Merchandising in ‘Active’ Mode by Selling More of What You Already Sell the Most
By Mark Heckman / September 2016Insights
In retailing we have all heard of the ‘80-20 Rule’, simply put, only twenty percent of items we stock generate eighty percent of sales. In fact, with many retailers an even much smaller percentage of items drive the majority of the sales, while the vast majority of items languish on the shelves, producing very little in sales and incurring great costs for the retailer. It is this condition that many in retailing are now calling the phenomena of the ‘Big Head’ and the ‘Long Tail.’
When I think of supermarket merchandising, I think of the amazing amount of products that retailers manage to place in their stores, with the knowledge that each of those products carries with them an expense or holding cost. Despite the heavy cost of inventory, some of the very best retailers have expanded both the size of their stores and the inventory that populates the many aisles and departments.
This big store strategy is founded in the belief that bigger is better and variety attracts shoppers. But, with e-commerce competing with bricks and mortar stores in an already overstored marketplace, their unspoken strategy must be that their size and might will also eliminate the vast majority of their bricks and mortar store competition.
The big store strategy carries with it significant risk. A demonstrated unwillingness to spend precious time navigating large stores reveal a shopper that is screaming at the retailers to bring them what they want to buy without making them wade through miles of aisles. The numbers do not lie. Fewer than three hundred items comprise the list of frequently purchased items in the supermarket.
Club stores, like Sam’s, Costco, and B.J.’s have directly addressed this issue by selectively carrying only best-selling items rather than having dozens of brands in a category, they pick the top selling one or perhaps two or three to offer to the shoppers. These Big Head stores predictably produce very efficient shopping trips in large part due to not handling the thousands of items that produce a scant few of actual sales.
Implications for ‘Active’ Retailing:
In ‘Active Retailing’, the Big Head becomes the conduit for growing incremental sales by making it easier for shoppers to find and buy what they want the most. Conversely, the Long Tail becomes an opportunity for the retailer to smartly make these items available, but not necessarily merchandised on the shopper’s immediate path. For some items that do not fall into significant baskets they may be candidates not to be carried in the physical store at all, but rather on demand through digital touch screens that deliver the product to the store or the shopper’s home.
Today, most retailers do not do themselves any favors by burying the Big Head among the Long Tail. But that’s exactly what most retailers do while stubbornly rationalizing that shoppers will do the hard work of finding what they need among the clutter. They tell themselves that while shoppers wander through the miles of aisles they may pick up a few Long Tail items not on their list for this particular trip. I refer to this as ‘passive’ retailing, in that retailers place the products in the store hoping the shopper does the heavy lifting of searching them out no matter where they may be inconveniently located.
Active retailers take the opposite approach. They understand, as most marketers have learned over the years, that it is much more productive and sales advantageous to enable shoppers to buy more of what they are already buying rather to burden them with a time consuming fishing trip, trying feverishly to lure the shopper into buying items not on their list. That is not to say that smart cross merchandising is a bad idea. In fact, data-driven adjacencies and category affinities are essential to executing smart cross merchandising.
Many retailers have recognized that sales in their big stores have either peaked or the rate of growth has slowed. In response, retailers such as Walmart, Raley’s, Whole Foods, and Ahold/Delhaize are experimenting with smaller store formats in hopes that these stores reinvigorate the sales productivity necessary for growth and long-term profitability.
Shopper behavioral research, coupled with linking the shopper’s activities in the stores to actual sales at the checkout produces a wealth of information, not just about the shopper, but also about the product category and the in-store real estate in which it resides. As a retailer, I was an unwitting advocate of many category management segmentation practices. The most common of which involved determining if a category was a destination category, meaning shoppers would seek out this category, no matter where in the store it was positioned, or an impulse category, for those categories that were deemed to be more discretionary. As the name implies, shoppers usually do not plan to purchase items from the impulse category. Rather, they purchase them because they are enamored with the merchandising or product as they pass by.
As a ‘recovering’ passive retailer, I was a firm believer that this rather intuitive perspective on categories was not only accurate, but a core rationale for placing Big Head items throughout the store, thus manipulating the shopper to these areas and thus increasing the exposure of these often higher-margined, impulse items.
Today shopper expectations are being framed by their experiences on-line as well as in smaller, more shopper centric physical stores. Retailers that continue to believe that its traditional merchandising and store layout plans will appeal to time starved, alternative-rich, shoppers are merchandising to shoppers that no longer exist.
The payoff for re-thinking where a retailer’s best selling items are placed in the store is huge. Shoppers have a finite amount of time to find what they need and move to the checkouts. Shoppers are also gracious enough to leave a trail in the store that can be identified and measured. In many stores the shopper’s Dominant Path is similar to a horseshoe, with customers making a trek directly to the back of the store and finding an easy to traverse path back to the checkouts. This is depicted in the graphic below.
Merchandising the Big Head items on and near this path, even as free standing displays if permanent placement is not practical, drives transaction size and shopper satisfaction.
Active retailers are committed to bringing frequently purchased products to the shopper, where the shopper currently shops in the store, not where they want the shopper to go. While this new mindset will require new metrics and shopper data, both are now affordable and available.
As in most things retail, transitioning from traditional merchandising practices to a more shopper-centric, active approach will take time. Progress can be made in logical steps, beginning with smart placements of secondary displays with Big Head items along or near the Dominant Shopping Path. A second logical step involves leveraging actual in-store shopping behaviors as the key prerequisite for the physical placement of categories rather than the more retailer centric criteria more commonly used. Lastly, the Big Head, Long Tail phenomena is a critical component of striking the right balance of viable inventory in the store, while smartly maintaining the ability to provide the variety of items that shoppers are accustom to having quick access to.
For more specifics on active retailing, please secure a copy of Dr. Herb Sorensen’s second edition of his popular book, Inside the Mind of the Shopper, available now on Amazon.com.
Contributed by Mark Heckman, Managing Partner & Senior Retail Consultant
Mark is a retail industry veteran that leverages over 25 years of executive level experience based in retail marketing, brand partnerships, category management practices and consumer research. Mark has worked with a number of highly reputable organizations within the retail supermarket industry. He has served as Director of Marketing Research at Marsh Supermarkets, VP of Marketing for Randalls Food Markets, MARC Advertising, and Valassis Relationship Marketing Systems. Mark has previously served as both member and chairman of the Food Marketing Institute’s Consumer Research Committee and is currently the managing partner of Accelerated Merchandising by Shopper Scientist, LLC, and Senior Retail Consultant at Mark Heckman Consulting. Connect with Mark Heckman.