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Though we only launched our annual merchandising survey a few weeks ago, retailers have been quick to respond; we’ve nearly reached a quorum already. And what retailers are telling us is that the role of merchandising, which typically changes at a slow and steady pace, has changed fairly dramatically in just the past few months – attributable entirely to consumers’ rapidly evolving preferences and behaviors; the game to predict what they’ll do next is in full swing.

Take for instance the business challenges we ask retailers to identify each year. In 2011, the top three business challenges were as follows:

1. Underperforming Inventory
2. Fractured planning processes
3. Out of stocks

At that time (summer of 2011), retailers were coming to terms with the inventory anomalies left over from the Great Recession of 2008. We noted that inorder to gain maximum value from inventory investments, it would be critical for merchandising optimization to span products, prices and processes, andwe were encouraged to see that in order to facilitate both organizational and operational shifts, retailers were starting to move away from home-grownapplications, favoring more industry standard solutions.

Today, while underperforming inventory and out of stocks remain, their importance ties only for third place. As you can see by the top three challenges identified in our new survey, the things that vex retailers most are morphing:

1. Inability to identify new ideas and innovate quickly (pricing strategy, promotions, customer preferences)
2. Understanding customer preferences
3. Underperforming inventory/out of stocks (tie)

Having turned the corner away from home-grown applications has provided merchandising departments with more opportunity for the type of optimization that spans products and prices as we’d predicted, but with new challenges: what to do about it? With consumers shopping in entirely new ways, and more information and choice available to them at any point during the paths to purchase, retailers need help making new ideas “fail fast ” – ditching ineffective pricing strategies and promotions strategies that don’t resonate well with consumers quickly. What’s more, they need new metrics to gauge consumer preferences that will help them both design such innovations in the first place. The trend continues into operations, as well. For example, in 2011, the top three operational challenges retailers identified were:

1. Getting merchandising and supply chain to work together
2. Getting stores to execute merchandising plans
3. Executing at a more granular level against merchandising plans

This year, only execution carries over, while the challenges of predicting what the consumer will want next take hold:

1. Getting stores to execute merchandising plans
   
2. Holistically predicting the impact of future pricing, assortment, and promotional decisions
   
3. The inability to identify new ideas quickly in a sea of customer information to execute effectively
   

In some ways, these are “chickens coming home to roost ” challenges: retailers rightfully updated their merchandising optimization systems, while at the same time, they’ve invested tremendous effort in collecting as much data about their shoppers as possible. Now, of course, the issue becomes what to do with all of these new options. How to make sense of it all is just a natural part of the evolutionary process for those who’ve decided to keep up with their consumers, and we expect we’ll see some drastic differences in how the best performers do just that.

There’s a reason they’re better at playing the strategy game with consumers, after all.  

We are eager to dig into this data further as the report’s August release approaches, and if you haven’t had time yet to participate, we’d love to have your input.