Balancing the “science” with the “art” of retail
Balancing the “science” with the “art” of retail was: Retail is both science and art. The last decade has seen significant improvements in the science of measurement. Has the pendulum swung too far? Can you really measure everything? Today’s retail challenges indicate that there may be too many numbers, and not enough of the “art” of being a merchant who engages consumers.
The retail press has been filled with recent stories of retailers applying quantitative metrics, in order to downsize assortment complexity and reduce inventory levels. One of the more dramatic case study examples was “the master of retail science” using SKU rationalization metrics to cut some big brand SKUs from shelves to significantly reduce inventory.
One of the prominent sound bites from our most recent IMS Retail U workshop
There are many measurement truisms which still bear fruit and ROI:
· If you can’t measure it, you can’t manage it
· What gets measured gets done
· What pays off gets done first
With today’s razor thin margins in categories like packaged goods, big retailer chains cannot survive without the science part of retail.
Case in point, 49% of Walmart’s US retail business is food related. Walmart’s use of metrics (like fill rate, in-stock, turns and GMROII) has set high, quantitative benchmarks for operational efficiency and retail profitability. Said another way, systematic processes and measurement produce results that count on the bottom line.
SKU Rationalization – A classic case study of the “Science”
Not too hard to guess that the “master of science” was Walmart. You can rest assured that they had validated all SKU and brand reductions with detailed metrics to quantify the decisions and ROI.
Last year, reduced the number of SKUs 7.6%, while increasing sales 1.1%, and improving gross margin 73 basis points. These are extremely impressive results in last year’s economy! Walmart
“Science gone bad” at Walmart – A case for some “Art”
What Walmart could not quantitatively measure, or accurately forecast, was the response from their core customers. Consumers in search of variety and the brands they preferred started shopping elsewhere. Social networks oozed Walmart’s core customer pleas to “please bring back the old Walmart”, and the brands they loved.
One thing about Walmart – they are not stupid! This year Walmart calls are going out to bring back major brands to Walmart shelves. (Those vendors have got to be relishing a bit of “I told you so”!)
While Walmart spokespeople claim that current assortment expansion is not tied to store traffic, you know that they have to be alarmed at a 1.6% decrease in “comp store sales”, while all of the “dollar” stores and Target comp stores are registering sales increases.
I suppose that you could argue that Walmart could, or does measure aspects of assortment breadth through store traffic or sales declines. But, the “fix” will come from the art of constructing a balanced assortment, which appeals to Walmart’s broad customer base. There is no single set of metrics or spreadsheet for that.
To retain customers today requires the art of constantly evolving the assortment to match consumer trends and preferences. The “data” is more qualitative customer feedback, than quantitative scorecards.
The Case for Art – Qualitative aspects of retail
The case can be made that it is possible to measure consumer “mood” or reaction through social media. There are increasing means and tools which attempt to quantify consumer response, tone and mood. While these tools may provide some numbers to quantify “pulse”, there is no substitute for plain old observation of consumer behavior. Said another way: the science of retail is necessary for retail efficiency, but not sufficient for strategic insights required for differentiation and survival.
Timely blasphemy – Too many numbers not enough art!
This will perhaps seem like blasphemy from a measurement guru who writes for a blog entitled: Results count, everything else is conversation.
Retail in North America is currently suffering from too much science and quarterly focus on the “numbers”. It’s become all about costs, price and net margin. Retail has become more about efficient distribution of commodities at a price, than the art of engaging consumers.
Art gets relegated to the back corner these days, because we don’t know how to quantify it. Frankly, I don’t know how to accurately measure or quantify consumer excitement and fascination, but you can literally see their eyes light up and hear them say “WOW” when they are engaged.
There are a host of new products coming in consumer electronics that involve new kinds of “connections” and content consumption. Everyone is racing to figure out “the cloud”, and deliver content in ways the consumer has never dreamed, or experienced. That will require more art than science. It is past time in retail to have a conversation, many conversations, about the consumer experience and how to create “Wow”.
Science yields precision, predictability and profitability. Art excites and engages us with new perspectives through experience. Retail is reaching the “law of diminishing returns” for increased precision on metrics. It has NOT begun to crack the code on how to engage consumers in connected experience beyond the individual SKU.
It is time to swing the pendulum back … and to literally put art as the first part of the new retail reality: Retail requires both art and science.
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Posted by: Adriene | September 19, 2013 at 07:59 AM
Great article, but I think the science applied in retail for SKU management is not good. It is one-dimensional, and that is why it misses the mark.
Product relationships are key to managing the SKUs in retail - store or e-commerce. That means - what SKUs are bought together in high propensity, and what are the lone singles. Walmart would not have lost 1.6% incomp store sales if this were done with the right science.
I do not argue that art is required. But I think the science is not good enough! Hence Walmart has to bring back the SKUs they cut.
What a waste of time, effort and lost opportunity!
-Jeff
Posted by: Jeff Fisher | March 18, 2010 at 07:09 AM