How Marketplace dulls the edge of Merchandising

A recent news item “J.C. Penney cuts chief merchant position” caught many retail industry watchers by surprise.

Traditionally, a merchant’s role had three important components to it:

1. Select merchandise and make it available to the customer

2. Protect the profitability of the retailer

3. Protect the branding and values of the retailer

To perform the first of these roles, merchants often travelled far and wide to procure the best merchandise to be sold in their retail stores. More often than not, demand had to be predicted, not based on numbers and data, but gut-instinct. Merchandisers had to rely on their judgement to determine what products will sell in their stores. They often relied on being exclusive, being first to the market, etc, and would make judgement calls.

I worked for a retailer in New South Wales, Australia, whose offices were decked literally with “white elephants”. Curious, I sought out some old-timers and got them talking about these elephant figures that I found scattered all over the head office. It turned out that a retail buyer, on his visit to China, saw these elephants, and ordered several hundreds of them, confident that the retailer would be able to sell these “cute” elephants. It turned out that his judgement call was wrong, and, when the retailer ended up with several hundred white elephant statues, they decided to free up the space in the stores and warehouses, and decorate the head office. Apparently, that was a costly mistake of judgement.

Nevertheless, traditional retailers often depend on the judgement of their merchants to decide what merchandise to buy, and in what quantities.

Modern, data based, analytics oriented retail has taken away this judgement call to a large extent. Crunching numbers, poring over past history, analyzing their customer’s behavior and spending patterns, it is possible to come to a more accurate call on what might sell and what might not, where it might sell, when it might sell, and often at what price it might sell. An analytics based approach has replaced the “art” in the science of merchandising to a significant extent. The market place is full of analytics from Amazon and Google on what sells, where it sells, in what quantities, at what prices and in what combination. A good part of the guess work in merchandising has been replaced by the advanced analytical capabilities of the market place.

In the next blog, we will examine how the market place has impacted ability of the merchant to protect the profitability of the retailer…

Post by Mani Subramaniam (@ManiS ), President, Business Focus at Litmus7