Retail Merchandising and Marketing Alignment Study
Presented by: The Parker Avery Institute the education, training and research unit of The Parker Avery Group May 2011
The Parker Avery Group 3200 Windy Hill Road Suite 950 West Atlanta, Georgia 30339 Telephone: +1 770 882 2205 www.ParkerAvery.com
Retail Merchandising and Marketing Alignment Study: May 2011
Contents EXECUTIVE SUMMARY .................................................................................................. v INTRODUCTION ........................................................................................................... viii MERCHANDISING AND MARKETING ALIGNMENT ..................................................... 1 DEFINING A MERCHANDISING STRATEGY ......................................................................... 1 MARKETING STRATEGY DEFINITION ................................................................................. 3 CAPTURING CUSTOMER INTELLIGENCE AND INSIGHTS ...................................................... 5 MERCHANDISING AND MARKETING WEEKLY ALIGNMENT .................................................. 7 IS LOCALIZATION IMPORTANT ANY LONGER? ................................................................... 9 LOCALIZATION METHOD ................................................................................................ 12 ARE WE BETTER AT PROMOTIONS NOW?...................................................................... 14 WHERE ARE WE GOING WITH OUR PRICING STRATEGY? .............................................. 16 PROMOTIONS AND PRICING INVESTMENT STRATEGY ...................................................... 19 SOCIAL MEDIA AND MOBILE COMMERCE STRATEGY: HURRY UP!.................................... 21
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Retail Merchandising and Marketing Alignment Study: May 2011
Figures Figure 1.
Who Is Involved in Setting Your Merchandising Strategy?
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Figure 2.
When Do You Define Your Merchandising Strategy?
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Figure 3.
Do You Have a Formal Marketing Strategy Process?
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Figure 4.
Do You Have a Formal Process for Capturing Customer Intelligence and Insights?
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Figure 5.
How Have Your Capabilities to Capture and Utilize Customer Intelligence and Insights Improved Over the Last 3 Years?
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Figure 6.
How Do You Align Marketing and Merchandising on a Weekly Basis?
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Figure 7.
How are Marketing and Merchandising Compensated to Support Alignment?
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Figure 8.
In Which of the Following Capabilities Does Your Company Plan to Invest Over the Next 3 Years?
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Figure 9.
How Localized are Your Merchandise Assortments?
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Figure 10.
How Localized are Your Merchandise Assortments? (Retail Leaders)
Figure 11.
Who Is Involved in Gathering Data to Support Localized Assortments?
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Figure 12.
How Has the Role of Marketing Changed to Support Localization Over the Last 3 Years?
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Figure 13.
Which of the Following Localization Methods Does Your Company Utilize?
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Figure 14.
Does Your Company Plan to Invest in Improved Localization Capabilities Over the Next 3 Years?
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Figure 15.
How Does Your Company Develop Its Promotional Calendar?
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Figure 16.
Who Is Involved in Setting the Timing of Promotional Events?
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Figure 17.
Who is Involved in Selecting the Products for Promotional Events?
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Figure 18.
Which of the Following Store Pricing Strategies Does Your Company Utilize? (Retail Leaders)
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Figure 19.
Which DIRECT Pricing Strategies Does Your Company Utilize?
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Figure 20.
How Do You Align Promotional Pricing Across Channels?
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Figure 21.
In Which of the Following Capabilities Does Your Company Plan to Invest Over the Next 3 Years?
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Figure 22.
How Do You Utilize Social Media and Mobile Commerce in Your Promotional Process?
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Figure 23.
How Would You Describe Your Company's Social Media and Mobile Commerce Strategies?
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Figure 24.
Have You Established a Unique Role Within the Organization With Responsibility for all Social Media and Mobile Commerce?
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Figure 25.
Who is Involved in Selecting the Products to Feature on Your Social Media and Mobile Commerce Applications?
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Figure 26.
In Which of Capabilities Does You Company Plan to Invest Over the Next 3 Years?
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Retail Merchandising and Marketing Alignment Study: May 2011
Call to Action: Be Ambitious The gap is getting larger between strong retail performers and all others. If you’ve had a difficult few years of financial performance, the news is not good. The rules have changed. You can’t make the same types of investments you have made in the past. It’s time for ambitious change to the way you develop strategy, align your organization, tailor your assortment and pricing and interact with consumers. The first step is to recognize that what you’ve done in the past will result in more of the same. If you think the consumer is coming back, you’re wrong. You need to go get them. You need to recognize the shift the consumer has made in the way they research, shop and transact. The second step is to realize that your organizational structure is most likely your number one inhibitor to change. As Marketing becomes more powerful in how you interact with consumers (not just communicate with them), you need to address how Marketing is aligned with Merchandising, Planning and the Executive team. When you define how you’re going to address this, remember that the new retailing word for success is ‘agility’. Consumers will continue to change the methods they use to engage with you. Make sure your organizational construct reflects this potential for change. The third step is to invest more in pricing and localization. This is the foundation for future success and how you can differentiate your business. With the proliferation of channels and websites that broker or sell everything, it will be harder to differentiate strictly on product assortment. Your opportunity will be the combination of branding and “localized mass-customization” of pricing and product. Based on our survey, the industry appears to be over-investing in promotions. As we’ve learned over the last decade, this is not a sustainable strategy and does not set the foundation for long-term success. So, you should be careful to invest in promotions. And, if you’re investing in promotions, make sure you’re doing it with a pricing and localization strategy framework. If you take one thing away from this survey, we hope it is the call to be ambitious with your strategy and investments. There are too many stories in our industry about retailers who stayed on a traditional path while emerging companies disassociated them from their customers (Amazon, Apple iTunes, Netflix, et al). If you have brand, you have a future. Be ambitious.
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Retail Merchandising and Marketing Alignment Study: May 2011
Executive Summary MERCHANDISING STRATEGY BENEFITS THE BOTTOM LINE Many retailers have some form of merchandising strategy, but only those with a well-defined merchandising process have experienced 3% or better comparable store sales growth year-over-year. Particularly, retailers who make merchandising decisions far in advance of the selling season have invested the time and resources necessary to create processes to make good merchandising decisions. These same retailers who plan merchandising far in advance have much stronger sales performance than retailers who make ‘last minute’ merchandising decisions. Creating a well-defined merchandising strategy and implementing it far in advance of the selling season positively affects the bottom line. THE TIME TO DEFINE A MARKETING STRATEGY Most retailers have a formal marketing strategy, though it is not always a welldefined process. The timing of when the marketing strategy is defined also depends on the retail segment. Retailers perform better when they have a marketing strategy in place prior to making their full product and inventory commitments. IMPORTANCE OF CAPTURING CUSTOMER INTELLIGENCE AND INSIGHTS A number of retailers have a formal process in place to capture customer intelligence, which they use in varying degrees to support marketing, product development and merchandising strategy decisions. A high percentage of these retailers have realized better than average comparable store performance over the past 2 years, and they indicate that their capabilities to capture customer intelligence has improved substantially over time. Retailers are continuing to invest in customer intelligence, and new opportunities to capture and interpret customer intelligence will drive improved business performance in the future. WEEKLY ALIGNMENT OF MERCHANDISING AND MARKETING There is no consistent approach among retailers for keeping Merchandising and Marketing aligned on a weekly basis. However, there are some common traits among retail leaders with better than average performance. In general, retail leaders who conduct weekly joint Merchandising and Marketing meetings are more likely to have a Marketing Analyst assigned to each Merchandising unit and encourage communication between the two groups. This alignment of Merchandising and Marketing has led to better performance and sets retail leaders apart from poorer performers.
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Retail Merchandising and Marketing Alignment Study: May 2011
IS LOCALIZATION IMPORTANT TODAY? Retail leaders have invested in greater merchandise assortment localization than poorer performers, with the highest percentage of localization for basic or core merchandise. Given the increased attention to merchandising systems over the past five years, we expected to find more retailers localizing their assortments. Given the fact that localization is a successful practice for retail leaders, there is great opportunity to focus on localization to drive retail sales. FOCUS ON LOCALIZATION METHOD Most retailers use more than one method of assortment localization, including store geography clusters, store size clusters and store volume clusters. Of these retailers, most have not changed their localization methods over the last three years, though retail leaders are currently investing in systems to improve their localization capabilities. Poor performers are not making this same investment, which indicates that retail leaders will continue to create distance between themselves and poor performers. ARE RETAILERS BETTER AT PROMOTION NOW? Most retail leaders re-evaluate their promotional calendar on a yearly basis, with Marketing playing the primary role in this process. However, once the promotional process is defined, the responsibility for implementing the process shifts to Merchandising. Given the joint roles of Merchandising and Marketing, it seems particularly important for retailers to align these groups to optimally scope promotions. WHERE ARE RETAILERS GOING WITH PRICING STRATEGY? Pricing and price management is one of the most challenging issues for retailers. Retail leaders are investing in store-based or customer-based pricing strategies much more aggressively than other retailers. An overwhelming majority of retail leaders have a national store pricing strategy, though some plan to move to regional or store pricing in the near future. Retail leaders also do a better job than others at maintaining cross-channel price consistency. We found that lesser performing retailers are hindered by process and system constraints as well as the lack of communication between different departments.
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Retail Merchandising and Marketing Alignment Study: May 2011
BEST PRACTICES IN PROMOTION AND PRICING INVESTMENT STRATEGY Formalizing the promotion and pricing strategy process could help poorer performers catch up to retail leaders. However, very few retailers are currently investing in pricing capabilities or have plans to invest this year. Some retailers are investing in promotional capabilities, although these investments are not tied to pricing capabilities. A duel investment is key to capturing emerging promotional and pricing opportunities, particularly in social media and mobile commerce. Most retailers will need to invest in this capability over the next two years to remain competitive and capture mobile commerce spend. NEED FOR SOCIAL MEDIA AND MOBILE COMMERCE STRATEGY Social media and mobile commerce provide retailers with the opportunity to compete aggressively with retail leaders at a very low cost. However, very few retailers have formal social media and mobile commerce strategies. For those retail leaders who do have a strategy in place, they report aggressive spending to create tools to differentiate themselves in this space. In this rapidly shifting market, these retail leaders will take an agile approach to leveraging social media and mobile commerce over the next 12-18 months. Retailers who are not actively pursuing an approach for leveraging social media and mobile commerce to drive their business will fall behind retail leaders who have a social media strategy.
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Retail Merchandising and Marketing Alignment Study: May 2011
Introduction With the advancement of localization, social media and mobile commerce, Merchandising and Marketing organizational structures and processes are rapidly evolving. The Parker Avery Institute, a retail learning and research business, developed a survey to gain a better understanding of how retailers are approaching these business challenges. The Parker Avery Institute conducted an online survey from March – April 2011. Respondent demographics are as follows: Job Title:
Senior Management Vice President Director/Manager Staff & Other
19% 14% 48% 19%
Divisions:
Marketing Merchandising Planning & Allocation Information Technology Channel Operations
29% 42% 15% 5% 9%
Company Revenues (2010):
Over $5 billion $1 - $5 billion $51 - $999 million $50 million or less
15% 62% 10% 13%
Company Headquarters:
United States Canada Latin America Europe Middle East Africa Asia/Pacific
90% 1% 1% 5% 0% 0% 2%
Segments:
Fast Moving Consumer Goods (FMCG) General Merchandise and Apparel (GMA) Hardware/Do-it-Yourself & Other Food/Hospitality
22% 69% 5% 4%
Channels:
Stores Internet Catalog Mobile Social Media Business to Business Wholesale
95% 84% 53% 32% 31% 37% 15%
Year-Over-Year Comp Store Sales Growth:
Better than Average (Retail Winners) Average Worse than Average
33% 43% 24%
$ equivalent
(assume average of 3%)
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Retail Merchandising and Marketing Alignment Study: May 2011
Merchandising and Marketing Alignment
Defining A Merchandising Strategy Based on our recent study, approximately 57% of retailers have a formal, welldefined process for setting their merchandising strategy, 37% have a process that is not well defined and 6% have no process in place at all. It should come as no surprise that the retailers who have a well-defined merchandising process are the ones who have experienced 3% or better comparable store sales growth year-over-year. Within the statistics, we found that retailers who have a direct channel heritage (meaning they were born of a catalog or internet-based business) have struggled to develop a formal merchandising strategy process that reflects the crosschannel customer. We also found that retailers with a large proportion of fashion and apparel-related business do a better job of developing a merchandising strategy, and thus are more likely to realize a direct benefit from the strategy. We believe the maturity of their merchandising strategy process is the result of necessity. When you have to make product investments far in advance, you need to invest the time and resources to analyze as many variables as possible to make good decisions. Relative to the roles involved in defining a merchandising strategy, most retailers do not agree on the primary roles responsible for developing a merchandising strategy or even which internal organizations should be involved. Given the various components involved in a comprehensive merchandising strategy, including brand strategy, pricing strategy, customer insights and financial analysis, we were surprised to find that only 67% of retailers engage Merchandise Planning and Allocation, 43% involve Marketing and 57% involve their senior executives in a substantial way. The participation of different groups may be due to the variety of organizational structures across the industry, but we know from practical experience that the best results come from a well-informed, inclusive process.
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Retail Merchandising and Marketing Alignment Study: May 2011
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In support of efforts made to close the communication gap, 72% of retailers indicated that the alignment of Merchandising and Marketing has improved somewhat or significantly in the last three years, indicating increased focus on customer segment profitability. And, 55% of retailers plan to invest in improving this alignment over the next few years. Figure 8. “In What Capabilities Does Your Company Plan to Invest Over the Next 3 Years?”
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%$We found it particularly interesting that 74% of retailers have defined a unique role within the organization that is responsible for all social media and mobile commerce. Sixty-four percent of these retailers have filled the role, with the remaining looking to fill it within the next year.
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Retail Merchandising and Marketing Alignment Study: May 2011
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