Retail Dude

As the concept of large retail stores gains ground in India, the practice and concept of merchandising is likely to grow exponentially. In the western countries merchandising receives highest priority in commercial planning of a product. As seasons change, the merchandise collections / planograms too change in a retail store. When such changes take place the store too undergoes a transformation in decor and visual presentation to appeal to the consumers while announcing new arrivals in merchandise collection. There is so much more to merchandising than just a subject to study. The entirety of a retail outlet or a store depends on merchandising. 

The merchandise purchasing process consists of five steps: identifying the sources of supply, contacting the sources of supply, evaluating the sources of supply, negotiating with the sources of supply, and purchasing from the sources of supply. The first step in the merchandise purchasing process deals with determining the type of channel to be used for purchasing each line of merchandise. The retailer can consider different sources of supply: raw-resource producers, manufacturers, wholesalers and resident purchasing offices. 
 
The second step in the merchandise purchasing process involves contacting the various sources of supply. Both the vendor and the retailer can initiate the contact process. Contacts initiated by vendors involve store visits by vendors’ sales personnel or mail or telephone inquiries. Contacts initiated by retailer include visiting central markets, resident purchasing offices, and merchandise trade shows, and making telephone and mail inquiries. 
 
The third step in the merchandise purchasing process deals with the evaluation of several prospective vendors. Retailers evaluate vendors on the basis of a) suitability, availability and the adaptability of the merchandise being offered, b) the exclusiveness of the merchandise offered and the vendor’s distribution policies, c) the appropriateness of the vendor’s price, d) the type and amount of promotional support offered by the vendor, and e) the type and amount of additional services provided by the vendor. Retailers can use a weighted rating method to evaluate vendors.

 
The fourth step in the merchandise purchasing process involves negotiating with the sources of supply. Retailers usually negotiate on price and service issues. Retailers should also consider the various transportation and handling issues that influence the cost of sourcing new merchandise.

 
In the fifth and final step of the merchandise purchasing process, the actual purchasing takes place. Retailers can purchase all the merchandise from a few vendors or from a number of different suppliers. They can also choose from different purchasing methods like regular, consignment, memorandum, approval or specification.

The merchandise handling process is as important as the merchandise purchasing process. This process involves developing a plan to get the merchandise carefully into the store and place it on the shelves for sale. Merchandise handling includes processing, receiving and storing merchandise, pricing and marking the inventory, arranging displays and on-floor assortments, customer transactions, delivering the goods, handling the goods that are returned by customers, taking decisions regarding damaged merchandise, and finally, controlling and monitoring losses due to merchandise pilferage.

 
Once a retailer develops a strategy for handling merchandise, a reorder procedure must be developed. This procedure depends on various factors like the time taken by the retailer to process the order, the time taken by the vendor to fulfill the order, the inventory turnover rate, the financial expenditure and the cost of holding inventory versus the cost of ordering merchandise. The retailer should re-evaluate the complete merchandising process periodically.

 
The hundreds of transactions that take place between retailers and vendors can give rise to a number of ethical and legal issues. These issues must be addressed by both retailers and vendors. 

Therefore it is of prime importance that the merchandising is brought out to the real gleam. 
A new model for merchandising and supply chain management is emerging; it is about to transform the way in which retailers do business and deliver the customer experience. This new operating model will enable retailers to cater to different customer segments, make their product/service offerings more novel and appealing, display those offerings more effectively, and help ensure that they are available in the right amounts and the right channels at the right times.

To be successful, retailers must build networks in which the various merchandising and supply chain functions are fully integrated and supported by systematic business intelligence, including a much deeper understanding of target customers. They must also tailor their operations to suit different products, customer segments, markets and timeframes. It is the complete integration and optimization of the merchandising-supply network that makes it one of the key levers in delivering a customer-centric shopping experience. 

We help retailers enhance their stock returns, prevent losses and markdowns while improving demand forecasts. Our insight in tailoring the assortment to each of the stores in different geographical areas for different times of the year can solve retailer problems. Our solutions help in collaborating with suppliers on planning, forecasting replenishment and assortment and our framework helps in optimizing on markdowns and promotion campaigns. 
 
Technical experts have knowledge of retail industry standards like UCCnet and XML and are constantly contributing in enhancing the ARTS standard framework. There are also works on to build reusable assortment models based on demographics and economic trends, data analytics and price alignment with vendors along with competitive shopping. The models provide support in developing supplier relationship by working in conjunction on category plans and by building retail exchanges. There are implemented applications to take care of out of stock, identification techniques, space planning and open to buy and products like Retek(Wipro). Integration has already taken a leap hold to using technology like SAP. All the major technological providers of the country have evolved their own models and software solutions to assist merchandising systems. There is a huge focus to integrate all systems to make is more accurate and effective. 

Merchandising issues

The question of how best to merchandise the category was a major bone of contention for many of our panel members. Ultimately, all agreed that it all boils down to eliminating confusion by assembling a more customer-friendly presentation, one which invites incremental sales by alerting consumers to health concerns they may not have been aware of when they walked into the department.

One chain is conducting a series of consumer focus groups to try to understand what their customer wants and expects when shopping the natural care category.

In the meantime, some chains are breaking down their natural care sets according to brand, others by segment, and some others are going with an alphabetic presentation. Some were considering the possibility of segmenting the set according to structure/function, stating that “bone/joint health” and “mood/memory” departments might help eliminate the guesswork for the consumer. One retailer questioned if structure/function categories removed much of the confusion, suggesting that perhaps the breakdown should be by lifestyle instead (i.e., women’s health, men’s health, etc.).

The question of how is it best to present the category to the customer gave way to discussion of the financial impact of either merchandising strategy. On the one hand, one retailer posed, if a chain does a lot of advertising and promotion of national brands, does it hurt its business to break up a brand-blocked planogram?

Sudip

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I know you must be amused by seeing the title of the topic, but my dear friend it true now days. Let us start by explaining what Pareto Principle and what Merchandise Planning are at a very high level.

Pareto Principle in respect of Retail means that 80% of sales can be attributed to 20% of Products a retailer carries.

Merchandise Planning is a Systematic Approach aimed at maximizing return on investment, through planning sales and inventory in order to increase profitability. It does it by maximizing sales potential and minimizing losses from mark-downs and stock-outs.

Let’s note some of the Key Points here:

–        Systematic Approach

–        Maximize ROI (Return on Investment)

–        Planning Sales & Inventory

–        Increase Profitability

–        Maximize Sales

–        Minimize Losses

So, traditionally when we didn’t have advanced merchandising softwares, we were not able to extract quality data from our sales. With all advanced applications from JDA, i2 etc, now we can assemble data from POS and other critical customer touch points and determine the effect of different merchandise plans objectively. These applications help us to come up with rational sales and merchandise plan which would maximize the profitability by increasing our sales manifold and controlling two of the extremes of merchandising inefficiency i.e. Stock Outs and Mark Downs (Over Stocking). It does this by helping us place right product at right time at right place for right customers.

Traditionally, in a store 20% of the products use to have a high turnover and they often use to suffer from stock outs. This was because they were not able to build quality data and lack of good analysis tool. Result was loss of opportunity for sale. At the same time rest 80% of the products which didn’t had much turnover use to pile up, building higher space cost for them. So, when we use to allocate profit we use to find that actually 100% of profit can be attributed to those 20% as the contribution from rest 80% use to get adjusted with their space cost.

But with advance applications, we are now able to arrive at optimal product mix for our stores. This negates the Pareto Principle as now contributions are quite uniform and the cost associated with slow moving goods are minimized.

So, we can say that Pareto Principle is actually the result of merchandising inefficiencies…

-          Rajeev Damani

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Last weekend as all of us know, we had a good break from work (15th, 16th & 17th of August), so, I planned to visit Chennai to meet some of my friends. During my visit I came across a Retail Store named Rathna Store in Chennai. This store actually does away with all the principles and approaches of modern and organized retailing (like Visual Merchandising, Store Layouts, Space Planning & Allocation etc.) but still is able to pull large chunk of customers to their store on regular basis. I was wandering how it is possible.

Yesterday while writing my post on Customer Centricity’s & 7P’s Model, Rathna Store again struck my mind. After analyzing the model of Rathna Store, I came to a conclusion that it is not necessary to focus on all the 7 P’s, rather a Retailer need to identify the P’s which can be a Key Success Factors (KSF) for them and concentrate and capitalize on them. If we see the model of Rathna Stores, we can identify following,

Product: Yes, Rathna Store recognizes it as one of its KSF and they have large variety of products in each category.

Price: Yes, it is also a KSF for them, they compete with other based on prices. It is one of the major reasons for their huge footfall.

Place: They don’t pay much attention to place. Products are arranged haphazardly in store with no space planning and allocations. But location of store is decent.

Promotion: I am not having much idea on their promotions but there were no in-store promotions other than Gold Prices.

People: This is again not a KSF for them. People there lacked customer service. But were efficient in their work as in billing, inventory etc.

Process: Yes, I think it was again a KSF for them; the billing process was very smooth. In each floor whenever u select a merchandise, u can give it to the staff their and he will give u a receipt. At the end of your shopping you just need to go to the cash counter, pay all the receipts and collect your merchandise and move.  Moreover their supply chain is also very efficient. There were no stock outs.

Physical Evidence: It was not again a KSF for them. There was no Visual Merchandising and other efforts to improve in-store experience for customers.

Technology: I was not able to find use of any technology other than Close Circuit Cameras.

So, in spite of considering only 3P’s (Product, Price & Process) out of seven, and with minimal use of technology, Rathna Store is able to generate immense sales revenue.

Conclusion: “To be Customer Centric, a retailer need to identify his KSF based on customer needs and target market. He should then concentrate on those KSF in order to grab Customer Attention and achieve higher Sales. Concentrating on too many variables may dilute the essence of the Model. However all the 7 P’s are equally important but their relevance may differ from format to format.”

- Rajeev Damani

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