Business intelligence enables broader view of data and better handle on performance
By Paul Demery
Guitar Center Inc.—for many, as retailers go, it’s gotta be a fun place to work. Hit the sales floor in one of its stores, or live chat on one of its web sites, and one can hob-nob with shoppers about the latest in the instruments of rock ‘n’ roll and other musical genres. Visions of Eric Clapton, Jimi Hendrix, Stevie Ray Vaughan and Andy Summers abound. What could be better? Perhaps having rich, meaningful data to make the job easier and more profitable.
To obtain such information, Guitar Center invested in a business intelligence system that shows, for instance, how well individual sales associates at specific stores are selling guitars combined with extended warranties. “We can now get quick answers to questions while slicing and dicing data from several operations,” explains John Zavada, executive vice president and CIO.
Business intelligence—does this mean poring, eyes glazed, over reams of spreadsheets and bland computer screens stuffed with endless numbers, trying to make sense out of what it all means? Business intelligence, commonly called BI, can be tough to grasp—especially for retailers.
Business intelligence software traditionally has been known to help many businesses see how all aspects of their operations are performing and having an impact on one another. It can clearly show if new rollouts from a product development team are boosting profit margins, for example, or causing a net drop in income because they’re creating higher costs for warehouse and shipping departments.
In retail, however, it’s often another story because of high volumes of product SKUs—including many variations of color, size and material content for each product—plus the need to distribute different assortments of product mixes across multiple locations and selling channels. “Non-retail types of businesses with large volumes of products and parts don’t manage information the same way retailers do,” says John Hagerty, vice president and research analyst at research and advisory firm AMR Research Inc. “But retailers want to know the profit of each SKU and get down to high volumes of data for each product and each store location.”
The ability to grasp that kind of information is crucial to the successful operation of direct retailers as well as store chains, especially as retailers expand product lines and customer bases to serve the broadest possible market. “Business intelligence is being able to look at all aspects of your business and pull them together,” says Don Allen, senior director of I.T. operations for web-only retailer Drugstore.com Inc. “You don’t want blind spots when you’re trying to run a web site.”
Retailers also face the challenge of operating without the kind of integrated enterprise resource planning software suites other industries commonly use, software that can produce much of a company’s business intelligence data, Hagerty says. “For many retailers, the combination of software packages that run their operations is a mess,” he says. “So there’s often a need to put a business intelligence system above the multiple software packages to get a unified view of what’s happening.”
A new focus on business intelligence technology for retailers, meanwhile, is resulting in more options for merchants. Cognos Inc., Business Objects SA and Hyperion Solutions Corp., a subsidiary of Oracle Corp., for example, have added retail packages to their business intelligence software offerings, which are known for handling a general range of business intelligence data for manufacturers and others as well as retailers, Hagerty says.
Other vendors, including MicroStrategy Inc., QuantiSense, Manthan Systems and SeaTab Software, offer business intelligence packages designed more specifically for retailers with more of the granular business intelligence data merchants require for drilling down to SKU-level details.
“Where a retailer is coming from indicates which solution it should use,” Hagerty says. “MicroStrategy is strong in merchandising because of its pure quality of data and the number of SKUs and customer records it can handle. If a retailer is looking more at supplier relations and a higher-level view of merchandise and financial records, it might want to use Cognos or Business Objects. They offer more category management as opposed to SKU analysis.”
MicroStrategy also provides development tools that let retailers customize the way they receive and view information. For retailers wanting a more prepared business intelligence package, QuantiSense, Manthan Systems and SeaTab Software offer ready-made applications, Hagerty adds.
And retailers can take other paths to business intelligence. Oco Inc., for example, is offering a business intelligence system in a software-as-a-service platform, which frees retailers from having to purchase and install new applications. CoreSense Inc. offers small but growing retailers like apparel and accessories retailer Island Trends a turnkey e-commerce and store operations package with a business intelligence application that cuts across all operations in both selling channels.
The cost of business intelligence systems varies widely based on the volume of data, including a retailer’s number of product SKUs, database applications and system users. Prices start at roughly $50,000 and go up to $500,000 or more, Hagerty says.
Air guitar
At Guitar Center, the retailer’s MicroStrategy business intelligence really isn’t as much fun as imitating Clapton or Hendrix with a guitar on the sales floor—unless one gets excited by instant, even animated images that describe how well recent merchandising or marketing strategies are strumming along and how they are having an impact on other company operations.
The retailer’s business intelligence application is no dull, eye-tearing specter. The latest version has web development tools Flash and Ajax, which together quickly serve up graphical dashboard images that, at the click of a button, make colorful data points move on charts that show, for instance, how sales of Gibson Les Paul guitars are trending around the country and affecting warehouse and distribution costs, or how different prices for extended warranties help shape overall sales and profit margins.
Indeed, extended warranties on musical instruments are important as both a selling tool and a revenue stream, and Guitar Center has been using its business intelligence system to find correlations between special offers on warranties and the profitability of combined sales of products and warranties. “We want to know if it works to our advantage or not,” CIO Zavada says. “Then we’ll drill down to specific stores and salespeople, then down to all aspects of specific sales tickets.”
That capability goes a long way toward helping Guitar Center’s 12 district managers get a grasp on how effectively the 5,000 sales associates in its 209 stores handle the sales of warranties, he adds.
Before it had the business intelligence system, Guitar Center was only able to look at data at product category levels by day or week. Although it could mix and match information to see how sales of one item might affect another, it often had to first get on the company’s I.T. department’s to-do list, which could take weeks, in order to receive reports in Excel spreadsheets. “A lot of times managers would get their information but it would be old and less valuable,” Zavada says.
Now Guitar Center managers create new reports in minutes, he adds. “We’re able to select things based on multiple dimensions, such as specific sales translated to profit margins for specific items, time periods, locations and individual salespeople,” Zavada explains. “We can look at a large data cube and drill down into it to understand different performance metrics. With about 30,000 SKUs, we can do analyses on any item by day or even by hour.”
MicroStrategy’s latest business intelligence platform has been upgraded to make it easier for users to produce graphical, animated reports, says Mark LaRow, the vendor’s vice president of products. Anyone familiar with Microsoft PowerPoint and Excel applications should be able to create customized reports, he says.
Guitar Center operates in three divisions: In addition to its Guitar Center chain of retail stores and GuitarCenter.com, it operates the rental business Music in Arts and the retail web and catalog merchant Musician’s Friend. It uses business intelligence across all three divisions and has integrated it with a data warehouse from Netezza Corp. Guitar Center expects soon to begin using business intelligence for cross-channel analysis between Guitar Center stores and GuitarCenter.com. It won’t extend the cross-channel analysis to include Musician’s Friend, however, because its sales don’t include store locations and thus not truly comparable, Zavada says.
BI for the small guy
But new business intelligence systems aren’t just for retailers with extensive operations. Island Trends, an upscale retailer of resortwear apparel, shoes and accessories, operates an e-commerce site and a single store on its home base of Marco Island, Fla. Although the store opened first, in 2001, the web site, IslandTrends.com, has surged to 75% of overall sales since it launched in 2003.
Founded by Island Trends president Skip Chustz, a former retail executive with department store chain Shopko, the Florida retailer now does more than $4 million a year and has come to rely on a business intelligence component of its CoreSense e-commerce platform to better manage growth.
Until it went live with CoreSense last fall, Island Trends had operated its store and web site on separate technology platforms with no data integration. While the store and web site are both managed from the same location with a shared product warehouse, the separate operating systems made it difficult to procure important operating information.
“Members of our customer service team couldn’t check online to say what products were available, they’d have to come out into the warehouse to look,” Chustz says. “Now they can just open another window on their computer screen and get the information in seconds.”
Island Trends staff members also can pull reports on multiple data points, including sales, inventory levels and vendor performance. “We can slice and dice data any way we want,” Chustz says. “The system has more data functionality than we have time to pull, so we’ll eventually go to a system of automated reports.”
At the same time, Chustz says, he expects the system to help manage overall operations along with continued growth without having to add staff.
The cost of deploying a CoreSense e-commerce platform, which includes the business intelligence application, runs from about $30,000 a year in fees to as much as $500,000, depending on sales volume, says CoreSense CEO Jason Jacobs. In addition, clients pay set-up fees ranging from $15,000 to $200,000, he adds. CoreSense serves retailers doing up to about $300 million a year in sales.
Beyond web logs
Much of the information many retailers need is stored in web logs designed by the World Wide Web Consortium, or W3C, an Internet technology and standards organization. Drugstore.com uses in-house applications to pull information from its web logs and analyze it across different applications. For example, it combines e-mail marketing and sales data to see which combinations of promoted products produce the highest sales and margins, and it can compile data on shipments to different parts of the country for when it needs to negotiate better deals with carriers, Allen says.
But the trouble with web log data is that web logs were designed to produce data a day after it’s compiled, requiring web site operators to deploy business intelligence applications that can pull web log data in real time, Allen says.
Drugstore uses the TrueSight application from Coradiant Inc., which records data on individual customer visits the retailer can analyze. To extend the application into a full business intelligence application, though, Drugstore still needs to integrate it with other resource applications to combine information for a data warehouse, where disparate pieces of data are analyzed together, Allen says.
As with all business intelligence projects, however, Drugstore is not alone in having to continually add more information sources. “One of the things about business intelligence is you’re always adding to it,” Guitar Center’s Zavada says. “As we continue to roll out brands, we add metrics and analyses.”
Although business intelligence applications generally work outside of real-time transactional data, the integration of transactional data into business intelligence also is on Guitar Center’s drawing boards. The retailer is looking into deploying a new store point-of-sale system capable of sharing real-time sales transaction data with its business intelligence application, providing for analyses incorporating ongoing sales data.
More data
Guitar Center also is planning to incorporate more supply chain data into its business intelligence system to produce reports on vendor performance. “We’ll be loading more things into business intelligence, including data in our logistics environment and distribution center, so we can come up with a vendor scorecard,” Zavada says.
Deploying and expanding a business intelligence system is not a quick and easy affair, however, and retailers need to be extremely careful to check that business intelligence reports are pulling and compiling accurate data. “Accuracy of data is crucial,” he adds. “If your people don’t believe the data, they won’t use it.”
Guitar Center took about nine months to design and deploy its system. “We did a lot of data preparation to make sure we were looking at real numbers,” he says.
The more a retailer users a business intelligence system, the more it discovers information it needs to pull from databases and correlate and analyze, experts say. “There’s an old saying about business intelligence,” Hagerty says. “It shines a bright light in dark spaces, so you keep learning lots of new things.”
paul@verticalwebmedia.com
