Retail Essentials: Merchandising Processes, Tools and Skills

Essential merchandising processes, tools and skills for retailers

Retail has always been an incredibly vibrant and exciting sector to work in. It has always been fast-moving and ever-changing as it has had to evolve to meet the evolving consumer and competitive environment.

But boy, things have changed a lot in the last couple of years: we went from a pandemic to lockdowns, to war, to global supply chains disrupted beyond recognition and now inflation, which has been absent from the market pretty much my whole working life. Many retailers have been quick to respond, switching their business models, their supply chain shape and their buying calendar to the keep pace with the emerging situations.

Merchandising has always been important for retailers to manage stock levels – and never more so than in today’s unpredictable and changing environment. Let’s explore just why some retailers will have been able to better react to these unprecedented situations than others…

Securing retail supply chains and ensuring stock levels

Our initial thoughts around the pandemic were based on securing supply chains and re-sourcing to ensure that stocks would keep coming through.

We initially saw the supermarkets act quickly and decisively to adapt packaging, reduce choice, limit items per customer, and adapt processes to ensure the flow of stock to customers.

Then the emphasis moved to dealing with stock levels and commitments which had become far too high as selling avenues were severely reduced. And now retailers are employing multiple strategies to get stock through – resourcing, placing earlier, taking calculated risks on what and where to sacrifice agility for certainty of supply

Retailers who went in to 2020 with better-controlled stock levels coupled with deep customer focus, strong merchandising and stock management skills will have stood a much better chance.

Well-developed merchandising and stock management processes

Firstly, they will have had processes and capability that connect their stock planning to sales and sales phasing so their stock holding would have been relatively tight already, and teams would have reacted quickly.

The WSSI (weekly stock, sales and intake) tool will have been critical to the ability of retailers to have sales and stock information immediately visible and organised in a commercially appropriate product and channel hierarchy. This tool is the backbone of any merchandising function – whether times are predictable or not.

By limiting the amount of cash tied up in stock they have limited their risk of having bought the wrong thing and of having bought too much and therefore starting out with a problem and being internally focused.

Secondly, they will have had excellent visibility of critical paths through their buying routines and business calendar so knew exactly what stage their stock was at and would have chosen to hold raw material rather than made goods.

Thirdly, they will have understood the value of supplier relationships, so they won’t have left the supplier with the problem at the first sign of trouble meaning that now when the demand is in danger of outstripping supply they are at the front of the queue for that supply.

Flexibility is king when the situation is changing so dramatically and so quickly.

We routinely see retailers whose merchandising processes are weak run with higher stock levels, poor supplier relationships and behave in a much more short term manner. If you buy too much stock too far ahead you have far less flexibility and room for manoeuvre and you can’t avoid looking inwards at your current issue. It is difficult to switch from underperforming categories (or even see the size of the challenge without a WSSI) and in the current market, it can become a noose around your neck.

Focusing on the different sales channels

Retailers who operate with a single pot of stock across retail and online have organisational structures that are customer focused. They have commercial teams who buy ranges across multiple selling channels with the merchandisers routinely analysing the commonality and differentials of performance.

These retailers were on the front foot when it came to responding to the unimaginable need to close stores and then reopen them -repeat!

Ranges were largely common across the channels and stock could be diverted swiftly to the channel available to the retailer at each point in the cycle of lockdown /open up. In addition, merchandisers gather and distil the customer data into actionable patterns and have worked with marketing teams to connect the customer messaging to customer needs and stock availability, maintaining – and even growing – market share.

In the most agile of retailers, stores were switched to operating as warehouses and stock already in the shuttered stores was picked to fulfil customer orders locally, minimising costs and impressing customers with the speed of delivery.

A number of European retailers have leapt forward years in the development of their online models in the early part of the pandemic as customer habits changed in response. Warehouses adapted processes to enable social distancing and IT teams worked at record speeds to provide the infrastructure necessary for the businesses to satisfy customer demand.

What do they say..? “Necessity is the mother of invention”

Equally when stores reopened retailers with these skills understood that their online demand would step back, they will have been watching that switch carefully and making ongoing adjustments to ranges, depth, allocation quantities and replenishment. It’s not possible to predict everything, to anticipate the level that each element will be impacted but it is well within merchandisers’ capability to understand the connections, the likely impacts and be put in place strategies to react effectively. Combine this with effective allocation and replenishment tools and/or demand planning tools and whatever develops can be managed.

Agile merchandise planning

A lot of time will have been spent on planning and re-planning in response to the circumstances of the last 2 or so years.

When merchandise planning in uncertain times, retailers with strong strategic plans, processes and tools have been better placed to assess their risks quickly and react, whilst others have spent some weeks compiling this information, delaying action significantly.

As the situation has developed:

Buyers have been working with suppliers to manage available capacity and sourcing forward ranges nearer to home, where possible, sacrificing intake margins to become more flexible
Merchandisers have been focused on spotting patterns, understanding customer motivations, and responding to maximise the sales that are still coming through (well managed commercial hierarchies and attribution will have been critical enablers here)

Good merchandising practices and tools have enabled:

Teams to be empowered and make swift decisions
Ensured management visibility and control
A balance to be struck between re-phasing and recoding product to next season, and promoting to generate cashflow

Use of AI software in retail

Software companies are also pushing ahead with their AI development as they recognise that using the wealth of data retailers have, to predict demand at both the micro and macro levels is becoming increasingly important and urgent.

In the immediate aftermath of the pandemic, the whole process moved ever further towards agility and strategy-to-execution is happening in weeks not months. Tools such as WSSI that enable this, alongside customer-focused operational structures and robust market data remain critical as the process adapts to the new normal and looks to forward seasons.

Merchandising processes, tools and skills: a key part of a well-managed retailer

Customers always respond to circumstances. They buy dresses when it’s hot, boots when it’s cold, and joggers when they’re working from home.

Merchandisers are well used to stripping back the non-repeatable events when planning the forward season. (We are unlikely to see demand matched for cycles and white goods for years to come for example.) 2019 was the last traditional year to use as a base, 2020 and 2021 need a lot of adjusting to provide a sound base so the commercial understanding of why consumers did what they did, how they did it and when they did it is a critical commercial skill.

Merchandisers will have been recording the drivers and quantifying the effect through Trading Calendars, knowing how much each change impacted the sales and therefore where to start with ‘normalising’ for a new season.

Those retailers who can establish the right level to plan to – balancing their risks and opportunities with multi-level responsive plans – will be the ones who optimise the opportunity that is born of crisis.

And they will be the ones who are really thinking about customers and the market – last time supermarkets let their prices creep up new players entered and disrupted the market. In a multi-faceted global market you can’t simply put prices up, there’s always a competitor who doesn’t. That’s where the analytical skills of a merchandiser come to the fore – working with the buyer to balance the range across price and margin as well as desirability, working with suppliers to forecast volumes to secure the best price and balancing stocks to drive sales and minimise markdown are all in a days’ work for a merchandiser.

With the current uncertain and changing market environment, it has never been more vital that processes, organisational structures, capability, and associated tools are seamlessly connected, ensuring that stock levels are correct, and enough flexibility is retained to ensure the customer’s needs are met throughout.