MaxOut
Exit Strategy Optimization…Maximizing Profits by Leveraging All Your Assets

Excess inventory remaining on store shelves costs retailers millions of dollars a year. While excess inventory, on its own, is an unavoidable consequence of expanded assortment, significant excess inventory that needs to be liquidated is an underperforming asset and a sure sign that the product was either overbought or misallocated to stores and/or sizes.

The average markdown rate for retailers has grown threefold over the last 10 years. While automating the markdown process has shown to be a benefit for retailers, relying solely on price markdown optimization, as a primary strategy, will be more likely to erode brand value, reinforce consumer deal seeking and, ultimately, reduce sustainable profitability.

At 4R Systems we are extending markdown technology by framing the markdown process within a product lifecycle management approach. MaxOut, 4R’s exit optimization tool, starts by aligning inventory levels with the product’s lifecycle actively avoiding excess inventory positions. Once a product is slated for retirement, MaxOut evaluates the economics of every alternative available to maximize revenue at the end of a product’s life, including – but not limited to - price markdown.

MaxOut Goal: Maximizing Revenue

After review of all exit options, MaxOut recommends which are best for you, and helps you execute against these options:

• Return to vendor (RTV)
• Mark down prices and sell in store
• Sell to third party liquidator
• Carry over to next year
• Rebalance inventory or consolidate product within chain

Integrated with Replenishment

4R Systems understands product lifecycle management and what happens to sales patterns as a product matures and is retired. MaxOut works in conjunction with IP^Max, our inventory replenishment solution. Our advanced analytical models are geared to detect downward trends and enable the retailer to turn off the re-buy process, thereby eliminating the need for extensive markdowns.

Price Optimization Engine

After MaxOut evaluates all exit options, price optimization for discontinued products can be one of the viable solutions and a very leverageable tool for maximizing revenue. Even relatively small changes in magnitude and timing of markdowns can generate substantial revenue gains.

MaxOut’s price optimization engine determines the optimal price trajectory (timing and magnitude of price cuts) to be applied to a discontinued SKU over the course of its exit horizon, with the goal of maximizing overall revenue for that SKU, simultaneously maximizing profit.

Additionally, when liquidation of unsold inventory is an option, the price optimization engine determines the optimal balance of shelf-sales and liquidation sales that will prevent revenue dilution.

MaxOut Highlights:

• Optimal price trajectory based on price sensitive demand
• Consolidation and stock rebalancing recommendations
• Evaluation of liquidation as an option, with user-specified salvage values and limits
• Ability to incorporate business rules such as:
  • Min/max number of price cuts (usually 1 or 2, but can be more)
  • Min/max magnitude of price cuts (absolute $ or % off previous/reference price), or admissible price levels Constraints on the timing of price cuts (min/max elapsed weeks in between, final “out” date)
  • Applicability of markdowns by location (store, store group, chain)
• Possibility to run “what-if” analysis by varying key parameters such as:
  • Out-date
  • Inventory available
  • Price trajectory
  • Liquidation value and limits
  • Add promotional lift

Profit Generation, not Just Cost Reduction

With the help of 4R, retailers can profitably manage the difficult end-of-life process. We strive in helping you intelligently navigate the myriad of product retirement options available, thereby giving you the power to effectively execute an exit strategy that results in revenue maximization.