Optimizing in-StOre merchandiSing

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Without accuracy down to the fixture level in-store merchandising is a crapshoot

Optimizing in-StOre merchandiSing

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The Revolution of Brick and Mortar StoresBy 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 dete-riorated. 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, commu-nication from headquarters to stores typically lacks timeliness and relevance.

These inefficiencies not only waste time and lead to con-fusion, 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 mer-chandising planning process becomes simple, communication is

clear and precise, and retailers save time and money. RBM’s so-lutions 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.

[email protected](800) 532-2468

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 ev-eryone in IT knows exactly what KPM is. They also know it is so large it could be the domain of a lucra-tive 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, het-erogeneous databases and legacy systems in the tech stack linger year after year with no end in sight.

Add to that KPM list inaccurate planogram knowl-edge. 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 com-pelling 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 mer-chandising accuracy. Anecdotal evidence from discus-sions 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-

Without accuracy down to the fixture level in-store merchandising is a crapshoot

Optimizing in-StOre merchandiSing

™

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curacy of the forecast and the ef-fectiveness of in-store promotion-al 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 bud-get, sales, supply chain and virtu-ally every department in a retail organization, which means that the more accurate it is the more ef-ficient 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 num-ber (25.9%) say their exact plano-gram 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 aver-ages. Guesswork instead of hard numbers.

This datapoint is validated in Figure 2. where the majority of re-tailers 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 re-tailers 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

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What is the accuracy of your planogram knowledge down to the fixture level?

When was the last survey of stores done to ensure accuracy of merchandising plans for each store’s CAD layout, shelving and fixtures?

How often are your brick-and-mortar stores measured for merchandising execution and compliance?

For the average in-store merchandising campaign what % of stores are fully compliant across the chain?

Exact accuracy for 100% of stores3.7%

Exact accuracy for >90% of stores14.8%

Exact accuracy for 70-90% of stores25.9%

Exact accuracy for 50-70% of stores25.9%

Exact accuracy for <50% of stores29.6%

<12 months25.9%

2-3 years14.8%

1-2 years11.1%

4-5 years14.8%

Never33.3%

Daily11.1%

Monthly29.6%

Weekly18.5%

1-2 times a year7.4%

3-4 times a year11.1%

>5 times a year3.7%

Never18.5%

<20%11.1%

40-60%22.2%

20-40%11.1%

60-80%18.5%

80-90%25.9%

>90%11.1%

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retailers know store surveys go out of date quickly and they of-ten produce untrustworthy data if they are not done to exacting standards. Clearly, there is a sur-vey accuracy gap retailers need to close in their efforts to opti-mize in-store merchandising.

The Store Compliance ChallengeIn addition to measuring stores in a physical way it is important for retailers to measure how well stores do in managing merchan-dising execution and compli-ance. (See Figure 3.)

As expected, a quarter of re-tailers 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 merchandis-ing 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 op-posed to a sense-and-respond mechanism that could have an immediate impact on merchan-dising effectiveness and sales.

So, what do retailers find when they measure store com-pliance for merchandising cam-paigns? About one in 10 (11.1%) say that more than 90% of stores are compliant across the chain for the average in-store mer-

chandising campaign. Compli-ance of 90% or higher indicates strong store discipline and leads to strong merchandising cam-paign results.

However, the same number of retailers (11.1%) say that less than 20% of their stores are com-pliant, a shocking revelation that indicates corrective measures, however costly and painful, are long overdue for these organiza-tions. The same can be said for the 11.1% who say 20% to 40%

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 merchandis-ing campaigns are measured. Clearly these retailers are leav-ing 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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What type of solution are you using for in-store merchandise planning, communication and compliance today?

Packaged software (SaaS)3.7%

In-house developed software

11.1%

Excel spreadsheets63%

Packaged software(on-premises license)

22.2%

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C u s t o m R e s e a r c h S p o n s o r e d b y™

What challenges prevent your organization from getting stores to befully compliant with merchandising campaigns?

Disconnect between merchandising, marketing and store ops

Increasing pace of change

Labor limitations

Curent process won’t scale

Poor cooperation between merchandising and marketing

Lack of common inventory across channels

Limited by using Excel spreadsheets

Lack of real-time inventory visibility

Data integration limitations

Using Excel spreadsheets

34.6%

30.8%

23.1%

23.1%

23.1%

19.2%

15.4%

15.4%

11.5%

53.8%

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of balancing competing priori-ties, the biggest inhibitor to solv-ing non-compliance problems is a “disconnect between merchan-dising, marketing and store ops,” according 53.8% of respondents. This familiar organizational chal-lenge was by far the top obstacle cited. (See Figure 5.)

Can deeply entrenched de-partments, each with high-pow-ered and high-level executives in charge of core enterprise func-tions, smooth out their differ-ences and operate more efficient-ly 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. Eventu-ally, it catches up to every retailer.

Other top challenges cited were increasing pace of change (chosen by 34.6%) and labor lim-itations (chosen by 30.8%). The increasing pace of change is a reality all retailers have to cope with, as is labor limitations. Run-ning a lean and mean workforce is a modern mantra that is un-likely to change any time soon.

Of the top three challenges cited for achieving greater mer-chandise campaign compliance by stores the one with the best chance of success is streamlin-ing differences between mer-chandising, marketing and store operations. Like all the challeng-es 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 exec-utives in other multi-trillion-dol-lar industries that Excel spread-

sheets are the king of in-store merchandise planning, commu-nication 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 ex-pected performance levels.

However, one of the major

takeaways in this report is that re-tailers are operating with known problems in their in-store mer-chandising 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 cam-paigns, infrequent measurement of campaigns at the store level, outdated store planogram sur-veys, and a disconnect between the merchandising, marketing and

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What is the estimated percentage of lost annual sales due to non-compliance of in-store merchandising?

>15%3.7%

<1%11.1%

1-3%37%

4-5%14.8%

5-8%18.5%

9-14%14.8%

What is the estimated level of waste associate with every merchandising campaign?

>16%3.8%

<1%7.7%

2-5%50%

10-15%26.9%

6-9%11.5%

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What factors are causing you to change your approach to in-store merchandising?

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Pressure to grow sales

Pace of change in retail

Relevant customer experiences

Localization

Pressure on margins

Omnichannel retailing

Personalized offers

Social networks/media

Mobile commerce

Rise of marketing department

Big Data

Showrooming

63%

55.6%

48.1%

40.7%

37%

37%

29.6%

29.6%

25.9%

18.5%

18.5%

14.8%

store operations departments. All of these problems are solv-able and will result in significant sales and margin benefits when rectified.

Measuring the CostTo 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 mer-chandising. The answer to this question will be crucial in creat-ing a business plan that justifies taking action and making invest-ments 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 in-store 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 in-centive for taking action regard-less of the cost.

In addition to lost sales anoth-er problem that arises through inaccurate in-store merchandis-ing efforts is waste, which we de-fine as over shipping of product, over printing of materials, and

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 respon-dents 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-com-pliance 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 recog-nize 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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What is your timetable for a major upgrade to your in-store merchandising solutions?

Will start in 12-24 months7.4%

No Plans25.9%

CurrentlyUpgrading

25.9%

Will start within 6 months14.8%

Will start within12 months

25.9%

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What is your estimate of the annual cost of lack of compliance and poor execution for in-store merchandising campaigns?

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<$100k23.1%

$100k-$250k11.5%

$250k-$500k26.9%$500 to $1M

11.5%

$1M to $2M15.4%

>$2M11.5%

have identified the causes of in-efficiency 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 re-tailer with one billion dollars in annual sales solves the problem of in-store merchandising ef-ficiency 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 prob-lem 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 mer-chandising plans (40.7%)

A central element in making a change to improve the perfor-mance of in-store merchandising efforts is to upgrade the IT solu-tion 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 Fig-ure 10.)

About a quarter of retailers say their upgrade projects are currently under way (25.9%) and 14.8% say their projects will be-gin 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 retail-

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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 im-mediate attention.

The final question we asked retailers gives us a deeper un-derstanding of the functions needed and the problems that require solving as they look to improve their in-store mer-chandising capabilities. (See Figure 11.)

As noted earlier in the study, retailers say there is a discon-

nect that needs to be resolved between their key departments before their in-store merchandis-ing efforts can be effectively im-proved. This indicates that many retailers are experiencing a fundamental problem with syn-chronizing merchandising cam-paigns in an omnichannel way, which is a necessity in modern retailing.

When we asked retailers to describe their company’s level of synchronizing their merchandis-ing campaigns in an omnichan-nel way we find that they iden-

How many stores does your organization have today?

<5040.7%

50-10018.5%

100-20011.1%

200-5003.7%

500-1,00014.8%

1,000-2,0007.4%

>2,0003.7%

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 manage-ment software, personal dash-boards, CRM software, and en-terprise 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 get-ting marketing messages and displays sent to stores (chosen by 53.8%) and product alloca-tion and distribution at store level (chosen by 52%).

The function that has an im-pact on omnichannel merchan-dising campaigns with the least level of synchronization is loy-alty program data, which was chosen by 37.5%. Since not all retailers have loyalty programs it is understandable that this un-synchronized figure might ap-pear a little high.

MethodologyThis study was conducted dur-ing 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 employ-ees. Only headquarters-level staff responses were included.

ConclusionIn the five-year period from Jan-uary 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

industry and source of the lion’s share of revenue.

As a result, many retailers are focusing on customer-centric strategies that put digital capa-bilities 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 measur-ably negative impact on sales. Chief among these is the low hanging fruit of inaccurate in-store 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 upgrad-ing. 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 mer-chandising improvements that increase sales, conversions and customer satisfaction while en-abling efforts to reduce waste and lost opportunities. RIS

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What is the selling square footage of your organization’s average store?

<500 sq ft7.4%

500-1000 sq ft18.5%

1,000-5,000 sq ft18.5%5,000-20,000 sq ft

37%

20,000-50,000 sq ft14.8%

>50,000 sq ft3.7%

For the following functions how tightly synchronized is your company’s omnichannel merchandising campaigns?

TIGHTLY LOOSELY UNSYNCHRONIZED

Instructions/communications to stores 48% 32% 20%

Marketing messages/ displays in-store

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%

Optimizing in-StOre merchandiSing

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