What Is Retail Merchandising?
In the retail sector, merchandise is a classification professionals use to categorize the industry by the types of goods and services offered (e.g., automotive parts, shoes, jewelry, etc.). Merchandising is both an activity and a strategy that contributes to the sale of goods and services by stimulating interest or otherwise enticing customers to make a purchase (examples include promotional deals and discounting methods).
Retail merchandising attracts customers to particular goods and services in various ways. Retail merchandising includes activities and strategies such as in-store design, the selection of specific merchandise to match a target market, and the physical and digital marketing of merchandise to customers. As a form of marketing, promotional merchandising includes programs such as attractive promotional displays featuring recognizable adult celebrities or licensing agreements between retailers and entertainment companies that utilize identifiable animated children’s movie characters.
The goal of retail merchandising activity is to support a retail strategy that generates revenue for the retailer and value for the customer. The selection of retail merchandise and the type of goods and services a retailer decides to stock are key retail strategies. According to author Michael Levy in Retailing Management, the decision to carry particular merchandise is tactical rather than strategic. Merchandise management, along with store management principles, are the "tactical decisions" that Levy believes help implement retail strategy. For example, Lululemon uses attractive packaging to market its apparel. Lululemon provides customers with reusable bags in a variety of sizes and styles. The bags leave the retail store and serve as a type of moving merchandising strategy for brand awareness. The packaging is so effective and recognizable among the brand’s loyalists that there is a resale market on ebay for the bags.
The Difference Between Retail Strategy and Merchandising Strategy
Levy believes merchandise management decisions, like Lululemon’s impressive presentation of seasonal athletic apparel worn by local yoga instructors on in-store posters, have short-term - rather than long-term - impact. (Long-term retail strategies are more resource dependent.) A merchandising philosophy that combines Levy's retail strategies (such as store location, systems technology, or customer relationship strategy) with tactical decisions (such as the type of merchandise a retailer carries) contributes to a customer's overall brand loyalty.
- Retail Strategy: Retail strategy is the how that guides retail management — how the retailer plans for and directs its resources to accomplish its objectives. It involves planning for and directing the business processes involved in satisfying wants and needs and creating customer value at the end of the retail supply chain by selling goods or services (or both) to customers for a profit. Levy defines retail strategy in three parts:
- The target market(s) in which a retailer focuses its resources
- The retail format (products and services, pricing, communications, location) that satisfies the needs of the target market
- How the retailer will build a sustainable (long-term) advantage over competitors
- Merchandising Strategy: Merchandising strategy involves the tactics (or business processes) that contribute to the sale of goods and services to the customer for profit. Tactics within the overall retail strategy include the variety of merchandise available for sale in store or online and how the retailer advertises and displays that merchandise to stimulate interest and create a customer experience. A sound retail strategy involves developing a desirable retail merchandise mix of products that add unique customer value.
Learn more about retail management strategy in the article How to Survive and Thrive in Retail Management.
The Difference Between Fashion Merchandising and Retail Merchandising
The North American Industry Classification System (NAICS), which classifies and measures economic activity in the United States, Canada, and Mexico, classifies retail merchandising and fashion merchandising as two separate categories. NAICS organizes the retail trade industry (code 44-45) according to the “similarity in the processes used to produce goods or services.” Retail merchandising refers to business activities and retail management philosophy that cover a wider category of goods and services than fashion merchandising. For example, retail merchandising includes classifications like Clothing Accessories Stores (code 448150) and Shoe Stores (code 448210). The NAICS accepts that “knowledge of fashion trends” is a service that various retailers in the retail merchandising category provide. However, fashion merchandising services also represent a separate economic activity under the Specialized Design Services (code 541490) category.
While there is some overlap between fashion merchandising and retail merchandising, fashion merchandising also involves a different supply-chain partnership and a unique retail mix. Retailers typically occupy the end of the supply chain involving manufacturers, wholesalers, and other suppliers and agents. Retail merchandising is, therefore, responsible for selling directly to the customer. Fashion merchandising may involve direct, value-added customer activities, but fashion merchandising professionals often sell directly to wholesale suppliers as well.
Levy defines the retail mix as “the combination of factors used by a retailer to satisfy customer needs and influence their purchase decisions.” According to Levy, the retail mix involves the following factors:
- The merchandise and services that a retailer offers
- The merchandise price
- The advertising and promotional activity
- The design and layout of stores (digital and physical)
- The visual merchandising
Fashion merchandising concerns a different combination of factors (and a narrower category of goods and services) than retail merchandising. For example, the merchandise, services, and store-design methods involved with fashion merchandising activities would not apply to used car dealers. The last component of the retail mix, visual merchandising, is another type of merchandising activity in the retailer’s tool belt.
What Is Visual Merchandising in a Retail Store?
Visual merchandising is part of a sound retail merchandising strategy. It guides the planning and activities responsible for how customers see your physical and digital stores, and the goods and services visible within. Visual merchandising applies to everything from the exterior of your retail store to the well-lit entryway all the way through to the well-placed furniture, fixtures, and promotional displays. It helps create customer value by making the shopper journey efficient, unique, and memorable.
In today's omnichannel marketplace, e-commerce, retail stores, and mobile channels converge to shape the customer experience. Visual merchandising is responsible for creating the digital or physical environment that appeals to your target customer and aligns with your overall retail value proposition. The creative methods of visual merchandising stimulate customers to make purchases. Retailers can design a customer experience with the layout of store merchandise, the UX design of e-commerce landing pages, and the usability and imagery of a mobile app.
The Science of Visual Merchandising
With visual merchandising, retailers can influence how customers choose and what choices they make based on what those customers see in physical stores and online. Modern neuroscience studies suggest that the impact of messaging via optical stimulation is measurable and real. The field of neuro-marketing studies how customers make purchasing decisions and how retailers can influence customers. In the book Retail Marketing Strategy: Delivering Shopper Delight, author Constant Berkhout discusses how brain research is an appropriate retail marketing tool. For example, he cites a study in which researchers affixed smiley face stickers to merchandise price tags. These emojis gave shoppers the perception that the prices of the items displaying the stickers were lower than the prices of the items without the stickers. Berkhout explains that shoppers are “unconsciously attracted by pleasure and a feeling of reward.” A well-known and simple visual image — in the relatable and popular form of communication (emojis) preferred by highly sought-after millennials and Gen-Zers — had a powerful effect on customer value.
Image Adapted from Source: Retail Marketing Strategy, Constant Berkhout
Visual Merchandising Tips from Neuro-Marketing Research
In Retail Marketing Strategy, Berkhout offers a summary of practical suggestions. He gleaned this information from his time with neuroscientists who were trying to understand the brain activity that accompanies the ideal shopping experience. He also cites research from The Buying Brain: Secrets for Selling to the Subconscious Mind, by Dr. A.K. Pradeep. Here is a list of the visual merchandising tips that Berkhout adapted from this neuro research. They include observations on how to turn insight into retail solutions:
- Signs Point the Way: Shoppers are scanners. They routinely look for changes in familiar retail environments (or on landing pages) and use visual stimuli closest to their point of entry. Place signs closest to the customer’s entry point, and guide the shopper journey with images rather than text to avoid overstimulation.
- Display Images: The images retailers use for in-store displays or online stores should have a left-right orientation. (The picture should appear on the left, and the associated text should appear on the right.) The “shopper’s eye,” according to Pradeep, delivers observations more effectively in this way. It takes more effort for scanning shoppers if the text appears on the left, and the image appears on the right.
- Aisle Attraction: Aisles that end with rounded gondola displays entice customers more often. These round-end caps should help the shopper navigate by providing clues to what they will find on the rest of the aisle. The ideal length of an aisle is approx. 20-22 ft., and, halfway down each aisle, there should be some “visual interruption,” such as special lighting or a floor display, to attract the shopper.
- Show Off Consumption: Visual displays that show off consumption of goods and services prompt more action. If the display features people, it should always include imagery of smiling, happy customers. For example, if you wish to promote the breakfast items on your menu, it is better to show a person consuming said items rather than the product by itself. If your merchandise is apparel, it’s preferable to show that apparel in action.
- Material Matters: Shoppers (and their brains) enjoy touching round, soft items. Place such items at eye level, and design merchandise displays with “touch moments” in mind. Also, the material of the shelving and displays matters to the customer’s visual perception of value. Wood gives the impression of “real, authentic, and organic,” but shoppers may perceive a higher price point for items displayed on natural wood shelves.
- Cross-Merchandising Solutions: Retailers should cross-promote solutions with visual merchandising. For example, position batteries next to electronic devices, stage merchandise kits next to core products (for example, socks, shoe laces, and shoe cleaner), and place unrelated (but logical) products on display with profitable merchandise.
The New Rules for Retail Merchandising
Studies cited by Shop: The International Magazine for Retailing and Shop Design indicate that conventional market research “is reaching the limit of its effectiveness.” The magazine cites the research of marketing expert Arndt Traindl (in partnership with the Ludwig Boltzmann Institute for Functional Brain Topography). An investigation of brain activity during a “visual stimulation of goods” demonstrated the potential of neuro-marketing by finding that unconscious thought drives up to 80 percent of customer purchase behavior. The “rational customer” is a myth, and the point of sale itself can directly influence customers — especially if that customer fits the individual motives of the retailer’s target customer group. What does this mean for retail merchandising? A new set of retail merchandising rules must account for the emotional, irrational customer behavior discovered by scientific methods (such as neuro-marketing) and the customer experience demands of a digital era.
- The Rule of Three: Constant Berkhout writes about the challenges of “over-choice.” Behavioral economics and science indicate that too many choices does not work well for the shopper journey. The consequences include cart abandonment and order cancellation or, worse, choosing the competitor's environment that has fewer choices. According to findings cited by Berkhout, shopper happiness increases when retailers reduce choices. Consider three to be the magic retail merchandising number: Explore a category management strategy with three core products that you offer quarterly (every three months) to create demand and keep up with changing customer trends.
- The Personalization Rule: Research suggests customers want to shop on their own terms. Using statistics from Malcolm Gladwell’s research, Berkhout writes that our contemporary life bombards shoppers with hundreds of daily messages in the form of TV, radio, and digital media ads. He uses the principle of availability to point out that people don’t have the time or capacity to process these messages and only pay attention to personal events that have occurred recently. Personalized service as well as a customer experience that matches the target customer’s lifestyle are more likely to create customer value. Leverage the segmentation capabilities of social media advertising platforms, and experiment with ads personalized for your customers. Make retail merchandise physically accessible to customers.
- The Experience Rule: Products and services are two thirds of the equation now. An outstanding customer experience is the final piece of the customer value puzzle. By using innovative in-store technology (and, thus, replicating the high-tech customer experience that makes digital retail channels so compelling), department store Neiman Marcus is combatting the shift of retail sales to digital channels. The company’s iLab project created a “Memory Mirror” for in-store customers trying on clothing. While the shopper spins around, the digital mirror records eight-second video clips, capturing multiple angles and building a library of different options side by side. Shoppers can then share the videos on Facebook or Instagram for feedback on different retail merchandise. The iLab project also rolled out Charge It Spot stations that allow customers to charge their mobile devices while shopping, simultaneously encouraging more time in the store and the digital discovery of retail merchandise. A retail merchandising strategy that successfully embraces the physical and digital customer experience doesn’t necessarily require the resources of a retail giants like Neiman Marcus - small, independent retailers can leverage retail management software that allows customers to reserve products online and pick them up in the store.
What Is a Merchandising Business?
The importance of retail merchandising to retailers of all sizes and categories supports an industry of merchandising specialists and consultants. These specialized merchandising businesses provide expertise and resources to successfully plan and execute retail strategies. Retailers without the personnel or resources to oversee merchandising budgets and activities or execute retail strategies in house rely on third-party solution providers like Umdasch Shopfitting.
According to their website, Umdasch Shopfitting provides international “consulting and value engineering experts” for the “development and planning of retail solutions.” The company calls the architects, graphic artists, interior decorators, designers, and marketing specialists “shop makers.” The shop makers work across four branches of expertise, including lifestyle retail, food retail, premium retail, and digital retail. According to Wikipedia, shopfitting is the “trade of fitting out” retail stores with equipment, fixtures, and fittings.” A shopfitting firm “typically incorporates professional expertise in interior design, the manufacturing of bespoke furniture, signage, fittings (with one’s own or outsourced facilities), and the purchasing of retail equipment.”
Umdasch Shopfitting is an example of a traditional retail merchandising business operating and evolving in the digital era. The company provides general contracting and design services, and retail equipment specialization (shelving, furniture, lighting accessories, etc.). They also provide project management and digital retail professionals to implement advanced retail strategy and technology. Here’s a list of other prominent retail merchandising businesses and a snapshot of their advertised capabilities:
- ManagementONE: Management One provides international retail experts for merchandise planning and professional retail services, such as traffic and conversion management. The company offers turnarounds for retailers behind on expenses and a retail diagnostics program for financial analysis, industry benchmarking, and compensation review.
- SPAR Group Retail Merchandising: SPAR Group is a publicly-traded international retail merchandising service provider. The company offers three categories of service: syndicated, project, and dedicated services based on the size of operation and the specific needs of the retailer. Within these categories, SPAR Group provides retailer directed in-store merchandising services dedicated to all manufacturers, new store set and remodel, events and demo management, audits, and assembly services.
- Advanced Retail Merchandising: ARM provides merchandising services, mystery shopper audits, planogram and presentation development, data collection, and market research for retailers located in the southeastern United States (Florida, Tennessee, Alabama, Georgia, and South Carolina). The company uses an activity-based model to support each retailer partner and dedicates a team to the independent projects for tailored customer support and complete budget control.
- Mi9 Retail: Named after the British military intelligence service (MI9), Mi9 Retail provides software solutions and professional retail services for merchandising, store operations, customer engagement, e-commerce, and business analytics across most retail categories. The company offers ERP integrations and retail management systems software implementation for a variety of proprietary software deployed as cloud-based SaaS or hosted on-premise.
- Retail Merchandising Services: RMS is a privately held, family-owned company providing in-store visual merchandising and display solutions in the US. RMS employs retail merchandising service representatives, field coordinators, and management in geographic territories. The company lists a range of merchandising services including count updates, item corrections, instant rebate coupons, safety recalls, fixture/signage surveys, and endcap setup and maintenance.
Choosing a Merchandising Solution
The decision to partner with professional merchandising solutions providers is largely an analysis of in-house merchandising management resources and capabilities. Retail merchandising strategy for small independents is distinctively different compared to omnichannel retailers or large multi-store retailers. Merchandising solutions businesses offer professional services for retailers or all sizes; however, many leverage their large workforce, proprietary technology solutions, and the expertise of various professions (architects, digital marketers, contractors, etc.) to solve complex retail merchandising challenges. Merchandising solution providers specialize in online retail stores and managing digital channels as well. If your IT capabilities or resources are limited, it is important to work with partners familiar with the complexities of online security, cloud-based software deployment and management, digital marketing, and web analytics.
Joe Holley is the VP New Business Development - Displays/Merchandisers, for Frank Mayer and Associates, Inc. The company designs and manufactures point of purchase displays and kiosks for in-store environments. Holley has more than 20 years of experience in developing custom branded, in-store marketing solutions for retailers. He offers the following qualitative criteria for evaluating merchandising partners:
- Continuity: Holley recommends asking questions about the company’s longest-running retail merchandising client — a question you can pose to the company representatives partnering with you as well. How many clients partner with them on multiple projects? Can they provide real-world examples when a merchandising project was sidetracked and what the company felt was the positive, and negative, outcome?
- Creativity: “Don’t tell me, show me,” is the adage Holley recommends applying to this criteria. Request physical samples of merchandise displays or a portfolio of digital media and pay attention to the small details. Review the merchandising solutions the company creates for their clients. Does their portfolio back up claims of creative capabilities and customer insights? What is the depth of creative resources on their team and how many designers work on a project on average? Concentrate on the design quality of graphics and use trade shows to scout how the company represents their craftsmanship for their own marketing and customer experience.
- Agility: Holley refers to this criteria in terms of in-house capabilities. “The greater the array of in-house capabilities, the more nimble an in-store merchandising partner can be,” writes Holley. It is important that your merchandising partners are willing to be flexible and modify solutions when challenges arise. Can they achieve the original plan on the agreed upon dates consistently? Ask questions to determine how nimbly the partner works around the challenges of the retail supply chain, involving multiple trade and category managers with a stake in the design and display of their products.
Retail Supply Chain Merchandising
The retail industry relies on the cooperation of a supply chain made up of manufacturers, wholesale suppliers, distributors, transportation and logistics providers, and merchandising solutions providers. Supply chain merchandising is a partnership between merchandise managers and their network of suppliers, who use shared resources to stock products and displays for customers to access. This merchandising activity is done by the manufacturer, vendor, or wholesaler that provides the products to the retail store and in some scenarios, may include the partners who select the merchandise mix for retailers. Grocery retailers, for example, rely on the in-store merchandising services of their partners for activity such as shelf stocking, inventory management, and promotional display creation. Omnichannel retailers partner with suppliers and third party vendors on e-commerce merchandising activity such as implementing cart abandonment technology on a hosted website or managing dropshipping partners in the supply chain.
What Does It Take to Succeed in Merchandise Management?
Merchandise managers are vital to the retail management ecosystem. Linkedin lists a variety of merchandise manager professionals working in various retail environments, and with all types of merchandise. A variety of specialized roles related to merchandise management exists as well, including specialty buyers, purchasing and vendor managers, sales trainers and consultants, professional service providers, turnaround managers, supply chain specialists, and technologists who specialize in inventory management and POS systems software. The role of a merchandise manager varies but aligns with retail management philosophy, planning, strategy, and activity. Retail merchandise management responsibilities include the following activities:
- Merchandising Planning: The expenses involved in running a retail business can make or break a retailer because of slim operating margins and strict competition. In fact, proper retail merchandise planning is so critical to profitability that the retail industry supports separate job categories for merchandise planners and the major retail management system software solutions providers design planning tools and technology for users. The planning responsibilities for merchandise managers include sales forecasting, inventory planning, customer trend analysis with vendors, visual merchandising design, and seasonal store layout.
- Merchandise Budgeting: Managing and selling inventory is not an easy task, and retailers with large amounts of inventory or expensive merchandise rely on the accuracy of their merchandising budgets. The merchandise budgeting process requires projecting demand, projecting sales, determining which costs to attribute (cost of goods sold, marketing expenses, software cost, shipping) and estimating purchases and reduction (inventory theft or damage). The budget may be static or flexible, depending on the business history and retail category, and consists of projected sales, inventory cost, estimated reduction, and estimated purchases.
- Inventory Planning: Merchandise managers are responsible for maintaining accurate inventory levels according to customer demand and operational capacity. The ultimate goal for retailers is profitability, and there are various methods used to manage a profitable inventory. For example, merchandise managers budget for real-time inventory expenses to identify how much capital is available at any given time. This portion of the merchandise budget is called open to buy (OTB). For more information on common retail formulas related to inventory planning methods, including average inventory, stock-to-sales ratio, sell-through rate, and stock turnover, visit the article How to Survive and Thrive in Retail Management.
- Retail Assortment Strategies: Assortment strategy is the process of planning for the type and number of products a retailer carries. Merchandise managers plan for how many product variations of a particular product to carry, as well as how many types of products to carry overall. This requires determining trade-offs and savvy analysis of customer trends, operational capacity, and internal capabilities (such as sales staff experience). Merchandise managers may work for retailers known as category killers: A retailer using a deep assortment strategy of a limited number of products to dominate a category and make competition difficult (for example, Staples’ assortment of business supplies and services). A greater percentage of retail sales shifting to digital channels makes category killers less of a threat to smaller retailers leveraging narrow assortment strategies.
The majority of merchandise managers have a bachelor’s degree (for BA/BS in Business, BS in Fashion Merchandising, and BA/BS in Marketing) or equivalent industry experience. The role is diverse, as merchandise management includes sales forecasting, creating merchandise plans and inventory budgets, evaluating market trends, and working with buyers to manage supply and demand. Merchandise Managers are often involved in the day-to-day activities in a variety of retail environments that include creating displays, stocking shelves, managing inventory, training sales staff, and working with information systems for inventory management and sales reporting.
- “Managed products through their lifecycle, from creation to disposition, vendor management, meetings, and negotiations, including minimum purchase quantities, rebates, and costs.”
- “Initiated a bridal registry system that increased registries by 33% and sales by $800 thousand and improved customer service in the first year.”
- “Managed team of product coordinators, analysts, event managers, and web merchandisers.”
- “Analyzed sales data in depth to optimize merchandise presentation and selection. Achieved consistent 4-5% comp growth in responsible departments.”
- “Successfully planned and executed substantial merchandise initiatives and relays, including new department rollouts, NOOK, and digital initiatives.”
- “Designed and launched new merchandise website with revenue doubling LY.”
- “Successfully reduced inventory 30% by implementing mark-down strategies and open to buy.”
Image source: Indeed.com
The Importance of Retail Category Management
At the center of retail merchandising management is the desire to understand customers in order to create customer value that leads to profitability. To do so, merchandise managers need to consider how every retail merchandising decision helps the customer. According to Berkhout, this is the core of category management. Professionals originally used the term category management to describe the joint business planning between retailer and supplier, writes Berkhout. Over time, the definition changed to include “the process of managing categories as strategic business units, producing advanced results by focusing on delivering consumer value.” He credits Brian Harris, at the time a University of Southern California Professor of Marketing and Procter & Gamble (P&G) consultant, for creating the term and the business model. The practice completely changed the way P&G and Walmart collaborated after the first-ever category management project between the two retail titans took off in the 1980s. Berkhout writes that the concept rests on four principles:
- Think category rather than brand or product.
- Include supply and demand retail activities as an integral part of your overall process.
- Deliver customer value.
- Collaborate closely with suppliers.
Holistic, mutually beneficial collaboration between retailers and their supply chain partners is essential to surviving in the retail jungle. Category management is less dependent on customer behavior or motivations, and relies more heavily on strategic planning, understanding and analyzing data, and retail merchandising tactics. Merchandising strategy is what small, independent retailers need to understand in order to respond to the threat of retail giants, deep-assortment discounters, and digital disruption.
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