The phrase “Rocket Science Retailing” has been around for a while. It connotes managing inventory and pricing via sophisticated optimization based on data as opposed to “gut” decisions of where the market is going or running the same playbook year after year. The name also denotes a certain amount of finance envy. If Wall Street’s quant jocks were known for reading bird entrails, OMers would speak of entrails retailing. Insecurities aside, retailing does offer many opportunities for sophisticated decision support techniques in part because there is now lots and lots of data. At some level, there has always been a lot of data. What is new is that over the last 20 years or so it has become possible for pretty much any size firm to capture, store and manipulate that data. Further, Internet-based firms can track not only what a customer bought but what other items they considered. Sunday’s New York Times had a story that touched on this (A Data Explosion Remakes Retailing, Jan 3):
Retailing is emerging as a real-world incubator for testing how computer firepower and smart software can be applied to social science — in this case, how variables like household economics and human behavior affect shopping.
To be sure, major retailers like Wal-Mart Stores have long been sifting through in-store sales and demographic information to aim goods at different stores and to tightly manage supplies.
But what is changing, experts say, is the rapid surge in the amount and types of digital data that retailers can now tap, and the improved computing tools to try to make sense of it. The data explosion spans internal sources including point-of-sale and shipment-tracking information, as well as census data and syndicated services. Companies also track online visitors to Web commerce sites, members of social networks like Facebook and browsers using smartphones.
So what is all this good for? The article claims that the real action is on tactical fine-tuning:
Even computing enthusiasts acknowledge that the technology is far better at fine-tuning decisions on pricing, product assortments and shipments than the basic merchandising judgments about what goods to make and buy from suppliers. “In the world of retail merchandising, there will always be a mix of art and science,” said Lori J. Schafer, a retail expert at SAS Institute, which specializes in analytic software. “But the more you can get into customers’ heads, the better off you are.”
And that is backed up by some the brief case studies mentioned in the article. 1-800-Flowers.com, for example, has significantly increased its conversion rate by optimizing the web pages and offers presented to customers. The most interesting example discussed in the article doesn’t actually fit with the rest of the pieces tone or storyline. It concerns Wet Seal, a fast fashion firm that targets teen-aged girls. They have an on-line ap that allows customers to create ensembles from the store’s assortment. These can then be saved and viewed by others — including those in the store with iPhones. Thus if a customer wonders what would go with a given sweater, she can just look on-line for suggestions. This seems to turn rocket science retailing on its head. This is not creating value by sophisticated analysis; it’s creating value (and presumably driving additional sales) by letting 15 year-olds show off.