Roy Perticucci, Director of Commercial Development and Operations, Dixons Retail
Case Study: Dixons Retail
Dixons Retail Reduces Inventory by £100 Million
A fresh look at an underutilized data warehouse helps power the electronics retailer’s transformation.
Dixons Retail is one of Europe’s largest specialist electrical retailer and services companies (£8 billion-plus group-wide sales), the corporate home to store and online brands specializing in computers, televisions, household appliances, cameras and related services. Founded in 1937, the company rode post-war affluence, the rise of consumer electronics, and international expansion to more than 60 years of steady growth. But profitability faltered in 2008, and following a series of setbacks, new management was recruited, with an explicit charter for strategic and systemic change.
In May 2008, new CEO John Browett announced a transformation plan to refresh UK stores, refocus product and service offerings, and reduce costs through streamlined operations. Two things would prove essential to reducing costs:
- A previously underutilized data warehouse from Teradata
- A new Commercial team with experience in retail business intelligence (BI)
To head the new team in Commercial, Browett brought in Roy Perticucci. As Director of Commercial Development and Operations, Perticucci took charge of redesigning Dixons Retail’s Merchandising (Sales Planning), Category Management and Space Management functions.
On arrival, he found a plan already in place for the customer-facing parts of the transformation—what the new store formats would look like as well as the types of service and product range each would offer. What was lacking was the necessary capital. That would have to be wrung from new operating efficiencies.
The first order of business was to assemble a core group of business analysts with the skills to understand, quantify and solve the most serious problems. “Often we managers start right out working the problems,” Perticucci says. “But the first thing you need is people who can supply the data to make decisions. So my first priority was to develop a team with the skills and knowledge to build out the database and start creating the intelligence we needed.”
Out With the Old
Dixons Retail’s inventory analysis revealed too much old inventory and far too much complexity. So between October 2008 and 2009, the company:
- Reduced total inventory investment by 20%
- Recovered £100 million for reinvestment
- Cut the number of products in inventory by 77%
- Reduced inventory cover from 11.5 to 9.3 weeks
- Significantly improved in-store availability
One resource that was ready and waiting was the data warehouse the company had acquired a decade earlier but never fully utilized. In short order, the database began to fill up, and workloads quintupled.
“A lot of businesses invest in analytical infrastructure before they really understand how it can be harnessed,” Perticucci says. “Dixons Retail had a data warehouse that wasn’t particularly up-to-date and certainly hadn’t been used much. We set out to demonstrate that we could find the solutions to the problems we faced in the data. If we asked the right questions, the Teradata platform could give us the insights.”
Skeletons in the Inventory
The first question was why Dixons Retail had so much cash tied up in inventory. Perticucci had his suspicions, based in part on conversations like one he’d had with a category manager who claimed to be managing about 50 stock-keeping units (SKUs) but couldn’t provide a list. When he looked for himself, Perticucci found not 50 in the category, but 500. It was a Eureka moment.
“We had £500 million in inventory to run the UK business with about £4.5 billion in annual turnover,” he says. “That was more than our market capitalization at the time. We need something on the order of 10,000 SKUs to run this business, but we had 80,000 in stock and 120,000 in the system. What was worse, 10 percent of the SKUs in stock were more than a year old, and a remarkable number more than 3 years old. That’s not good for an electronics retailer. We had too much inventory, too much old inventory and far too much complexity.”
“It’s a continuous process, and the great thing about it is that you get a bigger win every time you pass the starting line.”
Director of Commercial Development and Operations, Dixons Retail
Clearing the Shelves
With a detailed analysis of inventory in hand, Perticucci’s Commercial Business Intelligence team set about clearing the non-moving stock. Between October 2008 and October 2009, Dixons Retail drove down total inventory investment 20% by value, freeing up £100 million for reinvestment in facilities and higher-demand stock. In the process, the retailer slashed the number of SKUs by 77% and reduced inventory cover from 11.5 weeks to 9.3 weeks. The reductions quickly boosted on-shelf availability significantly by putting higher-demand goods on more shelves in greater volume and wider variety.
To lock in their gains and lay the foundation for ongoing improvements in buying and inventory efficiency, the Commercial team also developed a formal range lifecycle management process. Once approved, the product range for each store format is frozen in the data warehouse until the next planning cycle. To ensure uniform implementation, team members merged Dixons Retail’s independent buying departments into a single commercial organization. To ensure uniform performance measurement, they developed standardized metrics and reports.
“Now we have one weekly book,” Perticucci explains. “If you want to see margins by merchandise area, there’s only one place to find them. If you want to see how individual stores are performing—or individual merchandisers—there’s one place to look. Everyone is looking at the same numbers in the same place in the same reports.”
In attacking Dixons Retail’s inventory issues, the team took what Perticucci calls a capture and hold strategy. “We started with commercial operations because they touch so many other parts of the business,” he says. “And almost instantaneously we were able to introduce a lot more rigor and consistency on the top half of the profit and loss sheet. Now we’re expanding into other areas.”
To support that expansion, the BI team is moving beyond the Commercial Department into Finance, where it will support reporting enterprise-wide. Large investments are being planned in analytical staffing and infrastructure. Reporting data from a range of legacy platforms will be consolidated in a new data warehouse from Teradata, while reporting and data access are consolidated in SAP BusinessObjects. Reports will be standardized, automated and delivered to users through role-specific dashboards, scorecards and e-mails.
“This is the way you get businesspeople to appreciate the power of BI when they haven’t had experience with it,” Perticucci says. “You start with an acknowledged business problem and use ad hoc analysis to find the root causes, quantify the costs and design a solution. Then you start the cycle again. It’s a continuous process, and the great thing about it is that you get a bigger win every time you pass the starting line.”