Knowing how instore product placement (the exact position of an item in the store and its presentation) affects sell-through helps retailers cope with the increasing relevance of online shopping post-Covid.
This has led to significant investments in retail technology and smart retailing. In tools that help with the automation of merchandise planning and allocation and the integration with other store operations tools e.g. for instore merchandise and inventory management, till systems, visual merchandising and marketing and in a seamless integration of online and other sales channels.
There have been many interesting developments, but no solution yet that allows retailers to fully understand the sell-through effect of a product’s specific presentation and placement. While this statement may not apply to food retailers who know exactly which shelf space sells best, it rings true for retailers who depend on intriguing and irresistible merchandise presentation to inspire consumers to buy.
Retailers who sell through aesthetics and an attractive combination of complementary products often change their assortment and their merchandise presentation. As a result, they face the problem of tracing sell-through effects of a product’s presentation and its particular placement. This will sound particularly familiar to fashion and lifestyle stores, jewellers, interior design stores and similar retailers.
The missing link between merchandise planning, merchandise management and merchandise presentation is a problem I frequently encounter in merchandise management projects with retailers who operate multiple stores. Retailers frequently check sell-through rates of their assortment in order to improve turnover, replenish bestsellers and mark-down slow sellers. Identifying and replenishing bestsellers is easy, assuming repeat orders are possible.
But what about your hidden champions? Some products sell well for a time, but suddenly slow down significantly or stop selling even though they are in stock. Other products that sell well in some stores, but less or not at all at other points of sale (POS). The big question in both cases is: why?
The Efficiency Paradox
Unfortunately, this question isn’t asked often enough. Merchandisers typically analyse sell-through data top-down, i.e. they focus on top sellers and low performers. And that makes a lot of sense as 80% of a retailers turnover is generated by 20% of the assortment. Thus, the impact on turnover and/or margin of those 20% is crucial for a profitable business. Equally important is getting rid of slow sellers as quickly as possible as they block valuable retail space and tie up financial resources. But it also means that retailers miss sales opportunities of articles whose sell-through ranges somewhere in the middle while there is still sufficient stock in stores and/or the central warehouse.
Many factors contribute to the sudden disruption of a successful article, or to why it’s selling better or worse in different stores. The article might match consumers taste in certain regions but not at all in others. A typical example is the orange sweater that sells well in Aachen and Düsseldorf, but not at all in Munich, because Aachen and Düsseldorf benefit from a high share of Dutch consumers who consider it the colour of their national identity. There might be a sudden market saturation as competitors offer a similar product for a better price. In fashion or footwear stores, the most common sizes sell first and the remaining stock are margin sizes, hence sell-through significantly reduces once the most common sizes are sold out.
The Missing Link
But there is one reason that is often overlooked: the products place and its presentation at the POS, respectively its missing or incomplete presentation on the sales floor. For retailers with multiple stores and heterogenous store layouts it’s near impossible to control the exact position of a certain article in each and every store.
Hence, one of the most relevant reasons why a former bestseller turns into a just good or even a slow seller, respectively sells well in some locations but not in others, is that it’s not re-filled from the stock room after initial sell-through. Or a store manager decided to use the rack or a shelf space for another article they believe will sell better or help push the sell-through of other articles.
And the merchandise management system is of no help, as it doesn’t receive automated input about the exact placement of an article at the POS.
What are potential solutions?
- Prompt refill of sold articles (to the exact same place) from the stock room is a good strategy for low footfall times. But anyone who has served as a sales person during a high footfall weekend knows that the resources for timely refills are scarce when the store is packed with consumers who need attention.
- Refill lists issued at the end of the day, based on a comparison between sell-through and inventory, with a reorder proposal should the store not stock the item any more. And an automated refill execution, e.g. by scanning articles that are removed from the stockroom and displayed in the sales room. Unfortunately, this automation only works if the merchandise and inventory management tool is able to operate two stock room numbers for each POS – one for the sales floor and another for the reserve stock room. This is common practice in food retailing, but not yet for fashion or lifestyle stores.
Even companies who do operate two stock rooms for each POS are unable to locate a particular article in their sales room, and hence are unable to understand how place and presentation affect the article’s sell-through.
In my previous article, I introduced a couple of Visual Merchandising tools that help with planning and executing localised planograms for each store and visualise the effect of stock outs at the sales floor. But even the best available tools don’t solve this problem, as any checks between VM guidelines or planograms and their execution at the POS are normally done once new merchandise hits the sales floor rather than on a daily basis.
Are AI and RFID the High-tech Solution?
Understanding and managing the effects of instore product placement on sell-through is a problem that many retailers are aware of, with no quick fixes on the horizon. Will RFID (radio frequency identification) be able to close the missing link? Many retailers have invest in RFID to improve inventory management, reduce stock-outs, increase sell-through and reduce inventory level.
Marcs & Spencer, Lululemon, Target, Decathlon, Marc O’Polo, Gerry Weber and Adler already use RFID. Inditex finalised its RFID-implementation last year, and its top management is convinced that the integration of on- and offline inventory helped increase sales by 36% vs. LY (2021/22 vs. 2020/21) and by 3% vs. pre-Covid (2019/20) despite a reduction in sales floor by 1.8% vs. LY and 6.8 % vs. 2019/20. H&M intends to implement RFID too, but struggles with the German workers council and VERDI (the union for retail employees), and C&A is using RFID in a few pilot stores and plans a wider roll-out.
RFID will solve the refill problem, as the system is able to tell you in real time whether a product is still in the reserve stock room or at the sales floor. But it is not yet able to indicate the exact location of an article on the sales floor.
The KIEPO Project
To address this problem, German Fashion Retailer Modehaus Ebbers started the KIEPO project in collaboration with the University Duisburg-Essen, Panther solutions (an AI-specialist for dynamic pricing) and EK-servicegroup (a buying organisation for fashion, electronics and interior design retailers). The project is partially funded by the Ministry of Economy of North Rine-Wesphalia and explores artificial intelligence solutions to optimise instore product placement, understand how it affects sell-through and how to benefit from electronic labels and dynamic pricing.
To collect accurate position data for each individual item, the products as well as every fixture (racks, tables, shelves etc.) was tagged with electronic labels. A 200 sqm test area was equipped with antennas, individually calibrated to seamlessly cover the entire space. This test run, however, delivered disappointing results. The electronic labels, originally developed for food retailers, didn’t work as well for fashion, where items are frequently moved around by consumers and sales staff. The radio signal of the labels stopped working when a label was moved upside down or a stack of shirts was taller than intended. That resulted in inaccurate data that lead to wrong conclusions.
But giving up was not an option. The retailer began developing its own positioning software based on its store fixtures. The company is now testing and optimising this system based on real time data, knowing what merchandise is stocked on what fixture. It still doesn’t catch when a consumer misplaces an item, but at the end of the day, it’s the job of sales staff and merchandisers to replace it to its planned position. With this minimal uncertainty in mind, the company marries sell-through and positioning data and is able to understand the sell-through or margin effect of individual fixtures. They gain real-time transparency of merchandise availability on a fixture, decorated on a mannequin or in the window, and can react early enough whenever the look on display becomes unavailable.
In the meantime, the company also uses its positioning software to improve the picking process for processing online orders. The staff gets the order information via smartphone, with a map that shows where the article is located. In case the article has been moved elsewhere, the product label can light up to make it easier to find. As a next step, Ebbers intends to develop a smart picking box that tells the picker which articles it wants to be filled with.
A similar solution is offered by Detego, a cloud hosted RFID solution that provides an intelligent instore refilling process through real-time synchronisation of sales room and reserve stock inventory – also assuming that the merchandise presentation in the store has been executed according to the planogramm. Adidas, Levis, New Look, The Bestseller Group, G-Star or Marc ‘OPolo are currently using Detego.
The Low-tech Solution
But what about all the retailers who are not yet able to use RFID or other smart retailing solutions? The low-tech solution are good old sell-through reports designed to identify your hidden champions:
- A report that ranks articles by their biggest deviation from last week’s (day’s or month’s depending on the product life cycle) sell-through performance. This report might indicate that an article was replaced due to new planograms, prompting you to double check whether its life cycle needs adjusting, a reorder placing or its presentation changing.
- A report that ranks articles with the biggest sell-through difference (despite a sufficient reach) between individual POS. For these articles, store staff should send in pictures to head quarters that show where and how the article is presented in the store.
- A report that lists articles with low or no instore availability of best selling sizes. Double check availability of the relevant sizes in central warehouse or check reorder options from suppliers. Check mark-down options for margin sizes, depending on the life cycle of the product, and whether the product supports a visual aesthetic that helps to sell complementary products.
Whatever the solution – hidden champions might turn into best sellers if store staff, planner and allocator as well as merchandisers understand the background as well as how instore product placement affects an article’s sell-through. This makes hidden champions an easy to execute and low-cost option to improve sell-through, reduce inventory and mark-downs.
About the Author:
Heike Blank has worked for big organisations such as VF Europe and s.Oliver but also for niche brands such as Ecko Unltd. and Zoo York in top executive positions. Her extensive experience with opening and managing own retail, partner stores, concessions and shop-in-shops in 23 countries in Europe, the Middle East and Asia make her an expert in expansion into new markets through own and partner stores and in retail store operations. Get in touch with her here and read more of her work here.