Merchandising success requires understanding your customers on a personal level.
Liza Amlani, principal, Retail Strategy Group, recently sat down with Chain Store Age to discuss how overcoming a disconnect with customers, as well as dealing with issues such as ongoing supply chain disruption and the increased need for sustainability, are all crucial to merchandising success. Amlani provided analysis for the recent RSR Research study, “Merchandising in the Modern Era: More Important than Ever.”
What is the top merchandising challenge facing retailers?
The biggest challenge that retailers have right now is that they don't know what their customer wants. The reason that I say that is seeing what's happening at the end of each season, such as excess inventory and broken sizing.
A lot of that is actually standard practice because of the way retailers create assortments, but the fact is that retailers have been sitting on a lot of excess inventory, especially this most recent season because of what has been going on in the supply chain.
Retailers can't ignore the fact that orders were pulled forward or even canceled in some cases. But for the most part, orders were brought in early because retailers wanted to avoid things like stockouts during the holiday season. Now, they're stuck with all this excess inventory. The disconnect is really around what is the consumer actually wants, and whether retailers are using the right tools to determine what the customer actually wants.
[Read more: Exclusive Q&A: How retailers can effectively address excess inventory]
Is supply chain disruption still a major issue for retailers?
The supply chain challenges that retailers had at the start or even the middle of the pandemic are not the same challenges that we're having now. But saying that supply chain disruption has ended is false.
I’ve been speaking to factories that had shifted production out of China into Vietnam and other regions. The fact is that raw materials still have to come from China. There is still that need for increased lead time playing a role within the supply chain.
In addition, in China, they're working a lot faster. They work six days a week for very long hours. In many cases, factory workers sleep at the factory. Moving into new regions, you're not going to be able to use the same KPIs that you were using when you were developing and fully producing in China.
What are the successful retailers doing to make sure they're properly in tune with their customers and merchandising strategies?
Successful retailers are really leveraging insights like customer data and closing the feedback loop. They are collecting customer data and talking to the customer to gain an understanding of what shoppers are looking for and what the gaps are in their assortment, and closing those gaps.
Successful retailers are also spending time on innovation, whether it is product innovation or material innovation, to set themselves apart. They're making time for innovation, and I think that is what makes a retailer great. They are constantly evolving because the customer is constantly evolving.
Why is sustainability becoming such an important part of merchandising?
Customers are caring more about sustainability and where their product is being made. Consumers and have a lot more access to information on how brands are creating products and building assortments. This is where we’ll start to see a shift where customers are going to question brands in a way that they never have before.
In response, many retailers are trying to think about product creation differently, especially from a material perspective. Retailers are reducing over-development and physical sampling, and increasing digital product creation, digital twins, digital sampling, and digital selling.
[Read more: Consumers want sustainable options]
Are there other ways you would suggest a retailer can increase the sustainability of their merchandising practices?
Retailers need to trust assortment planning technology like predictive analytics. When you’re not selling through your product assortment at full price, either it's the wrong product or the product is set the wrong price. These are all challenges that can be solved with the right assortment planning and pricing technology.
What do you see as the top retail merchandising trends for 2023?
The first is acceleration to market. If retailers get faster to market, they get closer to the customer and are able to understand what the customer wants in closer to real-time than before.
Another is truly understanding what inventory you own and where it is. This is where technologies like artificial intelligence (AI) and RFID will come into play a lot more with more retailers.
The last thing I will mention is pricing optimization. Customers are questioning why retailers are pricing products as they are, and of course, inflation is playing into this. Right now, many customers are shopping on discount, benefiting the dollar stores and Walmart and Target.
A lot more retailers are going to invest in pricing optimization to better understand what customers are willing to pay for a product, and then work back from that to determine what the cost of goods should be. They will drive the right margin at the right price that the customer is willing to pay for.
To download “Merchandising in the Modern Era” click here.