Business challenge

Coop Danmark uses markdowns as a tool to drive non-food sales—but limited insight at store-level made it difficult to identify the right timing and depth of markdowns, and affected gross margins.

Transformation

The company implemented Markdown Optimization solutions from IBM, enabling it to identify variations in customer preferences down to store-level, and adjust its local markdowns accordingly.

Results

Better management

of markdowns via store-level insight into customer-demand forecasts

Boosts sales

by optimizing the duration and percentage of every markdown

Maximizes profitability

of markdowns across the entire retail network

Business challenge story

Setting the scene

Reducing the price of slow-selling product lines can be an effective way to drive sales and reclaim valuable selling space—but how do retailers ensure that these markdowns are profitable?

“We can now work more strategically with markdowns to drive the profitability of our non-food business.”

—Kent Bredahl, Customer Insights Manager, Coop Danmark

Coop Danmark replaced its complex markdown spreadsheets with Markdown Optimization solutions from IBM. Today, the company has deep insight into the optimal percentage and duration for markdowns, based on customer demand forecasts and inventory data at each retail store. This helps the company to boost sales while protecting margins.

With a turbulent economic climate putting pressure on discretionary incomes in Denmark, Coop Danmark realized it had to act fast to ensure that it could continue to drive non-food sales.

Kent Bredahl, Customer Insights Manager at Coop Danmark, says: “Back in 2008 when the financial crisis hit, the mindset of consumers changed rapidly. From impulse purchasing of non-food items, many customers suddenly switched to buying only the bare necessities.”

Markdowns are tools of the trade for retailers, but price reductions that are popular in one area may fail to capture customers’ interest in another. “We can now understand which products should be reduced at each of our stores, and for how long—helping us to execute a more profitable pricing strategy nationwide.”

—Kent Bredahl, Customer Insights Manager, Coop Danmark

Transformation story

Counting on markdowns

To protect the profitability of its non-food business, Coop Danmark aimed to drive sales by applying markdowns.

“Because many of our non-food product categories are seasonal, driving sales is vital to keep valuable shelf-space clear for fresh stock as the year goes on,” says Bredahl. “Markdowns can be a powerful tool to achieve this goal—but in the past, our spreadsheet-based approach to calculating the amount and duration of each price-reduction created challenges.”

Complex spreadsheets limit insight

Bredahl continues: “Our previous approach meant that category managers were only able to apply markdowns at a national level, meaning all stores got the same price reduction for all items. Inevitably, variations in customer preferences meant that the price reductions were too small to capture sales at stores where market demand was lower, and too high to maximize our margin at stores where market demand was higher.

“Furthermore, it was difficult to predict the optimal duration of each markdown. In the past, this meant that our category managers often waited too long to see if a markdown was driving sales, by which time customer demand for the discounted products had evaporated.

“To recover our non-food margin, we wanted to offer our category managers the ability to plan markdowns based on deep insight into customer shopping preferences at the individual store level.”

Results story

Selecting a new solution

After performing a thorough review of its existing markdown process, Coop Danmark engaged IBM to help it plan a fresh approach using cloud-based Markdown Optimization solutions from IBM.

“IBM’s experience, expertise and mature solution offerings for the retail sector made them a natural choice to meet our specific business requirements,” says Bredahl. “Working with the IBM team, we migrated our historical spreadsheet data into the new solution, validated it, and created advanced new analytical models for our non- food product categories.”

Replacing gut-feel with analytics

Today, Coop Danmark has a complete, accurate and timely view of customer demand forecasts for non-food products and on-hand inventory data at each store in its retail network.

“Using the new solution, our category managers can run markdown scenarios across multiple product lines, and see the likely impact that changing the percentage and duration of each markdown will have on their profit, revenue or inventory-level targets,” says Bredahl. “Based on the outcomes of these scenarios, our category managers can make better-informed decisions to calculate the best markdowns for each individual store in the retail network.

“In addition, our category managers can track the effectiveness of their markdowns in near-real time, and make in-flight adjustments to the markdown schedule if certain markdowns are not performing as expected.”

Making smarter decisions to protect margins

Coop Danmark has achieved its goal of creating an analytics-driven approach to calculating its markdowns—enabling its category managers to make the best choices to protect margins.

Bredahl says: “Our category managers can now answer key questions such as: which products are most suitable for markdown; on what date should products be marked down; and what markdown percentage is optimal?

“Since empowering our category managers with deep insights, we are seeing significant improvements in our non-food margins: a major benefit as the current economic climate continues to squeeze discretionary incomes.”

Boosting markdown ROI by 10 percent

“With a week-by-week view of the sales performance of markdowns at each store, we can ensure that we start each non-food discount at the right time and optimal amount,” says Bredahl. “We predict that by driving additional sales in this way, we will boost our return on markdown investment by up to 10 percent.”

Ensuring group-wide compliance

Coop Danmark now has full visibility of markdown compliance across its retail network, ensuring that discounts are applied in a timely manner for maximum effect.

“Manually updating data in spreadsheets made it difficult to understand if stores were applying discounts in a timely manner,” says Bredahl.

“Today, we have a single view of compliance nationwide, which enables us to take action to ensure discounts always reach our customers on time.

“Thanks to IBM, we can now work more strategically with markdowns to drive the profitability of our non-food business.”

10981561

About Coop Danmark

Coop Danmark is one of Denmark’s largest retailers. Generating annual revenue equivalent to approximately USD11 billion, the company operates a comprehensive range of store formats across the country.