RSR Research: Retail Connections – Predictive Analytics in a Down Economy
By Paula Rosenblum, Managing Partner, RSR Research
Through a special arrangement,
presented here for discussion is a summary of an article from Retail
Paradox, Retail Systems Research’s weekly
analysis on emerging issues facing retailers.
At an analytics roundtable at RetailConnections’
Third Annual Business Executive Summit, I had a really interesting exchange
with the CIO of a major jewelry retailer. I asked, “What good could predictive
analytics possibly have done for you in 2009? After all, no one had a clue
what demand was going to be.”
The answer I got was fascinating. In this
CIO’s view, predictive analytics had been completely helpful to his company:
sales were trending low, so retailers bought based on those trends, and
essentially sold out to the walls. In many ways, 2009 was a very profitable
year, with little excess inventory.
That really gave me pause. All
year we thought retailers were under-buying. And no one really predicted
aggregate holiday sales with any degree of accuracy. The NRF thought “flat”;
PwC: “up one percent”; me: “up two percent.” I think the final number was,
in fact, up two percent, but not driven by the categories I thought they’d
be. So if we couldn’t predict aggregate demand with any sense of confidence,
how could an analytics engine predict sales by SKU?
I suppose the difference is in the desired
sell-through rates. Average seasonal sell-through rates are typically about
65-75 percent. Apparently retailers gave themselves the opportunity to
raise that rate into the 90’s. And it was good. Yet this year, port traffic
is back up, and retailers appear to be buying up again. Even so, no one
seems to have their arms around aggregate demand yet. So have we decided
to drop sell-through rates again? If so, why? If you have some thoughts
about this, please do let me know. It’s one of those retail paradoxes that
I can’t quite figure out.
What do you think of the value of predictive analytics? How does such
analytics overcome uncertainty in demand?