22 Future of Retail


issue 01


• A large UK department store was about to take a 50% markdown on some products that weren’t selling. It transpired that they had been miscoded and simply weren’t appearing in the site search results.


• A beauty retailer was about to discontinue a niche brand, but it was discovered that VIP customers were addicted to it (40% bought the same product again within 8 weeks). The range was subsequently increased.


BIG DATA IS THE ANSWER


Big data is created by the “digital exhaust” of all the digital commerce actions and activities, and provides the means to regain control. Unlike physical retail, where data is typically aggregated and is homogenized by aggregation, the resolution of digital data presents a new challenge and a new opportunity. The challenge: a typical retailer will easily generate


100 million data points a week. How? Imagine, a retailer with 500,000 customers, 20,000 products and 50,000 marketing campaigns (where each unique keyword/ affi liate/banner = a campaign). The data is multiplicative – every click from every visitor on every product, from every marketing source – and one can see how quickly the data explodes. The opportunity: big data allows retailers to


transform the way they think about and approach the three fundamental truths of retail: diagnosing what is going on, deciding what to do about it and then doing it. • Diagnosis: understanding the context and explaining what is happening. We are moving from a world of diagnosing performance based on ‘good enough data’ and anecdotes where store staff intuitively know the answers, to a world where diagnosis and insight can be delivered algorithmically.


•Decisions: deciding what action to take and predicting what will happen. We are moving from a world where decisions can be made based on experience and simple rules or equations, to a world where the explosion in volume and complexity of decisions requires predictive and prescriptive analytics to work out what to do.


• Delivery: taking the actions. We are moving from a world where people take actions (e.g., moving stock or changing prices) to a world where reporting gets ever more specifi c and execution is digital. There is an inexorable convergence of reporting and actions


where execution can be automated (to varying degrees).


THE 10 BIG DATA RULES FOR RETAIL


Taking advantage of this is a change management challenge. Senior retailers, who have made decisions (often successfully) in a certain way for decades, now have to re-learn retail. Here are my top 10 rules: Decisions 1. Start with the decisions. Ask ‘how are we going to make decisions differently?’


2. Be clear on the objective. Articulate and agree what success looks like, so you know when to stop.


3. Perfection is the enemy. The objective is not to achieve perfection, but should be ‘How do we make the best decision possible given the available data?’


4. Feedback trumps certainty. In a world of rapid feedback and reversible decisions, retailers need to make a clear trade-off of opportunity vs. risk.


People 5. Catalyse change. If your people don’t think they need to change, change the people.


6. Rethink silos. Many of the critical decisions of digital commerce can no longer be optimised in the organisation silo.


7. Data is not one role. A variety of skills are required to make sense of data: data architects, analysts, algorithm designers, mathematicians and statisticians bring different skills to the table. A Chief Data Offi cer – or similar – is critical to act as a conductor of this new data-driven world.


8. Data is the new oil. Data is a valuable asset that needs to be discovered, mined, extracted and refi ned to turn into something useful, and then be joined across systems.


9. Think algorithms. In digital commerce, everything is an algorithm – the application of logic to data.


10. Averages are the enemy. They are often misleading and rarely representative. Outliers, deciles, dimensions and stratifi cation are critical tools for unravelling averages. Whenever you are presented with an average/ratio/percentage, a good question to ask is “what’s the distribution”?


The retail world is getting excited about the possibilities of big data but, without a fundamental change in how decisions get made, nothing will change.


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