Most of us fail to measure the impact of these decisions.
Let's go back to Nordstrom, circa 2003. One of the better selling items in the catalog was the stirrup pant (click here). Folks in the stores, however, hated these things ... simply unfashionable, and they got dinged when catalog customers returned the things in stores, because stores didn't carry comparable items.
By 2005, stirrup pants were no longer the scourge of the online division. Even though the item sold well and paid for itself, the merchandising team made a strategic decision to no longer offer the item.
When your merchandising team decides to kill an item, they must replace the item with a new product. Over time, new products must perform better than the items they replace.
Here's a homework assignment for you.
- Identify all items that your company sold in 2011.
- Identify all items that your company sold in 2012.
- Segment items into three groups ... offered in 2011 and 2012 ... offered in 2011 and discontinued in 2012 ... offered in 2012 but not in 2011.
- Measure total demand on carryover items ... items discontinued ... and items introduced. Did carryover items perform better in 2012 than in 2011? Did discontinued items perform better in 2011 than newly introduced items in 2012?
This simple analysis tells you a lot about the effectiveness of your merchandising team.
And if your business is in flux (growing fast or shrinking quickly), standardize your analysis. Look only at customers with 2 purchases last year, then repeat steps 1-4 above, equalized per 1,000 customers.
What if your assortment is growing rapidly as well. Maybe equalize using number of live products? Or would you just look at the top 50 items or so?
ReplyDeleteIf your assortment is growing but sales are not growing, well, that tells you something!
ReplyDeleteUltimately, you're looking at productivity per sku, and usually, that relationship is approximated by a power function.