Tuesday, December 14, 2004

Predictive Sales

HURRICANE FRANCES was on its way, barreling across theCaribbean, threatening a direct hit on Florida's Atlantic coast. Residents made for higher ground, but far away, in Bentonville, Ark., executives at Wal-Mart Stores decided that the situation offered a great opportunity for one of their newest data-driven weapons, something that thecompany calls predictive technology.

A week ahead of the storm's landfall, Linda M. Dillman,Wal-Mart's chief information officer, pressed her staff to come up with forecasts based on what had happened when Hurricane Charley struck several weeks earlier. Backed bythe trillions of bytes' worth of shopper history that is stored in Wal-Mart's computer network, she felt that the company could "start predicting what's going to happen, instead of waiting for it to happen," as she put it.

The experts mined the data and found that the stores wouldindeed need certain products - and not just the usual flashlights. "We didn't know in the past that strawberry Pop-Tarts increase in sales, like seven times their normal sales rate, ahead of a hurricane," Ms. Dillman said in a recent interview. "And the pre-hurricane top-selling item was beer.

"Thanks to those insights, trucks filled with toaster pastries and six-packs were soon speeding down Interstate 95 toward Wal-Marts in the path of Frances. Most of theproducts that were stocked for the storm sold quickly, the company said. Such knowledge, Wal-Mart has learned, is not only power. It is profit, too. Plenty of retailers collect data about their stores and their shoppers, and many use the information to try to improve sales. Target Stores, for example, introduced abranded Visa card in 2001 and has used it, along with anarsenal of gadgetry, to gather data ever since.

But Wal-Mart amasses more data about the products it sells andits shoppers' buying habits than anyone else, so much so that some privacy advocates worry about potential for abuse. With 3,600 stores in the United States and roughly 100 million customers walking through the doors each week,Wal-Mart has access to information about a broad slice ofAmerica - from individual Social Security and driver's license numbers to geographic proclivities for Mallomars, or lipsticks, or jugs of antifreeze.

The data are gathered item by item at the checkout aisle, then recorded, mappedand updated by store, by state, by region. By its own count, Wal-Mart has 460 terabytes of data stored on Teradata mainframes, made by NCR, at its Bentonville headquarters. To put that in perspective, the Internet hasless than half as much data, according to experts.

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