In our last blog entry, we shared insight about personalization from Sahir Anand, vice president and principal retail analyst for the Aberdeen Group, on “Merchandising Optimization in the Digital Age.” Now we want to delve into the second pain point that Sahir identified as a major challenge to retailers, unit-level merchandising and process management.
As we noted last time, personalization enables retailers to attract and retain more customers, whether at the storefront or online. Effective unit-level merchandising is what enables a more personalized in-store environment, which ultimately drives customer traffic and increases conversion rates. However, retailers have very little visibility at the shelf level. They don’t have a firm grasp of how merchandise process management affects in-store sales, the channel, and customer operations.
Store planograms call for a high number of SKUs to drive customer satisfaction, but that high number of SKUs have a greater impact on the in-store outlet (as opposed to other channels such as online) because they require staging and physical space. Regionalization is having a huge impact as well, as retailers work to determine what customers want in different regions.
According to Aberdeen, the best-in-class retailers are optimizing using three Key Performance Indicators: customer satisfaction, out of stock rate, and improved gross margin performance. The Aberdeen study shows that the best in class have a customer satisfaction rate of 94.3 percent, an out-of-stock rate of 5.5 percent, and an increased profit margin of 17.2 percent. To compare, the laggards at the other end of the spectrum demonstrate a customer satisfaction rate of 81.7 percent, out-of-stock rates of 27.3 percent, and increased profit margin performance of 6.8 percent.
The best in class retailers are most concerned with assembling their SKU assortment to maximize inventory turn. The objective is to
stock and turn as much inventory as possible (remember the retail mantra – “sell, sell, sell”), which requires that you have the right assortment in the right place at the right time – personalization and localization. Since demand forecast accuracy is typically less than 50 percent (48.5 percent on average), you can’t generate an accurate merchandising plan. There is increased pressure for better demand forecast accuracy, and better in-store data for more precise merchandising assortments.
Stock and SKU planning is very tedious and complex, and even more so when the objective is to optimize to the individual store level. This is where enlisting store managers can be a real asset. Store managers have a lot of insight, and you need to be able to utilize that insight. To maximize inventory turns and determine what’s working at the regional level, you need better regional in-store data that you can use to develop better stocking strategies.
Let local intelligence guide your stocking strategies. Allow local stores to make upward or downward inventory or order adjustments to smooth inventory volumes and prevent overstocking or stock-outs. Make sure to arm managers at the store level with the means to capture customer and stocking intelligence and store it centrally for assortment planning. Arm them with handheld devices and preconfigured reports to make them more effective on the “front lines” of stocking management.
By properly aligning local in-store intelligence with your overall stocking strategies, you can increase your SKU count, increase customer
satisfaction, reduce your out-of-stock percentage, and increase overall profits.
You can view the full webcast on “Merchandising Optimization in the Digital Age” here.
