Merchandising – the retail hotspot

merchandising - the retail hotspotAn irate customer gets to know days before Christmas that orders she had booked online with a well-known retailer will not reach her in time. After trying on dresses at a fashion retail store, a customer is convinced that none of the colours she wants are available in her size. And fresh produce and greens at a local supermarket begin to wilt by mid-day – when the store gets maximum customers.

These retailers are definitely not getting their merchandising plans right.

On the one hand are connected customers who expect online websites to know their names and their likes and dislikes. On the other hand are retailers managing multiple interaction touch-points with Gen X customers and making sure assortments and prices are consistent across all channels.

It’s not an easy task, to say the least, and retailers need all hands on deck for some smart merchandising strategies that puts the customer firmly at the centre stage.

Here are the top 5 ways how retailers can improve their merchandising strategies.

1. Bottom-up Assortment Planning

bottom - up assortment planningEarlier, retailers had a top-down approach to assortment planning. Senior merchandising and marketing heads depended on sales, margins, inventory and suppliers’ data to decide the assortments to be bought for each season. Company plans and market trends also impacted the merchandising plans of the company. Forecasts were largely manual, intuitive and based on deferred purchases and residual orders from the sales pipeline. Such an approach lacked the much-needed connect with stores and the customer on the street.

Retail companies should move to a bottom-up perspective to assortment planning. Inputs from POS data, store-SKU level demand, customer-buying patterns and shopping behaviour have to travel from the stores upwards to make an effective assortment plan. As analytics tools become more advanced, implement automated and analytics-driven forecasting tools to ensure that your stock and sales forecasts is spot on.

2. Customer-centred Assortment and Space Optimization

customer - centred assortment and space optimizationWalmart and online retailer Amazon successfully built their businesses on the lowest price offers. But in the new retail landscape, two factors are becoming more important than price – a superior shopping experience and an ideal assortment mix.

Analytics-driven assortment and space optimization enables you to have just the right product depth and width in your stores, arranged in the right aisles and shelves. It helps you to answer critical questions such as which products to include in a given assortment, what are the recommended facings by product, where best to position products on the planogram and which product and category adjacencies will deliver maximum sales and profitability. Assortment and space optimization tools can help retailer’s develop a variety of strategies designed to enhance customer shopping experience. So food and grocery can have ‘meal solution corners’ where everything a customer might need for a picnic or a party is displayed conveniently in the same area. Co-product cross merchandising can help you mix and match products that complement each other to achieve higher sales. So customers can find herbs and seasonings adjacent to the salad oil and green tea within reach of the organic foods.

The traditional ‘we have something for everyone’ approach has to give way to a customer-focused ‘we understand your needs’ approach. Insights from customer analytics and loyalty data as well as customer behaviour measured across multiple channels are key inputs towards customer-centric product assortments.

Assortment optimization will help you identify niche products that may be slow sellers but drives the sales of associated products. These cannot be eliminated from your shelves. Similarly many items may not sell well but may be part of the shopping basket of your most loyal customers. Making the decision to not offer these items can drive them to shop elsewhere.

3. Assortment Localization

assortment localizationAssortment localization is one of the most effective strategies for store-based retailers to keep pace with their fast growing e-commerce competitors. So retailers like Walgreens, ShopKo, Trader Joes, and Walmart use a variety of localization strategies to give shoppers the feeling that a store is “their” store and that it understands their specific needs closely.

As retail operations look at new markets and spread their footprint, a cookie-cutter approach to assortments cannot work anymore. Local tastes and demands, local seasons and holidays, shopper behaviour and purchase patterns in various states and countries should impact what retailers stock on their shelves.

Assortment localization can range from the extremely simple to far more complex steps that require analytics-driven insights to implement. Some of the simpler localization strategies include ShopKo’s carrying local sports team memorabilia, towels and sunscreen in a beach town or winter hats and gloves in a ski town.

More complex and analytics-driven insights are required to pull off localization strategies such as the ‘My Macy’s’ campaign launched about 3 years ago by Macy’s. The ‘My Macy’s’ campaign adds a personalized touch to assortments through localized decisions on the inventory at each Macy’s store. For example, in the Columbus, Ohio region, Macy’s buyers stocked more golf attire because the local population showed a preference for this – not just on the golf course but even in church. In addition, stores added more licensed Ohio State products as well as blue jeans, because of the city’s large college-age population.

4. Cross-channel Synergies in Merchandising

cross - channel synergies in merchandisingToday’s cross channel customers do their research on websites and smartphones before going into a store to shop. This means that there has to be a cross-channel uniformity between the merchandise you offer across channels. For instance, customers may visit an electronics retail store to check out a particular high-end DVD player that they researched on the electronics retailer’s website. But the store may not be stocking the model if it is not one of their fast sellers. Typically, these are the results of store-only assortment planning strategies.

Effective cross-channel and multichannel analytics leverages a wealth of online shopper data and insights from across multiple channels to build much-needed cross channel synergies. It can help you quantify details such as how many customers researched products on your site and later visited your stores or how many items were ordered online and picked up in store and so on. These inputs when taken into consideration while planning and optimizing assortments, can result in improved cross-channel synergies, increased sales and higher customer satisfaction.

5. Price Optimization

price optimizationIn some segments like grocery retail where price elasticity is high, even a margin percentage difference in pricing can lead to major difference in sales volumes. Pricing decisions backed by appropriate data and analytical insights will fetch expected results. If not, they can end up in lost sales and damaged brand value.

A recent example is the online retailer Netflix which implemented a price hike that caused customers to cancel in droves. The online retailer took a decision to un-bundle its Internet streaming and DVD services and charge separately at almost 60% more for each of these across its subscriber base in the USA. Within weeks after the new prices were announced members began to unsubscribe from Netflix in large numbers.

Many retailers who are leaders in cross-channel selling, such as Best Buy and REI, tend to align their prices between web and store. With online retailers like Amazon offering to better the prices running in competitor’s physical stores, pricing optimization has to become a vital part of retail merchandising strategies.

Retail Analytics and Business Intelligence

retail analytics and business intelligenceA sound analytics platform is an essential requirement for implementing any of these merchandising strategies. While the focus was earlier on automating many of these merchandising processes, today retail analytics solutions can help you drive greater efficiency and enhance profitability through data backed merchandising decisions.

Concerns about underperforming inventory have overtaken out-of-stocks as one of the top business challenges among businesses. To gain maximum value from inventory investments, it’s critical for merchandising optimization to span products, prices, promotions and processes.