It's Time to Bring Merchandise Planning Up to (Customer-Centric) Speed

Editor's Note: This blog post was originally published here in CMSwire. 

Many retailers are unknowingly operating with a blind side in their planning and merchandising that threatens to derail them on their path to customer-centricity.

Merchandise planning is the systematic approach to forecasting future inventory requirements. Typically, a centralized buyer or team of buyers manages this process and oversee the allocation of merchandise for all retail stores.

The way they traditionally do this is by grouping stores together according to various criteria — volume, turn, region, etc. — based on what stores have sold in the past to determine their needs going forward. The problem is, none of these criteria relate to the customer as an individual, and it's individuals — not stores — that make purchases.

Lots of Traffic, Not So Many Sales

Marketers already craft campaigns using customer data to drive demand for merchandise. But the merchandise in the store (or online) hasn't been quantified and qualified to appeal to the consumer in the same manner. As a result, retailers have become great at driving traffic, but not so great at driving sales. And the broader the product selection (men, women, kids, home, baby, etc.) a company offers, the more complicated the process of driving sales becomes.

Inventory is one of the greatest areas of spend. If a store's merchandise doesn't delight shoppers, they'll take their business elsewhere, leaving retailers to take a loss on unsold inventory — and an even greater loss long-term in customer loyalty and satisfaction. Alternatively, a retailer could be expending a lot of energy catering to the wrong customers, when it could gain greater return on investment by honing its focus.

Take for example, this tale of two sweaters. One customer buys the item at regular price and returns to shop at the same retailer every month. Another buys the item at discount and shops at the retailer only when they are having a store wide clearance or other big sale. Which customer would you rather focus attention on?

Bringing the customer-focused data component into retail planning, merchandising and analytics process can help retailers avoid these scenarios. A more granular look, that takes customer preferences and behaviors into account, helps retailers develop a greater understanding of exactly what kind of customer purchased a certain item, at what time and at what price. By taking into account just a few key customer-focused criteria from the flood of data at their disposal — customer value, customer persona, and gross margins — retailers gain insights from the secret life of shoppers on the selling floor.

A Word to the Wise

Retailer success depends on eliminating this blind side. Connecting analytics to downstream transactional systems will also help to eliminate latency in decision making and execution. Recent developments are helping retailers mind this gap. Consolidated data warehouses and the elastic nature of the cloud are making it easier than ever before to house and mine data and spin up computing power on demand. The cloud also provides the glue to streamline integration efforts.

Don't underestimate the importance of change management when putting into place analytics capabilities. Take into account the need to change business processes. Merchandising buyers and planners are not data scientists — they're business people — and without the right training, they can easily find themselves lost in analysis paralysis, looking at the wrong factors, or not using the systems.

Word to the wise: If you spend the money to bring in new analytics functionality, but don't change your organizational thinking, that money and technology will go to waste. As with any technology play, the people and process legs of the stool must be well thought out and executed against for maximum impact.

Retailers are under tremendous pressure to leverage every customer interaction and every square foot of real estate, and merchandising is the common thread. With a customer data-driven approach to merchandising and planning, retailers can ensure that great customer experiences start with the customer in mind.