06 Jul 11 Retail analytics_Selling out fast

Whether we’re considering specialty retailers, grocery chains, general merchandisers or online retailers, the retail industry today converges around the following challenges – post-recession growing pains (including unique challenges in mature and emerging markets), price sensitive markets, low buyer switching costs, challenges in customer loyalty management, and operational inefficiencies in logistics, inventory management, shop floors, etc. Added to this is the relatively lower level of IT implementation, compared to other industries.

Today, there is an increasing reliance on data and insights in business decision making. Where senior management expertise was once enough, the use of analytics to guide strategies is on the rise. Naturally, this applies to retailers across the globe, given the many challenges that they must overcome in the next few years. However, when it comes to analytics, the retail industry faces an interesting problem. While companies in other verticals may envy their evolved data availability, the reality is that retailers struggle with simply maintaining their data, leave aside using it meaningfully to generate business insights.  Major data issues (even today) include:

• No team players – Disaggregated, isolated data architectures that aren’t giving retailers a comprehensive view of their business. There’s multiple Business Intelligence (BI) tools in use, point of sale (POS) data that doesn’t talk to inventory data (as an example), and overall siloed systems
•   Short attention span – Considering large retailers deal with billions of transactions each month, there’s bound to be a trade-off between the cost of retaining vs. forgetting data. An undesirable ceiling on data retention, and the granularity of data retained is a big concern when the analytics experts show up. Some research shows that retailers save as little as a month’s worth of POS data and a year’s worth of inventory data, making historical analysis and trend projection extremely challenging.

While analytics can definitely help retailers tackle their burning business problems, for a large chunk of the market, the conversation today must start with their data warehousing issues. This doesn’t mean that opportunities don’t exist – according to our research, the retail industry presents the strongest market opportunity for analytics. Retailers of all sizes are starting to experiment with undertaking analytics, albeit at a micro-level, to improve their top-lines and bottom-lines. For smaller analytics companies, these focused analytics initiatives are where they can look to partner with retailers. Primary focus areas for analytics in the retail industry are elaborated below:

It is important to note that several mature global retailers have overcome some of the challenges discussed here. They have in fact been benefiting from undertaking analytics since the 1990s. For them, it is the next wave of expansion and growth through latent opportunities that are interesting from the analytics perspective. Emerging areas for analytics attention for mature retailers include:

• Next-gen buzz analytics – including qualitative analysis of web chatter for multiple end objectives such as reputation management and sentiment analysis

• On the go customer targeting – including the potential ability to process real time POS data to suggest tailored promotions, geo-targeting and promoting through mobile devices, the use of video surveillance analytics to guide behaviour, etc.

What this means is there are different types of opportunities for service providers targeting the retail industry. Just as retailers need to evolve to offering tailored promotions for their customers (through analytics), analytics providers must offer differentiated solutioning for retailers too, depending on their type!