The Flux Capacitor of Retail

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What if you could travel into the future?

In the 1980s sci-fi classic trilogy, Back to the Future, Marty McFly brings back from the future the Sport's Almanac, a compilation of sports statistics and scores, with the intention of gambling his fortune on games with a 100% accuracy. 

What if you could fast-forward to next season? What would you bring?

If I had to guess, as a merchant, you’d probably gather all of the transactions across each store. With that knowledge, you could make the best use of inventory by knowing exactly where each product was going to sell.  

If only it were as easy as time travel. While nothing will be as easy as time travel, it can get pretty close with advanced analytics.

Here's why advanced analytics is the flux capacitor of retail. 

Advanced Analytics Predicts Outcomes with Accuracy

Just as Back to the Future’s eccentric scientist, Doc Brown, discovered the flux capacitor as the missing device essential to time travel, retailers are realizing advanced analytics as the missing key to understanding true demand.

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What if we could predict what was going to sell ahead of time?

You have tons of data, but it’s also very sparse – filled with holes and unknowns that make it incredibly difficult to forecast demand with accuracy. 

This is where groundbreaking advances in machine learning thrive. Because there is so much data with a significant amount of unknowns, new approaches to large scale predictions are required. One of these approaches is tensor completion which is able to constantly learn and offer accurate predictions for the desired goals (x amount of unit sales in store X next month), fed by a never-ending stream of heterogeneous data flowing in (images, text, time, etc).

Unlike traditional linear regression forecasting techniques, predictive models give retailers the unique ability to fill in the holes of what’s likely to sell well at a particular location within a particular point in time. As a result, merchants can stock stores with more of the right product with extreme accuracy.

Advanced Analytics Helps Retailers Wage Better Bets

What do my customers want?

This question is at the core of what retailers do. It’s nothing new. In fact, it’s the eternal struggle merchants always faced, dating as far back to the earliest civilizations where the act of buying and selling goods first emerged. It’s a question so crucial to your inventory decisions and drives every action you take during the plan, buy and allocation process.

An understanding of what customers want lays the foundation for your assortment in a given location during a particular point in time.

In Back to the Future II,  the antagonist, Biff, gets his hands on the Sport's Almanac Marty snagged from the future and uses it to bet his way to prosperity and riches. The entire course of Biff's life drastically changed thanks to Doc's time machine. Just as Biff used his knowledge of the future to place better bets, advanced analytics can inform retailers of customer preference within a given assortment to wage better bets on their inventory. 

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Okay, maybe the comparison's a stretch since Biff not only becomes wealthy, but also turns corrupt so the outcome is much more negative (that's besides the point 🙂). Nonetheless, let's break down how advanced analytics can inform retailers of customer choice, which in turn helps merchants make better bets on inventory:

You have data on what customers bought.

However, you also have data on what they didn’t buy.

As we previously highlighted, advanced analytics’ unique ability to fill in the missing holes can leverage this information to deliver insights into what customers would prefer to buy, if given the choice. 

Consumers are literally telling retailers their preference with what they did and did not buy within a given assortment – which is a powerful piece of information merchants can use to improve merchandising decisions and deliver the right product mix.

Advanced Analytics Can Dictate Your Future

While Back to the Future is teeming with sci-fi filled ideas of time travel and technology, the movie is much more focused on the theme of decisions — and how sometimes the biggest ramifications are set in motion by the smallest decisions.

The entire trajectory of Marty’s life changed with the knowledge he brought back from the future. Similarly, every inventory decision a retailer makes matters.

There’s a substantial ROI opportunity hanging over the crucial inventory investments you make each year. You’re placing risky bets on a particular style within each department, class or category – and every bet affects the so eagerly sought-after margin dollars at the end of the season. With advanced analytics, retailers can recover those margin dollars by weighing intelligent insights into every decision along the MP&A process to determine the optimal outcome.

At the end of the day, merchants want to deliver product closer to the customer when the customer wants it. Advanced analytics can empower you to confidently answer the most rudimentary inventory questions, such as:

The ability to uncover insights into localized demand can drive better merchandise decisions, better store allocations, and better fulfillment decisions to improve margins. 

Advanced Analytics is the Flux Capacitor of Retail

Data and advanced analytics technologies are enabling retailers to paint a clearer-than-ever-before picture of what their customers want. As a result, merchants can significantly impact sell-through across their stores to ultimately improve margins and meet customer expectations. 

While a real-life flux capacitor is far from being invented (we’re not quite there yet), I’d say demand prediction enabled by advanced analytics is almost as good as time travel. 

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Topics: brick-and-mortar retail, advanced analytics, machine learning, demand prediction, merchandise buy, merchandise planning, allocation, fulfillment

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