Last week I attended Thinking Retail, TXT Retail’s Merchandising Symposium in Amsterdam, a gathering of merchandising resources and experts I haven’t really seen since the MIX days surrounding the Retail Systems Show. I know it can be difficult to get merchants together to talk to each other about their challenges, especially when many companies regard the selection, acquisition, and distribution of products to be core to their competitive advantage – it can be somewhat like asking Coca-Cola and Kentucky Fried Chicken to get together to swap recipe tips. Even when they’re not directly competitive, no one is excited to talk about it.
In merchandising, though, things are changing – as they are changing for all parts of the retail business. But merchandising has some unique aspects to it that other functions in retail don’t have to deal with. And other than having to buy enough merchandise for that pesky online division too, merchandising has been relatively insulated from the omni-channel transformation that has completely upended stores and supply chain.
That isolation is coming to an end. It means big changes for merchandising – generational changes, both among shoppers and among merchants themselves, as well as big technology changes. For, while most merchandising organizations of any size have invested in technology, most of it is terribly old. It’s mostly focused on the process of buying, allocation, and replenishment, not as much on planning, and a lot of it is so old and decrepit that it has evolved to become indistinguishable from other systems, like finance or sometimes even store operations/POS. Replacing these systems is a gut-wrenching affair, often compared to a simultaneous heart & lung transplant for a person.
But replace them they must, for those antiquated systems are no longer enough to cope with an omni-channel world. And from our latest benchmark on merchandising, it’s clear that retailers are painfully aware that their systems – even core merchandising – need to be replaced to keep up.
With that as the context, here are three things I learned while listening to the companies sharing their merchandising experiences at TXT’s merchandising symposium.
- Assortment planning is hard, but it’s getting easier
Of all the types of merchandise planning that needs to happen – financial, merchandise (units), and assortment – assortment most often seems to be the least automated and the most difficult challenge for companies. Most of the effort seems to be supported by ad hoc collaboration and a lot of Excel spreadsheets.
Part of the reason, I believe, is because assortment planning is both a highly visual and a highly iterative process. Most systems, up until the last decade or so, have mostly been designed to support transactional processes, where the process is highly defined, and where it is impossible for step 3 to occur unless and until steps 1 & 2 have been completed.
Assortment planning is just not like that. There are lots of unknowns and the need for lots of placeholders, and as those placeholders are filled there might be the need to go back and reevaluate some of the earlier decisions made. There’s an assessment of the overall “look” of the line that needs to be evaluated as much as figuring out how many items within a category to carry in each location.
The good news is technology is getting better at supporting these much more fluid and visual processes. Technology has gotten better at supporting more collaborative processes too. And modern merchandising solutions are adopting these kinds of capabilities to provide a much more comprehensive way of balancing the science of deciding the right number of products to carry against the art of how all of those products come together into an assortment that will appeal to different customer segments.
- Merchandising, long a highly data-driven function, is about to get even more so – perhaps unmanageably so
There were two major areas of focus within the topic of data at the event. One was attributes – being more flexible about managing attributes, and being more customer-centric in thinking about attributes, so that it’s not about the supply chain or product management descriptors that make it into product attributes, but the vocabulary that reflects how consumers buy. The value of personalization – of making product recommendations to customers in particular – is completely linked to the detail incorporated in product attributes. Attributes are the fuel of personalization engines.
But attributes – and product hierarchies – are also critically important to how merchandising groups function. I never really thought about it, but it is true that most merchandising groups’ organizational structure is driven off the product hierarchy in one way or another. I’ve heard some merchandising teams say they would like to do away with product hierarchy all together and create more dynamic and ad hoc hierarchies depending on the need, but the reality is you’re going to need some kind of basic structure to organize things, even if all you get down to is department and class. So attributes are becoming more important, but I don’t think organizations have figured out how to manage them or even how to really use them as part of the planning process.
The second area of focus was on social media data – the behavioral data of how consumers engage with brands in social channels, and even bleeding over into the behavioral data of how consumers shop the retailer’s own website. There was a general consensus at the event that this data is important, but still little consensus about how it can be used effectively from a merchandising perspective. Sometimes the behavioral insights simply come too late to impact more than either a markdown strategy or the planning cycle for the next season.
- Change management is a big, big deal – and that is not getting easier
The last theme that I heard repeatedly is that change management is critically important to the future of merchandising. As retailers struggle to change over systems that might even be old enough to legally drive or vote or drink, to say that the existing process is entrenched is a mighty understatement. Retailers have spent the last decade protecting merchandising from change. And now the organization must embrace it.
Along with all that change comes a host of tools that promise to allow retailers to do a lot more with a lot less, by automating merchandising processes that previously had to be manually managed. It’s very hard to convince a group of people that they need to change when some of that change means automating their job out of existence. It takes a lot of convincing to get that person’s buy in that they won’t be eliminated – that there will be a whole new set of activities that need to happen out of a whole new set of data, new insights, and new ways of interacting with customers.
Pricing optimization had to go through the same resistance to change. But pricing, while strategic, is still but a fraction of the strategic impact of the whole entire merchandising function. Which means it’s going to be a tough road ahead for all retailers as they navigate merchandising transformation.
Bottom Line
In the end, there’s a lot of change headed merchandising’s way, and the function can no longer avoid it. Thinking Retail, TXT Retail’s Merchandising Symposium played a really great role in bringing merchandisers to the table to talk about what’s to come – I hope to see more such events in the future, because merchandisers need it. In the meantime, the New York version of the Symposium is at the end of April. I’ll be very interested to compare and contrast the priorities of American merchants against their European counterparts.
The Thinking Retail-NYC event is being held on Thursday, April 27th. Register Here
Author: Nikki Baird, Managing Partner at Retail Systems Research. Find this article and much more on rsrresearch.com
The post Checking In On the Future of Merchandising: Report by Nikki Baird, RSR Research, on the Thinking Retail Symposium appeared first on TXT Retail Blog.
