Retail News - March/April 2012

Smart technology that monitors the success of a product can quickly pay for itself as it optimizes your offering, reduces inventory and increases sales

cut the wrong product you could potentially lose some of your loyal customers – it isn’t rocket science.

Most retailers have some concept of a product or category’s performance based on store sales. When assessing a product’s performance, consider removing it from the assortment when it isn’t meeting expectations. That doesn’t mean the decision to remove an item should be made solely on that product’s sales performance. You could end up losing a product that helps drive the sales of associated products. Worse, you could lose customers to your competition. Therefore, it’s important to know who’s buying the product on the chopping block and what else they buy. Accessing transactional data (what items sold in the same transaction) or loyalty card information (which customers are associated with sales of those items and what those customers spent in the last year) are two means of addressing that question. You could also briefly discontinue the product’s replenishment and review how quickly it sells out and if the sales of any associated product slump after it’s removed from the floor. After this analysis it should be fairly obvious whether or not the item should stay or be removed.

When beginning the rationalization process here are the top three things to consider:

1. The direct impact the SKU will have on your store’s performance through its sales contribution

2. The indirect impact the SKU will have on the sales of other related merchandise 3. The hard-to-measure image impact generated by the item. For instance, does the existence of the item impact your customers’ perception of your store?

For retailers that bring unique items in for each season, SKU rationalization should be done as part of pre-season

planning. In many cases, the process of SKU rationalization is more effective with longer-living merchandise because you can track an item’s progress and make reasonable adjustments. With seasonal products it’s more difficult (but not impossible) to base next season’s assortments on the previous season’s sales performances when the performance of the previous season may have been impacted by particular styles.

It can also be revealing to review product performance based on package size, brand and value.

There are tools today that constantly and automatically monitor the success of a product and make recommendations on the breadth and depth of your assortment. The assistance of smart technology like this can quickly pay for itself as it optimizes your offering, reduces inventory and increases sales. If, however, you’ll be performing SKU rationalization manually, start with your poorest performing categories. Where are you losing margin? Are these categories under or over assorted?

Remember, SKU rationalization isn’t a once or twice-a-year exercise – it should be on-going.

S TEP 2: FORECAS TING WITHIN AN ASSORTMEN T PLAN

Traditional forecasting systems need long periods of historical activity to identify selling trends. Yet, a typical retailer constantly introduces new products to keep the assortment fresh and give the customer something new to see each time they walk into the store. New products obviously have the ability to add value to the assortment and help meet the goals of your financial plan, but knowing which new products will perform involves some sophistication.

When looking at a new product and
attempting to determine its demand, choose
a like product or a combination of like
products based on given attributes such
as price points and merchandise type. By
consolidating the histories of many prod-
ucts that have similarities to the product
in question, you can confidently predict
how the item will perform.

STEP 3: ASSORTMENTS & FINANCIAL PLANS WORKING TOGE THER

The financial planning process typically starts off by planning sales. Usually this plan is then broken down into categories and planned sales by category.

Once a sales plan has been developed, the next piece of the planning process is to build an inventory plan. How much inventory do you need to meet the sales plan that you just laid out? Going beyond the total inventory amount with an assortment plan is a powerful vehicle for increasing your sales and profitability. At this point in the planning process, the critical issue isn’t how much to buy, but what to buy and where to put it. By coordinating a constantly updated financial forecast with an assortment planning tool or technique, you can ensure that you’re buying the products that will perform the best, as well as identifying opportunities to improve your financial goals.