Introduction
Founded in 1912, Suomalainen Kirjakauppa is Finland’s leading bookseller, and one of RELEX’s oldest customers, having used its replenishment solution for over 10 years.
Suomalainen Kirjakauppa’s assortment is very large and turnover is high. The inventory needs constant optimization, and old titles need to be managed out, especially since the number of new titles is constantly increasing. With some exceptions book lifecycles are generally quite short.
The bookseller needed a more dynamic process that would identify books nearing the end of their commercial life and mark them down to clear them out of stock. Pricing is a very effective way of clearing old stock but calculating accurately the ‘when’ and the ‘how much’ can have a big impact on effectiveness and profitability. With an assortment running into hundreds of thousands of SKUs, it is impractical to manage it all manually. Thus, Suomalainen was keen to try out RELEX’s markdown solution.
The RELEX markdown tool uses a pre-defined markdown strategy and, by combining pragmatic AI with advanced analytics and optimization, it proposes optimal price changes to help retailers meet their business targets. The markdown tool estimates how different items react to price changes, so retailers can automatically get an individual markdown plan for each item in each store to secure the best margin across the assortment. It also helps to reach a target stock level at the end of a pre-defined period by optimizing the discount required at an SKU/store level. In addition to price changes, users can beforehand see the effect of each recommended pricing decision in projections and updated forecasts.
Henri Bryk, Assortment Analyst, Suomalainen Kirjakauppa
“Our markdown process is now a proactive and ongoing one and largely automated.”
The Markdown Process
In autumn 2018 the markdown tool was piloted in four Suomalainen stores. Items needing promotion were identified and priced automatically by the system. The tool estimated products’ price elasticity based on their sales history, calculating an optimal markdown to clear them within six weeks.
The pilot project ran from September to December. Under the new process suggestions for price reductions are now sent to product managers on Mondays and the discounts are in force in stores by Tuesday of the following week.
After six weeks markdown items are reviewed and additional action, including further price reductions, can be taken.
“Because we were already using RELEX for product and store-level forecasts and for inventory projections, we had the necessary foundation in place to implement the markdown tool successfully.”
Henri Bryk, Assortment Analyst, Suomalainen Kirjakauppa
Results
The pilot ran in four stores, for two product categories, and was remarkably successful. As a result, Suomalainen implemented RELEX’s markdown tool across all its stores in April 2019. During the first 7 weeks, Suomalainen has designated 40 products for inclusion in their markdown campaign. The sales value of those 40 products during the campaign period was 94% higher than had been projected with no markdown. At the same time the sales quantity of those products quadrupled.
During the 7 weeks, inventory turnover increased by 133%, eliminating slow-moving stock and creating space for new titles. The best results with the markdown tool were achieved with mature products that are still relevant to consumers but have already a slight decline in their sales.
“Because we were already using RELEX for product and store-level forecasts and for inventory projections, we had the necessary foundation in place to implement the markdown tool successfully,” says Suomalainen’s Assortment Analyst Henri Bryk.
“Our markdown process is now a proactive and ongoing one and largely automated,” Bryk adds. “With the pilot project we’ve learned that it is critical that store displays are used in close coordination with markdown. If we don’t display discounted books appropriately, the process is not as efficient as it would otherwise be.”
“Change management was also essential for the project. It’s important to choose carefully who makes decisions about markdowns and pricing strategy. Gross margin targets can be a distraction as they don’t consider the inventory holding and scrapping costs. This is about promoting old stock out of the way so new stock can come in and command a full margin,” Bryk adds.