From November 2007   By Jeff Levitan Jeff Levitan is general manager of SAS Global Customer Intelligence and Retail Solutions.
The holidays are a critical time for retailers, who traditionally make 40 to 60 percent of their annual profits during the season.
Given this pressure to perform flawlessly, it’s little wonder retailers are turning to retail technology, specifically in the area of advanced analytics, to bolster their innate merchant savvy and give them an edge. The holidays offer unique challenges in scale, volume and assortments. Retailers find themselves working with unfamiliar products during the holidays; food retailers may carry more general merchandise and soft lines, and department stores include more food items. Creating holiday collections across products and categories and optimizing allocations and pricing are just three examples of areas where advanced analytics can drive sustainable improvements.

Spotlight on retail technology
The brand, the experience and the merchandise still are the key variables that help new retailers emerge, existing retailers thrive and successful retailers take their successes to new heights.

Consider Kohl’s. To describe Kohl’s as a growing family-oriented discount department store chain captures none of the excitement of the company and its stores. Kohl’s recent launch of exclusive brands such as Simply Vera by Vera Wang and apt 9, is the talk of Wall Street.

Kohl’s also is receiving attention from the financial community for more than its merchandise mix: the Wisconsin-based company is now known for its visionary leadership in leveraging advanced analytics to get the right products to the right stores at the right price.

One of the best ways to understand how Wall Street focuses on advanced analytics is to look at reports from financial analysis firms such as Citigroup and A.G. Edwards. These analysts discuss the importance of key technologies like markdown optimization, assortment planning, allocation and size optimization. Both firms zeroed in on what Kohl’s is doing with this technology, and they issued reports that were optimistic about the impact the right technology was making on the retailer’s financial performance.

In January, A.G. Edwards upgraded its ranking of Kohl’s based on the retailer’s processes and improvements, writing “Current key initiatives in the overall area of inventory management include implementation of a SAS-provided markdown optimization package providing real-time recommendations as to the timing and depth of clearance markdowns.”

At SAS, “We’ve seen retailers provide the investment community with guidance that their use of advanced analytics will provide as much as 40 basis points of gross margin improvement to the corporation,” says Lori J. Schafer, executive advisor to the SAS Global Retail Practice.

New faces in the executive suite
Advanced technology brings a broader group of retail executives into the decision-making process. The CEO, the executive vice president of merchandising and others in the executive suite have made important decisions for years, but the importance of advanced analytics brings in other retail executives to share the spotlight.

At leading global retailers, we’ve seen the CFO or finance director taking center stage in demanding investments in technologies such as revenue optimization. We also have observed this trend among private investors and private equity firms, many of which immediately invest in advanced analytics to increase a company’s valuation.

Also contributing to the collective decision-making process is the chief marketing officer, often an executive who holds the key to a retailer’s “soul” in the minds of consumers. As customers become more sophisticated and retail outlets grow and merge, valuable, actionable data assumes staggering importance. The CMO’s team provides customer insights that, when married to merchandise intelligence technology, have the potential to make the difference between a profitable year and a disappointing year.

The needed edge
We salute those executives who are bold enough to take a chance on advanced analytics – those leaders who may become retailing legends.

Visionaries like these refuse to stay in a safe business-as-usual world when technology can help them realize a retailing wonderland waiting to delight customers, improve margins and propel profits to new heights. If you find that your company’s 2007 holiday season wasn’t as “merry” as you were hoping, now is the time to begin putting the tools in place that will make 2008 your most profitable holiday season ever.