Maximizing store space with localized inventory assortments

Ian Rogers

It’s an age-old challenge for retail: what is the ideal breadth and depth of product offerings in a store that meets competing objectives, including:

• Maximizing store turnover vs. maximizing product selection and availability
• Store-to-store consistency vs. local market customization
• Store vs. digital product selection and availability

This challenge has become even more difficult in this customer-centric omni-channel environment. Customer expectations and shopping behaviors have changed, which is challenging the role the physical store plays. Stores used to be the primary way of selling products, so the focus was on how to drive foot traffic to the store. Sales were then driven by the product availability and customer service in the store. This role is changing as the relationship between customers and retailers becomes more complex and personalized. Stores are more and more becoming the medium for brand building, engagement, and product showcasing to drive sales across all channels.

This change is driving how to best utilize the store space, and how we think about the concept of localized inventory assortments. The hypothesis has been:

If I have the right selection and inventory for each specific store then:

• Customer satisfaction will increase
• Store sales will increase
• Store productivity and gross profit per square foot will increase
• Inventory can be better optimized

While this hypothesis still holds true it needs to be done within the context of the new role of the store to drive purchases across all channels. So the challenge becomes how to:

• Determine the custom inventory selection
• Ensure this custom inventory selection has the breadth and depth that supports the overall brand image
• Access the full line
• Execute and control the individual store layouts

• Consistent look/feel
• Is there a logical store grouping to simply implement and update

The strategy to achieve this is a three-part holistic approach:

1.    Gaining an understanding

In order to determine the localized inventory for each store in the network, we first need to understand what are the key attributes that affect customer inventory decisions. These attributes can include:

• Social and economic demographics  (income, race, single/married etc.)
• Customer draw radius around a store
• Store type (mall, street, store-in-store, vending machine)
• Product target audience

Gaining insights into the specific attributes that affect customer inventory decisions for a particular retailer is achieved through the analysis of store sales data and combined with various market demand data. Below is a typical approach:

2.    Execution excellence

Once we understand the attributes and are able to determine the custom inventory selection for a specific store that still ensures a meaningful, brand appropriate offering, the next challenge is how to effectively and appropriately implement this across a large network of stores. We believe that the best approach is adopting a structured five-step assortment framework that enables:

• Store performance comparisons
• Easier inventory deployment strategies

The approach for implementing the structured assortment framework:

3.    Full-line access

Retailers in the past were restricted by the amount of product that could fit within the four walls of the store. Today, the blurring of the lines between the physical and digital shopping experience mean retailers can leverage endless aisle technology to provide an engaging format to learn more about products, enable customers to access products not stocked in the store, and provide an easy way to purchase products in-store and ship home.

Conclusions

Retailers can increase customer satisfaction and build brand awareness while increasing store inventory productivity by implementing a three-step strategy that enables them to:

• Understand the attributes that enable meaningful custom inventory configurations
• Provide an efficient and effective process for achieving store-level execution
• Leverage endless aisles to provide access to broader product selection