Are You Placing the Right Bets?

placing-a-bet_730x280.pngRetailers are always placing bets. On a regular basis, retail merchandise buyers are betting on what brands, colors, styles, quantities, etc will sell well. This is very much an oversimplified statement, but much of their job is to gamble and win, and the winning part is critical. So, how do they know if they made the right bet?

Why is this important in retail?

For some of the larger retailers, many millions of dollars are at stake on a daily or weekly basis. Merchandise buyers are tasked to ensure that whatever is purchased, will sell. This means knowing the market, their customers, and behaviors. Here’s a description of a merchandise buyer from study.com:

Merchandise buyers, also known as purchasing agents, must assess what products their company should sell, how much of that product they should buy and which supplier will best fit their needs. Perhaps the most important aspect of this career is the ability to understand the customers' needs and then use that knowledge to help the company be more profitable. To do this, the buyer must study and identify trends in the marketplace.

Many retail buyers find themselves in a scenario where they are making potentially risky bets. Should they double-down, bluff, or fold? What feeds their intuition, so they bet well? Let’s say, for example, that an overall buy is in place for a set of sweater styles. If most of the buy is comprised of only a few sweater styles, then there is a very aggressive (and risky) bet in place that those styles will sell well. 

How do you know what to bet on?

The question isn't only about what to bet on, but also what would happen if a few more of the bets were accurate every season. To determine how well the bet performed and what to bet on in the future, we would need to first gather all the buys and sells, and start breaking them out into buckets based on size - small, medium, large, for example. In a perfect world, all of my "big" buys sell big and all of my "small" buys sell small. As you can see below, we now have a matrix that maps each buy and sell. If the big buy sold big, then we have a winner. If a big buy sold small, we have an area to improve upon. So, how did we do and where did we bet incorrectly?

sweater-styles-buckets.jpg
A nearly 50% accurate buy


After lining up the buys and the sells for all sweater styles, it becomes apparent how a buy (or bet) performed. The three dark grey boxes represent the accurate buys - the ones that sold well. In this case, almost 50% of the buys and sells were matched correctly. To Celect, a good betting accuracy is around 65%, so this means there’s a fair amount of headroom for improvement.

The rest of the values in lighter grey are mismatched - if you look at the small and average buys, they actually are in the “big” sell column. This means those buys sold very well and more of those styles/traits should have been procured, with more profit realized.

Or, said another way, we could have doubled down here.

How do you think your bets are performing? Like any good poker player, is there room for improvement? Part of the benefit of employing retail analytics into your operational processes is to discover these types of metrics - otherwise known as “buy accuracy” or “buy quantification". With this type of information, you can discover what worked (or didn’t work) in previous periods, to improve the results of future buys. 

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Topics: retail analytics, poker

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