Indeed it’s old news that data is the new currency in the retail industry. But as a brand or retailer sitting on a heap of data, it can be difficult to figure out what to do with all of it. Whether a novice or a seasoned professional, who doesn’t love a good checklist? Let’s take a closer look at how your merchandising and planning process can be informed with data.
Looking Back To Move Forward
A wise man once said that ‘without learning history, it’s doomed to repeat itself.’ Dramatic perhaps, but the relevance to retail is abundantly clear: without perspective on what was and wasn’t successful previously, you have no idea where your baseline is. When it’s clearly mapped out, you know precisely from which point you can grow and improve. Of course we’re all trained to look at our comps, but we’d be well-served to look at these from slightly less obvious angles.
Rewinding to previous seasons, do you know what didn’t need discounting? Look more closely and examine whether there were any particular design commonalities across these products, as this informs how you can evolve a onetime successful offering into a new and improved repeat or core performer. Was that striped buttondown shirt a volume driver? If Mozart could create a variation on a theme, why shouldn’t you? Music to your bottom line’s ears, we’d say.
As a next step, consider why certain categories spent the most time sitting in your inventory and had to take major markdowns to move. Could it be that you introduced a seasonal or trend item too late to get your fair share of the sales? Or perhaps you bet too much on that trend. Delving into this tells you how much inventory of seasonal or trend items is necessary to strike that delicate balance between appealing to the trend-driven shopper and not sitting on severely discounted, end-of-season merchandise.
But not all the historic intel you need to move forward is going to announce itself via last year’s sales numbers. You need to get a perspective on external events and customer shifts that may have had major impact on your business. How’s your relationship with your customer insights team? If you don’t immediately think of them as your direct internal business partner, you might want to reconsider. Want to know if you’re cool and precisely why? Their world revolves around gauging customer sentiment to new and existing offerings, shifts in spending habits and priorities, and what drives overall customer value and retention. And what’s more, they often conduct research over time to map and forecast these shifts, season-over-season.
Outside These Four Walls: A Winning Assortment Plan
Time to roll up those sleeves and get that assortment plan ready. You’ve got a grasp of wins and losses from previous seasons, and without a doubt, you’re checking out what the competition is doing. So what’s your channel checking strategy? Are you conducting in-person market checks and virtually stalking their sites and promotional offers? Creating a competitor intel process that is consistent and comprehensive is critical to ensuring that this intel gets to the right people across your organization. Why? Because doing so ultimately shortens your reaction time to market opportunities and gaps in your offering.
Another part of assortment planning is identifying how to allocate across core, trend, and experimental categories. So, first, how do you identify the right ‘trends’ for your business? It’s a word that can at times polarize the creative and executive teams, but with alignment on business objectives, coupled with a clear understanding of your customer base, you can identify which trends matter and when you should pass. Who are your target consumers’ aspirational and accessible influencers? Don’t just think of what they might be wearing, but also consider how they’re talking, the places to which they’re traveling, and who comprises their virtual community. As mentioned previously, it’s not just about which trends you buy into, but also the extent to which you do so, as well as the moment at which you introduce them to consumers. Does your customer expect to see it at yours first? Do they want just a taste of a trend or do they want to have lots of choices? An incredibly valuable exercise is to walk the floor of stores and pick out themes of merchandise that is getting heavy markdowns; this tells you precisely where there were product-market mismatches. The takeaway? Know your audience and you can minimize markdown risk while maximizing your margins.
What’s Your Exit Strategy?
You have inventory, and you’re feeling great about your assortment mix. But don’t get too comfortable, because even before your product comes to life, thinking about how you will offload it must be top-of-mind. The longer it sits in your inventory, the less value it adds to your bottom line. But without an obvious expiration date, how can you really know when product starts to go bad?
The first point you need to examine for your different categories is how many days average between product drop and first discount. That first discount is the most important and costly one; take it too soon and you’re missing additional top-line revenue, too late, and you’re stuck with merchandise at little-to-no margin. So with that in mind, be certain your first markdown is aligned with the competitive market in timing and amount. If not, that difference could be unnecessarily eroding your profit margins.
Discounting and pricing certainly go hand-in-hand, and while arguably neither are the sexiest of retail topics, they deserve a few (or more) moments of your undivided attention. We all live and breathe costing and target margins and volumes, but the devil’s in the details here. If you zoom in, you can see where you can price at a premium, and where you need an incentivizing nudge to get that consumer across the checkout finish line. What’s the difference between the two? Where do you get the highest frequency of repeat purchases? If it’s a core item that people return to time-and-time again, get to the bottom of why they do so. It’s likely their value perception extends beyond price point, and discounting should be used with discretion. For items that need more discounting, there are a number of variables to consider. Is there a lot of similar product in the market? And is that product in the same price range as yours? Or is yours a new offering that is less familiar to shoppers? In any of these scenarios, you have a discounting or promotional weapon in your toolkit which you can use …but do so in an informed manner.
Million Dollar Matchmaker: Allocation
When you think allocation, you automatically think geography, right? And you wouldn’t be wrong, but there’s more to this story than a pin on the map. Remember your best friends on the consumer insights team? They also hold the key to the deeper shopper insights that should guide allocation (and resulting marketing initiatives). These days the traditional shopper profile can’t be simply based on demographics like location, income, gender, and family profile. It’s about the communities and cultures these people are a part of and where they’re drawing their references. Social media, while complicating the matter of identifying clearcut consumer profiles, can also be a tool by which we can glean valuable insights on who wants what.
Furthermore, your merchandise strategy is not just about allocation, it’s about your relative liquidity, specifically how you can easily move and replenish as needed between over -and under-performing regions. This will be informed, yes, by weather, regional events, and localized preferences. Having a plan in place to move quickly and seamlessly between regions is critical to making sure you don’t incur the double-whammy of missed sales and non-relevant inventory.
It’s Never Finished
That’s a lot of different data sources and points to process, right? Well, here’s the good …and the bad news. The good? You know exactly what you should be measuring to get in front of the market. Moreover, this is a virtuous cycle where good intel acted upon begets better decision-making. The bad news (if you so wish to call it that) is that this work is never done. The speed of change is unrelenting, but with the right tools and metrics in place, you’re well on the road to success.
This piece was originally published on WhichPLM on July 17, 2017.