• by Jack Loechner , Staff Writer @mp_research, August 22, 2012

Economic uncertainty, powered by the consumerization of IT, the emergence of a new generation of merchants, and retail’s brand globalization, has driven the industry to agree that localized assortments are necessary to support the best possible sales while controlling inventory and costs. The art and science of retail merchandising has changed irrevocably, concludes the report.

The fifth annual Merchandising Benchmark Report from RSR shows disturbing trends among mid-sized retailers, and more positive shifts among those who over-perform on annual comparable sales. However, the industry’s overarching appreciation of automated tools and techniques continue to rise. 

The study finds that the first step to creating an optimized assortment is a solid demand forecast, while customer analytics are almost equally important. A solid demand forecast is certainly not new has moved from a supply chain tool to a merchandising tool. Advances in hardware computing power make sku-level forecasts not only feasible, but imperative.

Over the past two years, retailers have grown savvier about the tools at their disposal, commensurate with their belief that these tools and techniques will help them grow their business. The largest retailers have educated themselves, with more than 75% of those with annual revenue exceeding US $1 billion reporting a solid understanding of most tools and techniques, though only a third of retailers with annual revenue between $50 and $999 million report a solid understanding of most of the tools and techniques discussed.

The research focuses on a category of retailers called “Retail Winners,” judged by year-over-year comparable store/channel sales improvements. Assuming industry average comparable store/channel sales growth of three percent, those with sales above this are “Winners,” those at this sales growth rate as “Average,” and those below this sales growth rate as “Laggards.”

It is consistent throughout much of the research findings that Winners don’t merely do the same things better, they tend to do different things. They think differently. They plan differently. They respond differently. To illustrate this, the percentage of respondents rating themselves as having a solid understanding of merchandising tools and techniques is significantly higher among winners.

In general, respondents rate the value of these tools about equally, regardless of sales performance, but clearly understanding differs, often dramatically.

Lagging sales, says the report, creates a self-perpetuating destructive cycle. Sales laggards tend to focus on staying afloat, which often means “promotional madness.” That may keep revenue flowing, but it has a negative impact on gross margin. While a majority of Retail Winners and Average Performers have seen gross margins either remain the same or increase over the past three years, two-thirds of laggards have seen them remain the same or decrease. 

The report concludes by noting a drastic difference in the perceived value of these new merchandising tools and retailers’ understanding of how they can be effectively used to improve the product mix for increasingly-empowered consumers. 

Quick summary of key findings:

• Most merchants place a similar value on new merchandising tools regardless of size or sales performance. However, understanding of these tools varies drastically
• 34% of all respondents plan to optimize their assortments against new key customer segments in the coming year. Another 24% plan to include initial price optimization in their processes in 2013, and 22% will incorporate promotion optimization
• Laggards recognize that their merchandising efforts are too important and complex to be managed within spreadsheets, as 25% will be eradicating their spreadsheet-run merchandising systems
• Operationally, the best performers “know what they don’t know”, and have a generally better understanding of what they need to change to improve their merchandising strategies; by comparison, laggards are asking for more customer segmentation information, but at the same time, citing stalled performance on their inability to identify new merchandising ideas that would appeal to new customer preferences quickly
• No retailers in the mid-market report the use of market basket analytics, while 51% of the largest retailers and 44% of the smallest retailers report these technologies as implemented  
• Mid-market retailers report the least interest in Customer segmentation and Planogram optimization technologies. 58% and 69% respectively report they have no plans to use these tools and techniques, lagging all other retailers (including the smallest) significantly 

To access the full report in PDF format, please visit RSR here.