Stores at every mall in the country often have one, two or even more racks of failures -- marked down merchandise that didn't sell because the colors were bad, the fit didn't work for most people or the style just didn't match the trends.
A small Wexford startup with offices just off Route 910 promises it can reduce the need for such markdowns by helping retailers weed out that awkward green sweater, that unfortunately limp dress and that boring handbag long.
"We can accurately predict the bottom 20 percent every time," said Jim Shea, chief marketing officer for First Insight, a software company that has sold its predictive analytics services to companies such as Vera Bradley, Avon, David's Bridal, The Limited, Saks Fifth Avenue and Pacific Sunwear.
The company was founded in 2007 by Greg Petro, a South Oakland native who worked for retailers such as Kaufmann's and Saks before deciding he had an idea for technology that could help merchants with one of their eternal challenges -- how to choose the right merchandise and how to set the right price.
First Insight has gone through more than one round of fundraising, including the most recent one disclosed to the Securities and Exchange Commission in November 2012 that raised $4.8 million. The company's board members, according to that filing, include Sewickley-based Adams Capital Management general partner Joel Adams and former Neiman Marcus department store chief executive Richard Marcus. Beyond those disclosures, the company is tight-lipped, declining to release financial data such as number of employees or revenues.
First Insight's role is meant to be behind the scenes, even as its software has been put to use by retailers making choices about products that will show up in stores, on websites and in catalogs in the coming weeks. "The consumer doesn't know who we are," said Mr. Shea. "That doesn't matter."
Thousands of consumers have actually helped the company and its clients, offering their own insights and instincts to complement those of the experienced buyers that merchants count on to assemble the right collections.
First Insight creates online games that a targeted audience -- perhaps a retailer's loyalty card users or even its employees -- can be recruited to play as a means of predicting what proposed products might sell best and what shoppers might pay for them. Using its own algorithms to determine who is the best judge, some players' insights are given more weight than others.
"You need to know who to listen to and who not to," said Mr. Petro.
That nuance gives the company's findings more sophistication than a simple poll that doesn't differentiate between survey participants. It's also meant to be an improvement on testing programs in which merchants try selling small quantities of goods in a few stores a season or two before they're rolled out across an entire chain. "It typically takes a couple of months to get a good read," said Mr. Shea.
First Insight promises to get feedback on new product possibilities within 42 to 78 hours, something that's useful both for fast-fashion retailers who may ship new goods every few weeks and for mass merchants who have a large, diverse inventory. Mr. Shea said one customer has tested as many as 500 to 1,000 products a week.
Gartner Inc., a Stamford, Conn., technology research firm, labels the area that First Insight is working in as "customer-centric merchandising." In a July report, Gartner listed several companies as working in the growing market.
"Many retailers have experienced the pain that can be associated with running purely by the numbers," said Gartner's analyst Robert Hetu, in the report. "Retailers are just beginning to explore how to use new forms of customer data in their planning, such as sentiment analysis data gathered from social networks, reviews and the rest of the social Web."
A spokeswoman for Fort Wayne, Ind.-based handbag and luggage company Vera Bradley gave the Wexford company an endorsement. "Vera Bradley has been working with First Insight for about a year, and we continue to be impressed with the information we've been able to capture," she said.
The First Insight team has learned to make its own product more appealing to its clients, going from more spreadsheet-heavy results to reports with product images that help those who work in a visual industry.
The company sees its services as working best for merchants looking at new products that don't have a lot of history, a category that includes fashion. It's hard to judge the new season's blue sweater based on last year's blue sweater, since the embellishments and styling may be different enough or the trends changed enough to affect how consumers respond.
Exactly where along the line the company's customers use its technology can vary. David's Bridal has supplied conceptual drawings on gowns for consumers to respond to, helping it avoid investing in unneeded inventory.
First Insight's pitch to investors uses the example of a collection of 15 dresses that consumers were asked to rate and to set a purchase price on. Based on the feedback, the highest rating went to a black dress that a high portion of participants liked and said was worth more than the manufacturer's suggested retail price.
About 11 percent of items are found to be capable of selling for a higher price than expected. "Those are great when they find them," said Mr. Shea. That gives merchants the flexibility to either charge more or perhaps spend less money promoting, something that's important in the competitive retail market.
Teresa F. Lindeman: email@example.com or at 412-263-2018. First Published October 15, 2013 8:00 PM