May 1, 2012

Merchandising Management

Develop a merchandise plan


Planned merchandise management should be an intrinsic part of retail.
To be successful, a retailer must offer the right mix of products and range to satisfy consumers, while balancing the needs of the business, its market position and financial goals.

There is no role in a garden centre or retail outlet that can impact the performance of a business more than that of the purchaser. This is not a function to be taken lightly, nor one to venture into without adequate planning and preparation. The best chance of success is to have a well prepared plan to complement the skills of your purchaser. Working within a defined framework helps make purchasing decisions easier and more consistent.

Merchandising philosophy and practices
A retailer’s merchandising philosophy sets the guidelines for every purchasing decision. Many stores have an informal merchandising philosophy; however by formalizing it, employees can more readily understand what is expected of them. Formalizing a merchandising philosophy begins with analyzing existing practices and employee roles along with the business’s desired image, values and goals.

It helps in the decision making process of a variety of merchandising issues such as: the assortment of products across the store, the depth offered within each category, inventory levels, the quality of merchandise offered, pricing to correlate with the store’s desired image and financial goals, as well as promotional strategies. Merchandising philosophy and practices are an evolving process and once completed, should not be left to gather dust. The process should be revisited regularly, especially after the key selling periods, to evaluate performance and make refinements as needed.

Developing the plan
Following the assessment of current merchandising philosophies and practices, the next stage is to start developing the merchandising plan. This would include: forecasting, innovation, selection and quality, brands offered, seasonal timing, and allocation.

Forecasting is the basis of most purchasing decisions and, while not an exact science, offers a best guess scenario. How detailed and useful a forecast will be is determined by the quality and quantity of information available and how it is interpreted. Of course, there is always an element of chance — we’ve still not figured out how to control the weather! Detailed forecasting can help purchasing by reducing on-the-fly decisions and replacing them with informed decisions, which can help reduce waste and lost sales opportunities.

Forecasting by category (i.e. perennials, annuals, etc.) alone is less useful. It does set sales targets, but fails to provide the detailed information needed to achieve these targets. Out of 100 items in a category, 10 of those items may be generating 70 per cent of sales; the remainder could be dragging down the category performance. Detailed information is more useful in making key decisions on inventory selection, financial goals, space utilization, and more.

Forecasting also assists in the selection and ideal stock levels of staple products, those essential to the success of any range. These are the ones that consumers specifically come in for and are critical to the success of seasonal merchandise. There are not many sales for red poinsettias in January; conversely it is not good to run out in the second week of December.

Many staple items fall into the category of ‘known value,’ those which the consumer tends to compare on price, so margins may be tighter and mistakes more costly.

The garden industry is one of fashion and innovation, something that perhaps we don’t capitalize enough on. For example, organic products have been around for decades, however it is only recently they have received wider acceptance with our changing social attitudes. Now, these products offer an opportunity for higher margins in a still small, but expanding segment.

Innovation is a key part of the product life cycle. It can help set one seller apart from another, but it is not without its risks. Misreading consumer trends can lead to getting stuck with large amounts of inventory. New uses or marketing methods for existing products have proven successful for some vendors—green roof and wall planting are but two examples. Creative and innovative presentation can help differentiate one store from another. The independent garden retailers may compete with box stores, but they don’t need to look like them.

Selection and quality
The right selection is a fine line, enough to satisfy consumer needs, but not too much to overwhelm the consumer with choices. Being spoiled with selection can make it hard for the consumer to choose, sometimes resulting in a lost sale.

The first planning decision on selection for a garden retailer would be to determine how many individual lines are offered in any given category and the desired level of inventory. Of course, financial goals will always be part of any decision making process. If the range of products is increased, will sales go up proportionally? If the range is reduced, what will be the impact on the consumer? How might either impact on profits? What may seem an obvious answer cannot be confirmed without some planning and investigation.

Plant selections can sometimes fall victim to strategies like, the more the better, the widest selection in town, or the most unusual plants that don’t necessarily sell well. Without evaluating the impact of sales on profits it can be hard to determine which, if any, is the right strategy. A wider choice might appeal to a wider audience, or it may make no difference. It may simply mean fewer plants per variety, and may not allow sufficient space for the top sellers, raising the possibility of running out halfway through a busy weekend.

Quality is also a consideration as it forms part of the garden centre’s image and market positioning. To benefit from a planned market position, the product quality offered should fit the desired image. Wanting to portray your business as a high-end quality seller but offering lower quality or budget merchandise and plants, may send a conflicting message.

Research has demonstrated that higher quality merchandise can demand a premium price. Garden consumers are often value driven rather than solely price driven. Demographics have and continue to change; hobbyist gardeners, who enjoyed spending the majority of their leisure time in the garden are being replaced by lifestyle gardeners, who have more demands on their leisure time, but enjoy their garden as a living space. It is important to determine your customer base and pricing strategies based on financial goals as well as market knowledge. A blanket mark-up or guesswork might not be good enough in this evolving market to maintain a competitive edge.

In addition to a premium price, higher quality product may sell more quickly, have reduced waste, and significantly contribute to customer satisfaction and a business’s financial objectives. Research suppliers when evaluating products; compare like for like. Does it meet your standards and specifications? As with any strategy, this requires careful evaluation and risk assessment to ensure it meets the business goals, before implementing any change.

Seasonal timing
Nobody in this industry needs reminding about the seasonality of our business. With the intense and short sales window that seasonal sales offer, it is imperative to get the mix right, as well as the timing and volume requirements. Seasonal timing encompasses many facets of the planning process and a number of factors have to be considered such as: forecasting, defining the peak selling seasons, accommodating increased holiday demand, the availability of merchandise, and lead times needed by suppliers. It is imperative to know your suppliers and how they work. This is an important part of the value chain concept.

Taking advantage of early order and volume discounts can offer substantial savings to the purchaser, savings that can be passed on to the consumer by promotions or help the business meet its financial goals. For items that have limited availability, early ordering can help secure supplies for the coming season. The results of seasonal planning and purchasing can have significant impact on the performance of a garden retailer.

How much real estate will you give up to a product? There is a fine line between eye-catching displays, sufficient volume to satisfy customer demand, and meeting financial goals. It is one of the most challenging jobs for a purchaser/merchandiser. The big guys have computer software to figure out how much they will make from their shelf and floor space. Allocation is a complex subject; however, decisions can be helped with an understanding of the market, product margins, available space, customer flow around the store, and detailed forecasts.

Category management
Arranging product grouping is particularly relevant to the garden retailer, as this is how many structure their performance measurement. Category management focuses on the results of a specific category within the store, rather than the performance of specific brands or individual product lines. Where a category is placed can influence its performance, and moving categories seasonally will often give better returns.

Successful category management can set yourself apart from competitors. It can strengthen your image and market position. The objective should be to drive multiple purchases, increasing the value of each sale. It is important to position merchandise for maximum exposure to consumers at the optimum time. This means being flexible and changing even within a season, according to peak demand.

Merchandise management and purchasing is a challenging and rewarding role. It requires continued study, an understanding of the market, and ongoing assessment of the merchandising plan. The scenario will be different for each retailer, requiring detailed evaluation, planning and risk assessment. It is a best guess, as results are never guaranteed, but planning and flexibility offer great opportunity for your business, customers and suppliers.
Stephen Head has worked in the green industry in retail and wholesale capacities and as a training and merchandising consultant. He now operates a wholesale nursery in B.C., specializing in herbs.