Tier One Retailers Lose $40M from Bad In-Store Merchandising

Joe Skorupa
Editor at Large
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By Joe Skorupa
In retailing, Known Problem Management (KPM) is a new area of expertise. So new it was created by me for this story. However, it is so pervasive that everyone in IT knows precisely what KPM is. For complicated reasons that go far beyond the IT department KPM issues are rarely fast tracked for resolution and linger year after year.

One huge KPM is inaccurate planogram knowledge, which has made in-store merchandising a crapshoot that produces high levels of waste, lost revenue and disappointed shoppers. How big is the problem? According to a just published research report, most tier one retailers lose at least $40 million in sales per year because of poorly executed in-store merchandising.

How Big Is the Problem?

First the good news. In an exclusive RIS Custom Research report titled “Optimizing In-Store Merchandising, 3.7% of retailers say they have exact accuracy of planogram knowledge down to the fixture level for all stores. The bad news is that this is just a tiny fraction of the industry and the remaining retailers are way off the mark.
On the opposite end of the spectrum the report finds that 29.6% say their exact planogram knowledge encompasses less than 50% of stores. This means that less than half of stores are working with accurate plans, forecasts and budgets. A nearly equivalent number (25.9%) say their exact planogram knowledge accounts for just 50% to 70% of stores.

Combine these two groups together and we see a big majority of retailers are creating merchandising plans and forecasts with guesswork and workarounds instead of hard numbers.
Measuring the Cost

To get at the heart of this problem we asked retailers to estimate the percentage of lost sales they attribute to inaccurate in-store merchandising plans.

We find that 37% say 1-3% of annual sales are lost due to inaccurate in-store merchandising efforts (special sales events, promotions and seasonal store sets). For a company with a billion dollars in annual sales it means that $10 million to $30 million in sales are lost, a figure that goes a long way toward justifying the necessary investment required to correct the problem.

And this is just a baseline figure.

Half of respondents say their lost sales are well above the 1-3% figuure. When you add together 14.8% who say lost sales are 4-5% plus 18.5% who say lost sales are 5-8% and 14.8% who say lost sales are 9-14% the total is 48.1%, nearly half. This means that losses range from $40 million to $140 million for retailers in this group that have a billion dollars in sales. This is a huge gap to close and a significant opportunity to seize.

Aside from budget constraints, the biggest inhibitor to solving non-compliance problems is a “disconnect between merchandising, marketing and store ops,” according 53.8% of respondents.

Another key part of the problem is the contiued reliance on Excel spreadsheets as the primary in-store merchandising tool. Yes, Excel spreadsheets, were chosen by a landslide majority of 63% of respondents.
One of the major takeaways in this report is that retailers are operating with known problems in their in-store merchandising efforts and we can add using Excel spreadsheets to the list.

To get a complete data set of charts and in-depth analysis about this exclusive study click here for a free download of the report.

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