May 1, 2023

Strategies for Merchandise Planning a New Location

Merchandise-planning-strategies-with-new-stores

Authors

Lacey Rotsaert
Solutions Consultant

Table of Contents

Nothing in retail is one-size-fits-all (pun absolutely intended) and therefore there are a variety of strategies merchandise planning teams can employ when planning for a new physical or digital location. You will likely need a combination of the below depending on your current channels.

Note: In this article, we focus on the types of products to plan for, not the visual merchandising or planograms that are also critical to consider. 

Planning Inventory for a New Store (when you already have other stores)

When opening a new store, it's important to have a solid inventory plan in place to ensure the store is properly stocked with the right products to meet customer demand. One important factor to consider is the inventory already being carried in other stores, as this can help inform decisions about what to stock in the new location. By analyzing sales data from other stores and identifying which products have performed well, retailers can make informed decisions about which items to carry in the new store. Toolio can help! Click here to talk about your specific use cases and how we can meet your unique needs.

We’ve organized these strategies from least data to most robust. Meaning, if you only have one store the top strategies are more feasible, versus the latter strategies being good options for retailers with more stores to compare.

80/20 Core Best Sellers/Fashion

The 80/20 rule is a common merchandising strategy used by retailers to maximize profits and minimize risks. The rule states that 80% of a retailer's sales come from 20% of their products, known as core best sellers. When opening a new store, it's important to consider which products fall into this category and ensure they are well-stocked in the new location. In addition, retailers must also consider their fashion merchandise mix, which typically consists of new and trendy products that may have a shorter lifespan. Retailers will want to thoughtfully consider ways to mix fashion and core together, especially at the store front to bring in customers. By balancing the core best sellers with the fashion merchandise mix, retailers can create a well-rounded product mix that appeals to a wide range of customers and keeps shoppers coming back to the store to see what’s new.

Like-for-Like Geography Using Online Sales as Proxy

Although online buying behavior will not translate exactly to physical behaviors, without other brick and mortar data points in the area, analyzing online sales will help highlight trends. By isolating sales in the geographic area, retailers can gain insights into consumer behavior in a particular region or market. This information can then be used to inform decisions about product selection, pricing, and marketing strategies for the new store.

Like-for-Like Categorical Distribution

From gender to color to cut, every retailer has their preferred way to group products. Combining results from all sales channels can help merchandise planners plug the right ratios or distributions of those categories into stores. For example, if a retailer finds they typically sell 70/30 female/male products, they’ll want to ensure that ratio is reflected in inventory in the store as well. 

Like-for-Like Square Footage

When planning a new store, retailers need to consider the physical layout of the space and how it compares to other stores in their portfolio. Understanding the like-for-like square footage can help retailers determine how much inventory to purchase and how to best allocate it within the store. By analyzing sales data and product performance in other stores with similar square footage, retailers can make informed decisions about the optimal product mix and merchandising strategy for the new location.

Like-for-Like Climate

Climate can have a significant impact on consumer buying behavior, and retailers must take this into account when planning a new store. By analyzing sales data from other stores located in regions with similar climates, retailers can gain insights into the types of products that are likely to perform well in the new location. This information can then be used to make informed decisions about inventory selection, merchandising, and marketing strategies for the new store.

Like-for-Like Socioeconomic Demographics

When opening a new store, it's important to consider the socioeconomic demographics of the local market. Analyzing sales data from other stores in similar markets can help retailers understand the like-for-like socioeconomic demographics of their customer base. This information can then be used to inform decisions about product selection, pricing, and marketing strategies for the new store.

Planning Inventory for Your First Store

A first store for a retailer is an exciting (and terrifying) time, fraught with many decisions from hiring associates to real estate choices. Stores give retailers an opportunity to test their brand in the market in order to inform future decisions. It’s rarely the fastest path to revenue, but the learnings are the key value to substantiate the investment.

Hypothesis Your Product Mix

The same advice above on the 80/20 rule, using online sales as a proxy, and categorical distribution remain relevant for your first store, however, without a single retail location, these data points are blatantly unreliable. A first store is the test for consumer demand and can help especially if you’re attempting to mature your brand in the eyes of consumers. The key is to hypothesize the perfect product mix, but not marry it. 

Keep Your Turn Tight

It is important for retailers to keep their turn tight when opening a new store for several reasons. 

Maximize Profit While Reducing Risk

First, maintaining a high rate of inventory turnover helps to ensure that a retailer is maximizing its profit potential and minimizing its risk of overstocking. This is particularly important for new stores, which may have limited space and resources and may not yet have a strong understanding of the local market demand. Tight inventory turn can also help retailers to improve their cash flow and reduce the amount of working capital tied up in slow-moving or excess inventory.

Rapid Response to Demand

As mentioned above, job one of your first store is understanding trends, preferences and demand. By quickly turning over inventory, retailers can better align their product mix with local demand, and make adjustments more quickly based on changing market conditions. This is particularly important for new stores, which may need to adjust their product mix and marketing strategies as they learn more about their local market and customer base.

Baseline Best Practice Weeks of Supply for New Stores

A “good” goal for weeks of supply for your new store will depend, but if forced, we’d say four weeks of supply should be the goal. Also, be sure to be actively analyzing early weeks’ sales and replenishing frequently. 

Use What You Got

Let’s be honest, some of the above is insinuating that you were given time to plan, but that’s not the world many of us live in. Many of our customers are told well after plans are baked, “Hey! We’re gonna open a pop-up shop in Nantucket for summer!” So to some extent, you’ll need to balance taking inventory from other channels and committing it to the new store. We don’t really have advice here as much as camaraderie that it’s common, annoying and we’re here to at least help make that allocation less painful to actually do with Toolio

Tweaks for Inventory Planning

Even if you have extremely robust data on stores across the globe, adjustments will still be necessary. Don’t lose sight of these fundamental tweaks to even the most perfect plan.

Competitive Intelligence

Be sure to poke your head up from your own brand enough to see if your competition has uncovered something not even on your radar. Use our Comp Shop cheatsheet to get insights that you can incorporate in your own strategies in the following categories:

  1. Product assortment: From colors and sizing to categories (like expansion into children’s clothes), assessing your competitions products can help identify gaps in your own assortment. These ideas can help you plan the next assortment, and with visual-first tools like Toolio, you can get a comprehensive look at how it would impact the full assortment. See how Toolio’s gallery view helps visualize assortments here.
  2. Pricing: Retailers can use competitive intelligence to analyze their competitors' pricing strategies and adjust their own pricing accordingly. For example, if a competitor is offering a product at a lower price, the retailer may choose to match or beat that price to remain competitive.
  3. Promotions: Retailers can use competitive intelligence to analyze their competitors' promotional strategies and adjust their own promotions accordingly. For example, if a competitor is offering a buy-one-get-one-free promotion, the retailer may choose to offer a similar promotion to attract customers.

Pro Tip: We work with a lot of retailers who attempt to manage this information in a single field. As you grow and your channels expand, this leads to a lot of pain. Do yourself a favor and think about how to manage markdowns and discounts in your data in your ERP and eCommerce solutions. For more on our recommendations, read here

Seasonality

Of course you’ll want your stores stocked with holiday stuff around the holidays. It’s obvious, but we still wanted to call out that especially if you’re lacking previous data, this can be almost impossible to get right. The advice here is to stay conservative. 

In Conclusion: New Location Inventory Planning

In conclusion, effective inventory planning is a critical component of a successful retail business. When opening a new store, retailers must carefully consider a range of factors, including existing inventory, customer behavior, local climate, and demographic data. By analyzing data and making informed decisions, retailers can optimize their inventory mix and maximize profits while minimizing risk. For a first store, hypothesis testing and tight inventory turns are key to understand customer behavior, test new products and market strategies, and ensure that retailers have the flexibility to make rapid adjustments based on market trends. Ultimately, by employing a combination of the strategies outlined in this article, retailers can develop a comprehensive inventory plan that will help them build a successful and sustainable retail business.

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