Back in days gone by, many small retailers would sell the same products in roughly the same quantities, week in and week out. This was especially true in some outlying areas where there was just one ironmonger, one jeweller, one butcher etc etc. Everybody had their role and trade was steady, if not sometimes a little boring, perhaps? Nowadays, things are a little different in most western economies and many elsewhere too, where retailing is increasingly a battle of the fittest, and for the minnoes, often a struggle for survival. Small retailers have limited means to compete with the larger chains. They cannot spend large sums on advertising or on deep and lasting price reductions. Where they can match, and sometimes surpass their larger rivals is in range selection.
Large Chains - Great Systems - When they're not Going Wrong
In large chains, ranges will be regularly reviewed and changed. Range changes may be as regular as once a week in some chains, and typically once a month in many. The reason for range changes and extensions will include the following:
1. Reflection of seasonal changes in buying habits
2. Increasing or decreasing popularity of certain product groups
3. Forthcoming promotions
4. New product trials
5. Long term product shortages
Established chains rely heavily on actual sales as a way to allocate shelf space in store. They will have built up a history of sales over many years. Through this data, they will judge the best time to bring in seasonal, promotional and trial products and will know which lines can be squeezed or dropped to make way for them. New products will often be trialled in a few selected branches in order to gauge the sales potential. The producers of new products will often be expected to heavily subsidise the price the retailer pays for them and fund much, if not all, of the advertising and promotional material. In some stores, the producers may be expected to rent the shelf space from the store and to have a full sale-or-return policy meaning that any risk to the retailer is neutralized.
When it comes to launching new products, the steady system of using historical sales as a steer towards range allocation can go awry. This system is heavily reliant on a huge database that typically works well for large chains when a the spanner of a new line isn't thrown into the works. When this does happen, the normal stock and order system can become disrupted for weeks with a knock-on to many closely and distantly related product lines and this is despite computer modelling tools that are available nowadays.
This is a typical problem brought about by introducing a new product line. Let's say that the product is a new woman's shampoo.
1. After discreet trials in a few stores, a sales forecast is arrived at for stocking the product company-wide
2. The producer offers heavy discounts on the product to the retailer and increased promotions on the understanding that shelf space will be increased further
3. Sales of competitor female shampoos are expected to be hit by the new arrival and so a modelling system is employed to attempt to predict this knock-on. As a result the competitor orders are reduced. No-one trusts the modelling system and so competitor product orders are not curtailed as much as the modelling system suggests
4. Competitor shampoo shelf space is decreased to make room for the new arrival
5. The product goes on sale at a very low price after yet further discounts from the producer
6. Competitor female shampoos sales are hit, but not as much as was predicted. Why? Because the competitors react swiftly by reducing their prices and agreeing to take all the hit on margin. The store chain will not argue with this as they are the winners.
7, Customers take advantage of the low price on top of advertising pull and plain curiosity and stock up on the new product. Not trusting the new brand, though, many continue to buy their regular shampoo as a back up, especially as it too is at a lower price.
8. Because competitor shampoo shelf space was reduced, out of stock incidents of some lines increase resulting in a destabilization of the sales pattern for the whole product group
9. To complicate matters, men's shampoo sales are hit as the predominantly female customer base decides that the new low priced shampoo will be good enough for them!
10. Result: destabilized sales pattern across all shampoo lines. As sales data cannot be relied on, a this-time-last-year data set is used, factored by the product area's general variance on year and the sales pattern for the new product's birth and promotional period is suppressed from the database for future reference. The end result is that many lines go out of stock in many stores. Just when stocks recover, the system kicks in with extra orders and the whole range is allocated more shelf space. Too late: customer are well stocked up with shampoo and sales fall back, leaving a company wide overstock. Not only this, but the stock and order pattern is weakened over the subsequent few weeks and the same period the following year where year-on-year tempering of sales forecasts is not available.
This is a frequent occurrence and a common reason why the buyers/marketing people and stock management people are often at each others’ throats. Stock managers would love there to be no Christmas, no Thanksgiving, no weather variations, no promotions, no stock and no customers. OK, I didn't mean the last two - I didn't mean any of them really, but you get the idea, I hope. The woeful tale of out of stocks and over stocks would have been repeated across all the chain's stores. This is because, once the machine starts running in one direction, there is no stopping it from branch to branch. Now this is where the small retailer comes in (in case you were wondering). Remember this: stock management is an art and not just a science . Small retailers have less access to science but have more opportunity to practice the art of good stock management. The big retailers have not yet found a way to include a common sense button in their computer systems and they are increasingly reluctant to allow humans to override their systems, and this is a key factor.
As the large stores get better at system generated ordering, they are less inclined to allow human intervention. This is a great irony: the more humans tinker with the system, the less reliable it is in the long term. As every major stock imbalance is analyzed and a reason allocated, another item is added to the wish list for system changes. The changes are eventually made, and the edict goes out: no tinkering! Let the system do it. Human stock controllers are thinned as there is less need for them. Then a combination of events leads to another stock problem. The tinkering starts up again and the system - now an extremely fine balanced box of tricks - goes out of balance.
Small Retailers have Speed and Flexibility
Small retailers are less inhibited and less reliant on systems. Some have sparse - or no - stock and order systems at their disposal. If the small retailer is skilled at their job, the human touch can be far better than the best systems available. The fact is, a retailer can practice great flexibility in product range diversification. They can make short term merchandising changes to reflect a promotion or the onset of a sales season. They can identify a product that requires more space. They can also identify a promotional product or a new product whose sales are living up to expectation and cut back orders more quickly. A good small retailer is also listening to their customers and perhaps watching how the shop. They may make subtle changes to displays as a way of marshalling customers to a new line that may have been overlooked. Most importantly - they can react instantly. Large retailers cannot.
As a small retailer, range changes and new ranges may benefit from a plan, but that plan can be amended or even ripped up if necessary. For large retailers, systems that work so well from day to day tend to bleed when confused by the disruption of range changes. A small retailer's reliance on a hands-on approach - so time consuming and potentially error prone from day to day - can give you a great advantage when ranges are changed. As a result you may find that, with three weeks to go before Christmas, you are fully stocked with seasonal lines and have a full compliment of regular staple products, while your larger competitor down the road is suffering from out of stocks while the store manager looks on helpless.
As a small retailer, remember to keep a watching brief on slow sellers. When a product goes slow, try to rationalize the problem. Has the price risen recently? Has your competitor recently reduced prices of this product, or perhaps a popular internet store? Is a related product competing? For example, if you run a general food store don't forget that the fresh food you sell has a relationship to the frozen food you may also sell, or some dry grocery products. If you have brought in a new line of frozen broccoli then expect a downturn in sales of the fresh variety. Remember that slow sellers can be squatting on valuable selling space. If, once you have gone through the options, it is decided that a product is not selling because it is simply less popular, then you may need to consider delisting it.
Sophisticated forecasting, planning and stocking systems are great for large chains. For small retailers such systems would not only be disproportionately costly, they could take away the one advantage you have over your larger rivals and that is speed, flexibility and, of course, the human touch. You need to get in your customers’ minds. Get to know what they want and when they want it; better still, get to know whet they want BEFORE they want it.
Look out for the final part of this series - if your are struggling as a small retailer, it might just give you a life-line, as I examine the future for small retailers where things may look bleak. . . . . for the large retailers. Stay tuned.
Vernon Stent is the content writer for AboutRetail.net . This page is about merchandising