5 Top Tips for Creating a Merchandising or Product Hierarchy

The first place to start in developing a merchandising strategy is to develop a solid merchandise hierarchy. Often a merchandise hierarchy has five levels such as division, department, and classification in addition to style and sku level. Some systems give the ability to do six levels but most of the time five is plenty.

In developing a merchandise hierarchy it’s important to remember that this hierarchy will be in place for several years and that it will be a key way to organize, plan, & analyze the merchandise strategy and results. Changing a merchandise hierarchy is difficult and often gives “apples to oranges” data for one year following the change. Therefore, it’s a good idea to view this as a very universal hierarchy that accommodates annual style changes.

Maybe an example would help at this point!

Divisions may be defined as: Men’s Apparel, Women’s Apparel, Kids Apparel, & Hardgoods

Departments may be defined as: Jackets, Woven Tops, Knit Tops, Pants, Skirts, Shorts

Classifications may be defined as: Sleeveless tops, short sleeve tops, long sleeve tops

Let’s say that next fall short wool plaid skirts are a trend and this on line retailer is planning on going after that trend. Many retailers make the mistake of developing a classification for short wool plaid skirts. The problem with that is that next year the new trend is going to be floral long skirts and that classification won’t be available. So in the merchandise hierarchy a good way to approach it is to have short patterned skirts, long patterned skirts, short solid skirts, long solid skirts. The universal classifications should be able to accommodate trend changes.

While developing the merchandise hierarchy is a merchandise function it’s important to involve cross functional partners because they will also be working things such as search and marketing spend by departments given growth plans etc. It’s also important to organize cross functional business teams to manage the sales, margin, and profit of a business unit (perhaps the Men’s division) so they need to be involved in the final decision. Some areas such as sourcing are usually organized by fabric so it’s hard to do this across all divisions. Some Merchandise systems allow “super groups” and alternate way to sub-total merchandise so if classifications are set up under each department by fabric then it’s easy to sub-total another way.

Now that you have a workable merchandise hierarchy, a good cross functional team (Merchandising, Sales, Marketing, Finance) to plan and manage the business you will develop sales, margin, inventory, and even the number of skus by department so that a buyer can go shopping for these styles with a number in mind and/or you can give the sku count to your product development team!

In Summary:

1. Develop a universal and timeless merchandise hierarchy ( Division, Department, Classification, and sku) that will work to accommodate seasonal trend changes.

2. Include your cross functional partners in the final decision.

3. Plan your cross functional teams around these divisions.

4. Plan and manage your key metrics (Sales, Margin, Inventory, skus) by these departments

5. Utilize the style/sku plans by department in the marketplace to shop or with product development to design and develop your line

If you would like to discuss your merchandising strategy further please contact us @ info@jlsearsconsulting.com or 206-369-3726