Forecasting, Customer Insights Said Key to Merchandising Success

rsrresearch-retailers-keys-to-merchandising-success-august2012.pngThree-quarters of retailers believe that retail forecasting (such as demand forecasting, forecasting for replenishment) is extremely important to their merchandising success, while the remaining quarter believe it to be somewhat important, finds RSR Research [download page] in an August 2012 study. However, despite seeing its importance, not all respondents rate themselves as having a solid understanding of forecasting. This year, 68% said they have a solid understanding of these tools and techniques, down from 73% last year, but up from 61% in 2010.

Still, retailers are more apt to be confident in their understanding of forecasting than assortment optimization (60%, up from 51% last year), integrated merchandise planning, allocation, and replenishment (53%, down from 59%), promotion optimization (52%, up from 43%), and lifecycle price optimization (33%, unchanged).

Customer Analytics Also Extremely Important

Roughly 7 in 10 retailers also believe customer analytics are extremely important to their merchandising success, with a further one-quarter believing analytics to be somewhat important. This ties into retailers’ perceived business challenges: when asked their top 3 challenges, understanding customer preferences was cited by 37% of respondents, tied with underperforming inventory as the second biggest challenge. General merchandise and apparel (GMA) retailers were 41% more likely than fast moving consumer goods (FMCG) companies to indicate understanding consumer preferences to be a top-3 challenge (41% vs. 29%).

Retailers also see how a better understanding of the customer can help improve their merchandising processes. Half said that better incorporation of customer segmentations and preferences into the planning process was a top-3 most important opportunity for improving their merchandising process. This was the top opportunity, ahead of integrated planning with cross-functional teams and price and markdown optimization to boost sell-through (each at 42%).

Only 21% said that a consistent, accurate and detailed demand forecasting platform was a top-3 opportunity for improvement, presumably because almost 7 in 10 already feel confident in their forecasting.

Top Performers Less Worried About Innovation

Data from RSR’s “2012 Merchandising Report” indicates that 44% of retailers believe that the inability to identify new ideas and innovate quickly on price, promotion and customer preferences is a top-3 business challenge, making this the most commonly-cited challenge. Even so, innovating in the face of large amounts of customer information is less of an operational challenge for retailers with comparable store/channel sales growth of over 3% (“winners”). For these retailers, just 35% said that the inability to identify new ideas quickly in a sea of customer information and execute on these ideas is a top-3 operational challenge they face around their merchandising strategy. By contrast, 57% of “laggards” (with comparable store/channel sales growth of less than 3%) indicated this to be a top-3 operational challenge, making it their top challenge overall.

For winners, the most commonly-cited operational challenge was holistically predicting the impact of future pricing, assortment, and promotional decisions, by 59%.

Other Findings:

  • Winners were 48% more likely than laggards to rate themselves as having a solid understanding of forecasting (74% vs. 50%).
  • Only half of retailers in the mid-market (with annual revenues between $50 million and $999 million) say they have a solid understanding of forecasting.
  • Only 26% of respondents are currently optimizing their assortments against new key customer segments, though 16% are beginning to do so, and 34% plan to next year.
  • Most retailers believe that technology can be very valuable to supporting assortment optimization (68%) and customer segmentation (62%), while roughly half believe it can be very valuable for integrating customer data within merchandise planning.

About the Data: The RSR data is based on an online survey conducted from May-August 2012, which received answers from 96 qualified retail respondents. Among respondents, the selling format breakdown was as follows: FMCG (32%); GMA (66%); and restaurant and leisure (4%). 53% of respondents have their headquarters in the US, and 58% have a retail presence in the US.