Company Q & A 12/1/2005

ActionWatch - AA Data Company

ActionWatch - AA Data Company

Without sales…there are no jobs – not for retailers or manufacturers.  And if sales do not create a profit, there might as well be no sales.  Point-of-Sale (POS) helps keep everyone employed.  POS creates an accurate picture of inventory for retailers – what’s been sold, how many more units need to sell, and when it’s time to have a fire-sale.  It helps single-door, small chain, or big box retailers to determine future buying needs and market trends.  POS information can also provide manufacturers with an accurate picture of their products’ performance - which are moving and which are dead – if retailers are willing to share the information. 

POS information on a retailer-by-retailer basis is useful.  POS information that is collected on an industry-wide basis is powerful.  That is where POS-tracking service companies come in.   The Billboard music rating system is a POS-tracking service.  It tells you who & what’s at the top.  Big dollars are poured into this sort of data collection and analysis every day.  Industries such as Automotive, Consumer Electronics, Music, and Snow Sports have POS-tracking service companies which collect POS data from retailers, compile it, and deliver it in a useful form to both manufacturers and retailers of any given industry.  Manufacturers have access to up-to-date, relevant, and useful information within a particular region about how their products are doing at retail and how they’re stacking up next to the competition.  Retailers are able to see the big picture of what’s happening in their industry.  POS tracking provides industries with information that enables them to stay competitive and healthy.  And it just hit here.

POS tracking has made its way to the Skate and Surf segments of the Action Sports industry, and it’s brought to you by AA Data Company in the form of ActionWatch.  Read on to learn more and figure out how ActionWatch could benefit your operation as a retailer or a manufacturer.

When was ActionWatch established?
We started designing and developing the technology for ActionWatch in March 2004, although the business plan was initially developed a couple years prior.

What is ActionWatch?
ActionWatch is an action sports industry market information service that uses the POS-tracking technique that is already used in many other industries.

Is POS-tracking similar to, or exactly comparable to The Billboard charts?
The Billboard charts are created from a POS-tracking service called SoundScan, which like ActionWatch, has a panel of retailers who use their POS systems to report sales. The programs are very similar except that SoundScan has been around for quite a while and has over 14,000 retailers participating. Also, the music industry has a more sophisticated product categorizing system that is used industry-wide and allows for a standardized UPC program. Our industry is not yet that organized, so our data processing is more difficult than SoundScan’s since they use UPCs.

“Who” from Retailer and Manufacturer would use ActionWatch?
On the retail side, buyers and store owners get the most benefit from using ActionWatch information. Within manufacturing companies, the marketers, sales managers, product developers and merchandisers use ActionWatch information.

Why is now the right time for POS-tracking in the skate & surf segments of Action Sports?  Why didn’t it happen earlier?
Now is the right time because the industry is large enough to support a more sophisticated market research program and mature enough to appreciate its value. As an industry grows, it becomes more and more difficult to make decisions just on gut feel. It didn’t happen earlier because it is very difficult to develop a POS-tracking program in an industry that does not have a standardized product coding system that is accepted and used by both manufacturers and retailers. Because it is difficult it needs to be done inside the industry with people who are already experienced in the industry. This has kept the other POS-tracking service companies from entering our industry.

How does POS-tracking benefit the industry, on the whole?
It provides timely and accurate information about what is selling well and what is selling poorly. It helps reduce stock outs (missed sales) and helps reduce mark downs. It helps the industry be smarter about providing the right products at the right time to consumers, which helps profitability at both the retail and manufacturing levels.

Who developed the ActionWatch software application?
Actually, there are multiple software applications required to get data from its raw form to a usable and presentable form. Todd Anderson, one of the founders of the company, wrote most of the software, but we outsourced certain pieces to a couple different software development companies. We also use some off-the-shelf software, including our main database application (Microsoft SQL Server) and our business intelligence software (ProClarity), but all the other software was custom developed over a period of about 12 months.

How does POS-tracking work?
There are three main components to ActionWatch – the Master Product List, the Retail Panel and the technology infrastructure.

Since there is no standardized UPC or product coding system in our industry, we had to create a set of product categories and manually code each product in the industry to make the Master Product List (which obviously has to be updated each season when new products come out). Without a standardized coding system, each individual retailer makes up their own system to input products. The retailers on our panel use their POS systems to create month-end reports each month and then either email them to our processing center or upload them directly through our website.

This is when the work really starts. We have to first convert all reports from the retailers into a standard format, remove any retailer-identifying information to insure confidentiality and then load them into our database. Once in our database, each item a retailer sold must be matched to an item in our Master Product List – this is what we call the “translation” part of the process. We have a great custom-designed software tool that automatically searches our Master Product List, finds the best possible matches to each item in less than half a second, and then allows an individual to make the actual “match.” However, if the retailer sells that same item again the next month, our system remembers the match and automatically translates it. So human interaction with each match is required only one time.

After every item from every retailer has been translated, all the data is merged together to create a virtual, national retailer. We then make reports from this virtual retailer to show very detailed industry averages down to the item level.

How does product code standardization work in other industries?  Do you think it will eventually be standardized here?
The retailers and manufacturers of an industry have to agree on product category names and definitions and then will usually have a central company that provides UPCs for each new product submitted by manufacturers.

Larger retailers like department stores already require the brands they sell to use these companies to get UPCs. It makes inventory entry and management much more efficient for them. The demand for a standardized system will probably have to come from retailers, because they are the ones who benefit most from it. Organizations like the Board Retailers Association may ultimately have a strong enough voice to get manufacturers to use a standardized system.

On average, how many & what type of sources do manufacturers and retailers use to collect market feedback for the same points of interest covered by ActionWatch?  What’s wrong with this method?
The key “points of interest” offered by ActionWatch are market share data (at the brand, model and product category levels) and industry averages on a number of measures (including price, cost and margin).

Manufacturers currently get anecdotal information from a few retailers and may also get annual, top-level reports from sources like the SIMA Distribution Study or more frequent but smaller reports from other phone surveys. ActionWatch information, like other POS-tracking services, is significantly more detailed and robust than what can be collected in a phone survey. Can you imagine a retailer getting on the phone each month to describe the unit sales, dollar sales and inventory levels for each of the 10,000 items they are carrying?

Retailers also get aggregated reports when they participate in the phone surveys, but again, these reports are top-level only and are generally infrequent. The phone survey method is very good for collecting opinions and is also good for periodic, top-level checks, but they are not an effective or efficient method for regularly collecting detailed sales information.

What advantages does national retail data from hundreds of retailers present as opposed to a manufacturer consulting its top 3 retail accounts, or a retailer relying on its Sales Reps who bring the top three lines to its shop?
Aggregated data from a large panel of retailers gives a much more accurate picture of the market than a manufacturer can get by consulting its top 3 accounts. National distribution requires national feedback for good decision making. Also, a sophisticated manufacturer needs to know how their competition is doing at retail, too. If they’re only talking to their top few accounts they are getting only a very biased view of how their products are standing up against the competition.

Retailers need unbiased reports on what products are selling well in addition to getting information from the sales reps who call on them. The sales reps should know their local area well, but retailers need to have access to even broader trends to get a full picture of the market.

How many Retailers & Distributors / Manufacturers participate in the program?  (What type of retailers – single-door, chain, big box…?) 
Our goal is to have 200-300 specialty retailers actively participating in the panel, but we are not there quite yet. We expect to have a “full” panel in 2006. There is no charge for a retailer to be on the panel. Like POS-tracking programs in many other industries, we trade information with retailers. They provide us with their individual store reports and, after all the reports from all stores are processed, we give each panel member the aggregated reports. The aggregated reports are available in a members-only section of our website for retailers to view or download 24/7.

While ActionWatch is a free service for retailers, industry manufacturers pay for the information. Because we have developed categories for the industry, a manufacturer can purchase information just for their specific category. For example, a sandal manufacturer does not need to see how skateboard decks are selling. Since manufacturers can just buy the categories that are relevant to them, it becomes affordable for everyone in the industry.

Can or will manufacturers and retailers be able to see performance of a particular product and / or category by type of retail outlet (single door, small chain, big-box)?
We are currently collecting this type of information from each retailer so that we can do detailed breakouts in the future. For example, we collect information on square feet of selling space, number of stores, channel type (e.g., chain or specialty) and region down to the state level. This type of information will be available in limited formats to protect the anonymity of the retail panel members, but will nevertheless provide additional insights that have been found to be very useful in other industries.

How and why is ActionWatch valuable to Distributors / Manufacturers?
Manufacturers and distributors are usually most attracted to market share data that POS-tracking services provide. They are by far the best research programs to get accurate market share data at the product category, brand and even model level. Since market share is very closely related to the health of a brand, manufacturers are particularly interested in this measure and how it changes over time.

Manufacturers also use programs like ActionWatch to monitor the sell-through rates of their own products to help them with production planning. This is especially useful for manufacturers in categories that have longer life spans like footwear, sunglasses and watches. Since they can get information on how well their products are selling at retail every month, they can better determine which products they need to have in stock and which ones are likely not to get reordered.

Manufacturers also use POS-tracking services to watch overall industry growth trends and product category growth trends, monitor price points and watch retailer margins.

Are manufacturers able to see information on only their products performance, or are they able to see all other companies’ data? 
Manufacturers have access to the level that they purchase, which will in most cases include all competitors in a particular product category. They can then view the information however they like with our dynamic reporting service. For example, they can compare their whole brand with other specific brands in their product categories, or compare a specific model to other brands’ specific models. Our dynamic reporting tool is very powerful but also very user friendly. Since it is web-based, it is also available to manufacturers 24-7.

How and why is ActionWatch valuable to Retailers?
Retailers get free benchmarking information, broad industry trend information and better service from manufacturers because of POS-tracking services. And it only takes retailers about 5 minutes each month to participate, so there is a very low investment for retailers.

The benchmarking information includes industry averages on prices, product categories sold and margins (down to the model level). This is important for retailers because they can best understand the health of their own business by comparing it to other retailers in their same industry. ActionWatch allows retailers to compare themselves with other retailers while keeping everyone’s individual store information completely confidential.

It is also important for retailers to know the overall health and broader trends of their whole industry in addition to knowing their own local market. This information can not only help mitigate surprises, but can also provide insight into upcoming brands or product categories with real information rather than hype from sales reps.

Another very important value to retailers is that ActionWatch provides them with an efficient avenue to inform manufacturers about what is selling well and what is selling poorly. This information is obviously vital for manufacturers to be able to quickly respond and make sure they have the right products available at the right time.

Is the information provided to retailers at a national level, or is it at a regional level?  If not regional now, will it be?
All information is currently aggregated and provided at the national level. As the retail panel grows we will be able to break the data out on a regional basis and still provide accurate information at the higher levels. However, the smallest regions will still likely include multiple states. The data processing requirements are so great for an industry without a standardized product coding system that our panel can only be so large before it gets unmanageable.

How do Manufacturers access report information? Can manufacturers create custom reports to see only specific product segments, regional reports, etc.?
Manufacturers can access information in a couple different ways, but the best way is through our business intelligence software. It is a web-based application that allows manufacturers to log into their own custom section of our website and have access to a very powerful, user-friendly reporting software program. It is fully dynamic, allowing manufacturers to view data from every angle imaginable and to “slice and dice” data. This means they can, for example, see sales information for an entire category such as Apparel, or they can break it down to tops and bottoms (men’s or women’s, etc.)  or down even further to t-shirts, wovens, knits, fleece, etc. They can also look at sales in each of these categories for all brands carried by the ActionWatch retail panel or break it down to individual brands.

How do Retailers access information?
Retailers on the ActionWatch Retail Panel can log into our website at anytime and view a large set of reports designed specifically for them. The reports are in PDF format, so retailers can also easily print them or just view them on the website.

Is the data accurate?
The accuracy of the sample’s data at representing the whole market depends mostly on the panel size and the amount of variance between retailers in the industry. Measures such as “average sales price” can be very accurate even with a relatively small sample, but measures such as “units sold” vary more between retailers and require a larger sample size to accurately represent the whole market. We are still growing our panel, but a “full” panel of around 200 retailers will be enough to provide good data for all measures.

How would a retailer or manufacturer go about trying out ActionWatch?  Is there any risk?
There is really not any risk for a retailer or manufacturer who wants to try out the program. There is no cost at all for retailers to participate, other than the few minutes of time required each month. We also offer free trial periods for manufacturers in certain product categories.

What are the future plans of ActionWatch?
As the program matures there will be a lot of opportunity to adjust it based on feedback from both retailers and manufacturers. We will also offer more of our own analysis to find and report on hidden nuggets of information that may not be easily seen with a quick glance but nevertheless important to our customers.

Also, there will always be a push to increase the efficiency of data delivery and processing so that we can speed up our turn-around times. Ubiquitous broadband Internet access with retailers and automated reporting software for their POS systems will make a huge difference in our turn-around times simply because we will get the reports from retailers more consistently at the end of each month.