In Retail, It Is Tough to Improve the Bottom Line

MarkdownEdge: Maximize the return on your stock investment

Presenting MarkdownEdge

Our solution uses machine learning and predictive analytics to recommend optimal discount depth, timing, and number of hits at a product level. MarkdownEdge, developed by Deloitte UK, is a web-based tool that uses retail artificial intelligence to make markdown recommendations for individual SKUs.

Developed with one of the world’s leading retailers and now in operation at more than 50 retailers around the globe—MarkdownEdge is different from existing retail pricing solutions in three ways:

1. It uses advanced analytics to predict future sales and continually updates its recommendations based on actual sales activity;
2. Deloitte provides the process and change management to help this new approach work for your planners; and
3. We share the risk and the reward—offering a flexible commercial model based on a percentage of the incremental profit generated.

Pilots can be launched on the MarkdownEdge solution within just two months of engagement start, with full deployment within three months.

How MarkdownEdge works

• Sales, price, and stock data: You provide historical data on sales, pricing, and stock volumes by store and SKU, and any business rules and constraints in your markdown processes.
• Tailored solution: We will configure the system to your needs and train your team, providing hands-on change management to embed MarkdownEdge into the ways of working.
• Dynamic pricing optimization: Each time new data is uploaded, MarkdownEdge will provide optimal markdown pricing recommendations leveraging machine learning based on the latest data.
• Clear oversight and control: You simply log in and review markdown recommendations, before finalizing discounts and uploading to your price management system.

MarkdownEdge in action

Deloitte recently supported a US big box retailer, delivering a 6 times improvement in markdowns. Previous markdown work was largely qualitative, driven by over 100 decision-makers using past experience and various metrics to set discounts. The retailer lacked tools and modeling capabilities and was unable to predict product performance or capture insight on customer behavior. Its highly decentralized process resulted in missed sales opportunities due to sub-optimal markdown levels and an inability to clear stock. As a result, clearance had grown over the last three years and reached 4 percent of total sales.

Deloitte worked with the retailer to:

• Review the current markdown process and defined business rules for recommendations.
• Develop and tailor the predictive markdown tool to optimize markdowns and maximize margin and sell-through.
• Provide end-to-end implementation support using best practices in change management.

Results:

Directly attributed to the markdown program, the retailer realized a 7.8 percent efficiency uplift in markdowns, and improved the return on starting stock (ROSS) by 6 times compared to categories not included in the solution.

By working more efficiently around markdown decisions, the merchandising team saved circa 15 percent on time spent on markdowns.

How can Deloitte help?

In addition to our demonstrated MarkdownEdge solution, we bring:

• A deep understanding of retail operations
  We bring deep experience across retail segments and categories with more than 3,000 experienced retail practioners serving 85 percent of Fortune 500 retailers.
• Leading analytics capabilities
  Deloitte has a Center of Analytics Excellence with more than 1,000 data scientists. We were rated number one in Analytics by ALM Intelligence in 2017.
• A new commercial model
  As your business partner, we are willing to put "skin in the game" to align fees with value delivery. To date we have delivered over $300 million in annual incremental margin from markdown optimization.