Is retail really ready to take advantage of data science?

Data scientists are clever people but they are a wasted investment unless the retail business is structured to take best advantage of them.

According to Retail Week research, three-quarters of UK retailers are planning to invest more in their data strategy, and while upskilling internal data teams is the number one priority for 74%, both purchasing external data and hiring data consultants also feature in their investment plans.

Some retailers understand that they need more help beyond simply recruiting or training resources; almost a quarter (24%) of the research respondents put engaging third parties for data analysis support in their top three.

Stuck in a silo set-up

Long before anyone started to talk about data, retailers had structural issues around how they siloed their various disciplines in such a way that there was never a single view of the customer, never mind a single view of stock. And this is still where many retailers are; they have brilliantly performing parts that add up to a modestly or poorly performing whole.

Meanwhile, they are continuing to generate data that they cannot exploit because there is too much of it and there is no one able to use the insights to compel the business to act on it in tandem. A classic example is where buying gets a great deal on a product for which it has no proof of demand; marketing is then compelled to shift it, ultimately at times at a loss or break even, and the stores are distracted by having to handle the promotion when they could be focusing on more profitable activities.

The knock on effect started because The Buying Department was incentivised on deals. Sorry Buying Department, but you know I’m right.

Deal or no deal

And now, along comes the data team whose job it is to match stock to demand based on insight into customer behaviour, weather, channel performance, and other events, in order to create a perfect forecast when everything is sold and nothing is wasted.

It is the right direction of travel for all retailers, but I predict it will take much longer than anyone predicts to get a return on investment, which is already turning out to be huge. I am guessing 2% of turnover per annum over the next 10 years; that needs to translate to an improvement in net margin of 8-10%. And it needs to deliver early.

Becoming a data business

That’s not going to happen except for those retailers that are more integrated and collaborative. The vendors that are selling forecasting and replenishment tools are sufficiently advanced, backed by AI, that they can make significant improvements for even inefficient retailers, so there is good news right there, but once a retailer commits to being a data business, then we are barely at the start of understanding how they will need to restructure, change process and hire staff. The systems are ready, the retailers are not.

I’m chairing Day Two of eTail Connect in St Albans on September 5, so hopefully I will see some of you there, and you can tell me what you think.

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