Bestseller Management is one of the most important processes to improve sell-through and mark-down in the consumer goods industry. What KPI helps identify bestsellers and make smart decisions about them?
Some companies like Zara, Kennel & Schmenger or s.Oliver excel at managing bestsellers. While Zara works with sophisticated analytics to alter bestselling styles by fabric, color or detailing, s.Oliver masters bestseller management to a degree that endangers its potential to innovate.
Best Seller Identification
But the majority of companies struggle to find the right KPIs, tools, processes and supply chain models to accurately and consistently identify and repeat bestsellers. Understanding why a specific white blouse just flies off the shelves while another white blouse has barely been touched by consumers is one of the most essential skills for designers, product, category or merchandise managers and buyers.
A select few have that gut feeling that seems to tell them which product will become bestsellers and which to steer clear from. Everyone else has to rely on analytical tools and clearly defined processes and data. Smart data allows clustering products by fit, body type, style, specific features like statement arms or multipurpose functions, consumer groups, fashion level and many other categories. If you belong to the few companies already working with predictive analytics, you can stop reading here. Chances are, however, that you don’t (yet).
Before understanding what makes a product a bestseller you need to identify your bestsellers. That sounds easy enough, and it actually is pretty straight forward for a retailer with only one point of sale (POS). But for all retailers who operate multiple POS and differentiate their assortment through modules that cater to certain location needs (store size, layout, turnover potential, competition, consumer groups etc.), bestseller management is not as simple as it may sound.
Many companies use a top down approach for their bestseller management, and usually that’s one of my preferred method of analysis too. When trying to identify true bestsellers, however, this is not only not helpful but downright misleading. Most merchandising mangers sort articles by the total number of items sold (to focus on articles with the highest financial impact). Based on this, they add KPIs such as sell-through, stock turn or achieved margin.
A KPI which I haven’t encountered in any of the companies I worked with (either as an executive or in consulting capacity) is what I call ‘article productivity’. I have only seen a few UK-based retailers use it, sometimes calling it ‘average rate of sales’.
What Is Article Productivity?
Article productivity tells you how many times an article has been sold on average over a certain period of time (day, week, month, season) per POS in which the product was offered (before it was marked down). It is a weighted average, which means your system needs to be capable of counting the number of POS that stock each individual article.
Using this KPI, we often find large discrepancies between bestsellers the companies identified by their individual top-down methods and the ‘true bestsellers’, that is the products that sold best in each of the POS offering it to consumers.
Incremental Turnover Potential by Bestseller-Management
The example below shows how well the 123 ‘never-out-of-stock’ articles of a fashion company sold over one spring/summer season. None of the articles sold more than 25 times per POS that offered them to consumers. The life cycle of all products was six months (26 weeks). This means that none of the articles sold at least once per week. Six articles (5%) sold between 10 and 25 times per POS, and 59 articles, representing almost half of all articles, sold less then 3 times per POS in 26 weeks. A pretty terrible hit rate!
More often than not it isn’t the articles listed across all or most stores that turn out to be the true bestsellers. And this offers huge turnover and margin potential, even without fully understanding why a particular product sold so well.
If your supply chain allows quick repeat orders (or if you still have inventory of those best selling products in your warehouse), you can quickly benefit by placing this article in additional (preferably all) POS. Below you will find a table which shows the turnover potential by placing bestsellers in all POS.
Only six of the 123 articles sold more than 10 times in all 135 relevant POS, and 36 articles sold between 10 and 25 times in the average 189 POS. Those 42 articles combined represent 34% of all articles and 61% of total net sales. Assuming the company would ship those 42 articles to all its 280 POS – the incremental net sales potential would amount to 2.7m €, or 40% of its actual net sales.
This approach to improving bestseller management regularly starts intensive internal discussions about the reasons why a product becomes a bestseller. And while there are many candidates, the art of bestseller management is to identify the essential ones and to leverage those to create new products with the same bestseller potential. But that’s a story for another post!
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. Get in touch with her via e-mail and read more from her here.