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Being ‘recession ready’ and why data-driven decision making for merchandising is so important

19 Feb 2021

Economic uncertainty is often a pre-cursor to significant change within an organisation, but only those who target their efforts into the right areas will thrive during a recession. This blog explores why operational efficiency should be a focus during a recession and gives a glimpse of tooling that will enable merchandising teams to make data driven decisions.

Organisations across the globe are facing a unique time in history. Strategic decisions must be made, and operations adapted in order to survive and thrive in recessionary times. For companies in retail or consumer products – specifically those heavily reliant on their supply chain to deliver goods to their customers – being recession ready has never been more important.

This readiness is not simply a matter of cutting costs faster and deeper than rivals. A 2010 study highlighted that companies possessing an over eagerness to reduce costs had the lowest probability (21%) of pulling ahead from the competition post-recession. Similarly, businesses that fearlessly invested more than their competitors during a recession only had a 26% chance of coming out on top. However, the companies that deployed a balance of defensive and offensive strategies and focused on improving operational efficiency were found to be more likely (37%) to emerge as market leaders when times got better.

In fashion retail, to become more operationally efficient often means two things: minimising the volumes that transition into markdown by reducing excess stock; and, minimising lost sales that result from stock-outs. Accurate demand forecasting is fundamental to ensuring these performance metrics are successfully met, including the ability to predict customer demand for products without prior knowledge – this is where Insight Driven Merchandising (IDM) comes in.

IDM is a cloud-based tool Capgemini has developed, providing an intuitive and searchable catalogue of all products and brings together all data points required for the decision-making process when planning and buying for a new product. IDM incorporates a neural network-based image recognition algorithm that guides the merchandisers through identifying visually similar historical products. Those similar products are fed to a machine learning algorithm that can learn from data such as material, colour, branding type, season and predict the demand for your new product.

The objective of our IDM tool is not to replace the forecasting responsibilities of a merchandiser, but to empower them with additional insights to make better-informed decisions. The tool is a ‘glass box’ that presents the data and explains the accuracies of the applied AI techniques. Incorporating this level of transparency will enable merchandising teams to gain trust in the tool which they should then combine with their industry knowledge to make data driven decisions. An assistive role is emphasised for IDM. The product’s role is very much a tool that merchandisers should work with to improve on their buying decisions, not replace them.

We have demonstrated a 20 – 30% improvement in buying accuracy. Planning a more accurate buy will lead to:

  • Increased sales – a forecasting model that is nimble enough to handle newness & novelty and can recapture otherwise missed sales. A forecasting model informed by user input can account for the latest trends
  • Improve operational efficiency – intelligent automation of otherwise manually performed tasks free up merchandising teams to focus on trend and new lines adding value in a targeted way
  • Reduce wasted stock – improving forecast accuracy across the entire collection, leads to increased sell-through and a substantial reduction of wasted stock

Following a recession, investment is not simply about growth, it’s a necessity to survive. Consumer behaviour is changing at a faster rate than ever which means the ability to adapt to this changing behaviour has never been so necessary. Those who want to survive must improve operational efficiency to enable withstanding of more volatile demand. At Capgemini, we believe harnessing the latest technologies with clean and quality data will empower our clients to do this, and Insight Driven Merchandising is one specific offer that we believe could help an organisation be recession ready.