Quantifying an £18m Revenue Uplift in Supermarket Clearance Automation

Introduction

QuantSpark partnered with a leading Big-4 UK supermarket to address the complexities of their stock clearance and discounting processes. This engagement aimed to transform a significant operational pain point into a substantial revenue-generating opportunity through strategic analytics and automation. Our work focused on diagnosing the root causes of clearance build-up, quantifying the potential financial uplift, and outlining a clear roadmap for developing an interactive software tool to manage and automate the process.

The Challenge: Convoluted Clearance and Lost Revenue

Retailers globally grapple with the challenges of stock clearance and inventory management, which are critical for both financial performance and operational efficiency. For our client, the problem was particularly acute. Their markdown pricing strategy was decentralised, leading to inconsistencies in discounts applied to SKUs across different stores. This lack of centralisation limited visibility into the effectiveness of discounts and often sacrificed margin unnecessarily.

Operationally, this resulted in a large and persistent build-up of discontinued stock in store warehouses, estimated to be between £10-£15 million at any given time. This stock backlog hindered the ability to bring in new inventory, creating a cycle of inefficiency.

Through qualitative interviews and analysis, we identified three key issues:

• Lack of Automation: Manual processing during clearance was error-prone and frequently interfered with critical timelines.
• Conflict Avoidance: Delays were exacerbated by conflicts at regional and corporate levels, stemming from poor visibility of the underlying discounting methodology.
• Lack of Data-Driven Decision Making: Merchandisers often discounted reactively to clear stock, rather than proactively assessing how and where discounting could maximise store margins.

The client sought an analytics solution to overcome these challenges, aiming to streamline operations, reduce manual effort, and maximise the profitable exit of stock within established deadlines.

Our Approach: Sizing the Prize and Building a Roadmap

QuantSpark's approach began with a discovery project designed to first quantify the potential financial increase from solving the problem, thereby building a robust business case for investment. We then set out a clear roadmap for creating an interactive software tool to automate and manage the clearance process.

Sizing the Opportunity

We adopted a strategy of identifying a clear niche within the business to trial our analytics approach. This fast and cost-effective method allowed us to demonstrate tangible financial benefits. We focused on the General Merchandise division, specifically Homeware and Furniture, due to the practical implications of large, unwieldy SKUs and the impact of seasonality.

To size the opportunity, we analysed 400 days of the client's Home & Furniture clearance sales data. We established a benchmark: if no discounts had been applied, the client would have generated £300 million in revenue. However, with discounts, they made £250 million, indicating a potential £50 million revenue uplift from improving the discounting process.

Methodology: Combining Qualitative with Quantitative

Our methodology was two-fold:

1. Practical Understanding: Through qualitative interviews with stakeholders across all relevant business teams, we identified numerous problem statements. We then used the RICE (Reach, Impact, Confidence, Effort) framework to prioritise these, confirming the core issues of lack of automation, conflict avoidance, and reactive discounting.
2. Modelling & Analysis: We conducted exploratory analysis of the client's data sets to develop a proactive strategy for optimal discounting. By tracking a single SKU's performance across different stores, we identified four critical levers that define discounting methodology:
   • Depth of starting and ending markdown
   • Number of markdowns applied
   • Duration of each markdown level
   • Increment-size of each markdown level

Combining these levers, we could define and standardise discounting methodologies as either 'aggressive' (e.g., high starting discount for seasonal items with hard deadlines) or 'passive' (more measured discounting).

Developing the Solution Roadmap

The ultimate goal was to diagnose the root cause of the clearance build-up and devise a solution, quantifying the estimated return on investment. Our experience suggested that a simple software tool to manage the workflow and visualise key information would be the ideal solution. This approach provided a ready-made business case for stakeholders to secure further investment in scaling the analytics solution from an Excel-based proof of concept to a software Minimum Viable Product (MVP) and eventually a productionised tool.

The Results: An £18 Million Revenue Uplift and a Path to Automation

QuantSpark's project successfully demonstrated the significant financial impact that analytics and automation could have on the client's business.

Operationally, the existing clearance system was plagued by manual, error-prone, and inconsistent entry systems. Our analysis revealed that a centralised software tool could overcome these issues by automating processes and introducing robust KPI monitoring.

We estimated that by simply improving and automating current markdown decision-making along the 75th percentile – meaning improving just 25% of decisions with analytics – the client could achieve a revenue uplift of 6%, equivalent to a substantial £18 million.

The proposed software tool would incorporate our standardised discounting methodology, allowing business users to select different markdown options throughout a product’s lifecycle and visualise the sales impact before applying the discount. It would also feature an alert system to provide users with continuous price visibility across all SKUs.

This project served as a swift and valuable way to establish the financial impact of automation, analytics, and software, delivering clear assessments of potential ROI and a practical, agile roadmap for creating a bespoke, productionised software solution to be rolled out across the business.

Conclusion

By transforming a complex and inefficient clearance process into a data-driven, automated system, QuantSpark enabled a Big-4 UK supermarket to unlock significant revenue potential. The project not only quantified an £18 million opportunity but also provided a strategic blueprint for future innovation and operational excellence.