I met recently with a supplier CEO who looked at me as though I was an absolute dim-wit when I mentioned that one of their retailers had no clear merchandise strategy. “What do you mean? We give the customer exactly what they want and need.” That statement alone summed up the primary root causes of this retailers issue. They were not in control of identifying, curating or presenting the right arrangement and assortment of product for their customer audiences.
If we strip away the layers of the onion and get right to the core (I know some people will disagree with me here and actually I can do a counter argument around some specific “Brands”), but as a generalisation, people cross the lease-line and are attracted to a retailer because of their product. Branding and communication adds a layer of lust-worthiness desire, however at the end of the day if the assortment isn’t clearly delivered from a core strategy then it won’t be consistently desirable or commercially successful.
Think about a department store for a minute and I will use Farmers for ease. Over the past 20 years I have seen it evolve as it refines, redevelops and invigorates its merchandise strategy. There were times it had lawnmowers and sporting gear. They have introduced new branded product and continued to create their own private label. They have narrow category assortments and in others a good/better/best approach. Is it perfect? No, but what they do constantly win on is trying to curate and present an assortment of product ranges and categories that meet the needs to their chosen customer profile x location x category.
But why is this so critically important?
In an age where we can assess products and brands anywhere, any place and often any time; and when often you can buy that identical product from someone else, the role of the merchandise strategy is to bring to life the unique role and problem you are solving in your customer’s lives. Whether it be from inspiration, having the best , having the most reliable, the best quality, the best technology, the specialist, the cheapest; the list goes on, the role of the retailer is to identify, lead, provide a unique point of difference and connect with the customers heart, mind and wallet.
Back to the case of Farmers, a role of a department store is to provide curated convenience. Having everything you need for the home and family under one roof; having brands you can trust and rely on; having a great selection of what you need and then layering it with display, service, rewards, reliability, promotional activity etc. makes a retailer offering credible reliable and desirable.
Now don’t get me wrong, there are some wonderful examples of working collaboratively with their supply partners to get win/win outcomes. Often a supply partner will demonstrate such depth and breadth of knowledge, capability and leadership that a retailer can assign them a category captain role to lead the growth development of a category. There are times you will go with a single supply partner for a category because of the benefits and uniqueness it lends to your merchandise strategy. Yet at the end of the day, the retailer must remain responsible for the vision, store and audience segmentation, brand direction and core communication of the “reason” this product selection exists in your store.
If a merchandise strategy is important, then what are the critical ingredients for success?
Own. It’s your merchandise strategy and someone from the retailer must be responsible and accountable for articulating, leading, managing, monitoring, assessing, refining and improving the product assortment. You cannot leave this to your supply partner as they have other KPIs that ultimately drive their success and to be frank, without your stewardship and insights, they could be inadvertently driving you away from your customer.
Data. The old retail adage “If you can’t measure it, you can’t manage it” has remained never more true. If there aren’t adequate systems and processes in place, sort it as a priority. But in the meantime, find a metric that can be a stake in the ground (even if you are 100% of its reliability). If it’s a consistent wrong measure at least you know there are rocks ahead, vs. sailing into the ocean expecting to just see dolphins and rainbows.
Listen. Make sure you have a process of feedback to find out what is selling in regions or like stores. Especially stock on hand. It helps you guide, move and not replicate less than optimal decisions but also identify emerging trends.
Invest. Your merchandise capability is a critical asset and having real people who can interpret data, develop strong supply partnership relations that survives good and tough times, celebrates the wins with the wide business, articulates the vision, works closely with Operations and Marketing, maintains the integrity of the offer, the list goes on, is a true talent and is a manifestation of art as much as science. There have been years of incredibly poor merchandise talent merely because they were treated as administrators and not developed. A good merchant holds some of the most critical relationships that build the success of a retailer. They know the fine art of negotiation. How to trade horses. Get win/wins. There is as much EQ as IQ and common sense in a merchandise relationship that goes further than the cut and dry of “procurement.” They must be rewarded and recognised for their expertise and talent.
Blend. A final point worth noting, especially for those retailers that keep wanting to replicate Briscoes or Kathmandu’s success. They masterfully manage their merchandise and categories margins. The 30-60% off is a science of margin management that allows them to remain profitable. The attraction of the offer to the customer is a magnet for them to cross the lease line, but what goes into the basket is largely a mix of blended margins. That enables sustainable profitability. Likewise to remain relevant in some categories you need to have lower margins and in other categories higher margins. It depends on the mission and the role of that piece of merchandise in your strategy. Does anyone really care if the price of the lightbulb they put in their supermarket trolley (convenience) is a bit more expensive than Mitre 10? Not really, their mission on this occasion was likely to be convenience.
Lululemon is an example of a lifestyle brand that demonstrates that even in a time of incredible brand equity, having a product selection that misses the mark, or poor product quality can deliver such a dramatic downturn in performance that it can take seasons to recover.
People go shopping to buy stuff. And the role of a retailer is to develop a unique positioning that makes them more desirable than the dude next door. They convert shoppers into buyers. You can have the best people working for you, wonderful marketing communications and an environment that blows your socks off BUT if you don’t have the right merchandise you won’t be in business for long.