Galleria RTS - Retail & Category Optimization

How to Capitalize on Customer-Centric Merchandising in a Diverse Marketplace

2011-05-19T03:43:00.000-07:00

-Customize a merchandising strategy to revitalize existing stores and meet customer demand -

By Kent Smith, Global Business Development Consultant, Galleria

The retail industry’s growth period of building store after store has nearly exhausted itself. For many years, retailers have focused on building bigger and better stores. However, this tactic has tapped the majority of major and mid-tier U.S. markets. In addition, these stores are beginning to show signs of age. It is essential therefore for retailers to re-focus their strategies 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; diversity in every sense is immense across the store network. Different store, consumer and market conditions combine to produce product demand, sales volume and mix that vary greatly. The averages approach often results in missed assortment opportunities, incorrect stocking levels and exposure to products that are out of proportion to what the customers at each store want most. Indeed, industry experience has shown the only consistent factor across stores is diversity. To help alleviate these issues, retailers can employ a customer-centric approach to merchandising.

New Generation Automation Tools

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 due to differing lifestyles and preferences from market to market. The second is to incorporate a store-specific merchandise 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 simply did not measure up and some retailers 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 merchandise plan compliance of more than 95 percent. Retailers that produce generic plans typically have compliance levels of only 40-50 percent. Customer-centric merchandising equips stores with plans they can confidentially execute and easily restock and maintain. This provides benefits to both the retailer and the customer.

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 people, competition and other factors has grown massively over the past 20 years and is forecasted to continue. This is due to the growing Hispanic population, changes in income, lifestyle differences and other factors beyond 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, 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 vendor. 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 causing shelf erosion to set 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.

Kent Smith is a global business development consultant for Galleria. He has 20 years industry experience across a broad array of sectors in the United States, Canada, Central America, and Europe. For more information, please visit www.galleria-rts.com.

Are you using your store space wisely?

2010-12-15T06:37:00.000-08:00

Tips for achieving optimized macro space optimization

Retail is a continuously evolving, competitive industry driven by consumer demand. To succeed, it’s critical to allocate the correct amount of space to products to be profitable and provide a satisfying shopping experience. In many store formats, the reallocation of space at the department, category or sub-category level can be both time consuming and expensive. Therefore, it’s vital to make sure to allocate space right in the first place. If you don’t, you run the risk of losing substantial business to competitors.

Macro space optimization is the practice of ensuring category and departmental space is allocated appropriately in store to enable retailers to achieve maximum profit. Today, many retailers are using computer-aided design (CAD) systems or manual spreadsheets to attempt macro space optimization. These methods only provide a top-down view of the store, which enables a retailer to allocate space, but does not take consumer demand in account. Also, these methods cannot advise the optimal amount of space or product mix that will provide the most profit. This leads a retailer to overlook profitable opportunities.

To use all store space wisely, it’s important to factor in space recommendations for categories and departments. This can be done by taking your current CAD system to the next level by incorporating automated technology that incorporates a science-based approach. Combining science with art will ensure stores are profitable and aesthetically pleasing. Below are top tips to begin the journey to efficient macro space optimization:

Say goodbye to spreadsheets.

Click for the entire article http://www.chainstoreage.com/article/are-you-using-your-store-space-wisely

AMR/Gartner Research - Promotion Display Optimization Case Study: Consumers, Suppliers and Retailers Emerge Winners

2010-04-29T09:33:00.000-07:00

Promotion planning and execution consumes significant time and money for retailers and manufacturers. However, the performance of delivering the right products in the right quantity has continued to fall short of consumer and retailer expectations. Now, a recent promotion effort at grocer Giant Eagle gives hope. The company demonstrated to Gartner the value of promotion display optimization, with significant benefits achieved as transparency extends throughout the consumer value chain. Click here for the entire article - http://www.gartner.com/resId=1359420

Executing Successful Promotions to Attract and Retain Customers

2010-04-27T10:15:00.000-07:00

Shoppers are always looking to save. For decades before the economy took a downturn, customers have relied on clipping coupons, customer loyalty programs and advertised promotions to extend the dollar as far as possible.

Successful promotions allow customers to save and also serve as an effective technique for retailers to attract and retain customers. With the plethora of store options available today, it’s vital for retailers to build and maintain a strong base of loyal shoppers in order to grow sales and maintain a competitive edge. If a retailer continuously satisfies its shoppers, it will gain customers for life. On the other hand, if customers are dissatisfied on more than one occasion, it will translate into lost sales and eventually lost customer loyalty for the retailer. In fact, according to the 2008 Store Systems Study produced by RIS News and research partner IHL Group, the loss of sales to competitors due to out-of-stocks totaled $93 billion.

Because customer satisfaction highly impacts a retailer’s success, it is critical that retailers not only choose the right products to promote but ensure that optimized inventory is available throughout the life of the promotion. Few things frustrate a shopper more than going to the store for a specific promotion and finding the desired product to be out-of-stock.

Consider the Customer when Planning Promotions

Because many consumers are currently facing hard times, they are looking to save on purchases more than ever before. Now is the time that retailers must ensure that their promotions are targeted to their shoppers’ specific needs and wants. Successful promotions will attract new customers, raise customer satisfaction levels and strengthen sales – all which enable retailers to thrive in a difficult economy. Further, promotional display items account for 20 to 40 percent of total sales for a typical fast moving consumer goods retailer. With such a strong percentage of sales riding on promotions, it is advantageous to ensure each one is effective.

To execute successful promotions, the first thing a retailer must do is consider its customers and their buying behaviors. Consumer buying patterns differ substantially from store to store based on variables such as location and shopper demographics. For instance, demand for hot chocolate and snow shovels during winter months tends to be much higher in the North than in the South. Because buying patterns differ greatly by store, retailers need to take a customer-centric approach to create localized promotions and display plans for each store. This will ensure that the displays reflect customer desire while optimizing both inventory levels and availability.

In the 2008 Retail Systems Research Report, “Optimizing Localized Assortments: You Can’t Take the Merchant out of Merchandising,” research analyst, Paula Rosenblum, states, “We believe the key to success in these times is accurate and precise inventory investments. Hence, we re-emphasize the importance of localized assortments. And while the smallest retailers may be able to accomplish this without benefit of technology, we believe any retailer with more than 50 small stores MUST use technology to support its efforts.”

Meeting Shoppers’ Unique Needs across the Chain

Instead of localizing promotions, many retailers often create a generic list of products that will be promoted across the entire chain. It is then typically left to the store teams to determine which items will be placed on end-caps and how they will be merchandised. In our customer-centric focused world, we have learned that averages simply do not work. When using this approach, a promotion’s full sales potential can not be reached or realized. Some stores will be out-of-stock creating lost sales, while others will be overstocked creating excess inventory. Either way, both the operation and customer lose.

To many retailers, the thought of localizing promotional display plans sounds like an inconceivable notion because they feel they lack the capacity to do so. This is where technology comes in. Retailers can employ an automated, customer-centric promotional display optimization solution to streamline the process. The ideal solution should enable retailers to automatically generate thousands of store-specific end-cap display plans in order to optimize inventory and space for every promotion. With the ability to rapidly create automated display plans to meet consumer demand on a store-by-store basis, users will experience increased sales, improved in-store execution, reduced labor costs and reduced end-of-promotion inventory. More importantly, customers will be satisfied to find the products they are looking for, which will likely result in increased customer loyalty.

Significant Sales Increase and Reduction of Ending Inventory

One retailer that executes weekly, chain-wide promotions discovered that using an averaged, generic plan each week was not yielding the desired and expected results. The main reason was because one plan alone could not meet the localized need for each store in the chain. As a result, store labor was being used inefficiently to set up, replenish display inventory and change over each weekly promotion. To resolve the problem, the retailer began researching ways to quickly generate and communicate high-quality end-cap merchandise plans to each store. Its goal was to find a method to always ensure the right products are displayed in the right stores, in the right quantities, when customers want them.

The retailer decided to implement an automated, customer-centric display optimization solution that could streamline its weekly promotion activities in order to cater to each store’s unique demand. With this solution, the retailer was able to apply proven merchandising strategies used to successfully optimize center-store categories to its display planning initiatives. Automation was critical to success as it proved impossible for the retailer to manually generate the required amount of effective display plans each week. Upon implementation, the retailer was able to produce more than 2,000 customer-centric display plans per hour, ensuring the products advertised in its weekly flyers were optimized for every store in the chain. As a result, the retailer experienced a significant increase in sales and reduced ending inventory with each promotion.

Whether the economy is up or down, consumers are always looking to save. However, in challenging times like these, it is even more important to offer and execute successful promotions that will continue to satisfy existing customers and attract new ones – all while enhancing revenue. By localizing promotion plans, retailers will have the ability to truly understand their customers’ needs by store and optimize inventory to maximize revenue for each promotion.

How to Generate Maximum Profit across Top-Performing Retail Categories

2010-04-22T10:17:00.000-07:00

The goal of every NFL coaching staff is to surround its franchise players with the right mix of position players and supporting characters. While the franchise players often garner much of the media and fan attention, without the right mix of position and special team’s players, the results would be poor no matter how dominant the team’s franchise player is. In the same way, retailers need to identify their ‘killer’ categories – those which they will be known for - and also develop and support a variety of complimentary categories that will play a key role in their overall success. Retailers generally assign each category a role such as ‘Destination’, ‘Core’, ‘Traffic Builder’ and ‘Profit Generator.’ Each category’s role will then determine the strategy for the category, the amount of time and resources that will be invested and the measures by which it will be evaluated.

A retailer’s objective for category management should be to balance the investment of time and resources inline with the contributions that each category provides. To understand how categories are impacting the business, retailers can apply Pareto's Principle, more commonly known as the 80-20 rule. Typically, 20 percent of a retailer’s categories represent 80 percent of its sales. Because some products and categories provide significantly more profit than others, retailers should prioritize their categories to ensure they are allocating ample resources and time to optimize their top performing categories in order to yield the largest returns.

Upon identifying the top-performing categories, retailers can then optimize them by utilizing an automated customer-centric merchandising solution to create store-specific merchandise plans. Doing so ensures the right products are in the right place, in the right quantities, at the right time to achieve the desired outcome. Additional benefits include a higher level of customer satisfaction across the chain, increased sales, margin improvements, reduced wastage and improved compliance.

Three Main Category Levels

As a general guideline, after assigning each category a role, we recommend classifying them into three levels – Basic, Variable and Dynamic. This will enable retailers to identify and prioritize which categories will provide the most return on investment (ROI) from store-specific merchandise plans.

Basic Categories
Basic categories are characterized as those in which one similar product mix can be successfully executed in each store. They also tend to have consistently lower sales volumes. Retailers often carry basic categories because they believe customers expect them to be present or because they are complimentary to other more lucrative categories. An example might be the broom and dust mop category in a fast moving consumer good (FMCG) chain. Because these static categories do not vary substantially and turn slowly, retailers do not need to optimize them on a store-by-store basis.

Variable Categories
Moving up the ladder, the next category level is variable. Many of these categories contain products that would benefit from additional management attention. Typical categories in this group have some variability in demand or would benefit from cluster- level assortments. For example, hair coloring products will vary substantially depending on the age and ethnicity of shoppers by store, but they are not typically sold at a high volume. These categories benefit greatly from assortment strategies tied to a strong store clustering methodology and product allocations based on case pack requirements and store-specific fixture sizes. However, another type of variable category is one in which the volume changes dramatically, but the product mix remains relatively consistent across all stores. Because the rate of sales varies considerably, this type would benefit from automated store-specific merchandise plans.

Dynamic Categories
Dynamic categories are defined as those in which both the product mix and sales volume vary dramatically from store to store. Examples may include ready-to-eat meals, beer and fresh produce. These categories tend to have shorter shelf lives, making decisions regarding product mix and inventory allocation even more critical. Due to these factors, dynamic categories benefit greatly from automated store-specific merchandise plans. The plans enable retailers to allocate each store with the optimal product mix to generate the most profit across these critical categories.

Learn from the Leaders

There has been buzz in the industry that retailers interested in managing their categories should take a linear approach, beginning with a manual space planning solution - a solution that has been on the market for more than 20 years. While this baby-step methodology may initially seem appealing, users will experience the same issues that other retailers have over the past two decades - out-of-stocks, a high level of overhead and low merchandise plan compliance. The problem with this approach boils down to the fact that these pre-dated solutions do not enable retailers to localize their merchandise to meet their shoppers’ needs on a store-by-store basis where it’s needed most – the top-performing, dynamic categories.

In order to yield the long sought after value of store-by-store localization, several of the world’s leading retailers including Tesco and Wal-Mart have opted to implement an automated customer-centric merchandising software solution that contains the scalability to seamlessly optimize merchandise plans across their chains.

Getting Started: Key Questions to Evaluate Categories

Because a category’s importance varies from retailer to retailer, below are five key questions that retailers can ask themselves to determine the appropriate planning level for each category.

1. What are your highest value/volume/profit categories? In retail, the higher the value, profit and unit sales volume, the more important they are to plan and execute correctly.

2. How much should the assortment vary from store to store? By evaluating assortments, retailers can determine what level of planning is needed for each category. One generic enterprise assortment for a basic category may be profitable for all stores across the chain. However, if a category’s performance varies significantly by store, it should be managed on a much more granular, store-specific level.

3. What is the shelf life of the product? Products with short shelf lives benefit greatly from store-specific planning as wastage will be much higher if the optimal amount of product is not allocated to each store.

4. How much does sales unit volume of each product vary across stores?
Products that sell quickly will benefit more from store-specific planning than slow moving products where presentation standards and case pack rules often drive allocation.

5. How much does the category space vary across stores? Categories that have a different size of space allotted for them in each store will benefit more from store-specific planning than categories that have the same fixed amount of space across the chain.

5 Pitfalls To Avoid When Clustering Stores

2010-04-14T14:43:00.000-07:00

It’s a shopper’s market. Today, consumers have an array of options when it comes to shopping and no longer have to rely on their neighborhood stores. Leading retailers are taking a closer look at their merchandising strategies to precisely cluster their stores in order to meet localized demand and ensure the right products are in the right place, in the right quantities, at the right time. However, in order to cluster stores efficiently, it’s important to steer clear of five common pitfalls that can sabotage any retailer’s move toward customer-centricity.

1. Don’t Confuse Store Groupings with Cluster Strategies

It’s critical to know the difference between store groupings and store clusters in order to create an efficient centralized merchandising and assortment strategy. Many often confuse the strategies for one concept. Historically, retailers have grouped their stores based on top-down constraints such as store size, total store sales volume or supply chain requirements to ensure the chain is operating efficiently. However, to create an all-encompassing strategy, it’s imperative to take a deeper dive to understand your customers through store-level and category-level clustering, while still factoring in key operational constraints.

To achieve operational and supply chain efficiencies, retailers can analyze every store within a network and assign each store to a group based on common top-down attributes such as sales volume or store size. However, to develop an effective customer-centric assortment and merchandising strategy based on consumer behavior, retailers need to create category-specific clusters. This enables retailers to create different strategies within the same store to ensure each category operates to its full potential. For example, a category such as ready-to-eat meals may be heavily influenced by the ethnic make-up of a store’s shoppers, while the beer, wine and spirits category in the same store may be influenced predominantly by the shopper’s income level and education.

2. Don’t Forget to Consider Category Performance

When forming clusters, many retailers often make the mistake of basing their decisions solely on top-down grouping methodologies. This typically includes basing groups on physical characteristics such as store size, dollar volume or the demographic profiles of each store’s neighborhood. For example, a retailer may create a group for all stores larger than 50,000 square feet and another group for all stores smaller than 30,000 square feet. Another common approach would be to form groupings based on the amount of sales each store generates per week.

While the top-down constraints are all important factors to consider when grouping stores, relying on these methods alone will not produce an effective strategy. Retailers must begin the process by analyzing category performance to identify any similar trends and patterns across its chain. For instance, a store with less than 30,000 square feet may have a dynamic category that sells the same mix of products at the same ratios and frequencies as a larger store. Since the category performs similarly in both stores, it would make the most sense to merchandise them similarly as well.

Once the store-level clusters are determined, performing a deeper, category-level analysis of how each category performs in each store is necessary to achieve true customer-centricity. Retailers can do so by implementing a customer-centric cluster planning solution that clusters stores using a “bottom-up” approach to analyze individual category performance patterns based on actual consumer buying behaviors. Once complete, the solution then allows the retailer to factor in top-down group constraints to ensure the clustering strategies can be effectively implemented in store. This level of analysis enables retailers to capitalize on all opportunities.

3. Don’t Exclude Vendor Partners From Your Clustering Process

Manufacturers play a significant role in the clustering process by providing retailers with valued, strategic category expertise and cross retailer insight. Collaborating with strategic partners ensures that your category clusters are based on the best available internal and external inputs and category knowledge.

However, issues can surface quickly if multiple manufacturers offer this service without following a consistent methodology defined by the retailer. For example, one soft drink vendor may provide a cluster plan based on pack size, while another may create a plan based on sales volume for the same category. When the same data and clustering processes are not used, the vendors’ plans can become inconsistent with the retailer’s strategy, causing confusion when the retailer tries to compare the two plans side by side.

When developing a clustering strategy, analyze the data first and then determine which attributes are best suited to define clusters. Rarely will the same attribute, such as pack size, apply to all categories. Once the retailer establishes a clustering methodology for each category, it is critical that each vendor partner follows that approach when providing cluster recommendations for their category. At the end of the day, if a cluster strategy is not operational, neither the retailer nor its shoppers will benefit.

4. Don’t Worry about Every Category… Prioritize for Clustering

The thought of clustering at the category level overwhelms many retailers. There is a misconception that they must analyze the performance of every category in every store in order to create a successful strategy. This is not the case. Typically, 20 percent of a retailer’s categories generate 80 percent of its revenue. In order to maximize the benefits of category-level clustering, retailers must focus specifically on strategic categories that significantly impact business. A good starting point is to decipher which categories are dynamic, variable or basic. For a grocery retailer, categories such as fresh produce are dynamic and benefit greatly from localized assortments. On the other hand, categories such as batteries are basic and don’t vary much on a store-by-store basis.

5. Don’t Aspire to Be in a Certain Cluster

Lastly, when designating names to each store cluster across the chain, it is important not to use a numeric or alphabetical approach. Store managers tend to interpret this as a ranking, which often leads them aspiring to be in store cluster 1 or A. This can wreak havoc on the entire strategy. Clusters are formed so stores can efficiently meet localized demand and each store must work to serve its clientele. The best way to avoid this pitfall is by providing generic names such as colors or objects.

Welcome to Galleria's Customer-Centric Merchadising Blog

2010-04-14T14:31:00.000-07:00

Retailers and consumer goods manufacturers work in one of the most demanding, competitive industries in the world. Millions are invested in creating the right product, marketing it to consumers, developing an efficient supply chain and merchandising retail stores to ensure a positive customer shopping experience. The success or failure of this investment is realized at the point of purchase; the shelf.

The purpose of this blog is to share customer-centric merchandising best practices, information and relevant news among retailers and manufacturers. Galleria welcomes your comments. For more information on Galleria, visit: www.galleria-rts.com.