Price optimization is a rising concern for retailers of many different types in today’s challenging retail environment. With multiple external influences – from the economy and consumer confidence, to the proliferation of ecommerce and mobile technology in retail and even changing consumer expectations – the issue of price optimization is a universal one for retailers globally.
Price optimization in the fast fashion market
Our increasingly digital lives have exposed consumers to more influential media than ever, increasing the interest and demand on new and fashionable clothing at a rapidly-growing pace. This, coupled with the popularity in price-led and bargain retailing has given way to more of a focus on price optimization.
Today’s fashion industry is characterized by short collection cycles. Effective markdown management means the products are sold before the next collections come into stores. If this is not the case, the products sit in stock and retailers have to give huge price reduction to reduce stock quickly. So it is essential that retailers manage the markdown process effectively during the complete product life cycle. One such example is the rapidly-growing German clothing retailer, Ernsting’s family. This requires superior efficiencies at the merchandising and pricing level. This can only be achieved through the effective use of artificial intelligence (AI).
Next month, following a successful pilot program, Ernsting’s family is set to roll out Blue Yonder Price Optimization across all of its 1,800 stores in Germany and Austria, as well as all sales channels, to manage its short collection cycle on its key children’s offering, the Topolino assortment, then all women’s outerwear and other assortment areas to follow.
Digital transformation at Ernsting’s family
When Blue Yonder first met with Ernsting’s family, the decision makers were looking at a number of ways in which they could optimize key processes with state-of-the-art technology, including within its Merchandise Planning & Allocation division. Blue Yonder Price Optimization was selected to run a five-month pilot to optimize its markdown management, in order to sell selected items within a specified time period.
A consistent sales level is important for the retailer as the stores are supplied with new stock from changing monthly collections every two days. Sales need to occur quickly to make room for new items, so with high pressure on merchandise planning and pricing, markdown management enables Ernsting’s family to achieve this.
90% sales rate and increased gross margins for key lines
Blue Yonder analyzed extensive amounts of data on a daily basis at the individual store and article level, as well as inventory and order data to deliver its automated pricing decisions. For example, the solution detected whether certain colors or sizes of a single item were better selling than others. During the test phase, price reductions were made more frequently earlier in the product life cycle, but the price reductions were made in smaller increments.
Using Blue Yonder’s AI-based solution, Ernsting’s family experienced a significant increase in sales volume and revenue, as well as retail margin for the selected assortments. Ernsting’s family reached a 90% sales rate for two test monthly collections, in 50 selected German stores, with a significant increase in gross margin.
AI will demonstrate more successes in fast fashion
In recent years in fashion and apparel retail, many companies have made their name on offering quality products at affordable prices to consumers of all demographics. Fast fashion is increasingly dominating our high streets, and for good reason. Markdown decisions now no longer need to be made manually – the most effective way of managing this is now with leading technology that analyses key data to optimize the process. It’s clear that retailers like Ernsting’s family are leading the way globally by leveraging the power of AI to optimize the business model and deliver real value and significant results.
Read the complete case study about optimized markdown pricing Ernsting´s family .