Of course, if we really thought that was the end of the story, we probably would have chosen a different topic for this post.
Within most retail organizations, the simple description above masks a dichotomy between what merchants need the stores to be and what supply chain practitioners need the store to be.
The Merchant’s Definition
To a merchandising person, the store exists to provide the customer with more than just products, but with an experience. How a store is merchandised – both in terms of
assortment and attractiveness – can dictate whether or not a customer will even walk in the door.
Granted, the individual SKUs need to sell in order to make money, but it’s rare for consumers nowadays to stay loyal to any particular brand of anything for very long. What’s more important is management of categories – making sure that you give consumers an adequate number of options at a competitive price. Even though the individual SKUs within the categories may change over time, merchants want consumers to know that their stores have the best options in terms of price, selection and quality.
The product assortment and display is the message to consumers and the store is the
The Supply Chain Manager’s Definition
For supply chain folks, the stores represent the critical final nodes in the supply chain. Once inventory has been deployed to the store, it has incurred all of the costs of the entire supply chain. Too much inventory at this level means costly markdowns or redeployment. Too little means lost sales. There’s a profit squeeze on both edges of the sword and limited options for recovering from mistakes. When it comes to replenishing stores, getting it right the first time is crucial.
They recognize that the shelves need to be full, but they want to do it in such a way that minimizes operational costs and puts inventory in the right place at the right time throughout the supply chain. In order to tread the service/inventory tightrope successfully, they need to know what the forces of demand and supply will be on each store into the future so that they can schedule the rest of the upstream supply chain, where more flexibility is available.
Inability to keep the shelves full hurts the merchandising strategy. Improper merchandising gets the wrong products into the supply chain and keeps the wrong ones out.
So which view is correct? Are retail stores “browsers” for consumers or expensive inventory stockpiles? Are they demand points or supply points? Maybe a more appropriate question is: Why can’t both views be correct?
Image Credit: Elsie esq.