Enabling Effective Store level decisions with Analytics

An iGATE Whitepaper

Abstract Gartner1 says that store is the heart of retail operations. Most retailers want to get more customers to stores and get more out of their wallet. According to Forrester Research2, with increasing centralization of retail, majority of the decisions for store operations are taken at the HO level. Analytics therefore have been largely targeted for the HO and deployed effectively leading to improvement in top line as well as bottom line. To improve sales and margins further, it now becomes imperative to improve decision making at the Store level. Better conversion of walk-in into transaction and increase in average transaction values can be achieved through optimizing the number of tills deployed and scheduling the staff effectively. IGATE piloted its in- store analytics solution at a leading retailer which led to almost 50% of sales increase at a store leading credence to the hypothesis that there is a considerable opportunity for improvement of top line and bottom line of stores through data driven insights.

Table of Contents
In Store Operations Analytics: The Opportunity today ............................................................. 3 In Store Operations Analytics: Focus Areas .............................................................................. 4 In Store Operations Analytics: Illustrative Examples at One Store for a Leading Retailer ......... 6 Conclusion............................................................................................................................... 9 References............................................................................................................................. 10

In Store Operations Analytics: The Opportunity today

There are two dimensions to increasing sales at retail stores: One, increase sales by increasing traffic or getting more number of people to the stores and two increase sales by increasing the performance of traffic. Better Performance of traffic means increase in conversion of walk-ins into transactions and increase in Average Transaction Values (ATV). Today, most retailers have well defined systems to increase traffic at stores as these decisions are taken at the Head Office level which broadly falls in the realm of Marketing. With greater centralization of the retail organization, vendors providing decision support systems have largely focused their attention on the Head Office. Most of the decision support systems covered by the current Gartner hype cycle for Analytical Application3 for retail stores are focused on HO level decisions. To increase sales further, it now becomes important to shift the focus back on the store and leverage the power of analytics to increase the efficiency at the store level which will lead to better performance of traffic. Slight increase in both conversion rates as well as the average transaction values can have a tremendous impact for every retailer. Typically retailers have anywhere between 20% to 45% Conversion rates and average transaction value of 40$. The illustration below shows that even if we have two percent increase in conversion rates and average transaction value increases from $40 to $45, Sales increases by 20% which approximately translates to increases in sales by $40000 per store per year

Therefore, investing in analytics targeted towards store level decisions makes financial justification. In addition, it also means greater empowerment of store staff amidst increasing centralization of retail decision making. Furthermore, since most of the stores have superior technology systems deployed, an analytics layer can be built over and above the existing platform without any additional hardware costs. What are the areas that the analytics should focus upon within store operations to realize the financial benefits? 3

In Store Operations Analytics: Focus Areas

Having identified the impact of increasing conversion rates and increasing Average Transaction values on the overall sales of a retail store, it now becomes important to drill down further and analyze the factors that lead to better conversion rates and better Average Transaction Values. According to Knol4, the following factors are crucial from a Store Operations perspective: Number of cashiers you have on duty at specific times or No of Tills that are operational at specific times Scheduling both people and tasks so that staff are able and ready to focus on selling during the periods when the potential is highest Setting realistic, specific selling targets and monitoring results

Decision Support Information Systems can be used in helping some of these issues identified by Knol. According to Forrester research2, Information systems are used in store operations in the following areas: Sales Performance : Sales Dashboards , Peer Comparison and rankings, individual and depart performance, Top and bottom selling items analysis Workforce management : Alerts on employees not clocked in ,Alerts on employees approaching overtime, Actual performance against planned Customer Relationship Management : Ticklers to call customers, Event based triggers for customer calling, like arrival of fresh stock

From an analysis of where decisions support systems are used currently and where they are not, we see that apart from monitoring sales performance, decision support systems are not generally used for Store level decisions that have an impact on increasing conversion rates or transaction values. Thus there are numerable opportunities to deploy decision support system in stores, the following of which may be considered. Firstly, Systems, addressing questions like how many tills do I need to operate today will address the wait times at the billing counter. Secondly, in order to make sure that most of the store staff is performing customer facing tasks, it is Important to link the amount of employees on the shop floor directly with the footfalls expected. However, as Stores technologies advance to the next stage, data is getting stored in many disparate data silos some of which may be identified as: Cameras, POS, In Store Wireless Devices, and Kiosks etc. Availability of data for ad-hoc analysis thus becomes one of the greatest challenges in store operations analytics. There is an increasing trend among most of the retail companies have stores as a platform 4

separate from the enterprise platform, because of the proliferation of many devices at stores. Therefore, detailed transactions data may not be available in enterprise systems. Secondly, since different stores within an enterprise may operate on different technology platforms, it only becomes increasingly difficult for retailers to opt for single solution that fits all its stores operation. It is thus necessary to have analytics solutions that are customizable to your business and also cost effective. Thus, a cost effective retail analytic solution must include three components .First, a component where in data is collated from a variety of sources into a single source for ad-hoc analysis. The second component would be in developing the business rules and models for analyzing the data. The third component would be to the deliver the analysis across various channels and mediums like: mobile devices, store manager PC, over the internet etc. The solution vision for a cost effective retail store operations analytics solution can be summarized in the diagram below.

Having examined the areas that are of immediate relevance for deployment of in- store analytics, we will now illustrate the same by understanding illustrative scenarios at a leading retail outlet.

In Store Operations Analytics: Illustrative Examples at One Store for a Leading Retailer
Till Deployment Analytics To address the issue of long wait times, it is necessary to have decision support systems around how many tills the store needs to operate during the day. The critical inputs needed for such a support system are: Number of footfalls during a particular time period (Say 3 Hours) Past Data on Number of Bills during a particular time period (Say 3 Hours ) Number of Transactions a till typically can process during the 3 Hour Period Any special Circumstances

For a leading retail store, iGATEs extracted the above relevant data into an intermediate data mart from different data sources and determined the appropriate nature of the distribution of data for last 6 months which fitted into a Triangular Distribution. The sampling technique used was stratified sampling - Method of sampling from a population when sub-populations vary considerably, it is advantageous to sample each subpopulation (stratum) independently by dividing the data into different substrata like the day of the week, the week of the month, shift of the day etc. The consolidated sub stratified data sample (disguised) from the population of 6 months is as shown below,

The above sample was an input for further data analysis for Advanced Regression and Monte Carlo Simulation techniques to forecast the Number of Bills that are anticipated for different shifts for the day of the week. The results post this analysis is summarized below- The graph illustrates the number of bills likely to be cut per shift.

Taking the number of bills that a till can produce during a three hour shift as 20, the number of tills required for the each shift for the entire week was predicted as shown below:

Analytics for Staff Scheduling For the Same Retail Store, iGATE also helped to effectively schedule staff (Required for Customer Facing Activities) for different time slots taking day of the week and data points at time slots of three hours using the same data points as described in the previous example for Till Optimization. In Addition, hourly walk in data was also considered. iGATEs solution component was in developing a prediction model for Staffing needs for one week based on the data of past four weeks during different hours of the day .On the basis of the above prediction model, the actual number of employees that need to be present at shop floor was forecasted as follows for every three hour shift for the forthcoming week

Results of Pilot Test of iGATE Solution IGATEs deployment of till analytics and staff schedule optimization as described in the preceding sections helped increase sales up to 50 % during a span of one month. 30 % of this increase was attributed to increased conversion rate and the remaining was as a result of increase in average transaction values. It can be thus be inferred that even by a conservative estimate, decision support systems for Store Operations can have a very significant impact on Top line of Retailers, a hypothesis that we presented at the beginning of this paper. It is therefore recommended that retailers deploy effective analytics in an integrated manner to streamline store operations decisions and hence increase sales by increasing performance of traffic.

Conclusion
In Conclusion, given the competition and increased margin pressures faced by the retail industry, it becomes imperative for the retailers to find avenues to optimize costs and improve revenues. Deploying In-store analytics is a great opportunity for retailers to leverage the power of analytics, differentiate from the rest by providing the power of decision making to the stores. This will help in increasing the predictability of sales and profits. iGATE proprietary in-store analytics model is the right step in this direction which has led to substantial growth in the sales for a leading retailer in the world within a month of piloting the solution.

About iGATE: iGATE can be a trusted partner for helping optimize store operations decisions through analytics . iGATE has well established Retail and Analytics practices, the convergence of which have led to the development of strong capabilities in retail analytics. iGATE has consistently been ranked No 1 in Data Warehousing and Business Intelligence by the Black Book of Outsourcing in the recent years. We are an Outcome driven organization and have innovative pricing models where in organizations pay for business outcomes rather than for effort. Leveraging its past experience in the area of Retail Analytics, as illustrated below, iGATE is working on developing additional store level analytics solutions in the area of in store Cross Sell- up Sell as well as in Store Promotions Optimization

References
1. Roster, Jeffrey. Market Insight: Retail Industry Primer Gartner, 2010. 2. Baird, Nikki. Retail Gets Ready for In-Store Analytics Forrestor, 2005. 3. Herschel Gareth, et al. Hype Cycle for Analytic Applications Gartner, 2009. 4. Retail Conversion
Knol, 2008.

5. Ramamurthy, Karthik and Hazarika, Ankur. The NewScience of Retail Financial Express, 2008. 6. Workforce Analytics-Changing and Winning the Game DoubleStar, Inc , 2005. 7. Daikoku, Gale and LeHong, Ankur. Retail CRM :Vendor Landscape and Capabilities Gartner, 2009.

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