Is consistency the key to successful merchandising?

During the course of the past few months, I’ve had the pleasure of diving back into sales meetings while my sales manager has been on maternity leave – and it’s been thought-provoking, to say the least. So many of the conversations have centered around retail merchandising in times of server uncertainty. This had me asking myself a few questions: Why is merchandising and planning so critical? What are some of the best practices and trends being deployed across this function? How do we operationalize the merch plan, and what do we do if things don’t go to plan? Off the back of these questions, I’ve spent some time doing research, speaking to colleagues and mentors, trying to find the answers. I’ve outlined some of my most important findings below.

First things first, let me state the obvious. Merchandising and planning are essential aspects of any successful retail business. As early as 1927, Paul Mazur defined the five rights of merchandising as: The right merchandise, in the right quantities, at the right time, at the right price, and in the right place. Alongside these core principles, many of our retail partners also use merchandising strategies to create visually appealing displays and optimize inventory management - all in the hopes of ultimately gaining market share and increasing sales.

The Importance of Retail Merchandising

Effective retail merchandising has a significant impact on a retailer's operational efficiency metrics, as well as profitability. There is a positive correlation between buying a product that resonates with the targeted customer effectively and said metrics impacting the bottom line. However, according to a study by the Point of Purchase Advertising International (POPAI), more than 60% of purchase decisions are made at the point of sale – a fact I’m inclined to believe as we’ve seen first-hand how important store-level training is in the South African market. What this means, is that retailers need to assort the correct product, followed up with strong visual merchandising and training to create a positive purchasing experience. This is no easy feat, but it can be accomplished through the implementation of forward-looking merchandising strategies that consider historical data and are rooted in resonating with – and guiding customers towards making purchases. An additional aspect to consider is customer retention for repeat purchases; this is where the shopping experience counts.

Best Practices in Retail Merchandising

Retail merchandising involves a range of practices, including: Product selection, width and depth of assortments, pricing, brand strategy, positioning, inventory management objectives, and strategic supplier business plans. In my experience, it must always start with a deep understanding of the Retail Brand and target market which is made up of new and legacy customers. Retailers have to be clear on why the target consumer is shopping, what they need, as well as their preferences, and shopping habits, then use that information to create merchandising strategies that appeal to them.

We have seen strong cases where an engaging in-store experience supports the decisions made during seasonal buys. This means that retailers should always aim to create an in-store experience that is authentic, engaging, and immersive – because more often than not, this will lead to more sales. While this is a challenging ask, there are many ways to achieve this through interactive displays, strong activation stories, avoiding over-assorting, and ensuring that the merchandising itself is congruent with what the retail brand itself represents.

So, how does one optimize product displays? Product displays should be visual and easy to navigate. Some of the strongest players in our market use various merchandising techniques, such as color blocking, eye-level placement, and cross-merchandising to optimize their product displays. The use of digital signage, interactive touchscreen, the deployment of product training, and visual merchandising standards also show strong results.

Current Trends in Retail Merchandising

Retail merchandising is a constantly evolving business function and you need to stay current in order to stay successful. Here are four current trends that businesses should consider:

1. Personalization: Use customer and transactional data to create personalized recommendations, promotions, and other tailored experiences for your customers, it works!

2. Sustainability: Consumers are becoming increasingly environmentally conscious. Retailers who demonstrate a commitment to sustainability through eco-friendly products and packaging are more likely to attract customers.

3. Experience-based retail: Focus on creating memorable and immersive experiences for customers. This can include (but isn’t limited to): In-store events, product launches, live demos, and interactive displays that enhance the shopping experience.

4. Omni-channel merchandising: This involves the creation of a consistent brand experience across all channels and touchpoints. The more seamless and integrated your shopping and brand experience, the better. Digital channels also allow one to assort wider with minimal incremental overheads associated with stock holding.

So, how do you operationalize the merchandising plan? Stock is typically distributed across a large store base through the combination of centralized and decentralized distribution models. In a centralized distribution model, all products are shipped from a central facility to individual stores, allowing for better inventory management, increased efficiency, and cost reduction (assuming a streamlined supply chain with minimised touch points). Centralized distribution models work best for products with high throughput, consistent demand, and long shelf life. In contrast, in a decentralized distribution model, each store orders and manages its own inventory directly from suppliers, allowing for more flexibility and customization based on local customer demand. Decentralised distribution models work best for products with shorter shelf life or those that are highly perishable.

Retailers usually utilize a combination of these distribution models to tap into the benefits of both.

Challenges with sell-through

When stock isn’t selling through in all stores, there are a few things that merchandisers and planners can do to solve this prior to ranging for the next season. Here are five of the most common strategies I’ve seen deployed:

1. Adjust product mix: Evaluate the mix of products being offered in different stores and make changes accordingly. This can be done through the introduction of new products that are performing strongly in smaller grids and not currently available in wider store grids, or reducing the quantity of slow-moving products in those store grids to change the mix.

2. Shift inventory: Moving products from underperforming stores to ones where the products are selling well helps to balance inventory levels across the store base, and can also help to reduce inventory levels in underperforming boxes. We have seen this strategy used to also mitigate the amount of off-price stock on the floor in key locations.

3. Offer promotions: Buy-one-get-one deals or markdowns are easy ways to clear out excess inventory because it draws feet and gets customers excited about products they may have previously overlooked.

4. Revisit the target customer: It could also be a good idea to retarget the customer based on geography, demographics, income groups, colour, sizing, etc. This will not only allow for a deeper understanding of the real customer and their respective buyer behaviour but also allows you to optimize the product mix in different locations or stores dynamically.

5. Collaborate with Store Managers: It’s essential to work closely with store managers to identify store-specific opportunities and stockouts. This collaboration can develop a deeper understanding of the products customers are asking for, the sales friction points, and the opportunities that are being left on the table. This often informs store training programs as an added benefit.

Optimum Purchase Quantities

The theoretical way of working out what the optimum purchase quantity is for a large retail chain involves considering factors such as lead time, demand variability, ordering costs, holding costs, and lost sales costs. A few popular inventory management models have been developed for calculating optimal purchase quantities for various situations which are typically applied to a store grid system. Here are some of the most popular ones:

1. The Economic Order Quantity (EOQ) Model: This is one of the more basic models. It takes the costs of ordering and holding inventory into consideration to calculate the optimal order quantity for an item and works off the assumption that demand is constant and that there are no shortages.

2. The Reorder Point (ROP) Model: Focuses on calculating the level of inventory at which an order for more stock should be placed and includes the lead time required to produce and deliver the amount of inventory that will be used during that time period.

3. Periodic Review (PR) Model: Considers the demand variability and order lead time and reviews inventory levels at fixed intervals and places orders to reach a certain inventory level.

?4. The Base Stock Model: An effective way to manage inventory in a multi-product, multi-echelon supply chain environment. This model considers the effect of holding costs, ordering costs, and lost sales costs in arriving at the optimal purchase quantity.

In conclusion, an effective merchandising strategy is one that is consistently deployed over time. It must take cues from past performance, understand sales cadence, and examine the wins and losses from historical buys – but it the secret is in consistency and staying true to that north star. ?We see the most successful retailers have a strong, forward-looking view, and strategically position themselves for trends and changing preferences within their target customer base and then take calculated buy risk on new segments they would like to attack.

By understanding the target audience, staying close to the shop floor, optimizing product displays, using data, and incorporating technology, retailers can create an engaging and memorable shopping experience that drives sales with current and new customers. This does require, above all things, consistency as the impact of time cannot be understated when building certainty and confidence in the shopping experience.

Sources:

1. Handfield, R., and Nichols, E.L. (2002). Introduction to Supply Chain Management: Prentice Hall.

2. Silver, E., and Peterson, R. (1985). Decision Systems for Inventory Management and Production Planning: Wiley.

3. Nahmias, S. (1997). Production and Operations Analysis: Irwin/McGraw-Hill.

4. Krajewski, L.J., and Ritzman, L.P. (2002). Operations Management: Strategy and Analysis: Prentice Hall