For many years, retailers drove their formats to large super and hypermarkets providing shelf space that supported large assortments to extend to customers a significantly varied and sizeable choice within category.
However as Planet Retail recently revealed, whilst the number of stores operated by the top one hundred retailers will increase over the next five years, the space each store represents will on average decrease by 15%. This coincides, in recent times, with shopper behaviour which has gravitated towards more frequency in trips with smaller basket sizes each time. With this in mind, retailers are investing heavily in convenience style formats located strategically near where their most valuable customer segments reside. With physical in store category space becoming significantly less, the result is that winning retailers are delivering the most relevant, rather than the widest, assortments.
This is not a new concept but for years retailers have struggled to generate relevant local store assortments that achieve customer satisfaction, increase sales and margin, and improve loyalty. Historically the barriers to achieving customer centricity have been technology, process and resource with retailers and CPGs unable to leverage the increased levels of consumer and shopper data to align assortment offerings and space allocations with the behavior and preferences of their customers.
Whilst there are many elements that can help a retailer achieve this approach, three areas are critical to success:
1. Data Consolidation & Integration
Both retailers and manufacturers must effectively integrate customer, product and location data to inform and illuminate the category management process. This forms the basis of their category strategy and process DNA. Being able to consolidate multiple data sources, correctly/efficiently flow that information and identify insight through the category management process is key to delivering greater opportunities for sales and category growth, as well as increased levels of employee productivity.
2. Assortment Localization
Store assortments have to reflect the wants and needs of customers in their shopping area. Before the rise of large supermarket chains, a store owner knew customers by name. They stocked up on products in advance of the customer coming to the store as they understood their individual preferences and buying behaviour. Today is a very different picture. Large retail chains have expanded their store counts by hundreds, if not thousands, and now rely on buyers and planners that sit in headquarters trying to determine how best to localize assortments to maximize the potential revenue and margin for each individual store. The obvious answer would be to assort each store independently, but that just isn’t realistic as there is not enough resource and time to do that manually. The challenge is to regain that personal knowledge of a customer’s preferences and behaviour and have a 1-1 relationship but across many thousands of customers at the same time.
3. Effective Execution
To deliver expected improvement in sales, profitability, inventory and customer satisfaction, assortments and planograms must be kept current and be easily modified by store and field teams. Producing assortments and planograms that are relevant to both the local shoppers and the constraints of clusters and specific fixtures leads to a greater level of store compliance and customer satisfaction, as employees can efficiently stock the shelves and customers can find those items in stock that they desire.
Addressing these barriers isn’t necessarily enough in itself to achieve true customer-centricity. In order to realize the opportunities that exist when overcoming these challenges, organizations must embrace advancements in proven technology that is readily available.
A 2017 IDC report shows worldwide cloud spending reaching $195 billion by 2020. And it’s by taking advantage of a cloud-based platform that retailers can ensure their multiple data sources (transactional, loyalty, POS information) are normalized and quickly transformed into customer insight. This is utilized to build more informed and executable category management strategies that flow all the way down to the individual store level.
Often when the word “cloud” is used, the benefit that springs to mind is lower total cost of ownership in software investment. While this is typically true, from a business process perspective, organizations should be evaluating the effect cloud has on the way their employees operate. Enabling data to flow seamlessly throughout your category management process, allowing employees to access information and carry out their roles whenever and wherever they are located, and being able to manage and prioritize employee tasks through an integrated platform drives significant efficiencies.
A number of forward-thinking retailers and manufacturers have already begun to engage with Symphony RetailAI to address the barriers of customer centricity and take advantage of these technology innovations. Through our early-adopter program, organizations are already beginning to employ our unique approach to customer-driven, space-aware, store-level assortments. In doing so they are unlocking an average of 2-3% improvement in category sales and margin.