Retailers Manage Markdown Challenges Using i2 Solutions

Jan. 1, 2003
NRF 92nd ANNUAL CONVENTION & EXPO -- NEW YORK, January 13, 2003 -- i2 Technologies, Inc. (Nasdaq: ITWO), the leading provider of end-to-end supply chain

NRF 92nd ANNUAL CONVENTION & EXPO -- NEW YORK, January 13, 2003 -- i2 Technologies, Inc. (Nasdaq: ITWO), the leading provider of end-to-end supply chain management solutions, continues to build momentum within the retail industry through the development and delivery of its price and revenue optimization solutions. Companies such as Best Buy and Payless ShoeSource use i2 Markdown Price Optimizer to better manage their merchandise and pricing decisions.

Retailers face multiple challenges in reaching profitable growth. One of the biggest challenges is managing prices to influence products' rate of sale - especially during the markdown process. Inventory levels, sales performance, seasonality, promotions, and various vendor-related issues are all factors that must be considered when creating a markdown.

i2 Markdown Price Optimizer is designed to serve as a decision-support tool that enables customers to make the most intelligent and strategic choices about merchandise markdowns and their timing. Setting the best price point for products or services is critical because it significantly affects the revenue and profitability of a business. Other i2 products offered for price and revenue optimization include i2 Category Price Optimizer and i2 Promotion Planner.

Solving Pricing Problems at Best Buy

Seeking to create a consistent markdown system that would allow pricing decisions to be made store-by-store to more than 530 stores in North America, Best Buy collaborated with i2 to develop i2 Markdown Price Optimizer. By implementing Markdown Price Optimizer, Best Buy has eliminated unnecessary markdowns, improved inventory management and employed a consistent markdown process across the enterprise.

"When considering the markdown, Markdown Price Optimizer lets us know how we are going to get to zero inventory so that we can introduce a new product. It's helping Best Buy decide if it is the right decision to make this markdown," said Marsha Henry, Marketing Project Manger, Best Buy.

"From a tool perspective it's really easy to use, but conceptually it's more complex. Markdown Price Optimizer looks at a demand curve and takes into consideration how much a product costs, how much we have on hand, and how much it's forecasted to sell, and then compiles all of those pieces to create a markdown scenario," she continued.

When you have over 530 stores, it is inevitable that some locations will sell certain products better than other locations, meaning stores must eliminate unnecessary markdowns through market segmentation of pricing for specific locations. By using i2 Markdown Price Optimizer, Best Buy is now able to make markdown decisions for individual stores instead of across the chain, eliminating costly, unnecessary markdowns.

"One of the great things that this tool does - and there's absolutely no way you can do this manually - is to plan markdowns by store," said Henry. "Before implementing i2 we were taking markdowns across the chain. So we were cutting prices, regardless of how individual stores were performing. Markdown Price Optimizer creates individual markdown plans for all Best Buy stores, which is a great benefit because it allows us to eliminate unnecessary markdowns."

Supporting the fashion-sensitive clearance process at Payless ShoeSource

Early in 2002, Payless ShoeSource, North America's largest family footwear retailer, sought a clearance process that would improve the liquidation of discontinued and out-of-season inventory to keep merchandise fresh on a continuous basis.

Payless approached this problem by working with i2 to develop a fashion forecasting and markdown planning process that would allow the merchandise planners to determine the timing and price discounts of the markdowns. Payless selected i2 Demand Planner and Markdown Optimizer tools to support the new business process and to put in place an intelligent decision support tool.

"The growing need for us to manage our seasonal inventory led us to evaluate solutions from a cross section of vendors. We chose i2 because of its long-term retail strategy and its commitment to our industry. i2 Markdown Optimizer is critical to our overall strategy for improving assortments in our stores," said Darrel Pavelka, senior vice president, Merchandising & Distribution for Payless ShoeSource, Inc.

i2 Markdown Price Optimizer is designed to help retailers like Payless gather information to determine what discounts to offer and when, achieve higher sales realization of inventory, reduce the likelihood of leftover inventory and gain consistency in the markdown process.

Payless merchandise planners use i2 Markdown Price Optimizer to evaluate multiple pricing strategies before making a decision to go with a particular set of pricing initiatives. The tool has been designed to deliver markdown strategies that are flexible in terms of the business objectives they support. These markdown strategies can be constrained to operate within a desired set of business conditions, such as maximum allowed discount, one time discount or multiple step discount, the number of multiple discount steps, etc. The tool's built-in flexibility is designed to allow Payless to change its markdown strategies as its business changes through simple data changes without the investment of development or re-work efforts.

"Best Buy and Payless are savvy retailers that understand how technology can assist in the deployment of strategic retailing capabilities and help in reaching its financial and customer service goals," said Bernard Goor, vice president, i2 Consumer Goods and Retail. "We are committed to helping deliver value to these top-tier retail customers through the use of i2 solutions that will help them achieve their strategic business objectives."