What’s Driving Demand in Your Markets This Week?
Temperatures hover around 110 degrees in Phoenix when kids start back to school each August, which can make back-to-school shopping something of a bargain: parents can walk right past the racks of fall fashions and head straight for the summer clearance.
As shoppers choose from a dwindling supply of sizes and styles with no hope for replenishment, you can frequently hear a similar sentiment: why do retailers stock too much of what we’re not ready to buy and not enough of what our kids actually need?
With back-to-school one of the year’s biggest retail events — and Phoenix among the country’s top retail markets — I can’t help but wonder how much money is left on the table each season in terms of lost sales, unprofitable selling space and less-than-satisfied customers? How much more merchandise could have been sold with a more localized assortment? The black hole of not knowing what you don’t know strikes again.
This retail disconnect is not just an Arizona phenomenon. In today’s dynamic merchandising environment, it’s happening in every market and every vertical. Accurately aligning product selections with changing consumer preferences has become more challenging than ever.
Constantly evolving product choices, cross-channel selling and growing consumer expectations are hindering retailers from efficiently making the best merchandising decisions. Traditional “broad-brush” planning and buying strategies based solely on historical data are no longer effective when it comes to offering consumers the right products.
Integrate art and science
The answer for a growing number of retailers is to become more market-driven. While it’s certainly not an overnight process, it starts by gaining a better understanding of true demand for your products by market. This means integrating the traditional art of buying with the innovative science behind demand planning.
Manufacturers have been successfully applying the disciplines of demand planning into their supply chain processes for years. Now retailers can realize tremendous performance improvements by integrating time-phased demand planning practices into their merchandising processes. By accurately predicting not only the “how much” but also the “why,” retailers can develop a holistic model that considers all of the market-demand drivers. These may include:
• Seasonality, trends and lifestyle
• Pricing, promotional calendars and advertising
• Competitive actions and the local economy
With a clear understanding of these demand-influencers, retailers can gain the necessary intelligence at a granular level to better understand which products are selling to specific demographics, and at which stores or other channels.
Statistical, scientific forecasts can provide retailers with the best prediction of what will happen with their categories and items over time. As a result, they’ll be able to make more insightful decisions in these high-profit areas:
Market-driven assortments. Utilize local preferences and align with the purchase patterns of each store’s unique customer base. You can optimize product selection by relying on processes and technologies that efficiently sift through scores of options to generate tailored plans that match your product classification strategies.
Market-driven pricing. Synchronize promotional planning, price determination (including initial prices, promotional prices and markdowns) and advertising execution with localized consumer demographics, purchase preferences and competitive activity. You’ll improve performance with regionalized pricing and markdowns that can be integrated back into your demand plans to confirm inventory is readily available for your customers to purchase.
Market-driven space allocation. Ensure premium floor space is allocated for the ideal mix so that your customers can easily find just what they want. You can optimize product positioning, performance and layout to make every square foot of selling space as profitable as possible.
This type of market-driven approach is being adopted by retailers in several verticals and specialties. By anticipating and incorporating demand into their merchandising processes, these retailers are more effectively balancing inventory investment with sales goals – which is leading to increased profits, improved turns, reduced out-of-stocks and decreased carrying costs.
While nothing in retail is ever a guarantee – you’ll certainly gain greater visibility and a competitive advantage in your markets when you combine the art of merchandising with the science of demand.
