Merchandising—the promoting and sale of goods in a store—can become challenging, especially when some retailers such as independent shops don’t know exactly what “merchandising” means in practice. If you don't have a clear working definition, it's tough to succeed at merchandising your store and turning a profit.
While merchandising can be defined in different terms and using various strategies, the five rules below can be considered foundational to mastering the art of merchandising, and make good sense for most retailers. Consider some statistics about the millennial and Generation Z shoppers, the future majority of consumers:
- They prefer merchandising methods that allow them to touch and feel.
- They often prefer shopping in stores versus online, but only if merchandised in a way that they find appealing.
- They value merchandising much more than their predecessor generations.
With this being the case, it makes sense to emphasize and improve merchandising in your store. While merchandising has always been important, the new priority being placed on it by these shoppers makes these five rules your new textbook.
1. Present Merchandise in the Way Customers Want to Buy
Great merchandising entails 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. But customers aren't really buying specialty items on Amazon; they’re buying everyday basics, like garbage bags and Keurig K-cups for their morning coffee.
How do customers want to buy your specialty products? Figure that out, and factor it into your merchandising strategy. No matter what products you sell, you can make them more appealing and accessible with targeted merchandising. Customers used to be satisfied with simply touching and feeling merchandise. Today's customer has been trained to interact. Make sure your displays include a way for the customer to "experience" the product.
2. Discover the Best Merchandise Pricing 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 what pricing rules apply.
If you buy something wholesale for $5.00, you may need to sell it at $10.99 to turn a profit. But you can start with an initial markup to $11.99, then later drop to $10.99 and see if that really affects the rate of sale. You won’t know unless you experiment. Pricing doesn't have to be difficult, you just need to test the waters by repricing and tracking sales to figure out what customers are willing to pay.
3. 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 percent 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 percent of your store’s products. Every retail store needs these products too, 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.
Although most of your 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 mistake, not realizing they’re potentially removing the products that generate word-of-mouth advertising for their business.
In fashion, the high and low-end merchandise is 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. Even though these products do not sell at the same rate as others, their presence is part of your branding as a leader in your retail space.
4. A Retailer's Merchandise Should Last Three Months
Ninety days inventory cycle. Why? Because seasons are three months long and consumption habits for specialty items follow seasonal trends. This may change if you’re a big, high-volume store that 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, get to know 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 your products. And it’s not just the demographics that are important, it’s the psychographics, or what some call lifestyle marketing. Think about the store Tommy Bahama.
Tommy Bahama doesn’t necessarily market towards a specific demographic or age, it markets towards a lifestyle: the kinds of ideas, philosophies, and life experiences wanted by its "tribe." Urban Outfitters and Anthropologie also make clear 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, even items that don't necessarily fit together, such as clothing and kitchen drawer pulls.