuses on strategic initiatives versus number crunching
• Understands and predicts the impact of their decisions on financial performance
• Manages merchandise across the entire product lifecycle
• Manages centrally and executes locally
• Maximizes profitability while managing risk
Driving Operational Performance through Merchandise Optimization
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Driving Financial Performance through Merchandise Optimization
• Right product, right place, right time, right quantity, right price
• Assortments and pricing tailored to local market demand
• Fresh presentations
• Satisfied customers
Operational Effects
• Increase sales 2-4%
• Increase GM$ 5-15%
• Increase sell through 10-15%
• Increase inventory turns 10-15%
• Increase market share and customer conversion
Financial Benefits
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Average Customer Benefits
Gross MarginGross Margin
Sell ThroughSell Through
5% - 15% Increase5% - 15% Increase
10% - 15% Increase10% - 15% Increase
Inventory TurnsInventory Turns 10% - 15% Increase10% - 15% Increase
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Keys to Success
Executive Sponsorship• Drive the importance of the opportunity, accountability, and long term commitment of the
organization
Strategy, Process, and Technology Alignment• Ensure merchandising processes align with business goals and performance criteria
• Ensure technology and architecture align with merchandising processes
Project Management• Stage the implementation to accelerate ROI and manage business process change
• Manage the implementation and process change on a day to day basis
Education• Educate all impacted areas on process, technology, and accountability
• Accelerate user adoption through comprehensive training and support
• Develop power users to drive continuous improvement and education
Performance Measurement• Document and recognize success to communicate throughout the organization
ProfitLogic Confidential34
Why Now?
• Fast
• Flexible
• Financial Benefits
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Customer Testimonials
“We experience a significant improvement in gross margin dollars, GMROI and sell-through when following the ProfitLogic system’s recommendations.”
Andy Cowan Senior Vice President, Director of Retail and Catalog Systems
ProfitLogic Confidential36
Customer Testimonials
“Our Merchandise Optimization solution was easy to implement and is simple to use. It’s making our lives alot easier and we’re getting better sales and margins.”
Steve SchwartzSenior Vice President of Planning and Allocation
ProfitLogic Confidential37
Customer Testimonials
“Our Merchandise Optimization solution delivered significant benefits without causing major disruptions to our organization during implementation. We are now using it as the standard merchandising tool that helps us with promotional price and markdown decisions.”Rose HuertaVice President of Planning
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Customer Testimonials
“It’s not just about merchandise anymore. If you add science to the art of merchandising, you can do two things: minimize risks in the event of a bad buy or economic downturn, and maximize profits if you’re hitting everything head on.”
Mike StanekChief Financial Officer
ProfitLogic Confidential39
Customer Testimonials
“We have a fundamental belief in the value of Merchandise Optimization as a driver of short-term and strategic benefit.”
Gary JonesDirector of Merchandise Process Management
THE HOME DEPOT
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Customer Testimonials
“Two key benefits drove the decision to use Merchandise Optimization in the Gap division. We were impressed by the financial benefits and quick return on investment we saw at Old Navy, and we were equally impressed by the seamless integration into our merchants’ current processes.”
Tom CawleySenior Vice President of Finance
ProfitLogic Confidential41
Customer Testimonials
“I’m not surprised that ProfitLogic has been voted best in customer satisfaction. ProfitLogic is a great partner that is completely focused on our success.”
Tom NakfoorPresident of Inventory and Supply Chain
ProfitLogic Confidential42
ProfitLogic’s Mission
To help retailers transform their merchandising operations and practices with the help of Merchandise Optimization solutions, resulting in dramatically improved financial results and enhanced customer loyalty.
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Questions?
Scott FriendVice-Chairman & President
ProfitLogic617-218-1914