Big Data Analytics Revolutionizing The Way Retailers Think

Big Data Analytics Revolutionizing The Way Retailers Think

Data analysis is shaping the future of the retail industry by enabling merchants to better understand their customers and serve them in highly personalized ways

By Muhammad Saad Khan on Jun 26, 2014 at 9:10 am EST

The idea of data analytics in the retail industry was formed by Amazon.com, Inc.’s (AMZN), which got access to consumers’ data about two decades ago and then began using it. Big Data’s wider usage has caught on only recently, with the emergence of the smartphone and social media industries.

With the development of Big Data Analytics, companies can now make decisions that are much better informed. An enormous volume of data is used now to figure out consumers’ spending patterns, trends, and demands. This information can later be monetized by companies that better cater to customers’ wants, and adapt to changing trends and preferences.

 

Like many other industries, retailers have also started taking advantage of this technology to refine their strategic decisions. As of now, only a few companies have taken this change very seriously to gain an edge over their peers. They have shifted their focus to data-centric decisions for purchases and inventory management, and customer engagement as well as personalized marketing. Though this trend has just begun, it is distinct and growing.

Macy’s, Inc. (M), the second-largest department store chain in the US, has used data analytics to elevate its business. It employed an initiative by the name of My Macy’s, which guides its product collection. The company has invested heavily in a workforce of about 1,600 people that researches and evaluates consumers’ preferences. This information is then utilized to make purchasing decisions that eventually enables Macy’s to improve its sales by increasing the conversion rate of browsing to purchases, by showing those products on its website that the user wants. The strategy has also enabled the company to improve its margin by reducing inventory cost.

The unusually strong emphasis on a customer-centric and data-driven approach has resulted in revenue growth of 4% annually on average in the last three years. This compares well to the 1% sales growth its closest competitor Kohl’s Corporation (KSS) recorded. Macy’s operating margins have also expanded by 2% between fiscal 2011 (FY11) and FY14 to 9.6%.

Investors’ expectations have been high, causing the stock to more than double in the three-year period. This is almost twice the increase of the S&P 500 Index (SPX). Kerem Tomak, vice president of analytics at Macy’s e-commerce division, estimates that the use of Big Data Analytics has caused almost 10% of overall sales growth seen in recent years.

 

Burberry Group Plc (BURBY) is another retailer that has used data analytics software to boost sales. The UK-based luxury company has been spending hefty amounts to enhance its store displays by installing modern technology and equipment, and has been building its data management capabilities to make its marketing more personalized.

It has started its Customer 360 program, through which it connects to its customers around the clock on various social media platforms. The data analytics software helps the company build a database of customers’ past purchases, internet searches, and ‘likes’ on their Facebook (FB) profile, allowing Burberry to market its products on an individualized basis.

Ex-CEO Angela Ahrendts, who recently left the company to join Apple Inc. (AAPL), once said, “Our focus is on integrating the benefits of the physical and digital spheres to deliver them a seamless, personalized experience on any platform and in any geography,” as she elaborated on the company’s philosophy of harmonizing its in-store shopping and online shopping experiences.

The success of the company’s strategy can be gauged from the fact that it recorded a growth of 17% during the last year, while LVMH Moet Hennessy Louis Vuitton SA (LVMUY) recorded flat sales in its Fashion and Leather Goods segment.

Vera Bradley, Inc. (VRA) is another fashion retailer using data analysis to boost its sales. The company, which would earlier flood its customers’ email inboxes with promotions, has shifted toward segmented and more personalized digital marketing by capitalizing on data analysis. Women’s Wear Daily revealed that the company’s data-focused approach has reduced the number of its marketing emails by 63%, while its browser-to-purchaser conversion rate has increased by 2.75 times.

Data analytics can also help retailers build customer loyalty by serving them better. At the same time, they may sufficiently reduce their costs by curtailing expenses where needed. In the National Retail Federation’s Big Show, IBM’s chairman Ginni Rometty delivered a key note on the importance of data analysis in revolutionizing the retail industry. While highlighting the fact that the significance of big data is something that is under hyped currently, she said, “It will be retailers’ basis of competitive advantage … and will be how you engage with your customers.”

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