Executive Summary
- Our client faced significant challenges in utilising data effectively for business decisions, in particular understanding all costs associated with items
- We rebuilt their budget model for the baseline margin and levels that were susceptible to market fluctuations, capturing supplier funding and complex markdown dynamics
- Through our revamped budget model we identified that back margin of key electrical items was eroding profitability during markdown periods; our insight implemented the strategy to lower markdown spend
The Challenge
A UK-based retailer with revenue over £100m had valuable data but lacked the capability to leverage it for decision-making. Having previously worked with the client on an advisory project, they engaged us to help embed analytics capabilities through a combination of tools and team development. Key challenges included:
- A lack of internal capability to analyse and use data for strategic decision-making
- Difficulty getting to true margin due to a highly branded supplier base with supplier funding and a mix of item and basket level markdown strategies
- The budget model needed to be rebuilt due to market fluctuations limiting the ability to forecast and plan
Our approach
The first phase of work involved understanding the budgeting model in detail – this was critical to be able to get to true margin for items. This involved:
- Working with Heads of Finance, B&M and Marketing to understand all the moving pieces which were affecting true margin
- Categorised costs into fixed and market-affected, to understand the levers that needed to be flexible for budgeting
- Used the components to build a budgeting & forecasting tool for the financial margin, including back margin at the item level
Using the budgeting tool, we then identified that a complex supplier base and promotional strategy was eroding margin in key categories. In particular:
- Fulfilment costs varied across categories and needed to be factored into discount decisions
- Promotional activity mixed between being supported by suppliers and not, affecting margin
- Using a mixture of targeted discounts and promotions kills margin quickly
Through this, we devised and implemented an updated markdown strategy to protect margin whilst holding volume.
Impact
Our budgeting tool gave insight into true margin for items, resulting in:
- A clear and trusted budget forecast for the upcoming financial year, giving the foundations for operational planning
- Insight into margin eroding markdown strategies
- A strategic plan going forward to ensure markdowns enhanced volume whilst protecting margin to an appropriate level
If you’re interested in understanding your drivers of true margin and the impact on profitability, please contact us at contact@datavisionservices.co.uk to see how we can best work together.
