The Science of Merchandising

As competitive pressures continue to permeate the retail environment, merchants are applying science to the process of assortment and promotion planning and allocation, in turn differentiating themselves and boosting revenues.

"It's the area where we're receiving the most inquiries from retailers right now and what they are looking for, primarily, is store clustering, especially smart clustering, where assortments can be localized," says Rick Amari, president, Columbus Consulting.

Customizing Assortments
Waterstone's, operator of 333 book stores in England, Scotland, Ireland, Belgium and the Netherlands, needed a solution that would support planned growth and sharpen its competitive edge by creating category assortments that matched local demand. "Branches in city centers cater to completely different sets of customer interests from those in shopping malls or market town 'high' (main) streets," explains Oliver Ponsonby, space planning manager. "Even branches of similar sizes in similar types of locations can produce varying customer purchasing patterns."

The retailer has implemented Galleria's Macro Assortment Planner in approximately 70 stores, with all but the 16 Waterstone's units that specialize in academic titles for university students targeted to be online within the next 18 months. The solution analyzes each store's total floor space and automatically generates ideal assortment and space allocation plans based on sales data, specific space restrictions, current sales strategies and promotions. For example, Ponsonby notes, a plan generated for a Waterstone's branch in West London whose customers demonstrate a "high fondness for fiction" incorporates an unusually varied assortment of fiction titles and dictates that they be displayed in a prominent position at the front of the store, on the left-hand side.

Configured to run from Waterstone's own space templates, the software also takes into account the amount of space that can be "flexed" in individual book categories and what impact this may have on sales, as well as any correlations between purchases from different categories. For instance, should Macro Assortment planner identify a tendency among shoppers in a given store to purchase mystery novels and "true crime" books at the same time, it will design an allocation plan accordingly. A series of import functions enables the merchant to update the data sources used by the system; such sources include store cluster data, store details and updated space information.

"By more accurately matching our assortment to consumer demand in each store, every sales opportunity is maximized," Ponsonby asserts. Sales increases stemming from the deployment are meeting or exceeding forecasts. For example, one store achieved the projected double-digit sales growth; another recorded "just over" the expected 3.4 percent sales increase.

Boosting Service Levels
Conforama, a Paris-based home appliance and furniture retailer with 245 stores in eight countries, is experiencing similar gains through its use of Advanced Store Replenishment by E3 from JDA Software, according to Thierry Dujardin, Replenishment Director. Used in conjunction with JDA's Advanced Warehouse Replenishment by E3, the solution generates allocation recommendations for each SKU in each store. Evaluations are executed based on several factors, including demand, seasonality, order frequency, lead times, vendor minimums, vendor discounts and service levels. In devising allocation plans, the system also identifies and considers demand variables from one geographic or one specific store location to another.

To ensure a smooth rollout, Conforama first assembled a team of end-users from the corporate office, warehouses and stores, along with project managers and technical staff. The retailer then began a phased implementation of both solutions, first running a pilot test of Advanced Store Replenishment in Switzerland and subsequently deploying it across the company by class and supplier, then store by store.

Since introducing the solution early this year, the retailer has seen increased market share, a 20 percent boost in service levels with no stock increases, and improved in-store and promotional product availability. "We are now focused on expanding our business and allocating the right product assortments for our customers in each store," Dujardin says.

Better Promotions
Meanwhile, the 110-store, Charleston, South Carolina-based Piggly Wiggly supermarket chain is leveraging technology to maximize the effectiveness of its promotions. The linchpin here is DemandTec Promotion optimization software. The vendor's DemandTec Pricing, Promotion and Markdown optimization solutions are built on an IBM Consumer Demand Management (CDM) Platform. The applications are designed to allow retailers to strategically plan and execute pricing, promotion and markdown strategies throughout the product lifecycle based on a quantified understanding of consumer demand.

Following a successful phased rollout of the pricing component that began in June of 2005, Piggly Wiggly launched the promotion application in January of this year. It is being employed to manage promotions in all categories for which the system was deployed on the pricing side. At press time, the solution had been implemented in 50 categories, with a total of 75 categories - among them meat, produce and deli - slated to be covered when the project is complete.

"As of now, our results are on target and we're very pleased with what we are achieving in terms of promoting the right products at the optimal price, without eroding the category," reports Mike Mock, retail pricing manager.