Analytics in Action: How Retailers Are Gleaning ROI

In August 2005, specialty retailer Casual Male struck a bargain with its customers: If it didn't have a best-selling item in a particular size or color in stock, it would get it within five days. If it couldn't deliver, the customer would get the item for free.

Nine months later, Casual Male is out about nine pairs of pants.

Over the past four years, the company has undergone an extensive retooling of its analytical, supply chain, point of sales , planning allocation, replenishment and CRM business processes and applications. In June 2004, it installed a merchandising system. In August 2005, it completed implementation of a point of sales system. In October 2005, its CRM application was in place.

The goal of this endeavor is to expand its market share in the big and tall clothing subsector. Currently, Casual Male has about 7 percent of this market, estimates executive vice president, CFO and COO Dennis Hernreich -- the largest of any retailer that caters to this niche.

He expects to grow that number by another 7 percent once the company's plans are fully executed, delivering a healthy return on investment.

"You can do the math," Hernreich told CRM Buyer. Every one point of market share represents (US)$60 million of sales -- and that is without any store growth."

Front End Spending

Retail IT spending is expected to increase from $22 billion in 2005 to almost $31 billion by 2009, an increase of almost 41 percent, according to AMI Partners. Over the last five or so years, many retailers have invested in their back end, supply chain and distribution operations -- particularly in response to Wal-Mart's growing dominance. Now it is the front end's turn.

The goal of these new initiatives is for companies to gain a better understanding of their customers. For instance, some retailers are turning to their online Web stores to develop new insights about their customer base, according to Brett Crosby, Senior Product Marketing Manager of Google (Nasdaq: GOOG) Analytics.

"Web analytics is not just about trying to drive visitors to the site, but also understanding what people do once they get there," he told CRM Buyer.

For instance, many retailers are looking at search terms entered into their Web stores, he said, to better understand what customers care about. "We have worked with clothing companies that want to use their internal search data to figure out what the next trends will be."

They also are leveraging search data to redesign the Web site itself. "A retailer might find that customers are having a hard time finding on their Web site a certain item, for example. Once they figure that out," notes Crosby, "they can make that item easier to find."

Casual Male Retail Group typifies this new wave of investment, implementing software that allows it to leverage raw customer data to identify customers, monitor their shopping patterns, make merchandising decisions, better focus marketing, and even determine where the next store should be.

"The most expensive thing a retailer can do is open a non-performing store," Rich Hollander, president of the CustomerID Division at Buxton, a consulting firm that uses customer analytics to advise retailers, told CRM Buyer.

Site selection decisions aside, retailers generally are focusing more on translating raw data into business strategies, he added. Casual Male, which is a client of Buxton, is just one example.

"Casual Male has realized that by investing in technology to better develop their customer information, they can outperform their competitors," he said.

New Initiatives

Through its tech investments, Casual Male has gotten a far more detailed view of the preferences of its various customer segments. It has also developed profiles on individual customers to which associates have real-time access.

"Now, when a customer walks into a store, we can identify him, pull up his record and see what his sizes and preferences have been in the past," Hernreich said.

The fact that its customer base is men who do not always easily find clothes in their size has been one key driver behind these strategies -- especially the Lifestyles concept, which groups clothes according to age group and various style categories.

"It's different from women," Hernreich explained. "Men need help with this. Putting together clothes like this is a big service for them."

The greatest competition, he pointed out, is not Wal-Mart but rather the Ma and Pa shops that know the customers individually.

"To the extent that we can emulate their service formula we become more competitive," remarked Hernreich.

Within the next six months, he expects to extend this concept to the self-service channel. "We will have store-only Web sites that can be accessed via kiosk that would also help the customer shop by Lifestyle.

The company is also leveraging the data to recognize the Lifestyles preferences at each store, as well as to introduce new private label brands.

All in all, Hernreich said, the effort it took to implement the various applications was well worth it. "We are already seeing tangible evidence of the momentum."