September 18, 2014, 5:10 PM

The ghost economy: an $800 billion retail data disconnect

A new twist on a classic holiday story that online retailers will relive in the upcoming season if they don’t make sure all the merchandise they have is visible on their web sites.

We all know the classic holiday tale “A Christmas Carol,” featuring the unforgettable character Ebenezer Scrooge. A mean-spirited, miserly old man, Scrooge is visited by three spirits on Christmas Eve, each teaching him the errors of his ways.

For retailers, the holiday shopping season can bring about an even more daunting story: “The Ghost Economy: An $800 Billion Retail Fire Fueled by a Data Disconnect.” Based on true events, “The Ghost Economy” can haunt all corners of retail, where products are marketed and orders are taken for products that actually don’t exist. Even more chilling, the story tells us that up to 25 percent of retail sales occur at zero or negative margin and are compounded by the lack of enough eyes and hands to manage the business.  

There is a perpetual disconnect between inventory, sales, customers, competitors, assortment, marketing, store operations and C-level teams both online and offline that has created a $800 billion profit loss for retailers worldwide, according to IHL Group— a notion much more frightening than being visited by the chain-clad ghost of Jacob Marley. What can retailers do?

At the end of the day, retailers need to sell the products they have on the shelves as quickly as possible, especially during the months and days leading up to the holidays. Let’s take a closer look at three critical areas that are often overlooked or taken for granted by retailers, causing sell-through and profits to be hauntingly off of plan:

The Ghost of Inventory Received and Posted Data

Time is money—especially in retail, where products that spend weeks in limbo mean retailers are losing money on potential sales. Recall the true story of the apparel retailer who had nearly $4 million worth in inventory that had no exposure in their stores or their web site. Upon further investigation, they discovered that the delay was a result of SKU’s awaiting imagery, copy and product details for the web site. Realizing what this delay might be costing in missed sales, the retailer secured additional photo capacity to speed up the production process.  As the items began to appear on the site, sell-through occurred. This may seem a simple issue, and one that is easy to detect and resolve. 

Consider this question, do you audit every item ordered to assure that all items are available for purchase?  In truth, every retailer has items their buyers have purchased that are not visible to the consumer.  Retailers must look across inventory, web site data and even returns to connect those areas of the business and avoid such losses.

The Ghost of Competitive Pricing and On-Site Search

E-commerce has increased the competitive landscape, giving retailers the ability to change prices on a daily or even minute-to-minute basis. Online products may not be selling quickly enough because of better competitive prices or delivery terms. So retailers should maintain a constant handle on what the competition is doing to quickly pinpoint the biggest disparities and maintain a positive sell-through speed.

Retailers must make haste to eliminate unnecessary markdowns due to a lack of presentation, low visibility on the site or mis-categorization in site search. One high-end retailer identified $1 million worth of overstocked products, a direct result of products that were mis-categorized or had too few views in search results. The retailer quickly improved site merchandising and re-categorized the products to give added exposure through on-site search and sort orders, resulting in increased sales.

Retailers must identify the products with the biggest revenue potential and know exactly how they appear in search results, within their site category pages and as upsell opportunities for complementary products. This will bring about a significant opportunity for improving the sales of these items.

The Ghost of External and Internal Exposure

While marketing is one of the more obvious answers to increase sales, tying the effectiveness of all retail marketing activities—pay-per-click, email, affiliates, display— to each individual product is nearly impossible. The connection between marketing and merchandising teams can easily get lost. However, with the right tools, identifying those products with the greatest revenue potential with limited or no exposure in external marketing channels can present significant sales opportunities. Another retail horror occurred when nearly $300,000 in inventory was identified to have no external exposure. By increasing the external views of these product pages, the marketing and merchandising teams were able to increase sales and improve sell-through velocity.  Seems simple enough. However, these items were hidden across categories and slipped past the view of the buyers.

With thousands or even millions of SKUs that can change daily, properly displaying and optimizing each SKU on the site can also be an overwhelming task. Is every product on your web site and ready for purchase? Are the landing pages correct, and are the product descriptions and image quality accurate? Retailers must be aware of their biggest internal exposure issues and opportunities in order to properly present products to more customers.  Another retail story comes to mind with over $500,000 worth of inventory with no internal exposure on its web site. By connecting site analytics, inventory data and sales performance, the retailer was able to identify the exact products at issue, work with the merchandising and content teams to photograph the products and get them up on the site. This approach increased sales of these items and avoided markdowns on stagnant inventory.

Retailers know all too well that there are countless areas where systems break down, orphaning out-of-season inventory, with markdown as the only path to resolution.  At the end of the story “A Christmas Carol,” Scrooge is a changed man because he took to heart the warnings set before him by the three Spirits. By understanding the missteps of the past and present, retailers can embrace intelligent commerce; nimbly changing their retail future through rethinking the way they merchandise and market products in today’s connected and responsive retail world.

OrderDynamics provides e-commerce technology for business-to-consumer and business-to-business sellers.

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