E-Commerce Assortment Planning and Merchandising 101

I find myself scrolling and scrolling through product after product on many websites. From my perspective, as a retail consultant and a consumer, basic assortment planning and merchandising is often getting lost amid all the wonderful technology and in the e-commerce space.  Many online retailers are forgetting (or never learned) the “art and science” of assortment planning and merchandising. I see opportunities for basic improvement in these areas every day:

Assortment Planning

Merchandise Hierarchy and Navigation

Home Page Presentation

Product Page Presentation

Assortment Planning – Many e-commerce businesses suffer from “over assortment”. In “bricks and mortar” the assortment is naturally limited by space and by inventory investment. In the ole Catalog business the assortment is limited by paper, printing, and postage cost – another form of space. And, inventory investment. These traditional limits on assortments don’t exist in the same way online. In fact, it’s fairly easy to put an image online and begin to sell the product.

For discussion purposes, I’ll break e-commerce into two worlds, “commodity” and “specialty”.  “Commodities” are highly identifiable products or brands. K2 skis are an example.  Shoppers search for their skis on Google. They often pick the best price. They arrive at the selected website via the product page.  “Specialty” exists in multi-channel and in online retailers. “Specialty” has its own brand (even though they may carry other brands) and often its own private label products. I’ll use Nasty Gal, an apparel retailer focused on young women, as an example since it’s in hyper growth mode. More customers enter a “specialty” website via the home page versus product pages.

Assortment planning from a customer selection standpoint is more crucial for the “specialty” e-commerce retailer. But, basic merchandising, where the retailer focuses or limits their assortment on behalf of the customer (and the brand) often isn’t a priority. The poor shopper has to scroll down pages and pages of styles if they choose to spend the time. Inventory investment and cash flow, is another reason to limit the assortment – too much. And, customer satisfaction can be lost by carrying too many styles if one can’t keep the sizes/colors in stock for the customer – too little. “Sku rationalization” or “culling” is the “science” of assortment reduction. The “art” of developing your assortment is crucial also. Brand positioning among other things must be considered. (See my blog, Assortment Planning Part #1 – Six Factors to Consider When Developing Your Assortment Strategy for more.)

This is not “as” true for “commodity” websites. But, “commodity” websites still have some shoppers entering via the home page versus the product pages.  (There is a Google Analytics report which shows this flow and “drop offs” very well.) And, most companies still need to manage inventory investment and cash flow along with stock outs and the customer experience.  

Merchandise Hierarchy and Website NavigationMerchandise hierarchy (the way products are organized and categorized in any retailer) is primarily an internal merchandising tool in traditional retail. From my perspective, a good merchandise hierarchy has never been more important than it is in the growing e-commerce space. It should be the basis for shopping and navigating the website.  I usually suggest that the merchandise hierarchy have no more than four levels (ie division, dept, class, style). An example is Women’s, blouses, long sleeve, and then the specific styles are shown – in three clicks. Most often the merchandise hierarchy runs across the top of the website. “Double merchandising” or “browse taxonomy” is also extremely important. This comes in the form of additional “sorts” or “features” often down the left hand side of the website. Price, brands and colors are great examples of “sorts”. New, best sellers, SALE, and Holiday are all examples of other “features” that may rotate down the left hand side of the website or on the home page. All this is much easier with a well thought out merchandise hierarchy focused on the way the consumer shops. (See my blog, Five Top Tips for Creating a Merchandising or Product Hierarchy for more.)

Home Page Presentation – From my perspective, many websites simply try to do too much on their home page. There are just too many messages. I suggest limiting messages to two or three – in addition to basic navigation. And, the messages need to be prioritized. In general, the first message – especially for “specialty” - is about the brand. What is the brand positioning and what is unique about the brand? This must be presented in a clear manner on the home page. The second priority should be what is going on right now that’s compelling for your customer. Maybe it’s outdoor dining or maybe it’s a new product or technology. It could also be a sale or other promotion. The final but most important feature is “shopping” (ie where and how to quickly get to products – merchandise hierarchy from above). The home page can be treated just like the windows and entrance to a “brick and mortar” store or the cover of a catalog. You want to get shoppers to “come in”!

Product Page Presentation – Ever heard the saying “product is hero”?  That is certainly true on product pages. Photos must clearly show the “product” and its features. So often photos are not compelling or they don’t show the product (and true colors). Descriptions (sizes, colors, fit, and features) must be clear. Remember, that in “commodity” businesses this is where the customer usually enters the website. So, price is probably the most important to them.  Tools that help compare products, show like products, and show customer reviews are great. But, nothing is as important as showing the product, its features, and price very clearly first! On these pages, the customer is “in the store” or “flipping through the catalog”. This is where they need to easily see what they want or need in order to buy!

To summarize, there is a wonderful opportunity in e-commerce to improve:

Assortment Planning

Merchandise Hierarchy and Navigation

Home Page Presentation

Product Page Presentation

I’d love to hear about your needs in these areas. I can be contacted at Janice@JLSearsConsulting.com or 206-369-3726.

Profitabilty and Productivity Improvement - The Cross-Functional Way

I was recently asked to speak at a user’s conference so I selected one of my favorite topics. “Multi-channel retailing today requires a more cross-functional, collaborative approach in order improve productivity and profitability”. - Guess Who.

The Need

 I see the need again and again as a retail consultant and also experienced it as a former retail executive. Retailers and wholesalers experience it every day. The need is greater today with the increasing complexity of distribution channels and competition. Assortment planning, marketing, and forecasting are just three examples of activities that cannot be successful without timely input and collaboration from other departments. To illustrate, these activities are listed below along with a brief description of key input and collaboration needed from other departments for success:·        

 Assortment Planning 

  • Brand positioning and target customer – Marketing
  • Current trends – Product Development/Design
  • Historical analysis - Planning
  • Financial expectations/cash flow – Finance
  • Channel of distribution strategy – Stores, Ecommerce, Catalog
  • Promotions - Marketing

Marketing 

  • Target customer – Brand Marketing
  • Competition – Merchandising/Marketing
  • Assortment plans and direction – Merchandising
  • Historical Analysis/ROI – Marketing/Finance
  • Channel of distribution strategy – Channel leaders
  • Financial expectations/budget – Finance
  • Pricing and supply – Planning
  • Creative presentation - Creative

 Forecasting 

  • Historical Analysis – IT/Systems
  • Assortment, SKUs, pricing – Merchandising
  • Channel(s) of distribution – Merchandising
  • Presentation – Marketing/Creative
  • Promotions – Marketing
  • Financial plans – Finance

Customer satisfaction or unfortunately “dis-satisfaction” is one very damaging way that lack of cross-functional management manifests itself.  A recent personal experience, “The Green Towel Saga”, illustrates this. I was shopping for new green towels for our re-modeled master bath. A specialty home retailer had the color I was looking for in their store. As I tried to purchase the towels, I was told I could only purchase them “on line” even though they were on the towel wall in the store. It was further explained to me that I would have to pay shipping and that I should have the store order them for me so they get credit for the sale. As a customer, why do I care that the store gets credit? As a customer, I don’t understand why I can’t just buy my towels in the store.

 As a retail consultant, I placed the order just to see what would happen next. The order arrived in a timely manner in an oversized box. But, they shipped the wrong green bath rug. There was no return label or directions for returns. So, I went to the Post Office and paid $22 to return the $80 rug. I spent $78 plus $44 in shipping, and a lot of my time on the towels. Merchandising, Inventory Planning, Operations, E-commerce, the Distribution Center and Finance all had a role in “The Green Towel Saga”. They didn’t collaborate cross-functionally and didn’t keep customer satisfaction in mind as a key to increased sales.

The Solutions

The need is clear! Solutions are crucial. As a retail consultant and former retail executive, I have found the following five solutions to be most effective in promoting cross-functional collaboration in order to improve profitability and productivity of teams:

Development of strategic business plans

Utilization of key metrics

Solid organizational structure

Cross-functional “business teams”

Cross-functional planning process and calendar

Strategic Business Planning

Whether one is developing a business plan for a specific category, channel of distribution, or the total organization it is crucial to have strategy (qualitative) support the financials (qualitative). The timing of this plan must be driven by the longest lead time activity such as product lead times or advertising lead times. An example of an outline for a product category is below:  

  • Financial Plans
  • Business Strategy
  • Assortment Strategy
  • Marketing plan
  • Inventory and margin management
  • Risks and contingencies

One example of success is multi-channel retailer in the home business. I worked with the CEO and Leadership Team to develop and implement a Strategic Business Plan which facilitated increased profitability the following year.

Development of Key Metrics

These metrics must be developed in conjunction with business plans. They must be shared across functions but weighted appropriately to the job. An obvious example is sales. Merchandising, Product Development and Marketing all are reviewed on sales but weighted differently based on their function’s impact and other appropriate metrics. Education about the math and the impact of the metric is crucial along with communication across the organization. Key metrics must then be included in performance plans and job descriptions. They must be monitored with a dashboard. Incentives must be clear and paid.  I helped a severely polarized wholesale company implement this and it began the process of better collaboration and team satisfaction.

Development a Solid Organization

I always say develop “the boxes” first. This means develop jobs based on tasks versus current people. Establish clear roles and responsibilities along with cross functional dependencies in the organizational structure. Always build in room for growth – people and organization. Once the “the boxes” are developed, place the people in “the boxes “matching their skills, talents, experience and desire – easier said than done. Insure each team member has an updated job description. I have worked with many clients on “re-orgs” and have found this crucial. Nothing else works until this is in place.  

Establish Cross Functional “Business Teams”

These teams are set up by category, channel or for total organization (senior team). They are responsible for profitability and have shared metrics. Each function must participate. As an example, the e-commerce team in a multi-channel retail would include: Merchandising, Finance, Operations, Creative/Site Merchandising, Marketing, and Logistics. Every team needs a leader so a leader must be assigned. I worked with a multi-brand catalog company to set up “Business Teams” by brand. It dramatically helped their decision making and productivity of the team members. Expectations and timing are crucial which leads us to number five below.

Utilize a Cross Functional Business Process and Calendar

The process and calendar must be driven by the longest lead time activity – product development or advertising. It should include steps for pre-season development, in season execution, and post season analysis. Key milestones must have one owner, input partners, and completion dates. Each milestone must have expectations or “sub steps”. Departmental processes and calendars must support the cross-functional calendar and dates must match. The cross-functional process and calendar must have an “owner”. It serves as guidance for the cross-functional “Business Teams”. I worked with a retailer in the “fast fashion” space to develop and implement this type of calendar. It brought the teams together and kept them on track in their fast world.

In summary

There is an increasing need for cross-functional collaboration in Multi-Channel retailing today in order to improve profitability and productivity of teams. I see it again and again with current clients and experienced it as a retail executive. Retailers experience it every day. The top five solutions that I have found to be most effective are:

Development of strategic business plans

Utilization of key metrics

Solid organizational structure

Cross-functional “business teams”

Cross-functional planning process and calendar

I’d love to hear about your cross-functional collaboration needs. I can be reached at Janice@JLSearsConsulting.com or at 206-369-3726.