Consultants help Arcadia Group with optimising markdowns management
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.
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.
