Optimizing in-StOre merchandiSing

RIS News Custom Research
Optimizing In-Store Merchandising
Without accuracy down to the fixture level in-store merchandising is a crapshoot
p rod uce d by
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spon sored by
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C u s t o m R e s e a r c h by joe skorupa
Optimizing In-Store Merchandising
Without accuracy down to the fixture level in-store merchandising is a crapshoot
In retailing, Known Problem Management (KPM)
is a new area of expertise. So new it was created
for this report. However, it is so pervasive that everyone in IT knows exactly what KPM is. They also
know it is so large it could be the domain of a lucrative consultancy practice.
For complicated reasons that go far beyond the
scope of the IT department KPM issues are rarely
fast tracked for resolution. Things like shrink, heterogeneous databases and legacy systems in the
tech stack linger year after year with no end in sight.
Add to that KPM list inaccurate planogram knowledge. Without precise planogram accuracy down to
the fixture level in-store merchandise planning and
execution is a crapshoot that produces high levels
of waste and lost revenue at the very least, and dis-
appointed shoppers at the very worst.
This month’s custom research report tackles the
KPM of in-store merchandising and uncovers compelling evidence that it is time for retailers to tackle
the problem.
How Big Is the Problem?
The first thing we wanted to know was how many
retailers actually have a problem with in-store merchandising accuracy. Anecdotal evidence from discussions with merchandisers indicated the problem was
large and this is backed up by data from the study.
First the good news — 3.7% of retailers say they
have exact accuracy of planogram knowledge down
to the fixture level for all stores. That is the ideal
state for merchandisers because it ensures the ac-
The Revolution of Brick and Mortar Stores
By Dan Wittner, COO and EVP at RBM Technologies
As retailers labor to meet customers’ needs with omnichannel
strategies, and the complexities of brick and mortar retail are
forever growing, campaign planning and forecasting has deteriorated. Campaign intricacy is accelerating with products, POP,
kits, and creative going out to stores on a more frequent basis.
Retailers have lost confidence in their stores’ ability to execute
localized campaigns quickly or effectively. In addition, communication from headquarters to stores typically lacks timeliness
and relevance.
These inefficiencies not only waste time and lead to confusion, but also impact profit margins (overprinting, shipping
costs, lost sales due to untimely and inaccurate product mix
and messaging).
With RBM’s suite of visual merchandising solutions, the merchandising planning process becomes simple, communication is
R I S N E W S J U LY 2 0 1 3 clear and precise, and retailers save time and money. RBM’s solutions leverage a single source of truth for all decision-making
data, allowing retailers access to real-time information needed
to carry out accurate localized assortments to their stores.
When the right product and messaging is delivered to the right
store, at the right time, on the right fixture, retailers can drive
the customer experience envisioned.
www.rbmtechnologies.com
[email protected]
(800) 532-2468
™
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Custom Research
F I G U R E 1 Sponsored by
What is the accuracy of your planogram knowledge down to the fixture level?
™
3.7%
29.6%
Exact accuracy for <50% of stores
curacy of the forecast and the effectiveness of in-store promotional efforts timed to coincide with
seasonal and special event store
sets. It also ensures the drill-down
accuracy of the plan by region,
cluster and store. (See Figure 1.)
Since the forecast affects budget, sales, supply chain and virtually every department in a retail
organization, which means that
the more accurate it is the more efficient the organization will be on
all business levels.
On the opposite end of the
spectrum is the 29.6% who say
their exact planogram knowledge
encompasses less than 50% of
stores. A nearly equivalent number (25.9%) say their exact planogram knowledge accounts for 50%
to 70% of stores. Combine these
two groups together and we see
the bulk of the retailing industry
is doing workarounds when they
create merchandising plans and
forecasts. They are working with
historical and aggregated averages. Guesswork instead of hard
numbers.
This datapoint is validated in
Figure 2. where the majority of retailers tell us that the last survey of
each store’s CAD layout, shelving
and fixtures was quite a few years
ago. This majority is anchored by
33.3% who say their stores have
never been surveyed plus 14.8%
who say the survey is four to five
years old and another 14.8% who
say it is two to three years old.
Interestingly, a solid 25.9% say
their last survey of stores was done
less than 12 months ago, which
seems like a sizable number of retailers that is much bigger than the
3.7% who say they have accurate
planogram knowledge. Why don’t
these numbers match up more
closely? The reason is that many
R I S N E W S J U LY 2 0 1 3 Exact accuracy for 100% of stores
14.8%
Exact accuracy for >90% of stores
25.9%
Exact accuracy for 70-90% of stores
25.9%
Exact accuracy for 50-70% of stores
F I G U R E 2 When was the last survey of stores done to ensure accuracy of merchandising
plans for each store’s CAD layout, shelving and fixtures?
25.9%
33.3%
<12 months
Never
11.1%
1-2 years
14.8%
4-5 years
14.8%
2-3 years
F I G U R E 3 How often are your brick-and-mortar stores measured for merchandising
execution and compliance?
18.5%
11.1%
Daily
Never
3.7%
>5 times a year
11.1%
18.5%
Weekly
3-4 times a year
7.4%
1-2 times a year
29.6%
Monthly
F I G U R E 4 For the average in-store merchandising campaign what %
of stores are fully compliant across the chain?
11.1%
>90%
11.1%
<20%
11.1%
25.9%
20-40%
80-90%
18.5%
60-80%
22.2%
40-60%
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retailers know store surveys go
out of date quickly and they often produce untrustworthy data
if they are not done to exacting
standards. Clearly, there is a survey accuracy gap retailers need
to close in their efforts to optimize in-store merchandising.
The Store Compliance Challenge
In addition to measuring stores
in a physical way it is important
for retailers to measure how well
stores do in managing merchandising execution and compliance. (See Figure 3.)
As expected, a quarter of retailers say they do not measure
store execution and compliance
regularly — 7.4% say they only
measure it one to two times a
year and a much larger group of
retailers (18.5%) say they never
do it.
However, the good news is
that three in 10 retailers say they
measure store-level merchandising and compliance frequently
enough to catch problems and
correct most seasonal store
sets and some special events —
11.1% say they monitor it daily
and 18.5% do it weekly. Stores
that do the measuring three to
four times per year (11.1%) or
bi-monthly (3.7%) probably use
the information to add input into
their historical averages as opposed to a sense-and-respond
mechanism that could have an
immediate impact on merchandising effectiveness and sales.
So, what do retailers find
when they measure store compliance for merchandising campaigns? About one in 10 (11.1%)
say that more than 90% of stores
are compliant across the chain
for the average in-store merR I S N E W S J U LY 2 0 1 3 F I G U R E 5 What challenges prevent your organization from getting stores to be
fully compliant with merchandising campaigns?
53.8%
Disconnect between merchandising, marketing and store ops
34.6%
Increasing pace of change
30.8%
Labor limitations
Curent process won’t scale
23.1%
Poor cooperation between merchandising and marketing
23.1%
Lack of common inventory across channels
23.1%
19.2%
Limited by using Excel spreadsheets
15.4%
Lack of real-time inventory visibility
15.4%
Data integration limitations
Using Excel spreadsheets
11.5%
F I G U R E 6 What type of solution are you using for in-store merchandise planning,
communication and compliance today?
3.7%
Packaged software (SaaS)
22.2%
Packaged software
(on-premises license)
11.1%
In-house
developed software
chandising campaign. Compliance of 90% or higher indicates
strong store discipline and leads
to strong merchandising campaign results.
However, the same number
of retailers (11.1%) say that less
than 20% of their stores are compliant, a shocking revelation that
indicates corrective measures,
however costly and painful, are
long overdue for these organizations. The same can be said for
the 11.1% who say 20% to 40%
63%
Excel spreadsheets
of their stores are compliant and
the 22.2% who say 40% to 60%
are compliant.
This under-performing group
represents nearly half of retailers
(44.4%) who say that about half
or less of their stores achieve
compliance when merchandising campaigns are measured.
Clearly these retailers are leaving money on the table by not
executing efficiently to plan.
Aside from budget constraints,
which is always a high-wire act
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of balancing competing priorities, the biggest inhibitor to solving non-compliance problems is
a “disconnect between merchandising, marketing and store ops,”
according 53.8% of respondents.
This familiar organizational challenge was by far the top obstacle
cited. (See Figure 5.)
Can deeply entrenched departments, each with high-powered and high-level executives in
charge of core enterprise functions, smooth out their differences and operate more efficiently for the greater success of the
company? Yes, of course, but not
without leadership from the top.
Running a business with known
problems, like inter-departmental
disconnects, is a surefire way to
miss targets, underperform and
disappoint stockholders. Eventually, it catches up to every retailer.
Other top challenges cited
were increasing pace of change
(chosen by 34.6%) and labor limitations (chosen by 30.8%). The
increasing pace of change is a
reality all retailers have to cope
with, as is labor limitations. Running a lean and mean workforce
is a modern mantra that is unlikely to change any time soon.
Of the top three challenges
cited for achieving greater merchandise campaign compliance
by stores the one with the best
chance of success is streamlining differences between merchandising, marketing and store
operations. Like all the challenges on the list this is a tough nut
to crack, but it is actually easier
than the other two and has the
clearest return on investment
It might be surprising to executives in other multi-trillion-dollar industries that Excel spreadR I S N E W S J U LY 2 0 1 3 FIGURE 7
What is the estimated percentage of lost annual sales due to non-compliance
of in-store merchandising?
3.7%
>15%
14.8%
11.1%
9-14%
<1%
18.5%
37%
5-8%
1-3%
14.8%
4-5%
F I G U R E 8 What is the estimated level of waste associate with every
merchandising campaign?
3.8%
>16%
26.9%
7.7%
10-15%
<1%
11.5%
50%
6-9%
2-5%
sheets are the king of in-store
merchandise planning, communication and compliance tools
today, but not to retailers. (See
Figure 6.)
By a landslide majority, when
asked to name the solution they
use for in-store merchandise
planning the winner is Excel,
chosen by 63%. Clearly there are
reasons for this finding, chief
among them is that Excel is in
place now and it is meeting expected performance levels.
However, one of the major
takeaways in this report is that retailers are operating with known
problems in their in-store merchandising efforts and we can
add using Excel spreadsheets to
the known-problem list.
This list includes inaccurate
planograms at the store level,
weak chain-wide compliance
during merchandising campaigns, infrequent measurement
of campaigns at the store level,
outdated store planogram surveys, and a disconnect between
the merchandising, marketing and
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store operations departments.
All of these problems are solvable and will result in significant
sales and margin benefits when
rectified.
Measuring the Cost
To get at the heart of what is
clearly a challenging problem for
retailers we asked respondents
to estimate the percentage of
lost annual sales they attribute to
non-compliance of in-store merchandising. The answer to this
question will be crucial in creating a business plan that justifies
taking action and making investments to solve what is clearly a
known problem. (See Figure 7.)
What we found was that 37%
say that 1-3% of annual sales are
lost due to non-compliance of instore merchandising efforts. For
a company with a billion dollars
in annual sales it means that $10
million to $30 million in sales are
lost, a figure that goes a long
way toward justifying corrective
investment.
And this is just a baseline
figure at the lowest level of lost
sales. Nearly half of respondents
said their lost sales were well
above the 1-3% figure — 14.8%
said lost sales were 4-5%, for
18.5% of retailers it was 5-8%,
and for 14.8% it was 9-14%. For
these retailers, if all had a billion
dollars in annual sales, losses
would range from $4 million to
$14 million, which is a clear incentive for taking action regardless of the cost.
In addition to lost sales another problem that arises through
inaccurate in-store merchandising efforts is waste, which we define as over shipping of product,
over printing of materials, and
R I S N E W S J U LY 2 0 1 3 F I G U R E 9
What factors are causing you to change your approach
to in-store merchandising?
63%
Pressure to grow sales
Pace of change in retail
55.6%
48.1%
Relevant customer experiences
40.7%
Localization
Pressure on margins
37%
Omnichannel retailing
37%
Personalized offers
29.6%
Social networks/media
29.6%
25.9%
Mobile commerce
Rise of marketing department
18.5%
Big Data
18.5%
14.8%
Showrooming
F I G U R E 1 0 What is your timetable for a major upgrade to your
in-store merchandising solutions?
7.4%
Will start in 12-24 months
25.9%
25.9%
No Plans
Will start within
12 months
25.9%
14.8%
Currently
Upgrading
Will start within 6 months
cost of shipping materials that
can’t be used in some stores.
(See Figure 8.)
Fully half of respondents say
that the estimate of waste per
merchandising campaign is
2-5%. For nearly half of respondents the percentage of waste
is considerably higher, ranging
from 6% to more than 16%.
When the dollar amount for
waste is added to the dollar figure
for lost sales caused by non-compliance we see that a great deal of
corporate treasure is within grasp
for those retailers willing to reach
for the low hanging fruit.
As retailers come to recognize that inefficiencies in the
in-store merchandising process
are a cause for concern they are
making plans and taking steps to
change their current approach.
In the data presented so far we
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have identified the causes of inefficiency and the dollar amounts
at stake.
Now we want to find out from
the retailers’ perspective what
they see are the major drivers
for changing their approach to
in-store merchandising
Topping the list is pressure to
grow sales, which was chosen
by 63%. No surprise here, but
what is interesting is when a retailer with one billion dollars in
annual sales solves the problem
of in-store merchandising efficiency we can infer that sales
will increase by $1 to $3 billion
for half of retailers and much
more for most of the others. This
is a perfect example of a problem meeting a solution.
Other
important
change
agents we find on this list are
keeping up with the pace of
change in retail (55.6%), creating
relevant customer experiences
(48.1%), and localization of merchandising plans (40.7%)
A central element in making
a change to improve the performance of in-store merchandising
efforts is to upgrade the IT solution used for the task, whether it
is Excel or an in-house tool. Here
we find a lot of activity is already
planned or underway. (See Figure 10.)
About a quarter of retailers
say their upgrade projects are
currently under way (25.9%) and
14.8% say their projects will begin within six months or by the
end of the year, which means they
already have budgets in place.
When four out of 10 retailers say
they are actively involved with a
technology implementation that
is a large number and indicates it
is high on the priority list.
Another large group of retailR I S N E W S J U LY 2 0 1 3 FIGURE 11
What is your estimate of the annual cost of lack of compliance
and poor execution for in-store merchandising campaigns?
11.5%
>$2M
15.4%
23.1%
<$100k
$1M to $2M
11.5%
$100k-$250k
11.5%
$500 to $1M
26.9%
$250k-$500k
F I G U R E 1 2 How many stores does your organization have today?
3.7%
>2,000
7.4%
1,000-2,000
14.8%
40.7%
500-1,000
<50
3.7%
200-500
11.1%
100-200
ers (25.9%) say they will start
an upgrade project within 12
months, which confirms that
in-store merchandising is a
squeaky wheel that needs immediate attention.
The final question we asked
retailers gives us a deeper understanding of the functions
needed and the problems that
require solving as they look
to improve their in-store merchandising capabilities. (See
Figure 11.)
As noted earlier in the study,
retailers say there is a discon-
18.5%
50-100
nect that needs to be resolved
between their key departments
before their in-store merchandising efforts can be effectively improved. This indicates that many
retailers are experiencing a
fundamental problem with synchronizing merchandising campaigns in an omnichannel way,
which is a necessity in modern
retailing.
When we asked retailers to
describe their company’s level of
synchronizing their merchandising campaigns in an omnichannel way we find that they iden7
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™
tify the top function as being the
process of sending instructions
and communications to stores
(chosen by 48%). This typically
involves e-mail and faxes, but
it can also include task management software, personal dashboards, CRM software, and enterprise portals.
No
other
merchandising
function came close to being
judged as tightly synchronized.
The two functions that were
given a high number for being
loosely synchronized are getting marketing messages and
displays sent to stores (chosen
by 53.8%) and product allocation and distribution at store
level (chosen by 52%).
The function that has an impact on omnichannel merchandising campaigns with the least
level of synchronization is loyalty program data, which was
chosen by 37.5%. Since not all
retailers have loyalty programs
it is understandable that this unsynchronized figure might appear a little high.
Methodology
This study was conducted during the month of June and only
senior executives from national
or large regional retailers were
invited to participate. The results
do not include any store-level,
field-level or regional employees. Only headquarters-level
staff responses were included.
Conclusion
In the five-year period from January 2008 to January 2013 retail
store sales have grown 8.5%
while online sales have grown
72%. And yet stores continue to
be the centerpiece of the retail
R I S N E W S J U LY 2 0 1 3 FIGURE 13
For the following functions how tightly synchronized is your company’s
omnichannel merchandising campaigns?
TIGHTLY
LOOSELY
UNSYNCHRONIZED
48%
32%
20%
30.8%
53.8%
15.4%
Product allocation/
distribution at store level
36%
52%
12%
Precise timing
36%
40%
24%
Loyalty program
33.3
29.2%
37.5%
Instructions/communications to stores
Marketing messages/
displays in-store
FIGURE 14
What is the selling square footage of your organization’s average store?
7.4%
3.7%
<500 sq ft
>50,000 sq ft
14.8%
20,000-50,000 sq ft
18.5%
500-1000 sq ft
37%
5,000-20,000 sq ft
18.5%
1,000-5,000 sq ft
industry and source of the lion’s
share of revenue.
As a result, many retailers are
focusing on customer-centric
strategies that put digital capabilities inside stores and convert
stores into omnichannel hubs
that expand and improve the
shopping experience to attract
and keep customers.
However, this strategy is only
half of the solution. The other
half is to solve known problems
in stores that produce a measurably negative impact on sales.
Chief among these is the low
hanging fruit of inaccurate instore merchandising campaigns.
Today, the bulk of the retailing
industry is operating with known
data gaps, inaccuracies at the
store level and workaround tools
that are sorely in need of upgrading. Merchandising plans and
forecasts are based on historical
or aggregated averages that are
essentially guesswork instead of
hard science.
The ultimate solution is to tie
customer-centric improvements
in the store with in-store merchandising improvements that
increase sales, conversions and
customer satisfaction while enabling efforts to reduce waste
and lost opportunities. RIS
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