How Effective is Your Merchandising? Ways to Increase Profits through Display

How Effective is Your Merchandising? Ways to Increase Profits through Display

10 min read
Andrew Max
Andrew MaxEnd-to-end merchandising process expert
Effective merchandising

The sales area is a company's resource that has to be used as efficiently as possible. The right display makes the customer leave the store satisfied with the purchase, and helps business owners increase their sales and profits.

A common merchandising issue is having little control over the display, both in performance analytics and in getting the display job done. Although each problem is a development opportunity, we suggest considering the main directions for optimizing merchandising in a retail chain. Let's start with analytics.

Display Performance Metrics

Effective merchandising is not just the study of planograms and operational tasks for rearrangement. Analytics helps you see the aggregate picture so you make strategic decisions. Merchandising performance indicators affect not only the display, but also the product mix of the entire chain. Performance analytics in merchandising can be divided into:

Process analytics

Determine which product should be displayed in the planogram and which should be removed. Many people use the category rotation schedule, which is not quite convenient and can result in errors. Modern solutions have reports showing real-time changes in the product range.

Strategic Analytics

This is an integrated approach, using several indicators as a basis, according to which the calculation is performed. It is worth mentioning right away that in order to analyze the shelf impact, it is necessary to establish proper management. That is, the merchandiser should do the following before the calculations:

The main performance metrics used in strategic analysis include rate of return (%), sales per sq. m (in money), availability report, and ABC analysis.

Rate of return is calculated for each category. The share of the category in the turnover is divided by the share in the occupied area. An effective category is the coefficient which is close to or equal to one.

Sales per sq.m is an indicator showing how much profit 1 m of equipment brings. You can get it by dividing the turnover in money by the total footage of the equipment on which the products are placed.

АВС analysis is the method of evaluating goods by sales. All products can be divided into three groups:

For merchandising display, it is important to take one category and analyze sales within it. Let’s take chocolate bars for example. All sold products have made a profit in money; let it be 100%. After an ABC analysis, we find out that milk chocolate bars have made 80% of the profit, dark - 15%, extra dark - 5%. If the task is to increase the profit, it is milk chocolate that should specifically be given the “gold shelves” and its presence there should be maximized.

You can also change the location of products on the trading floor. To do this, you need to determine the "cold" and "hot" zones in the supermarket. Then place the group A products in the cold ones and dilute the hot ones with C products. At the same time, do not forget about the rules of the commodity neighborhood.

Based on the received data, you can build a display optimization strategy. We have collected the most simple, but effective ways for optimizing below.

The Way You Can Optimize Merchandising Right Now

To make impulse purchases more frequent

Impulse purchases are the biggest mystery in retail: hard to predict, hard to calculate; hence the term “impulse” purchase. It’s up to the purchaser how to make them increase.

Impulse purchases are driven by a person's desires and emotions. Therefore, displays should evoke feelings of gratifying those desires with consumption.

As you know, drawing attention to the potential impulse purchase item has to do with the location of the product at the beginning or end of the product line. Be sure to provide resources to change the location of products on the shelves, based on reports.

Effective Merchandising

Consider the commodity neighborhood

All natural juices are in one place, nectars are nearby; butter is on this shelf, and margarine is on that one; milk is here, and kefir is next to it. It is really clear to the buyer what properties the products grouped into a section have, so such a grouping should be used in stores and departments where differences in product properties are important. Besides, we’ve gotten used to looking for sugar next to cereals, and chocolates next to coffee. And if the chain is built according to a different principle that buyers aren’t used to, they may not find the products they need.

Centralization of merchandising management

o effectively manage merchandising throughout the chain, it is necessary to make it centralized. This will solve several problems at once: standardize the display throughout the chain, equally control the execution of tasks at each store, and spend fewer resources on compiling and implementing planograms. Such a solution involves the introduction of special software. For example, the LEAFIO Shelf Efficiency Solution controls display management and real-time analytics using a phone application.

The best shelves for the best products

Determine which products sell better and make more profit in each category – they should occupy the "gold shelves". This is important not only to increase sales but also to build loyalty. When buyers quickly find the product they need, they have a positive user experience. A person should feel as comfortable as possible when taking goods from the shelf. Even unconsciously, people always remember their shopping experience. After all, it is often difficult to answer why people choose one store over another. There is always a combination of factors behind “I just like it”. For example, cleanliness, the selection of products on the shelves, service staff politeness, and, of course, merchandising.

Set up cross-selling

The goal of cross-selling is to increase the average basket size. This happens by forming a set of goods that are usually bought at the same time. For example, milk and cereal.

Cross-selling setup options:

Establish communication between category manager and merchandiser

The category manager builds the product matrix based on sales, adds novelties, and monitors the development of demand. The manager doesn't work on the sales floor. And due to the human factor or the workload of the store personnel, the goods may just not be laid out on the shelves. As a result, there are no sales and overstock increases. The category manager removes products from the range that could potentially make a profit.

Permit communication and join forces to achieve a common goal: making the maximum profit from sales at minimum cost. Increased control over merchandising will help to solve the problem. Be sure to check the realograms. You can quickly transfer photos of completed planograms due to modern merchandising management software.

Also, consider introducing new approaches and technical solutions. There are trends in retail that you should pay attention to.

Merchandising Trends

Electronic Shelf Labels

Electronic Shelf Labels (ESLs) are no longer new, but are rare in the CIS countries. This is partly due to the peculiarities of the legislation, or due to the fact that this is not a primary investment for retail business tasks. However, such an innovation can bring several possibilities at once.

Alternatively, you can change the price of goods during the day. For example, make a promotion for pensioners in the morning. Introduce "happy hours" for a certain category of products. It will also help in managing the promo.

It will also reduce the amount of manual work on the sales floor. Customers don't "bump into" staff posting shelf labels, and employees have time for other tasks. And let's be honest – there are never enough people to work in the aisles, and electronic shelf labels can help with this problem.

Tracking Supplies on Commercial Equipment

There has been much talk in recent years about automatic recognition of products from a realogram. The point is that the application can recognize how much the shelf display (realogram) corresponds to the planogram (the way it was planned to arrange the product).

Many companies have announced the availability of technology, but in real life it’s not that simple. The implementation of such a project involves the stage of machine learning with human participation. It is necessary not only to take a lot of pictures (about 300) of the products in the store, but also to make the software understand what’s right and what’s wrong. Retailers are not yet ready to invest in such projects. But technology is developing and you need to keep abreast; perhaps you will become an innovator.

Automation of Planogram Creation

Many, even large retailers, still use Excel as the main tool for building planograms. Modern software has the following useful functionality:

Real-Time Analytics

Through the implementation of display management software, you can get the necessary reports that show an accurate overview on the spot. There is no need to upload sales reports separately, compare them with a planogram, analyze the actual plan, and then compare them with the previous sales period. Fast real-time analytics, as well as enhanced control over the merchandising process – this is what modern display management software provides.

LEAFIO Planogram Optimization Solution is a system that provides all the necessary tools for analytics and merchandising management. Request a consultation to find out more.

Augmented Reality in the Store and the Store Itself in Virtual Space

When the head office specialist performs the display management, it is important to have an idea of what the store space looks like. There is software that makes it possible to create 3D models of the sales floor.

There are also applications that help you view the way a designed shelf is going to look in the store. You can do it from the screen of a mobile or tablet by pointing the camera at the display area via the application.

Merchandising is a growing area, and every company has opportunities for its development.

For merchandising efficiency improvement, constant control, such as monitoring implementation of planograms, analysing efficiency, implementing new solutions, is essential. Such an integrated approach can positively affect sales and turnover. Centralization of management and optimization of business processes in merchandising is the first thing to do. Then you should regularly monitor performance over time using specific metrics. The final step may be the introduction of innovative solutions.

Merchandising and Planogram Automation: Tips to increase shelf space profitability

Andrew Max
Andrew MaxEnd-to-end merchandising process expert

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