September 20, 2012

Merchandise Life

Merchandise performance is a lot like a tournament.  For new items, it's very hard to advance in the tournament.  For existing items, it's like being seeded well, your odds of advancing to next year are very good.

A typical item has a "life".
  • Introductory Year = $10,000.
  • 1st Full Year = $30,000.
  • 2nd Full Year = $26,000.
  • 3rd Full Year = $22,000.
  • 4th Full Year = $18,000.
  • 5th Full Year = $14,000.
  • 6th Full Year = $10,000.
  • 7th Full Year = $6,000.
  • 8th Full Year = Item is Discontinued.
In this "life", the item is introduced, and performs well enough to be sold next year.

In the first or second full year of being available, item performance typically peaks.  From there, the item frequently experiences a slow death, as illustrated above.

In many projects, I observe weak company performance (i.e. -10% for each of the past two years).  Often, weak performance is correlated with a systemic failure to introduce new products that perform at high levels.

Look back to the 2008 - 2009 timeframe.  Some companies dug their heels in to get through "The Great Recession".  These companies did not invest money in new products, instead riding the high productivity of existing products through the economic downturn.

3-4 years later, the new products that should have been introduced in 2008 - 2009 are not available to generate current year demand and profit.  The business suffers because new products were not created at sufficient levels in the past.

Perform an "item life" analysis on your merchandise.  What do you see?  Are some of your problems correlated with not putting enough new products into the pipeline in recent years?

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