Learning Objectives
- Understand why organisations benefit from collaboration between assortment managers and merchandisers in an early phase.
- Learn when to take a common approach to online and brick-and-mortar assortment decisions, and when to differentiate.
- Get acquainted with a holistic approach to the decision on number and sort of products for online and brick-and-mortar stores.
Visual Merchandising Versus Traditional Space Management
When searching for sports clothing or navigating through a supermarket, I sometimes pause and wonder where all these products have come from. I imagine that my running shoes are designed in New York, produced in Bangladesh, shipped to Hamburg and somehow arrived in my favourite store. My tomatoes are perhaps harvested at a farm nearby or came by truck from Spain. All these products have made a long journey. And I also start imagining how carefully the category manager tasted and tried the products, made an incredibly complex spreadsheet to calculate the business potential and closed a deal with the supplier. With all the care given before the product arrived in-store, I am even more amazed by the fact that the placement of the product seems to be an afterthought. There are more products than the shelves can hold. For example, boxes of toys are merchandised in such a way that the attractively designed front side is not visible. Or the perfume bay contains so many bottles and colours apparently placed without any logic that I do not know where to start the search. Products with similar colour are placed next to each other and they cannot be identified easily. The energy retailers spend before the product arrives at the store is completely lost if the shopper cannot conveniently search and select from the offer. This is where the space management and visual merchandising functions can help. The former seeks the most optimal location and visual stock for each product considering commercial and retail brand objectives. The latter supports the shopper decision process through merchandising material and store communication. Both functions ensure the category presentation fits the overall retail brand and the shopper is supported with the right inspirational and informative messages. It seems that retail functions for selecting and merchandising the assortment work too often in silos. When category managers involve the space management department only at the last moment just before launch, the role of a space manager is more like a strip cartoonist and the visual merchandiser becomes an artistic fortune teller: Both have great stories that one day might become true.
There could be several reasons for the late involvement. It has become a habit for category managers to deal with product sourcing and assortment development first before working on merchandising. This makes sense from the perspective that retailers first need to select and feel the product and decide what quality and how much of the product they source. Secondly, the category managers tend to dedicate more time to urgent daily duties like promotional planning than to considering the time constraints for ordering new shelf material or building the right online environment. Thirdly, the category managers sometimes determine the range and the order size of non-food products on overseas trips because competition and supplier negotiation leave them no other choice. At large online retailers, the focus on numbers and analytics is such and they have created work environments in which creative visual merchandisers do not feel understood and appreciated. Finally, starting with the product in mind is also linked to the fact that the category manager operates within the frame of the existing store environment. Investments in the store infrastructure are significant and are preferably made when considering several categories in their relationships. This takes time that the category manager feels is slowing them down. As a consequence, any amendments in store furniture or website infrastructure are postponed to a later moment, and to other people. Chances are nobody raises the question at a later moment as to what could have been the optimal way of merchandising the product. Considering the time, budget investment and the logical fear of disturbing current shopping habits, retailers often prefer to take the current merchandising as a given.
What If Merchandising and Assortment Decisions Are Made in Harmony?
Currently, product introduction is often supplier driven. Let’s imagine a supplier of energy bars has developed an appetizing range of cereal bars filled with juicy fruits and delicious nuts and crispy cereals and they approach a high-street convenience retailer. The supplier promises a favourable promotional package and a satisfying price. The retailer already has some cereal brands available and after a quick analysis the category manager works out an assortment for one bay of energy bars. This could very well work. Alternatively, the category manager could have started with the shopper in mind and thought about the benefits of the cereal bar to the shopper. The cereal bar might be purchased for a healthy breakfast. The shopper may not want to decide between brands of cereal bars but rather make a choice among bars, yoghurt, apples and smoothies. Other cereal bars that are covered with chocolate could be placed together with snacks such as pies and potato chips for an afternoon indulgence occasion. In the first case, when the retailer places all cereal bars by product type together, it is more a case of re-organizing the existing bay. In the second case, the retailer needs to come up with an idea for equipment that holds both ambient and cooled products. The integration of coolers for yoghurt, metal shelves for the cereal bars and wicker baskets for apples should be designed such that the shopper perceives the assortment as a combined offer for a healthy breakfast. It sounds challenging as well as cool! Shoppers find the products according to their needs and the retailer differentiates itself through the way of merchandising, while each of the individual products and brands may be offered elsewhere. As discussed later in the book, when products are placed by benefit rather than by product type, shoppers are inclined to look more for similarities. They approach the assortment with the assumption that the products address the same need. As a result, the products are perceived to be more or less similar and therefore the benefit grouping allows the retailers to carry a less wide assortment. The same principles are applicable online. Shoppers often struggle with the almost endless assortments. While placement by product category reinforces comparison, online retailers may discover that organizing by benefit makes the number of products on the websites more digestible for shoppers.
Considering the way a product is merchandised at an early stage, perhaps even before selection of the product, offers both tactical and strategic opportunities. Making the merchandising decision before assortment may lead to new insights and innovative practices. I observe that the new thinking is not woven into the regular retail process. Indeed, merchandising is integrated at an earlier stage at times of major refits and repositioning of the retail brand. When retail formats and webstores are reconsidered is the time when merchandising does come first in retail. The big win is that category managers and merchandisers consider the context of shopping and shopper decision processing when building the assortment and designing space.
In addition to the strategic advantages of more shopper-focused solutions and holistic approaches which encourage innovation, the timely integration of merchandising aspects also has very practical benefits. For example, a retailer may develop a grey-silver packaging line for its private label that looks appealing in itself but becomes a dull, neglected spot when placed on a shelf or website. Or the supplier develops such shapes and sizes of Cornflakes boxes that only two flavours rather than three flavours fit the shelf. Both retailers and suppliers benefit when product packaging is developed in relationship to the store context it will be part of. When presenting products online, much time is spent on the best product image, but the role of packaging for shoppers is as important. Online players need to analyse the functions of packaging in each stage, from salience on the webstore to protection during shipment to convenient opening at home. The same product could be contained in a simple carton box or a colourful box that turns the ordering of a toy from a webstore into a playful unwrapping moment at home. Or the packaging displays the most important steps of the instruction manual of a closet. For retailers, there are opportunities for tapping into needs of both instruction and delight at the home moment. As a consequence, the same product may need different packaging for online sales and brick-and-mortar stores.
The early integration of merchandising decisions into the assortment management process pays off. From different angles this will generate more positive financial returns. First of all, when knowing and using the physical dimensions of products, retailers know at an earlier phase of the category development process whether products will fit on a shelf or whether they need to amend the composition of the assortment. This is what space managers describe as a ‘space aware’ assortment software and process. When space is created for the right products, the retailer can offer more variety and appeal to a wider set of needs. It also means that sufficient space is created, so that there are no lost sales as a result of out-of-stocks. Avoiding out-of-stocks could mean a higher frequency of store deliveries and therefore supply chain costs, and balancing the cost of refilling and out-of-stocks at an early decision moment should determine the optimal space. Finally, the term space awareness is used in the world of brick-and-mortar retail, but also the dimensions of a smartphone, tablet or PC set restrictions on the amount and size of products. The concept of space awareness focuses on the amount of space dedicated to products. Even more can be gained from the way of merchandising. As this book will demonstrate, the quality of merchandising is more important for sales than the quantity of merchandising. Amending the location of the worst to the best location could deliver 59 per cent increase of ...