Now that shoppers are bringing online devices into their stores, retailers will aggressively compete. They will expand their capabilities for bottom-line growth by driving operational efficiencies and for top-line growth through richer customer experience. Another capability may not be as obvious, but for some retailers it will be the most critical differentiator: their ability to develop a curatorial approach to merchandising, less bound by product categories and more defined by customer wants and needs.
In an era of frugal consumers, placing the right product in the right store at the right price is essential. Consumers demand a more curated selection; they want the right styles, prices, and experience, all in one store. They also want to shop at stores that reflect local tastes and preferences.
Retailers will be asking themselves a set of very focused questions: How should product assortment in each store differ by region and by the unique demographics and characteristics of the trade area? How much space should be dedicated to one category or product versus others? What should be the base price of particular SKUs in a given category? How should they be promoted, and when?
Localizing each store and getting the merchandising right can be a Herculean task with no apparent shortcuts. Many retailers will need to upgrade their merchandising capability holistically by integrating people (especially analytical talent), IT systems (such as store trait databases, point-of-sale checkout systems, and pricing systems), analytical engines (tracking demand analytics, price elasticity, promotion returns, store clustering, and more), processes (including basic assortment planning, promotions, campaign tracking, and performance measurement), and organization (for example, positioning roles, responsibilities, and decision rights around the “center of gravity” of the enterprise). The returns for undertaking this effort can be dramatic: We’ve seen retailers improve their top line by 2 to 3 percent.
When the economic outlook is sluggish, effective promotions are critical, especially in the fiercely competitive and spending-constrained lower- to middle-income market. These frugal consumers are highly sensitive to pricing and frequently use coupons. Leading retailers invest in shopper marketing and loyalty programs, they tailor promotions to their customers, they partner with manufacturers to design and refine promotional events for particular consumer groups, and they develop the measurement and analytical capability they need to better evaluate the results.