How to capitalize on retail market saturation
Consumer Centric Merchandising in a Diverse Marketplace
The retail industry’s growth period of building store after store has exhausted itself. For many years, retailers have focused on building bigger and better stores. However, this tactic has tapped the majority of major U.S. markets. In addition, these stores are beginning to show signs of age. To improve sales and better serve customers, retailers must re-focus their strategy to optimize their existing store network.
When adding hundreds of stores every year, numerous retailers found it efficient to take on a one-size-fits-all approach to their merchandising strategy. However, this tactic doesn’t optimize sales or meet consumer need on a store-by-store basis. Shoppers today seek solutions that fit their needs. They are looking for stores that provide a pleasant shopping experience and the products they desire. Out-of-stocks detract from the shopping experience causing customers to become frustrated and potentially begin shopping elsewhere.
By creating a customer centric strategy based on demand, you can satisfy your shoppers and significantly reduce or even eliminate lost sales due to out-of-stocks.
The assortment planning process
There are two attainable ways to become customer centric. The first is to have demand-driven clusters based on actual store sales; predictive or correlative approaches that are demographic driven often break down because of myriad of untracked factors in the market and differing lifestyles and preferences from town to town, market to market. The second is to incorporate a store-specific merchandize plan for every single condition within the store. To improve current store performance, some retailers have adopted automated merchandising solutions to execute optimized, store-specific merchandise plans. The use of data segmentation places more customer-centric assortments into existing stores and optimizes inventory and space to increase same-store sales without having to remodel or open a new store.
Historically, many retailers have found transitioning to a customer centric strategy to be complicated. Many solutions simple did not measure up, or have made the attempt manually, only to generate mediocre results after a massive effort. Today, the stigma still looms.. However, new generation retail and category optimization solutions are now available. They are quick and easy to deploy and significantly impact your bottom line. Using these new tools, retailers have experienced sales increases of up to 18 percent, margin improvements of up to 5 percent and a reduction in wastage of up to 20 percent.
More importantly, retailers have achieved merchandize plan compliance of more than 95 percent. Retailers that produce generic plans typically have compliance levels of only 40-50 percent. Consumer Centric merchandising equips stores with plans they can confidentally execute and more easily restock and maintain. So it’s not just the consumer who benefits.
Is customer centricity worth the effort?
Many in the retail industry still wonder if customer centricity is actually necessary. This is because they don’t realize exactly how diverse their stores really are.
Diversity - in peoples, competition, and other factors - has grown massively over the past 20 years and is forecasted to continue to grow. This is due to the growing Hispanic population, changes in income, lifestyle differences and many other factors that are well beyond the existing tracking methods. To get a sense of how diverse your chain really is, quickly compare the selling mix and fixtures in just a handful stores.
There are four main sources of diversity: competitive, market, and customer and store diversity. Competitive and Customer diversity combine for actual store sales. For instance, customer demand and buying patterns may require a brand of ice cream to take up 60 percent of the category mix in one store but only 25 percent in another. If using a one-size-fits-all approach, the retailer will miss out on sales opportunities and either experience waste or out-of stocks. Store diversity accounts for layout and in-store fixtures. Many retailers only create merchandise plans for 4, 8, 10 and 12-foot fixtures. However, the majority have much more diverse fixture sizes to merchandise. For example, one U.S. grocer with 200 stores has 97 different configurations for the cereal department.
To accurately gauge diversity and identify the benefits you can achieve from an automated customer centric merchandising solution, request a rapid, no-cost pilot from a qualified supplier. To make the transition, partner with a provider that offers a solution that can quickly and accurately identify cluster and store specific merchandise plans. It should be able to recognize the difference in consumer demand patterns at the cluster level while also recognizing the difference at the individual SKU levels on a store-by-store basis. This will enable you to develop a cluster strategy that is better suited to the neighborhood and a merchandise strategy to fit each specific store.
As a result, you can effectively replenish stores to meet consumer demand and allocate saved labor to another task within the store.
Maintenance for success
A customer centric strategy gives you the abiltity to further build customer and brand loyalty. However, once a strategy is in place, ongoing maintenance is required for continued success. Changes to assortments are inevitable. Many retailers initially create their perfect merchandise plans for each category, but as time passes, corporate doesn’t communicate assortment changes down to the stores.
Also known in the industry as “minor revision”, ongoing maintenance can be a painless process using the right automation tool. When initially selecting your automated merchandising solution, ensure it has built in real-world tested minor revision capabilities. The one-in-one-out rule is fantasy. The minor revision tool enables retailers to retrieve a merchandise plan to identify what items have been removed from the assortment and what items need to be added. From there, the solution will identify a plan to make the changes work in a way that minimizes the overall change to the original plan and maintains strategic conformity. It will then publish executable store specific plans.
Unless a retailer manages minor revisions as adequately as the original merchandise plan, the display will begin to fall apart in terms of compliance; ‘shelf erosion’ sets in. Products will begin to shift and some will never even make it to the shelf. This can ultimately create a domino effect and greatly transform you planned strategy into something far different in stores.
Don’t forget about macro space
To completely optimize existing stores, integrate assortment and space optimization at the macro and micro levels. Optimizing macro space ensures the space allocated to a category or department is right in the first place. To maximize profits, retailers can use a solution to test categories at the macro and micro level to ensure the optimal amount and range of products is available for purchase. By forecasting future store needs based on historical information and trends, retailers can understand the return and benefit a category will achieve from the space before implementing it. In addition, this method enables retailers to perform a “what-if” analysis to determine the financial impact of in-store changes that affect store space. By testing situations before execution, retailers can ensure they achieve a return on investment without any surprises.
Overall, a customer centric merchandise strategy can build customer loyalty and increase profit in your existing store network. It’s not just an idea anymore; it’s happening today. A successful program should incorporate an automated solution with minor revision capabilities and a solution to optimize macro space. Doing so will ensure the ideal assortments are always available and every inch of selling space is optimized.
A customer centric strategy gives you the abiltity to further build customer and brand loyalty.Konstantin Nechaev, Programme Director, MVideo
Benefits of adopting customer centric merchandising
Those retailers who have embraced the solution have seen their stores realise significant benefits including:
- Sales Increases
- Margin Improvements
- Wastage Reduced
- Enhanced Customer Satisfaction