Merchandising functions are always important, but even more so as we ramp up for the holiday season. As such, here is a summary of the findings from the most recent study in our ongoing merchandising research.

In 2010, data gathered from RSR’s annual Merchandising Benchmark Report showed a dramatic change in Retailers attitudes towards merchandise operations management. At that time, we defined seven core tenets of 21st Century Merchandising. This year, we gave retailers the opportunity to grade their progress in adopting these tenets. While retailers generally rate themselves between a “B ” and a “C, ” we believe they have understated the extent of their adoption. While the industry still has a way to go, overall we have seen a significant shift. Retailers have gained a better understanding of the technology tools available to them and also increased their appreciation of these tools and techniques. Retailers recognize optimized merchandise operations are critical to their retailing success. Science is now strongly supporting the entire merchandise lifecycle.

Business Challenges

Fractured planning processes have long been a key business challenge for retailers, but since the Great Recession, concerns over underperforming inventory have stressed the enterprise, trumping even out-of-stocks as a top-three business challenge. To gain maximum value from inventory investments, it’s critical for merchandising optimization to span products, prices and processes, To facilitate both organizational and operational shifts, retailers are finally moving away from home-grown applications and turning to more industry standard solutions. Retail Winners are leading the charge in this area while their peers are at least attempting to standardize interfaces between the various applications in their portfolio. Ironically, those same Retail Winners grade themselves lower than their peers in their progress in de-siloing their merchandising processes.

Opportunities

In keeping with the theme of integrating the merchandise operations function with the rest of the enterprise, retailers remain bullish on the opportunities afforded by integrated planning with cross functional teams. Fully 2/3 of retail respondents rate this as a high value opportunity – up from 58% in 2010. Merchants are no longer the sole intersection point between customer insights and product plans. Retail Winners in particular rate themselves highly on moving from the world of the Merchant Prince to the world of cross-functional customer insights. We also see an increased interest in bottoms-up planning, along with reconciliation of top-down and bottom up plans to help maximize retailers’ inventory investments.

Organizational Inhibitors

While retailers still struggle with traditional issues of getting Merchandising to work with Supply Chain and Store Operations, the Marketing Group has become a new source of organizational grief. Incentives are just not in place to encourage cross-departmental collaboration. However, “dirty data ” within the enterprise remains a key concern. Still, we can see from the data that in fact, merchandising capabilities have indeed changed strategically, not just tactically. Organizational structures must change to support these strategic changes.

Technology Enablers

Clearly the next generation of Merchant wants tools to support optimizing product assortments. And while adoption may lag value perception, we can see that over the next eighteen months, retailers have big plans to make that adoption a reality. Market basket analytics are a must to hone assortments across categories, rather than just playing “lifeboat ” with seemingly poor performing skus within a category. Similarly, we see retailers taking more steps to adopt appropriate best practices from other retailing segments.

BOOTstrap Recommendations

This year’s benchmark report has given us some valuable hints into ways retailers can improve adoption of 21st Century Merchandising tenets.

1. Optimization in merchandising must span products, prices and processes – RSR believes the next step is organizational, not technological. Incentives must be aligned to support cross-departmental cooperation.
2. Ensure merchants have a solid understanding of their technology tools – It is time for retailers to be more open about their merchandising successes. Peer groups are the best way to gain better understanding of tools and techniques.
3. Only tinker with assortments after broad cross-category due diligence – Our data indicates that departments with cross-category responsibilities are best suited to support cross-category assortment optimization. These departments certainly need technology tools that can perform this analysis.
4. Look at and consider “best practices ” from other retail segments – While we recognize there are only so many best practices that are applicable across segments, the data does not indicate we have reached the end of the line. New advances in high-performance computing can give merchants insights they need to do the most granular bottoms-up and top-down planning – even in a sku-intensive environment.
5. Marketing is an integrated part of merchandise planning and execution – Marketing is here to stay in the forefront of retailing. It behooves retailers to give the chief marketing executive a seat at the executive steering committee.
6. Merchandising capabilities have changed strategically, not just tactically – To make these changes strategic and permanent, it’s important to have the IT department as an ally, involved in making the long-term changes necessary to support new approaches.
7. Merchants are no longer the sole intersection point between customer insights and product plans – Cross-functional teams continue to be the “magic bullet ” in exploring the new insights Retailers have gained from new channels and social media.

As always a step-wise approach to adoption is the wisest approach. We cannot change a century of merchandising practices overnight. Download a complimentary copy of the full report.