Posts Tagged ‘Merchandising’

Why Category Definition is Critical

Tuesday, August 5th, 2014

Screen Shot 2014-03-06 at 2.31.25 PMFor retailers who follow a structured category management review, the first step is defining the category. The idea of defining a category each year may seem obvious – even redundant year after year.  But the truth is that customers’ tastes and habits change. A review of trends and changing customer behavior can catch newly emerging opportunities so that retailers and vendors can capitalize on new understandings.  For example, a retailer who habitually reviewed away from home beverage consumption as carbonated beverages versus bottled water could overlook the trend for aseptic packaged milk product consumption and water flavor additives.

The implications can transform a retail store depending on whether its management defines their category as DVD Movies or At-Home Entertainment.  In one situation, they are locked into optimizing the DVD category alone.  In the second, they can evaluate Gaming, Cable Television, Satellite Television, even bar ware!  Defining a category is all about drawing boundaries in the same way your customer does.  So, a customer will ask their family “Which DVD should we watch tonight?” less frequently than they will say “What shall we do tonight?”  Consider the differences in these category definitions: Glues and Paints versus Crafting Supplies, Water Fountains versus Water Features, Party Invitations versus Party Supplies. What should come to mind are the changes in product selection and merchandising in the store that will better anticipate customer needs for these categories.

Category definition needs to be grounded in customer insights that are gained from several sources: affinity purchases uncovered through data mining market basket transactions, primary customer observational research and self-reported customer behavior.  Frankly, affinity analyses can be misleading if retailers do not carry a wide enough breadth of product to be a full solution.  For example, if a limited assortment grocer did an affinity analysis on birthday cakes, it may discover that the customers also purchased ice cream, paper plates and candles.  It could, however, overlook that customers purchased the remainder of their needs (wrapping paper, cards, balloons and invitations) elsewhere.  Primary customer observational research is expensive and time consuming.  Self-reported customer behavior is notoriously inaccurate.

For most retailers, the most cost effective way to discover unbiased customer insights is to review the customer research of their top vendors along with customer research from emerging niche vendors. Niche vendors are usually the first to recognize and exploit new customer patterns. Established vendors less routinely recognize changes in behavior. Their focus on current product lines and customer segments can create blind spots.  Take, for example, the difference between established home cleaning mega-vendors and environmentally-focused cleaning vendors like Mrs. Myers and Seventh Generation in recognizing the growing demand for less chemically-intensive home cleaning products.

For retailers trying to glimpse the future and create a compelling selection that will meet the needs of future customer demand, actively sussing out customer and shopper trends through every resource available is an ongoing endeavor.

Category Management Planning

Friday, March 14th, 2014

candy rackMost forward-thinking retailers use some form of category management to evaluate assortments, make sales and promotion plans and execute those plans to achieve sales. This cycle usually occurs once a year – but it can be more or less frequent depending on the category’s volatility. The category plan reviews past plans and research, vendor input into future customer trends and forecasts, supply chain and financial input to verify true costs and concerns and incorporating the best investment tactics for the retailer to meet its stated financial and customer objectives. Most retailers have a framework or template for these category plans that help the top merchandising executives make trade offs and decisions about future business investments.  Nearly every category manager can find an unexploited niche that could yield some level of sales growth. But a unified category management process helps focus the organization on the top priorities.

Taken in its entirety, the process is called a Category Review.  In the review the category is defined, its role within the company or store is defined, its sales and potential is assessed and a specific budgetary goal is set. With the goal in mind, discreet tactics around adding or reducing products, changing prices, changing promotions or changing merchandising are developed to meet the goal. The costs associated with the changes are approved and the organization implements the plan. From a top down approach, it is a proven process for capturing and sharing the best information about how to succeed in the category to remain competitive.

How to Manage Obsolete Inventory

Friday, February 28th, 2014

question-markFor most retailers, poor buying decisions lead to poor cash flow. Obsolete inventory ties up cash. It requires close monitoring to maintain the appropriate level of stock. Spend time to review aging inventory and make adjustments to prices to sell slow-moving products and free up the cash to purchase more attractive merchandise. When possible automate reporting so that store and shelf inventory older than 60 or 90 days are flagged in your reports so that you can take abatement steps.

For all merchants, taking unplanned markdowns is difficult.  Build a small expense budget each month called “unplanned markdowns.”  Then, when stagnant inventory seizes your cash flow, use a planned markdown strategy on the most troubled products to induce customer sales. The markdown can be offset by the “unplanned markdown” expense line and not have as devastating effect on operations because the markdowns were already built into the budget.  Consider setting aside a specific percent of sales each month that is reasonable to cover unplanned markdowns. Begin with 1-2% and adjust as you gain more insight into this troubling issue. Over time you may need to set a fluctuating percentage as inventory from back to school, end of year and holidays may need to be aggressively marked down. Tracking and managing an unplanned markdown budget should also start to reveal patterns about your buying habits and your customer’s purchasing habits. Typical patterns to look for include  a local affinity for particular colors (Be smart about purchasing items in the local school colors in paper and other supplies.)

Savvy merchants create a markdown plan for stagnant inventory.  Product that is non-seasonal and simply is not selling may go on a 25%/50%/75% markdown plan where the price changes automatically every 30 days until all of the product is eliminated in 90 days.  Seasonal products typically need a more aggressive markdown plan that may be a 50%/75% markdown completed within 45 days.   Selecting a specific back end cap or other store location for the marked down goods also creates a good merchandising practice.  First, it removes poor sellers from the most valuable sales locations in the store. Second, it creates a destination for your bargain-minded shoppers who will regularly shop the discount areas. These bargain hunters can actually accelerate the cash flow and give your store a reputation for having great prices.

Exclusive: Meet the 3M Experience in Staples

Friday, February 14th, 2014

Post-It mural

It grabs you: You are not going to miss a 10′ X 20′ mural made entirely of Post-Its hanging from the open ceiling of a Staples store.  And that is just the start of the “outside the box” thinking that went into the 3M experience being tested in two Staples stores in the U.S.

light

It begins at the front right of the entry: a hanging circular light changes color  using the three LED’s within.  Then there are the table and chairs, fixtures and video screen covered in a variety of 3M coatings. Not for sale in the store. Just to see how durable they are in a retail environment.  The video plays a loop embedded into a clear plexi insert in what is now a common technology store form: the stand alone white oblong with rounded corners. (see also: Apple Stores, Best Buy Stores, Verizon stores, AT&T Stores, etc.)

merch

An artistic decision was made to merchandise product in a color spectrum to highlight both standard and unexpected 3M products: Washi tape, Post-its, flags, highlighters, tape dispensers and duct tape abound in a variety of new designs and forms. (mustache post-it notes and Superman duct tape.)

Like a Pinterest board come to life, there are washi tape covered items (like journals, picture frames and glass sugar dispensers) and washi tape samples to let customers try the crazed-crafter staple. (No pun intended.)

Corporate 3M has been making the touring rounds to a Minneapolis-area Staples as well as the Florida HQ Staples to see if this store-within-a-store approach makes fiscal sense.  Our sources agree: it’s an eye-catcher, but so far the jury is out as to whether this 3M experience is driving the revenues required for a national rollout to make sense for 3M…or Staples.

washi

It speaks to the lack of visual merchandising experience that the front of this area has the usual tired photos of happy families while the really WOW eye-appealing Post-It not mural faces the back of the store. There’s something here that could make Staples a destination store for the hip-Pinterest crowd if there was a better create-it, make-it story highlighting the unusual new items.  Unfortunately, dropping really cool product into a less-than cool store doesn’t turn customers into purchasers.  (For example, a shopper looking at the Washi tape display looked at the odd tube merchandising and thought it was a gift wrap display.)

Kudos to both companies for giving something gutsy a try.  This is the perfect example of why retailers test before rolling out.  With more focus, it could be a hit.

The Basis of Open To Buy for Retailers

Tuesday, February 11th, 2014

balance-weight-scale1Use a budget of expected expenses (use monthly averages for payroll, rent, utilities, supplies, etc.) combined with planned sales and purchases to create a monthly cash flow budget. Manage your store to that budget by making adjustments to purchases, pricing and payroll based on weekly sale rates. Give yourself visibility to early warnings about cash flow difficulties and take steps to abate them.  If you must, consider talking to your banker about unique situations where cash flow shortages are expected (especially prior to holiday or other seasonal inventory build ups.)  Ask for a line of credit – the interest on short-term loans will be cheaper than bank overdrafts and late payment penalties.

Balancing Purchases with Cost of Goods Sold (COGS) each month is critical.  The most simplistic early warning indicator for cash flow health is making sure that inventory purchased does not exceed Cost of Goods Sold for any given month.  Naturally, there are a couple specific times of year when inventories build up in anticipation of seasonal sales. But generally keeping an eye on inventory purchase levels is a smart gauge to measure cash flow. This, at its most basic level is the basis for an “Open to Buy” budget. Striking a balance between capital tied up in inventory and cash freed from that inventory in sales is critical to keeping any retail enterprise afloat.

8 Things Smart Retailers Do to Control Accounts Receivables

Tuesday, February 4th, 2014

Screen Shot 2014-01-31 at 4.22.53 PM

 

 

  1. To keep receivables as liquid as possible, encourage cash, credit and debit card transactions whenever possible.
  2. Keep business accounts on a short payables schedule and monitor accounts receivables to keep customers on schedule.
  3. Offer longer terms (60 days+) only when you are given a broad concession such as an annual contract or other significant commitment.
  4. Invoice all business customers promptly at the close of every business cycle.
  5. Make deposits the same day as cheques are received.
  6. Charge interest and penalties for late payments and offer discounts for early payment in your standard business account terms.
  7. Do not offer payment terms to customers without both a background check and a probationary period for timely payments.
  8. Aggressively collect payables every business cycle

Retailers: Get Out of Showroom Denial

Tuesday, August 27th, 2013
Lego's front windows now hold a "Gallery"

Lego’s front windows now hold a “Gallery”

For every retailer, pricing is a critical (if not central) focus on dominating their competition.  But even in today’s mobile technology world, many retailers are in showrooming denial.  It is faster and easier than ever for your customers to compare prices in real time.  Recognize that shopping has changed: shoppers continue to peruse stores but purchase online for a number of reasons: better pricing, home delivery, wider selections of colors or sizes.  The sooner retailers accept this is happening, the sooner they can take steps to overcome this new business pressure. BEcause this new way of shopping isn’t going away.

First, the retailer itself needs to clearly understand how they compare to the competition.  That means looking at hard data to see an accurate comparison of prices, delivery policies and assortment.  Then, the retailer can decide if it will match the prices of online retailers on a year-round basis.

Second, retailers need to make it easy for customers to comparison shop as well.  It may make you quiver, but it works.  Consumers have a knack for finding deals – so they will appreciate it if you make it easy for them to do so.  If you will price match or you have the best deal you can give your shoppers confidence that they are getting the best price and make them feel good about their purchase.

Third, build a process and a system for making price comparisons a part of your standard operations.  Tools and services exist that can scour pricing data on Key Value Items and other critical products to make sure you are aware of price changes in the market as they happen.

Fourth, don’t make competitive pricing a race to the bottom.  Understand what else makes you great (service, selection, location, easy returns, etc) and make it a key part of every customer transaction.  Help your shoppers understand that there is more than prices that makes you great to keep them loyal.

Retail Challenges with Price Match Guarantees

Tuesday, August 6th, 2013

iStock_000006139533SmallPrice Match Guarantee: A common online and storefront policy is to match any advertised price by a competitor as long as it is offered on the same item and within the same market.  It offers customers peace of mind that your store will not gouge them and may keep customers loyal.  It relies on customers to be too lazy to research other prices while giving your store a “price halo.”  But of course, there is the danger that customers will find lower prices.  In fact, this policy invites them to look for better prices elsewhere.  And the interaction with a customer to reduce the price at the register or refund a recent full purchase price takes time for both your store associate and your customer.

These can be touchy negotiations, especially if your store associate is not gracious and the customer misinterprets the offer or the competition’s price.  It is common for customers to bring in a “like” item price – but not the same item – then demand that you reduce your price to match it.  So from a high-level this seems like a smart offering, but in the reality of daily operations; it can be a costly policy to uphold.

110% Price Match Guarantee: A variation of the price match guarantee is beating your competition by 10% should your customer find a lower price offered elsewhere.  Again, the same benefits and dangers apply as with the former price match guarantee.  But customers will be enticed to shop solely on price even more. This is not the behavior of a particularly loyal group!

Giving an extra 10% on an item is no more work on your store associate’s behalf (changing the sales transaction price) and probably goes much further to communicating to your customers that you will take care of them no matter what the competition does.  So in many ways, if you are planning on meeting competitive prices, going with an additional 10% probably doesn’t tremendously change the outcome.  You will still have customers who take advantage of this policy but your low price positioning cannot be questioned.

Another option is to promote the 110% price match policy only during a high demand period, such as back to school.  Offer this policy for a limited time during a highly promotional season to restrain your regular customers from being enticed by competitors who will increase their promotional pricing during the “high season.”

Merchandising Issues: Customer Decision Points

Wednesday, June 12th, 2013

Screen Shot 2013-03-10 at 6.51.18 PMGood merchandisers highlight their range of assortment in a way that customers can easily see the trade offs among their choices. An efficient merchant will select the best assortment to properly give customers enough – but not too many – choices. There is a customer decision point you should be well aware of.  That is the point where a customer will abandon your store due to a lack of acceptable choices.

Here are examples:

 

    1. A customer with $1500 to spend on an engagement ring walks into an upscale jewelry store.  The lowest priced ring is $4900.  The customer will abandon the store.
    2. A customer wants a mid-range calculator with limited scientific functions.  The store offers several student calculators under $10 and old-school desk calculators with paper rolls for over $75.  The customer will abandon the store.
    3. A customer is not sure which vacuum cleaner she wants.  It must be lightweight, under $120 and have upholstery attachments.  The only models in stock are either lightweight and under $80 without upholstery attachments or commercial-grade with easy attachment choices but priced at $199.  This is the most common scenario where a retailer offers only an opening price point and a high–end choice (Good/–/Best.)  While many retailers (and their vendors) like to speculate that the customer can be sold up to the high-end model, there are studies that indicate abandoning the store is common without a relevant middle selection.  Many valuable customers who could afford to purchase the high-end model will opt to shop elsewhere where they perceive that they have more choices. (And may still buy the $199 model!!)

In fact, the best way to move transaction (total $ per purchase) up in an assortment range of $9, $19 and $39 is to move the middle selection.  Opening price point shoppers who select the $9 choice may not be able to move up to a $15 choice.  Most shoppers self-identify as moderates, meaning the middle choice will almost always be most attractive.  So a move to $9, $25 and $39 will be more effective than moving either the upper price point product or the lowest price point product.

Good/Better/Best Merchandising Issues

Wednesday, June 5th, 2013

Screen Shot 2013-03-10 at 7.01.22 PMIn commoditized products, it may be difficult to provide tiers of selection if you choose to merchandise in a good/better/best strategy.  It is usually done through a quantity/value trade off. Think of 5, 10 and 15 pound bags of flour that go up in absolute price but reduce the price per ounce for the flour with each increase in bag size.  Other ways to increase the value of commoditized items is to offer a bundled purchase where a single item is one price but two items packaged together is a lower price that purchasing two separately.  This is especially useful when there are many items that are necessary to work together and they carry varying profit margins.   A low margin Item A can be bundled with a high margin Item B that brings the margin of the overall purchase into a more profitable range.  For example, if you only make $1.50 on Item A, but make $6.00 on Item B, pricing the two together for a combined profit of $5.00 makes it a deal for the customer as well as a more profitable transaction than if the customer had purchased Item A alone.

One of the most important selections you will make is determining where to set your opening price point (or lowest priced) item.  If you cater to a low-income, student crowd you may want to make it a very affordable product with no bells or whistles.  Conversely, if your target customer is a small business owner, your opening item may be a more functional product with a higher price point that is durable enough to last in a work environment.  Review your competition and decide if you want to have items that are under, match or slightly above your nearest competitor in terms of price and quality.  If your position in the market is to be the rock bottom priced alternative, you are likely to stock low-priced, low- featured products throughout the store.  But if you want to stand for quality and value, you can likely bring in better items to be your opening price point selections.