For retailers, gone are the days when you could “Stack ‘em high and sell ‘em low” if there was enough inventory to lower the margin or enough buying power to decrease inventory costs.

In today’s retail environment, where supply chains are complex and interest rates are high, effective retail merchandising decisions are critical to driving a retail business towards success.

Concurrently in a digital-led retail landscape, consumer expectations are evolving and there is higher demand for a seamless shopping experience. They are interacting with retailers through multiple channels, willingly sharing their preferences, and expecting to receive personalized products and services promptly, via their preferred channels.

Striking the right balance between making better business decisions across retail operations and pleasing retail customers is bringing forth what Gartner deems a tectonic shift that will shake the industry to its core - the mindset shift from product-centric to customer-centric merchandising experience. This is being enabled by digital transformations such as increased reliance on Artificial Intelligence (AI), which is being adopted by global retailers at astounding rates and expected to grow 30.3% in the next decade according to market researchers Fact.MR.

Tech-enabled Evolution of Merchandising Experience

The role of the merchandiser sits at the heart of retail, the purpose of which is to make critical decisions across product ranges, size rations, allocation and promotions.

However, the methods of making these decisions have evolved over decades with many of the tools and techniques developed in an era of limited data and blunt levers. One merchandiser I spoke to described the problem with data as “either having too much or not enough”, much like inventory.

While merchandising decisions may have been loosely influenced by customer feedback, they have largely been made from a product-centric perspective and applied to the entire customer base based on the notion of an average customer.

The rapid technological advancements in retail over the last two decades have revolutionized personalization for customers. Company to customer interaction is no longer limited to a single transaction, evolving into a wide orchestra of marketing and digital experiences across all touchpoints between physical and online stores.

Merchandisers now have access to a wealth of data that can inform each individual customer interaction, considering factors such as potential value, recency, frequency, and other relevant attributes.

Today, the role of merchandisers is far more data-driven and analytical in nature. Luckily technology now exists that can help to connect the multiple data sources and also automate many formerly manual processes.

The rapid rise in usage of AI and analytics tools across retail has pushed forth the next chapter in the customer experience journey, catalysing the move from a product-centric to customer centric approach to merchandising– opening up new possibilities for personalized experiences.

Benefits of Merchandising Experience

As products progress through their life cycle, the benefits of understanding customer behaviour and preferences become even more pronounced. Let's explore some specific areas where these insights can have a profound impact.

1. Full-Price Sell-Through: Ensuring customers find exactly what they desire in-stores or online is a fail-safe way to encourage them to pay full price. This strategy not only boosts revenue but also safeguards against unnecessary markdowns. In today's fast-paced world, customers have less time for shopping, so it's vital to prioritize them by placing their needs at the forefront of any assortment planning strategy.
2. Inventory Optimization: Embracing a surgical approach to inventory allocation that takes into account customer behavior, geographical factors, and channels can help reduce excess inventory. By scaling this optimization strategy across the entire business, retailers can effectively carry less stock while still meeting customer demands.
3. Margin Optimization: Driving sales and revenue involves ensuring customers not only find what they want but also pay the right price from the start. Accurately priced products prevent costly markdown activities down the line while maximizing profit margins. Additionally, by exercising control over inventory, marketing, and other operational expenses, you can drive down costs and boost overall profitability.
4. Customer Profitability: Identifying the most profitable customers and tailoring assortment and pricing strategies to cater to their preferences can significantly enhance the lifetime value of each customer and foster loyalty.
5. Customer Loyalty: Consistency is the foundation of loyalty. When customers can rely on your brand to consistently meet their needs, they will not only return but also become an ambassador.

Harnessing Data Analytics and AI

According to Deloitte, customer-centric companies are, on average, 60% more profitable than those that are not. Meanwhile, a recent McKinsey & Co article estimated that applying integrated digital solutions to merchandising could lead to up to a 50% faster time to market, an 8% rise in full-price sell-through and a 20% decline in manufacturing costs.

By harnessing the power of AI algorithms and data analytics, retailers are gaining invaluable insights into sales patterns, market trends, and customer demands.

This wealth of information allows for intelligent recommendations on pricing strategies, strategic product placements, and assortment planning. Gone are the days of guesswork; AI-powered systems can now provide accurate guidance, helping retailers make informed decisions that resonate with their target audience and maximize profitability.

Moreover, AI-driven automation has the capacity to streamline inventory replenishment processes. With real-time data analysis, retailers can ensure optimal stock levels, reducing the occurrence of frustrating stockouts while minimizing the burden of excess inventory.

The result? Improved profitability, cost reduction, and an enhanced customer experience through consistent product availability—a win-win situation for both retailers and their valued customers.

Ultimately, customer behaviour has fundamentally changed, and the costs of doing business with customers has fundamentally changed. The key now is to utilize the tools and systems available to differentiate and personalize for individual customers.

It is time for retailers to embrace a customer-centric culture holistically across their organization, and this needs to include merchandising. Take our free online self-assessment to receive ​your personalized​​ ​customer centricity score and more actionable insights on how to evolve your merchandising practices to be more centred on the customers.

Doug Kofoid is CEO of EDITED