Merchandising - the presentation of goods available to purchase in-store - can help elevate your brands, improve the customer shopping experience, create a competitive advantage and, ultimately, increase and drive sales. However, it can only achieve such results when supported by a fail-proof merchandise plan.
As noted in a previous article, merchandise planning is a data-driven approach to selecting, buying, presenting and selling merchandise. It aims to maximise your return on investment and satisfy consumer demand. That’s just one of many reasons why having (and executing) a merchandise plan makes sense.
About the contributors
Brian Nyamachiri joined DotActiv in 2013. An operations manager with over ten years of retail experience, he oversees Adcock Ingram, Danone, GSK, Dr Oetker, Loreal, Makro, Premier Foods, Revlon, and UPD accounts.
Esma Janse van Rensburg joined DotActiv in 2019 as a space planner. She worked on previous accounts, including Food Lover’s Market, after which she became account manager of various ad-hoc accounts. She has a Bsc Consumer Science from the North-West University.
Kelly Cordeiro joined DotActiv in 2017. Since joining, she has had experience running many accounts, including ACDC, Ultra Liquors, Diageo, JDE Coffee, GSK, Shield, Permoseal and Pick n Pay. She currently oversees various ad-hoc accounts.
Justine Brown joined DotActiv in mid-2019 as a retail space planner, creating data-driven planograms for Makro's Food and Liquor account. She has a Bachelor of Consumer Science in Hospitality Management from the University of Pretoria.
A merchandise plan ensures you have the right assortment
With a well-documented merchandise plan, you can offer customised assortments that speak to your target market, thereby reducing any incorrect product ranges.
What's more, the correct plan helps you to understand your ideal customer, which means you can ensure to stock the right product assortment. It's the standard supply and demand situation. At all times, you can stock the right quantities.
There is also the point that because your merchandise plan takes previous store data and past performances into account, planning for future demand is simplified and possible.
By analysing and comparing this data, among other factors, you can identify the right product mix according to sales and unit movement. You can also identify slow movers within your merchandising mix and any growth opportunities.
Here's an example to explain further.
Your POS or point of sales system provides insights into your current product range. Analyzing, for example, the latest six months of data provides you with better insight into which products are in demand and which are not. Determining these demands can help you to improve your product assortments.
Seasonal insights are also possible if you're using 12 months of data as is regional insights. Let's say, for example, that you notice a Brand X sells well on the coast but not as well inland or in a different part of your region. Failure to stock Brand X in your stores on the coast can cost you sales because not only do you not have it in stock, but you have a product assortment that does not meet the needs of your customers.
That is not the only consequence of an incorrect product assortment due to not having a merchandise plan in place.
When you consider your merchandising mix, it is critical to consider the long-term knock-on effects of getting it wrong. Customer loyalty can be fickle and even more so if you have direct competitors offering the same assortment as yours. If your assortment does not cater to your customers, they will find what they want or need elsewhere.
If more customers visit another store and not yours, you can expect to overstock on products low in demand. The cost of additional stock holding rises for you as your inventory levels increase. Then there is the possibility of a cluttered store due to overstocked merchandise while those products in demand do not have the shelf space they deserve.
You can see where we are going with this. Lacking a merchandise plan that allows you the right assortment means you'll struggle to cope.
A merchandise plan helps you to manage your costs
By implementing a merchandise plan, you can ensure that you have the right product mix available, at the right time, with the correct quantities. That's now a given.
It also leads to another reason - effective merchandising planning means you have no dead stock in-store, which leads to higher turnover. Little to no dead stock means dealing with fewer markdowns because of stock expiring. Stock rotation will happen more frequently, meaning you need less backroom and shelf space to store your inventory for long periods.
All of the above leads to one point. A well-thought-out and executed plan can help you not only manage but also reduce your costs. Think of it as a way to streamline your expenses, making your business more efficient.
Let's consider this example: you decide to order a large pallet of Brand A because it's doing well in one of your stores. However, you didn't look at your historical data and you realise that there is more demand for Brand B instead. However, you've already ordered Brand A and it's on its way to that store.
The knock-on effect here is that you have brought in a product that might sell, but not nearly as much as if it was an in-demand item like Brand B. That can - and will likely - result in your store stocking products that don't satisfy customer demand.
Every product in your store must generate a return on its investment. It needs to prove why it's deserving of the shelf space given to it. If it doesn't deserve the space, you need to remove it because it will cost you. And it’s not a once-off cost. It could lead to future cash flow challenges, lost revenue, lost sales and even a poorer reputation.
A merchandise plan helps you increase your sales and profitability
Besides the fact that a merchandise plan helps you reduce your costs, it can also increase your sales and profitability.
How?
A merchandise plan uses KPIs such as sales, units, profit, trading density and more to identify your best selling product lines. These are the lines that have high stock turns and are profitable. We mentioned earlier the need to control your inventory levels. By increasing your profitability, you can do that.
When approached correctly, your plan can enhance your gross margins, leading to increased operating profits and better cash flow. It comes back to what we mentioned above. By analysing your retail data, you can identify the correct product assortment and increase your sales. It also means fewer struggles with dead stock and higher stock turnover in general.
Your merchandise plan can use sales and unit contribution performance to determine which products to keep in your range.
Let’s look at the example of Brand A and Brand B again. Brand A is premium while B is economy. If you stock Brand A in a lower LSM store - one where the average customer doesn’t have plenty of disposable income - it won’t generate as much profit for you. You’re essentially overstocking your store.
However, if you were to merchandise Brand A in a higher LSM store, you’ll see a noticeable difference. It’ll sell well and you’ll generate a profit. For the lower LSM store, you’d be better off stocking Brand B because it caters to the target market of that store. By stocking the right product for each store - considering the price - you will increase your sales and make a profit.
A merchandise plan can help you to please your customers
The saying goes that the customer is always right, and there are many truths within this statement. As someone who sells items, we know you'd love repeat customers, repeat orders and seeing your customers happy when they leave your store. Because let's face it - your relationship with your customers doesn't end when they leave your store.
In the age of social media, a pleasant shopping experience gets shared with friends and family. But so too does an awful one. In reality, bad news travels faster. So how do you make shopping more enjoyable while also cultivating a healthy relationship?
Simple. You do that by knowing your customer and providing them with the right products at the right time, at the right place and in the right quantities.
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The right merchandising plan can help you do that, allowing you to customise your assortment so it meets the needs of your target market in each of your stores. It’s worth noting here that you need to have different assortments depending on your store and who shops there. Assortment planning isn’t a one-size-fits-all exercise. Instead, it’s about taking deliberate action, using data, to cater to anyone who walks into your store.
Of course, you can use similar merchandise plans if the stores all target the same customer demographic. In doing so, you can ensure consistency across stores, which also leads to a more pleasant shopping experience for your customers. This refers to both your store layout as well as your product availability.
Let’s consider one of your loyal customers decides to travel to the other side of the country. You happen to have a store (Store B) where they travel and it caters to the same customer demographic. By using a similar merchandise plan to present your products, when this customer walks into Store B, they’ll know what to expect.
They know the layout because you’ve used a similar one to the store where they shop regularly. They’ll also know where to look for products because you merchandise them in the same way.
What’s more, you can build a reputation as a store that stocks certain products, which can learn from more customers visiting and purchasing from you. The correct pricing can also put you ahead of your competitors and give you a competitive advantage in an already crowded and highly-competitive market.
Conclusion
By now, you’ll know that having a merchandising plan is critical to long-term success. Of course, executing such a plan is just as vital.
Do you need help setting up and executing a plan that’ll increase your sales, reduce your costs and improve your reputation as a retailer? Visit our online store here for more information or book a custom exploratory consultation.
