The Challenge of Top Down Merchandise Planning
By Bill Bittner, President, BWH Consulting
One of the features of this year’s National Retail Federation (NRF) convention are “working lunches” where groups of retailers sit at various tables dedicated to different subjects that are of common interest.
I sat with a group of retailers and suppliers as they discussed the challenges of merchandise planning in today’s diversified markets.
The fundamental concepts are the same as they have been for years. Stores are assigned to clusters that consist of locations the merchandisers feel should share a common merchandising program.
Stores are first clustered based on store format and volume or size of store. But in an effort to get more precise, retailers are going further and some of their additional attributes get interesting. Many use climate as a factor, distinguishing between locations that experience true winter seasons and those that have never seen snow.
Another interesting attribute was activities. A sports retailer includes what types of leisure past times the local area supports. Fashion retailers were pretty free with their shelf allocations, while grocers supported very specific planograms for the shelves.
Some retailers are using frequent shopper data to help in their merchandising decisions. Demographic data is also used in some planning. One retailer is setting up clusters by category that creates a custom store merchandising program based on a combination of category layouts particular to that location.
Despite all the effort to be more scientific about it, all the retailers expressed concern about their ability to really meet their individual store’s needs using the top down
approach. Some have hired market specialists whose job it is to understand the peculiar circumstances faced by a specific store. The specialist tweaks the generic merchandise
plan to meet their requirements. All of them conceded that some stores don’t fit their clusters and have unique merchandise requirements that are not met by the cluster approach.
Moderator’s Comment: What do you see as the biggest challenges relative to store merchandising today? What do you see as Best Practices to make sure
stores are merchandised to meet the needs of local shoppers? Is there a retailer you can identify that does the best job of merchandising on a store by store basis?
I enjoyed this lunch. I found it a nice opportunity to hear a variety of approaches. Were some people more talkative than others? By all means, but I think
everyone learned something. People who were listening certainly learned a lot, but the ones who were talking got reassurance that they were ahead of the curve as others expressed
their desire to get to the point they were. And for the record, no one discussed prices or ways to constrain trade. –
Bill Bittner – Moderator
Fully optimized merchandise planning can and should be built up from the lowest common denominator economically viable. I really don’t think this is an opinion. I think it’s a universal truth.
Store clustering has made incredible leaps in potential in the past 5 years. The old paradigms of geography no longer seem appropriate in managing assortments. In a large (national or super regional) chain environment, is it truly possible to have specific local market assortments and still operate in an economically efficient way? No, it is not. However, flexible plan-o-grams, demand driven store clusters, and linked technology make it possible for most customers to experience something close.
Technology exists that links store plan-o-grams, layout and shelf space to higher level merchandise plan goals, store operating goals and variety of other matrixed objectives. Like most tools, these can be misused. However, in best practice, this technology allows for the necessity of high level merchandise planning, store level operational planning, and customer-centric merchandise execution.
The greatest drawback to all forms of technology driven integrated planning is that they are rear-view mirror focused. They look to existing trends to determine what the optimal mix should be for the future….which is inappropriate for a trend-setting establishment.
Obviously, this topic covers a broad range of retail from grocery to specialty stores to department stores. I think it is easier for grocery and specialty stores to make appropriate adjustments for demographic differences across geographic areas; grocery stores for reasons stated by others. Specialty stores have a distinct advantage in that they have a focused demographic that is somewhat homogenous even if the climate they may live in differs.
As mid-tier department stores grow from regional enterprises to businesses that straddle a large chunk of the country, it will be very difficult for them to make this adjustment. They are targeting a larger demographic that is extremely varied. What plays in LA may work in Chicago, but probably doesn’t cut it in Fargo.
Retail is a very cyclical business. I may be crazy, but I predict that as consumers react in markets that don’t fit the national mold by not buying, we will see more of those locations close down leaving room for the rebirth of the local department store.
I took a day off from the NRF show and walked stores to find what was new in store design, or merchandise. While new stores were intriguing and fresh, stores that debuted just last year were already tired looking, including the merchandise.
I have said it before and I’ll say it again, merchants and executives of the retailers need to get out on the sales floor and talk, person to person, to customers. Find out what is on their shopping list, and what is in their shopping bags. They’ll find out trends a lot faster than going to an outside service.
Merchandising technology and store display design improve regularly, with accompanying data retrieval and success measurements. Most or all are top-down inspirations, and few have fluid implementation procedures that extend much beyond the initial set-up. That’s why year-old stores often look “tired.”
The biggest challenge in store merchandising today is execution. First, few merchandising plans include a sell-through element, and almost none have clean-up, lifecycle, or rotation guidelines. And second, every retail merchandising plan depends on two elements that are often not provided: full displays and employees who can implement the evolution of complete lifecycle plans.
Sometimes the issue is based on categories, such as how much space to devote to an ethnic group’s favorite foods. Sometimes the issue is based on sizing, since it’s not easy for clothing and shoe stores selling very few per location of a particular style/color/size combination to keep adequate stock of every size when the fashion life cycle can be short. The great advantage of an internet site is its unlimited size/style/color/assortment capacity. If a store can offer its customers quick special orders from the warehouse, so much the better. The hardest challenge of the strategy is determining the goal: to satisfy everybody with on-site inventory; or satisfy everybody except 5% who are willing to wait 3 days; or satisfy 80% of the population and assume that you can’t make money with the other 20%. Bookstores are generally happy to do 2% to 5% of their business on special orders, but most bookstores don’t bother with foreign books or books in other languages. J.C.Penney’s internet site has an extended range of men’s clothing sizes compared to the stores, but there are many sizes unavailable even on the web site, for certain items. Sears and Home Depot will mix paint in the store in any color, but those paints are rarely on sale, so the margin makes it worthwhile.
In building on Dr. Banks comment regarding merchandising execution, I have been directly involved in the emerging area of task management software, which serves to connect a retailer’s corporate initiative(s) to their stores and more directly to the personnel in the store responsible for executing a particular task.
This is a fairly new but proven technology that really changes how a retailer handles in store execution. A little bit daunting for most retailers at first, but carries with it outstanding ROI, witnessed by over 20 major retailers already implementing these systems.
The challenge and the opportunity to date has been once a retailer is on this system they find a myriad of varied issues to address. Just recently, several leading retailers have begun to utilize this technology to address the implementation issues involved with executing store and market specific merchandising plans with outstanding results.
One of the best approaches I remember talking about recently was the go to market strategy of Whole Foods. In trying to figure how best to implement across all divisions, you really come to find, as a culture, they hold on to the local tastes of each store. While there is a core assortment, there are a percentage of items that are left to the regional level, some left at the district level and some to the store and department head level. Seems to work.. and seems to give them the closeness to the customer and communities we all seem to want.