Download pdf - Celect: Inventory Optimization for the Right Store … Source: Company websites/Fung Global Retail & Technology Case Study Celect rolled out its assortment optimization tool at six

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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Celect: Inventory Optimization for the Right Store Assortment

Source:celect.com

1) Historically,retailershavemadeassortment-planningdecisionsbasedonbackward-lookingsalesfiguresandintuition.Atthestorelevel,managerstypicallyselectassortmentsbasedonpastpoint-of-sales(POS)dataanddemographicinformationofthetradearea,butneithersetofdataisveryaccurateintermsofrevealingshoppers’purchasepreferences.

2) Celecttransformstheintuition-basedmerchandise-planningprocessintoadata-drivenonewithmachinelearningandpredictiveanalytics.

3) Celect’sassortment-optimizationsolutionaccuratelypredictstheoptimalproductmixforaparticularstoreforthecurrentandupcomingseason.Retailersthatusedthesolutioninstoressawanaverageliftinsalesof5%–15%.

4) Whileanumberofdataanalyticscompaniesareattemptingtosolvethein-storeassortmentproblem,Celect’spredictivetechnology,whichisbasedonmachinelearning,setsitapart,andthetoolhasdemonstratedstrongsalesresultsforretailers.

IndustryOverview

Historically,retailershavemadeassortment-planningdecisionsbasedonbackward-lookingsalesfiguresandintuition.Atthestorelevel,managerstypicallyselectassortmentsbasedonpastPOSdataanddemographicinformationofthetradearea,butneithersetofdataisveryaccurateintermsofrevealingshoppers’purchasepreferences.Withoutanunderstandingoftruedemand,retailersmaycontinuetomissthemark.

Usingdatatoassistinmerchandisingoptimizationremainsachallenge,asfewretailershavethecapacitytoprocessunstructureddatafromdifferentaspectsofoperationsanddeliverinsightsinrealtime.

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AboutCelectCelectprovidesacloud-based,predictivemerchandise-optimizationplatformthathelpsretailersoptimizetheiroverallinventoryportfoliosinstoresandacrosstheirsupplychain.Celecttransformstheintuition-basedmerchandise-planningprocessintoadata-drivenonewithmachinelearningandpredictiveanalytics.

Celectalsosolvestheproblemofscaleindataprocessing.Celect’splatformisbuilttohandlethescale,andcancalculatedetailedpreferencedatafromunstructureddatasuchasinventory,salesandcustomerinformation,andonlinebrowsinghistory,thenpresentitallinoneview.

Celect’scloud-basedplatformintegrateswithretailers’existingmerchandise-planningsystemsandusesproductdescription,customerinformation,inventory,onlineandofflinesalestransactiondata,productcatalogandonlinebrowsinghistoriestobuildmodelstopredictshoppers’futurebuyingpatterns.Thecompanyusesapatented“choicemodel”tohelpretailersunderstandcustomers’shoppingpreferencesversustheoptionspresentedtothem.Thetoolanalyzes,inrealtime,whatwasboughtandwhatwasnot.Thetechnologywasnamedoneofthe50greatestinnovationsbytheMassachusettsInstituteofTechnology’sComputerScienceandArtificialIntelligenceLaboratory.

Foundedin2013,Boston-basedCelectdeploysasoftware-as-a-service(SaaS)model.Itprovidesthemerchandise-planningSaaSforasubscriptionfee,basedonaretailer’snumberofstoresandSKUs.Lastyear,Celecttripleditsrevenuecomparedwiththepreviousyear.Thecompanyhasraisedatotalof$15millionintwofundingrounds.

TheCelectteamincludesbothretailindustryveteransandtechnicalexperts.PriortojoiningCelect,CEOJohnAndrewsspenttwodecadeshelpingretailersoptimizetheiroperationsstrategiesatOracleCommerce,EndecaandDeloitteConsulting.VPofBusinessDevelopmentJoséChanhasheldseniormanagementpositionsinbuying,merchandisingandplanningatRichemont,LVMHandRobertoCavalli.Onthetechnologyside,CTOVivekFariasandChiefScientistDevavratShaharebothprofessorsattheMassachusettsInstituteofTechnology,wheretheyhaveledbreakthroughsindataalgorithmsintheirrespectivefields.

WhatProblemsDoesCelectSolveforRetailers?Whilethee-commercespaceissomewhatsaturatedwithpredictiveanalyticssolutions,Celectisuniquelypositionedtoaddressthein-storeassortmentandsupply-chaininventorychallengesthataffectmostretailers,asalmost90%ofretailsalesarestillgeneratedfromstores.Celect’splatformhelpsretailers:

1) Liftin-storesales:Theplatformhasdemonstratedsignificantsalesimprovementforretailers.WhenitwasA/Btested,retailerssawanaverage5%–15%liftinsalesatstoresthatimplementedthetool.Celect’smerchandisingtoolaccuratelypredictstheoptimalproductmixforaparticularstoreforthecurrentandupcomingseason.TheCelectChoiceEnginealsohelpsretailersoptimizestoreassortmentsbasedontheirunderstandingofthepositiveornegativeimpactthatproductshaveoneachother.Ithelpedamultibillion-dollardepartment-storechaindiscoverthatonecategoryofhigh-enddresseshadapositive“halo”effectonamoderatedresscategory,andmaderecommendationstoplacethetwocategoryrangestogetherinstores,whichultimatelyyieldedsalesincreasesinbothcategories.

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2) Improvemarkdownstrategies:Celect’sanalyticstoolalsopredictsthebesttimeformarkdownsduringandattheendoftheseason,sostoremanagerscanproactivelyadjustin-storeassortmentstomaximizeconversionandrevenuewhileavoidingexcessivemarkdowns.Withoutdataanalytics,retailersoftentakeareactivestanceonpromotions,failingtoconsidertheirpossiblenegativeeffectonotherrelatedcategories,andpotentiallyhurtingmargins.

3) Optimizein-storefulfillmentdecisions:Celectforecastspotentialdemandforproductsinstoresandusestheinformationtomakein-storefulfillmentrecommendationsfore-commerceorders,basedonsimultaneouslybalancingmultipleobjectivessuchasshipping-costconsiderations,speedtocustomerandstoreweeksofsupply.Celect’splatformaggregatesonlineandin-storedatatoprojectdemandforrequestedproductsindifferentstorelocations,anddecidesonthebeststoresfromwhichtopullsuchinventoryfororders.

WhatDifferentiatesCelect?Whileanumberofdataanalyticscompaniesareattemptingtosolvethein-storeassortmentproblem,Celectdifferentiatesitselfthroughitsunique,patented,predictivetechnologybasedonmachinelearningandthroughthestrongsalesthatretailershaveseenasaresultofusingthecompany’stool.Celect’sproprietarytechnologybuildsonafundamentaladvancementincustomerchoicemodelingthatcananalyzeconsumers’preferencesbasedonwhatwassoldandunsoldataspecificstore,andthenmakemerchandisingrecommendationsbasedonthedata.

Celectfocusesonsolvingassortmentproblemsforfashionretailersanddepartmentstores,whileitscompetitorsfocusongrocers,valueretailersanddrugstores.Celect’senginerevealscustomerpreferencesmoreaccuratelyatspecialtyfashionstores,departmentstoresandhigh-endboutiques,whereindividualshoppersusuallypurchaseafewitemsatatime.Themodelislesseffectiveforgrocerystores,wherealargenumberofitemsaretypicallypurchasedatonce.

Source:celect.com

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Figure1.CompanySpecifics:Celectvs.ItsMainCompetitors

CompanyName

Headquarters CoreServices Funding(USDMil.)

Clients

Celect Boston,MA Assortmentoptimization,order-fulfillmentoptimization

$15 UrbanOutfitters,SaksFifthAvenue,NeimanMarcus,Zipcar

Profitics Schaumburg,IL Softwareandservicesinenterpriseprofit/planninganalytics

N/A N/A

4RSystems Berwyn,PA Replenishmentoptimization,assortmentoptimizationandmarkdownanalytics

$9.7 TheVitaminShoppe,FamilyDollar,DollarExpress,Dillard’s

1010data NewYork,NY Store-levelassortmentanalysisandpricing-optimizationservices;offersdataanalyticstoretailers,brandsandfinancialservicesverticals

Acquiredfor$500millionin2015

Procter&Gamble,RiteAid,DollarGeneral,Coca-Cola,Claire’s,Wegmans

Source:Companywebsites/FungGlobalRetail&Technology

CaseStudy CelectrolledoutitsassortmentoptimizationtoolatsixstoresbelongingtoaMidwest-baseddepartment-storechainoveraperiodofsixmonths.CelectidentifiedspecificstorelocationswheredemandforMichaelKorshandbagswaspotentiallyhigh,basedonshoppers’buyingpatterns.TheretailermademodificationstoincreaseitsMichaelKorsofferingsattheidentifiedlocations,andsalesexceededexpectations.Theanalyticstoolwasabletoidentifyconsumerdemandforaproductcategoryatspecificstoresthattraditionaldemographicandsegmentationmethodswouldnothavebeenabletoidentify.Overall,Celecthelpedthesixstoresachieveasalesliftof7%comparedwithotherstoresinthearea.

CelectiscurrentlyworkingwithdepartmentstoresNeimanMarcusandSaksFifthAvenue,andwithspecialtyretailersAnthropologie,UrbanOutfittersandFreePeople,amongothers.Onespecialtyretailerclientrecentlyexpandeditssubscriptiontoadditionalstoresafterseeingsuccessinitsinitialtesting.

Source:celect.com

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DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comJingWangResearchAssociate

HongKong:8thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223004406London:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,9thFloorNewYork,NY10018Tel:6468397017FungGlobalRetailTech.com