Any application and infrastructure rationalisation exercise for Retailers always involves Merchandising System, which stays at the core of the entire retailing business. Implementing an integrated Merchandising system has manifold benefits; some are closely aligned with the Retailer’s key corporate KPIs. Let’s see how.
Retail businesses traditionally have IT environments with fragmented applications and poorly structured data. This has been the case largely on account of complex operations, history of custom developed applications and mergers & acquisitions. This has led to increased cost of maintenance, upgrades and largely constraints the flexibility and responsiveness of in-house IT department. This has been stressed immensely by Tim Blanset & Namit Kapoor in their perspective here.
As a result of the above, ERP vendors have introduced commercial off the shelf software for all the core retail processes like Merchandising/pricing/supply chain. Accordingly, application and infrastructure rationalisation have increasing become a key investment area for retailers over the years and Merchandising System implementation forms the core of this exercise. Though such implementations are notoriously expensive, but building a business case based on the benefit may tilt the decision on its favour.
This brings us to the key objective of this blog – what are the key benefits and how are they aligned to the corporate KPIs.
Core objective of any merchandising process is to ensure that the merchandise at stores should be fresh, new, always available, changing with seasons and yet at the same time, allow the retailer to meet its financial targets and stay profitable.
A well oiled merchandising process / system ensure the following:
- Successful Merchandising ensures that the merchandise is able to establish a low cost basis and sell at high price points by accurately meeting customer demand. This is directly related to GMROI which forms the base KPI for Merchandisers/Buyers. (link here)
- Effective merchandising has a clear and positive effect on retail sales and the bottom line, which is, after all, the goal of any business approach. Pricing, displays, product packaging and arrangement, sale signs and promotional marketing can all drive sales upward (link here)
- Merchandising also contributes to the acquisition and development of loyal customer relationships. By providing good value to customers and product assortments they want, you entice them to return.
- Effective merchandising also contributes to marketing and sales optimization, which in turn aids in gross profit maximization.
Each aspect of Merchandising brings in value:
- A well tuned demand panning & forecasting system ensures demand & supply optimization which in turn eliminates out of stock situations (and missed sales opportunities) and has direct impact of shopping experience & increased cost of correction. Self adaptive forecasting systems on the other hand also helps in inventory optimization in the entire supply chain network.
- Assortment Planning & rationalisation helps maintaining a balanced length/breadth of assortment and related inventories. This has a direct impact on inventory turnover and GMROI.
- A well thought out pricing strategy ensure that the loyalty of existing customers are maintained while the retailer is able to meet its financial and increase profitability. Additionally, pricing also helps retailers to stay competitive and increase market share.
- Promotional pricing helps driving traffic and sales while markdowns help to get rid of end-of-season inventories (Enhance Inventory Turnover)
- An immersive visual merchandising makes the shopping experience more engaging and helps satisfying hedonic buying needs. (Increase sales)
