Consultants help Arcadia Group with optimising markdowns management

25 July 2018

British retail group Arcadia is leveraging data science to improve operational effectiveness. Leveraging a specifically designed tool that provides Markdown Insight, both Top Shop and Dorothy Perkins have been able to achieve significant increases in net margin during markdown sale periods, while yielding time savings for merchandisers.

British Retail Group Arcadia is a multinational retailing company headquartered in London, which is best known for its eight keystone brands. It owns the high street clothing retailers Burton, Dorothy Perkins, Evans, Miss Selfridge, Topman, Topshop, Wallis and Outfit, which sells lines from the other group chains. With more than 2,500 outlets in the UK, Arcadia also holds concessions in UK department stores such as Debenhams, Selfridges and House of Fraser, and several hundred franchises in other countries.

As with any retailer, Arcadia uses markdown periods for getting rid of inventory and making bargain-hunting customers happy. The sight of unsold goods at the end of a season can leave any retailer facing key challenges of clogged up space, a displeased consumer base, slowing sales and decreased profit margins. While marking down a product’s price helps inventory reduction, it brings about its own set of challenges. These include making sure that prices are adjusted in systems across merchants and that financials tied to markdowns, such as margins, are adjusted accordingly. 

Amid a tightening UK retail scene, Arcadia has been no stranger to such challenges in recent years, and so was keen to improve on this front. The company therefore tapped an external consultancy – Thought Provoking Consulting – to develop a solution, using data science and agile thinking in order to optimise markdown events. 

Consultants help Arcadia Group with optimising markdowns management

The consultants developed the TPC Markdown Insight tool, which is part of Thought Provoking Consulting’s Smart Retailing portfolio of offerings. Using a science engine consisting of optimisation algorithms and customisable smart tools, the solution can embed recommendations into the business. TPC uses data science to analyse the responsiveness of customers to different discounts on different products, gathering intelligence to make informed price recommendations at every stage of a markdown event. By leveraging data science, automation and AI in this way, the TPC Smart Retailing solution is designed to not only aggressively target benefits of markdowns, but to be self-funding within weeks.

Since the solution’s initial implementation last year with Arcadia’s Topshop and Dorothy Perkins brands, the results have been strong. According to Subir Gupta, Co-Founder and Managing Principal at Thought Provoking Consulting, “Improved markdown decisions have led to sales and profit improvements which exceeded benefit targets by over 200%, while clearing through stock to reduce end of season holdings. In addition the new approach to planning and optimising markdowns yielded significant time savings for merchandisers.”

Building on the success at Topshop and Dorothy Perkins, Arcadia has decided to deploy the solution to all brands. The decision was based on a thorough process of measuring and tweaking during the roll-out in the first two brands. First TPC ran a proof of concept phase for 2017 summer sales, which tested the firm’s markdown optimiser science engine and tool in Dorothy Perkins alone. This paid for itself through the markdown benefits delivered, so TPC then built in enhancements and fully deployed the solution to Dorothy Perkins and began trials in Top Shop during its 2017 winter sale, with the benefits measured once again exceeding the cost of the phase.

TPC’s process

At each step of the journey, the consultants from TPC provided data science, technical training and user support to ensure that the solution was not only delivered successfully, but was also successfully used and adopted. Going forward, the combined project team are now completing the deployment of the solution to all Arcadia brands and expect this to be completed during the summer. In addition, TPC is incorporating further enhancements to improve usability, and to ensure the solution fits seamlessly into the markdown planning processes across all Arcadia brands in order to minimise business change and disruption.

Subir Gupta concluded, “Fashion retail is an increasingly challenging sector with ever increasing competitive pressures. Now, more than ever, it is vitally important to maximise the profit made on every item sold. We are delighted to be partnering with Arcadia to bring our unique, simple to use, data science based tools to mainstream merchandising with great results.” 

The engagement will not stop after consultancy and execution support, however. After go-live, TPC will be responsible for maintaining and supporting the tool as well as providing periodic science refreshes to ensure that changing market conditions are accurately taken into account.

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Consumer goods start-ups grow interest from venture capital

23 April 2019

Funding the latest consumer goods start-up has been a real money-spinner for venture capitalist firms, with a number of $1 billion companies – or unicorns – having emerged in the space in recent years. New analysis has explored the resulting corporate consumer products activity in the acquisitions space.

Consumer products have enjoyed years of strong growth as new markets opened in developing Asia. China in particular has enjoyed strong growth across a range of consumer good types as the country’s middle class expanded. Private equity firms have been keen to pick up targets in the space as they expand their portfolios to include additional local capacity as well as customers in new markets.

As a result, a study from Bain & Company has found that interest from PE firms in the consumer product space grew sharply in 2018, hitting 6.1% of all invested capital for the year, and making it the third most sought-after category. It is now only behind financial services (23.9%) and advanced manufacturing and services (13.9%).

Corporate venture capital investment

The ‘M&A in Disruption: 2018 in Review’ research found that growth in the segment reflects key changes in the segment as a whole. This is particularly true of insurgent brands, which often leverage local expertise in order to take on international giants in domestic markets.

Short change

The market changes have led to shifts in motivations for consumer goods company investments from PE firms. The number of strategic investments stood at 50% in 2015 compared to deals that increased scope. This has shifted significantly, with 34% of deals focused on strategic outcomes in 2018 compared to 66% for scope. The move towards scope reflects companies seeking out fast-growing products that enable stronger revenue growth streams.

Acceleration in scope-oriented M&A in consumer products

However, there were other motivations for deal activity in the space. Activist investors have put pressure on companies to expand their portfolios in recent years, with the trend expanding from just US targets to Europe.

Further trends

The other key shift in the space regards outbound deal activity. The study found that outbound deal activity has increased significantly in the Americas (up 363%) with total deal volume up only slightly (15%). Key deals included Coca-Cola and Costa, Procter & Gamble and Merck’s consumer health unit, and PepsiCo and SodaStream. In the Asia-Pacific region, outbound deal activity rose 195% while total deal activity fell sharply, by -36%. The EMEA region saw both a sharp decline in outbound deal activity, at -68%, as well as lower overall deal activity, which fell by 32%.

Cross-regional deal making

Deal-making in the current environment is increasingly fraught with uncertainties, as business models change on the back of new technologies, new consumer sentiments and wider market changes from new entrants. As such, acquisitions are increasingly useful as possible hedges on changes in market direction. As such, companies are increasingly pressed to take a future-back position, making sure to incorporate a vision of how the company needs to look in five years into acquisition strategy.

The firm notes that certain acquisitions which enhance a remembrance of a nobler mission, revive a sense of entrepreneurialism and engage directly with consumers may be necessary qualities in acquisitions that transform a company to fit market expectations in the coming decade. While going forward, focus on innovation, partnering with retail winners, reducing cost base and constantly reallocating scare resources will be necessary to protect market share in areas where insurgent local and strategic competitors are active.

Related: Private equity asset growth top priority for 2018.