Retail Merchandizing: An Expert Strategy Guide

Through his experience in retail and branding, Abhishek Sareen discusses what is retail merchandizing, how to manage categories and the ins and outs of visual merchandizing.


Retail Merchandizing Fundamentals That Make Your Store Grow

Merchandizing is one of the most fundamental aspects of any retail business. In today’s times, every b-school students and retail professional needs to the have utmost clarity of basic principle of merchandizing, especially when retail is being challenged by e-retail or e-commerce.

Every sales person or company does merchandizing of their product offering. It’s extremely important to consciously understand how and why we tweak our offerings so that we can nudge a potential customer in making a buying decision in our favor.

Having consulted numerous clients in retail, working in shop floor merchandizing, and managing several consumer product range portfolios, I would like to share some of my insights on merchandizing that often get overlooked by b-school books. It’s one thing to understand a concept, but completely different thing to believe in one. So I hope my guide to retail merchandizing will help you believe in the right concepts.

What is Retail Merchandizing

Retail merchandizing refers to creating an assortment of products or services to the target customer, in a way that enables them to make a purchase decision.

Merchandizing has two main aspects:

  • Shop floor merchandizing (also called assortment planning or category planning)
  • Visual merchandizing (is the process of optimizing the display of merchandise for the customer at shop floor, enabling a customer to make a purchase decision with minimal intervention)

Shop floor merchandizing and visual merchandizing are two very important aspects and need to be skillfully executed to exploit the fullest potential of a store.

For example, car showrooms will may display a limited set of car model or variants and price them in such a way that you would find value in only couple of model variants, which nudges you take calculative value decision.

Example of Successful Retail Merchandizing

The end goal of merchandizing is to close the sale, more than to wow the customer. The best of retail brands have a very simple assortment in their offering, enabling customer to make a decision. For example

Fast-food chains like McDonald’s, KFC, Dominoes, Chic-Filet, Chick-fil-A, etc. have a simplistic menu which enables a customer to make a quick choice.

The Illusion of Choice – A Retail Merchandizing Trick

When you look at cars, a lot of car brands like VW will try to minimize their variants, and making it easy for customer to calculate and select the variant of their choice. Often they will price a mid-range variant in such a way which is loaded with features and seems to be priced marginally higher than the base variant, which is perceived as the highest value by the customer, thus nudging them close on their sale.

Thus a car showroom may display a model of sedan in 3 variants low, mid & high. The low variant would be priced aggressively, to lure in customer inside the showroom. The mid variant will be equipped with good add-ons that you desire to a reasonably higher price and seems more value for money compared to the lower variant.

The higher variant would even more loaded and seem more lucrative, if one can stretch more. So pricing and shop floor display are key, where right models (SUV or sedans), with right variants and color options are present, and ready for quick delivery for customer to come to a decision. Successful brands would thus have one variants delivering over 50% of their sales. Apple does a similar thing while pricing its iPhones and even uses this strategy in their advertising.

Merchandizing is a way to give customer an illusion of choice, so that they believe they are in control of the purchase process. From the marketers or sales point of view, it is a value offering process that enables to close a sale. Many customers want someone else to make a choice for themselves. Some customers want to believe they are in control of their decision, others just want to figure out the best deal and close it, some want a fully exclusive or customizable offering, so a merchandizer needs to understand their brand’s core value proposition and speak in the same tone to their customers.

Finding a Balance

Coming to grocery, retail merchandizers need to find a balance in their choice offerings. Too many choices and customer get confused, too less offerings and the customer may feel they are not in control.

How to Do Merchandize Planning

Merchandizing planning starts with the highest level of assortment or category planning, based on which your entire store’s positioning will be determined. Usually a retail store would categorize their entire product mix in 5 to 7 major categories. This helps them make the focus clear in the eyes of the customer, about what kind of retail offering we are positioned towards.

For example, a neighborhood grocery store would primarily focus on 4 major categories like fresh produce, milk products, toiletries and fast moving packaged foods like chips, biscuits, chocolates, etc. It would not keep products like electronics, gourmet food, hardware supplies, etc. as these are usually not bought on a weekly or daily basis.

So by first focusing of the categories, you cement the idea in the minds of your customer what kind of a store you are. Once you have good understanding of your customer, you can gradually improve upon your assortment.

Managing your Categories

Once the major categories are sorted, merchandizing dwells in managing a category or sub-category. These can be managed based on two major principles i.e. width of the categories and depth of the categories.

Merchandizing Width

Merchandizing width is how broad your sub-categories are. For example, if you are selling fast moving packaged food, you would be offering biscuits, chips, instant noodles, chocolates, etc. This list is long, but you need to prioritize how may sub-categories you would be offering.

Merchandizing Depth

Merchandizing depth refers to how deep you are going to dwell in a sub-category while providing a selection offering to your customer. For example, if you are offering biscuits as a sub-category in fast moving packed foods, how many types of biscuits, different brands, different pack sizes, different flavors, etc. you would be offering.

SKU (Stock Keeping Unit)

To understand merchandizing further, one must understand the term SKU. SKU is an acronym for stock keeping unit. It is the lowest common distinct denominator of the merchandise at sale at a retail outlet. For example, 300g of biscuit of a certain brand, type and flavor, which can be distinctly identified by an end customer and sold as is, can be defined as an SKU.

Merchandizing is a complex subject as it can get very complicated. Imagine the number of SKUs, that you would have to keep track of Category x Sub-Category x Biscuits Types x Brands x Flavors x Pack Sizes x etc. Since we have limited retail resources i.e. shelf space, we need to prioritize what SKU’s are to be offered.

The key aim of merchandizing is to provide a range of offering that meets the majority of your customer’s needs. The best possible value a retail outlet can provide is to make available the exact merchandise available that the customer intends to buy.

A merchandise sub-category offering shouldn’t be too wide or too narrow, as this may deter a customer’s purchase decision. For example, most fast-food joints like McDonald’s and KFC have a very limited menu, so that a customer can make a quick decision and move forward.

There is no ideal mechanizing plan for a retail outlet. One needs to constantly understand the customer needs, analyze the retail off-take data and come up with a merchandizing strategy and then a plan.

Now retail merchandizing has two main aspects to it. Merchandizing or category planning is a more theoretical and data crunching exercise. There is one more aspect of merchandizing called visual merchandizing, which deals with the display of assortment that you have just planned.

What is Visual Merchandizing

Visual merchandizing is the process of displaying or showcasing your merchandise at the retail front to lure or nudge customers to make a purchase decision. A store may have the best possible assortment, but if it’s not displayed effectively, it would not translate into retail off-takes and sales.

Visual merchandizing may seem like a creative job, however there’s science behind everything. The key objective of visual merchandizing should be to display the merchandise in such a way that the products sells themselves. When a customer visits an aisle, they should feel at ease, so that they can make a purchase decision.

Some of the basics and learnings that I have gathered over the years with respect to visual merchandizing are as follows:

Keep your basic commodities, staple or daily items at back of the store.

Since customers have a high incentive to purchase such items one a frequent basis, these items better be place at the back of store so that customer takes a walk around the store and is likely to make an impulse purchase while glancing through the aisles. For example,

  1. In a grocery store, you may find the daily’s like milk and breads are at the back
  2. In a children’s store you would find diapers in back of the store

Our eyes love to see colors vertically.

Retails shelves should be stacked in a vertical spectrum type layout. This is very pleasing to the eye and is likely to encourage higher offtakes. Now this might seem complex to attempt and cumbersome at first, but a store that is pleasing to the eyes, always attracts more walk-ins and more sales. The retail staff needs to be creative and try to attempt such type of vertical displays to attract the customer’s attention.

Keep the price & technical information place holders, where the customer can see them.

For most store formats and product categories where the customer may be price sensitive, keep the product price place holder out in the open. No matter which country or what product you are selling, most customer purchase decisions are based on the price tags and place holders and should be displayed boldly. Products need to be priced to move off the self. A lot of people believe that price sometimes deters a customer from even looking at a product, but there are different schools of thought on this issue.

Your store should be fully loaded at all times.

Retails shelves should be always loaded with inventory. Empty or partly empty shelves don’t give a good impression in the minds of customer. The more the loaded shelf, more likely the customer would pick up the merchandise. There’s no point in keeping inventory in the store room, it’s better be in front of the customer’s eyes.

Always create a story

People love attractions. One should always try to entertain their customers by creating special display area. The aisle ends or gondolas are an effective place to showcase an offer or limited period deal.

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