Walmart has been a top innovator in the retail space for over 30 years. Sharing data with its vendors through its proprietary Retail Link vendor portal has transformed the way Walmart and its vendors do business.
With Retail Link, Walmart empowers vendors to track performance at the store and SKU level, enabling vendor teams to improve sell-through, reduce out-of-stocks, and optimize promotional execution. Not only do these data-driven insights help to drive increased sales for vendors, they also contribute significantly to Walmart’s market success. Other major retailers have also built their own retail data sharing solutions to improve collaboration with suppliers.
Yet, even with the quantifiable success for these major retail chains, the fact remains that most retailers don’t have the multi-million dollar IT budget required to build their own custom solution. So how can businesses achieve the same results without re-inventing the wheel?
Fortunately, cloud computing and big data technologies have created options that previously didn’t exist to retailers. Just a decade ago the only viable option was to build a custom vendor portal, which required a significant investment in both time and capital. Today, however, cloud-based platforms can be deployed quickly and easily without the need for expensive custom software or lengthy implementation.
In order to get your team on board with a data sharing solution, it’s important to deliver a clear business case outlining the benefits that come with vendor data-sharing and improved retailer-supplier collaboration.
Circumvent Expensive Start-up and Maintenance Costs
Retailers without a vendor-reporting platform that want to build a reporting infrastructure incur a one-time cost to either custom build or buy and configure enterprise software. The total cost can range from $250,000 to over $10 million once software licensing, implementation services, internal resources and hardware costs are considered. This also includes the ongoing annual maintenance costs, internal support resources, and all other ancillary costs to manage the reporting infrastructure. A cloud-based analytics platform allows retailers to avoid these expensive start-up and maintenance costs entirely.
Everyone Wants to Save Money
Saving money is a key objective for every business, and a retail intelligence platform makes this a reality. Cost savings are broken down into two categories: infrastructure cost reduction and operational improvements.
For those retailers currently running ad-hoc reports for vendors and internal teams, there are significant maintenance and personnel costs to consider. Maintenance can run between 15-20% of up-front software licensing fees, while labor can run from 1-5 full-time employees for a mid-sized retailer. A retail intelligence platform eliminates these costs.
Increased inventory turns
When less money is tied up in slow-moving inventory, money is freed up to generate returns elsewhere. Effective use of store-level and SKU-level data enables the identification of problematic inventory levels for slow moving goods. Those dollars multiplied by the retailer’s cost of capital gives a target for improved capital efficiency.
Industry studies put the cost of out-of-stocks at 4% of total retail revenue. While sharing store-level inventory data with vendors won’t eliminate out-of-stocks entirely, increased visibility pre-empts potential problems at the store-level, bringing down the incidence of out-of-stocks. A conservative estimate of a 10% improvement of on-shelf availability for a retailer with annual revenue of $500 million amounts to $2 million in ‘savings’ in the form of increased sales. Quite simply, the lost revenue from out-of-stocks can add up very quickly – which is why it’s important to have a solution that can proactively draw attention to these issues before they affect your bottom line.
Realizing a New Source of Revenue
Retail data is very valuable to vendor partners as it helps them drives sales, limit out-of-stocks, optimize marketing spend, and better manage inventory. Point-of-sale data is the lifeblood of any product vendor’s business and making effective use of this information is a key success factor for winning at retail.
When retailers go beyond offering just raw retail data to their vendors and instead provide the data through an advanced analytics and mobile intelligence platform, the value proposition is clear for the vendor and retailer alike. Not only does the analytics platform ensure that the data drives real insights and execution improvements, it also eliminates the need for vendors to spend money on their own in-house reporting tool.
Since data sharing initiatives are most effective when all vendors can participate, a nominal fee applied across the entire vendor base helps to democratize the initiative and ensure that the benefits of collaboration are fully realized by all vendors and internal teams. It’s imperative that retailers do not overprice the solution for small-to-mid sized vendors who represent a substantial portion of revenue and margin or who might be strategic by offering a source of differentiation to the retailer. It’s easy to have the allure of the short term dollars from a handful of larger vendors distract a retailer from the primary objective of vendor data sharing: improving key operating metrics across the entire business.
Incremental Promotional Dollars
Other benefits include the ability of the retailer to attract more vendor marketing dollars that in turn drive more sales. With the increasing shift of vendor marketing programs to retailer-based, ‘shopper marketing’ programs, vendors are prioritizing their dollars with retailers who can provide them with the information they require to properly manage and measure the effectiveness of these programs.
Collaboration Paves the Road for Growth and Success
Retailer-vendor collaboration enabled by store-level visibility has been a proven driver of the growth and success of leading retailers. The more information shared, the more partnership-like the relationship can be for retailers and vendors, which leads to better joint planning, execution and performance.
There are several routes retailers can take to get to this kind of vendor collaboration, some more effective than others. In all cases, however, it takes a good understanding of the value drivers that underlie the business case for such an initiative. The above framework is a good starting point to help retailers think through the business case for effective retailer-vendor collaboration.
Eric Green is CEO of Askuity.