Must Follow Rules for Retail Merchandising

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Merchandising a store can be a challenging task, if only because many retailers don’t know exactly what “merchandising” means. If we can’t pinpoint a definition, how can we expect to exceed at merchandising our stores and turning a profit?

While merchandising can be defined using many different terms and strategies, the five rules below are foundational to mastering the art of merchandising and should be followed by all retailers.

But before I go into the rules, consider this about your Millennial and Generation Z shopper (the new majority):

  • They prefer merchandising that allows them to touch and feel.
  • They prefer shopping in stores versus online - but only if the merchandising is right.
  • They value merchandising much greater than their predecessor generations.

With this being the case, merchandising of your store just got more important! Indeed merchandising has always been important, but this new priority being placed by these shoppers makes these five rules your new textbook. 

1. Merchandise has to be offered in the way customers want to buy.

Great merchandising is having what the customer wants to buy, at the time they want to buy it, at the price they want to pay for it, and in a way they want to purchase it. The way in which customers want to purchase products has changed dramatically, from the peddler in the town square to the one-click purchase on Amazon.

And they’re not even buying specialty items on Amazon, they’re buying every-day basics, like garbage bags and Keurig K-cups.

How do customers want to buy your products? Figure it out, because whether they buy your products depends on how they can buy your products. What we do know is that no mater what your products are, they have to be accessible.

Customers before wants to touch and feel. Today's customer wants to interact. The days of bulk stacks are numbered. Make sure your end caps include a way for the customer to "experience" the product. 

2. Pricing merchandise must be done through experimentation.  

Merchandising a store correctly deals so much with pricing, but there aren’t set formulas. The basic rule is that the higher the price, the slower the rate of sale. However, this rule may not be true for your store, and you need to experiment to find out whether it is.

If you buy something for $5.00, you need to sell it at $5.99 to turn a profit. But if the initial markup (IMU) is  $9.99, would that really affect the rate of the sale? You won’t know unless you experiment. Pricing doesn't have to be difficult, you just need to be willing to test the waters to figure out what customers are willing to pay.

3. Retailers should offer three categories of merchandise.

Think of your merchandise as it would exist on a bell curve. On the right side of the curve lives expensive, prestigious merchandise that makes up 10% of your store’s products. Every store needs these products (even if customers don’t always buy them) because they "wow" customers.

On the left side of the curve lives the promotional merchandise, which also makes up 10% of your store’s products. Every retail store needs these products (even if they don’t generate a lot of profit) because they also "wow" customers. In the middle of the curve lives your bread-and-butter merchandise—the products that generate the most profit.

Now, although most of you profit comes from the middle merchandise, customers talk mostly about the left and right-side products. This is why retailers who remove the high and low-end products are making a huge mistake—they’re removing the products that generate word-of-mouth advertising for their business.  

In fashion, the high and low-end merchandise are referred to as the throw-away merchandise. Retailers don’t necessarily sell it, but this merchandise makes everything else look good.

Don’t get rid of products just because they don’t turn a ton of profit—evaluate how those products make your store the right experience for your customer. Remember, even though these products do not sell at the same rate as others, their presence is part of your branding as a leader in the space. 

4. A retailer's merchandise should last three months.

Why? Because seasons are three months long. This may change if you’re a big store like Sam’s who needs only about two weeks worth of merchandise at any given time. But if you’re a specialty retailer, you should carry three months worth. In terms of how much merchandise you need to turn a profit, you need to understand the open to thrive strategy.

5. Merchandise should fit the lifestyle of your tribe.

While merchandising has everything to do with the products you sell, it has even more to do with the customer who is buying the product. And it’s not just the demographics that are important, it’s the psychographics—what I call lifestyle marketing. Think about Tommy Bahama. They don’t necessarily market towards a specific demographic or age, they market towards a lifestyle: the kinds of ideals, philosophies, and life experiences wanted by their "tribe." Urban Outfitters and Anthropologie are also terrific examples of this type of merchandising. Anthropologie especially understands the idea that if you know your tribe, you can sell them lots of different items from the same store - items that don't necessarily fit together.