Magazine Article | December 1, 2005

Performance Metrics Hold Retail Vendors Accountable

Source: Innovative Retail Technologies

An outdoor gear and clothing retailer's hosted business intelligence (BI) solution helps improve in-stocks 2.0% and profit margins 1.6%.

Integrated Solutions For Retailers, December 2005

Customer data is not hard to capture, but analyzing data can be a whole different matter. Outdoor gear and clothing retailer REI (Recreational Equipment, Inc.) recently discovered that finding a new way to analyze customer data made a positive impact on its business.

REI is a private, cooperative retailer with more than 2 million member-owners and 80 outlets. As a co-op retailer, REI pays annual dividends to its members and to the communities where it does business. To run its business as efficiently as possible, the multichannel retailer relies on various IT tools. "We've had automated replenishment and SKU-level control in place for more than 20 years," says John Strother, director of inventory and logistics at REI. Even though REI's product managers also had access to BI tools (e.g. JDA's Merchandising Manager and Arthur Decision tools), they weren't able to assess the effectiveness of sell-throughs, profit margins, turnovers, and in-stock levels. Each merchant cobbled together spreadsheets from the legacy system, which was a time-consuming process. "We considered building our own BI solution but quickly discovered it would be too costly and time consuming," recalls Dennis Madsen, former CEO at REI.

Around the same time, BI vendor SeaTab Software, Inc. contacted REI about using its hosted BI service called PivotLink. After checking SeaTab's references, REI gave the application service provider (ASP) a try. REI provided SeaTab Software with a sample of its sales and inventory data on a Thursday, and, by the following Monday, the retailer was able to access PivotLink prototype screens and reports. After checking out the Web-based query and reporting features and seeing the potential for its managers and vendors, REI signed a three-year contract, which included a 30-day opt-out clause.

The retailer determined that sending sales data (in a flat file format) to the ASP on a weekly basis via a secure FTP (file transfer protocol) exchange was the best way to go. It also enabled its vendor partners to access reports, which were customized to allow each vendor to see only its own data.

BI Gives Employees, Vendors The Facts
Within a few months of using PivotLink, REI replaced its legacy BI applications. "The cost for the hosted application was just slightly higher than our yearly legacy BI maintenance contract," recalls Strother. Within three years of using the new solution, REI's in-stocks rose 2.0% and its overall profit margins improved by 1.6%. Also, during that same period, REI's sales revenue grew 25% with minimal additions to its merchandising staff. One of the biggest benefits of sharing data with its vendors is that, if a particular product isn't selling, REI can take action. For example, REI carries about 30 different styles of sleeping bags. Using PivotLink, a product manager can run a query and determine which sleeping bag is the poorest seller. "A product manager now has the ability to make informed decisions about pricing adjustments, inventory changes, and product display strategies," says Madsen.

REI currently manages about 15,000 SKUs per location via PivotLink, and its reports include three years' worth of data. The retailer is considering changing its data refresh frequency from once per week to daily updates in order to react more quickly to sales campaigns and boost its profit margins further.