Store Execution and Its Impact on Category Management
October 2, 2019
Bob Willett, former President of Best Buy International, once said, “Retail is very simple. We buy in bulk and we sell in singles. But, god, we make it complicated.”
He was talking, of course, about category management, and why getting the right inventory into the right stores is so challenging for retailers. If you don’t have enough of something, you lose customers. If you have too much, it just sits there taking up space that could be put to better use. Worst of all, no matter how many resources you put into category management, it might not matter if store teams don’t execute their tasks properly.
Category management as a strategic asset
Retailers don’t just throw darts at a board when it comes to choosing which products to sell and how many of each to order. Category management is a complex process that involves everything from analytics to vendor management. It’s a tough job, and it’s important enough that the best category managers have certifications, like the Category Management Association’s “Certified Strategic Professional Advisor.” The decisions made by a category manager can make or break a retailer’s sales goals.
What follows is a high-level view of what category managers do to get the right products in the right stores at the right times. However, they never forget that, even if they make all the right decisions, their success still depends largely on the store teams. So, as you read through this list of responsibilities, think about how poor execution at the store level can make all of these data-backed strategies a waste of time and resources.
Analytics and forecasting
The retailers who do it right do a deep dive into big data: their own data, data from sources like NPD, competitor data (when you can get it), demographics, weather, etc. While there’s still an element of educated guesswork, it’s as close to predicting the future as you can get.
The automotive aftermarket: example of a predictable industry
Some industries have it better than others. Take the automotive aftermarket industry: There’s data available that tells you the age or mileage at which certain parts are likely to fail. If category managers couple that with data about the population of cars on the road, they can make a fairly accurate forecast of how many starters or alternators they need to order.
But there are always things that can throw forecasts off. Weather, for example, is a big variable. Extreme heat or cold can cause a spike in failure rates, leading to outs in the stores and stranded customers on the roads. Weather that’s milder than previous years can send sales into an unexpected slump, leaving the retailer with excess inventory.
Category managers can save the day during a crisis
Even predictable industries are susceptible to black swan events that disrupt everything, and that’s when good category managers become indispensable. For instance, imagine a major earthquake strike the New Madrid fault. That particular fault criss-crosses the Mississippi River from just south of Memphis up into Illinois. According to seismologists, a large quake in the New Madrid Seismic Zone could devastate cities and infrastructure from Memphis through St. Louis, and possibly even Chicago. (Seismic waves in this part of the country travel much farther than in the western U.S.)
Were that to happen, most cross-country interstate and rail travel would come to a grinding halt. Bridges would be down, and interstates would be impassable. With FedEx headquartered in Memphis, air freight would be affected, too.
Category managers would be faced with figuring out how to supply a country quite literally cut in half. To start with, they’d have to decide which products coming from overseas would have to be rerouted to different ports.
The real challenge would be products like automotive batteries. Most are manufactured here in the U.S., there are a limited number of manufacturers, and only a few have the bandwidth to ramp up production. So, if a retailer’s battery supplier’s facilities were all west of the Mississippi River, the category manager would have to try to find a different supplier for the eastern U.S. — someone who could ramp up production in time to keep the shelves stocked. And even if they could, they might not produce every type of battery that the previous vendor did, so the retailer might have outs for some vehicles. In addition, the category manager would have to set up a new delivery system, communicate the changes to employees, etc.
The bottom line? Even in stable, predictable industries, category managers make back-up plans for everything from the unlikely to the unthinkable.
Fashion: An industry of constant change
The fashion industry is particularly challenging: Think of it as having to predict the next in-demand Christmas toy with every single order. In fact, studies have shown that, while fashion retailers may get it right when it comes to overall trends, forecasts for particular SKUs are often off by as much as 35-50% — and significantly more in some cases. That’s because fashion trends change so quickly that historical sales are of little use in predicting future sales. For most brands, lead times are long due to offshore manufacturing, and product life cycles are short — it’s not unusual to walk into a fashion retailer and see different items every few weeks.
And then there’s the fact that customers are fickle. Despite all the ads and fashion articles telling consumers what the most popular color of the season will be, they don’t always listen. When that happens, retailers can be taken by surprise, greeting customers looking for something in emerald green with a salesfloor full of coral. A category manager’s best forecasting can fall apart at the whim of consumer preferences. And the fashion industry isn’t immune to disruptive events that can play havoc with forecasting and ordering. The recent tariff increases on goods from China provide a timely example. Some category managers have been buying large quantities of their most important product lines in order to beat the tariffs.
But that means they also have to make plans for transporting the products to a storage location where they can be held until it’s time to send them to the stores. And it exposes them to the risk of having a lot of unsold merchandise if customers’ preferences change.
Now, vendors are starting to pass their cost increases on to retailers. So category managers have to decide whether to accept the price increase, pass it on to consumers (putting them at a competitive disadvantage to retailers who source from other countries), or scramble to find a vendor whose products aren’t from China. Even if they’re able to find someone with enough production capacity, they still have to restructure the supply chain, and the merchandise on the shelves might be different from what they had planned.
The real wild card: fads
Remember fidget spinners? This 2017 fad skyrocketed so quickly that it created a shortage of the ball bearings needed to make the popular toys. At the peak of the fidget-spinner craze in May of 2017 (when the toys accounted for 17% of all online toy sales), manufacturers in China were hoarding their supplies and selling only to the highest bidders. Some American retailers were told to bring “bags of cash” if they wanted to make sure their orders would be filled.
A few months later? You could find buckets of them in the POS displays of everybody from major retailers to gas stations.
Fads like the fidget spinner are a category manager’s nightmare. If they don’t jump in, they get called to the CEO’s office to find out why they didn’t buy a product that turned into a cash cow for other retailers. If they buy too many of them too close to the end of the fad’s lifecycle, they’re stuck trying to find opportunities to give them away.
Category managers’ responsibilities also include choosing vendors, something that requires weighing a dizzying array of factors: costs, bandwidth, on-time delivery rates, allowances for returns, etc. And, for categories driven by trends — like apparel, home decor, etc. — the vendor’s ability to adapt midstream.
Sometimes, the choices are easy: The retailer has an established relationship with a vendor who has a near perfect record on fill rates and on-time deliveries, works with them on promotions, offers a generous returns allowance, etc.
Sometimes, though, that vendor gets bought by a company that’s more focused on cutting costs than preserving customer service. Sometimes one of their suppliers goes out of business unexpectedly, or civil unrest disrupt the supply chain. Sometimes new regulations drive up their costs, and they want to pass on more of the costs than the retailer is willing to accept.
Or, sometimes, another vendor comes in with a better offer — higher quality and lower costs — because they’ve found ways to streamline sourcing, improve their supply chain, etc.
Category managers don’t just order inventory and forget about it. Their role is strategic, stretching from the decision to buy a product to the moment that product leaves the store in a customer’s hands. That often means getting involved with marketing and promotion.
Sometimes that’s as simple as providing product information to marketing to help them create an ad or web copy. Other times, that means working with a vendor on a promotional display. If a category manager is really good, the contract will even stipulate that the vendor will cover the costs of the display, including labor, on the assumption that increased sales will make up for their investment. Knowing when to ask vendors for their help in selling a product is an important skill for category managers.
Category managers are constantly monitoring how their products perform. And the good ones really get down into the weeds. They look at how many units of a particular product were sold the current week compared to the same week during the previous fiscal year. Then they look at factors that might have caused any increase or decrease — things like weather, price changes, or a competitor opening across the street.
They look at market share, too, to see whether they’re gaining or losing customers to competitors. And, depending on how agile their particular industry is, they may work with the vendor to make changes to stop losses or fuel more growth.
Sometimes, when a product experiences an unexpected slump in sales, the problem is obvious: An ice storm affected an entire region of the country, keeping everyone at home. But it’s not always that easy.
That’s when category managers have to start looking at other possibilities, and one of the most common suspects is poor store execution.
How poor store execution can undermine the best category management
Poor execution at the store level affects almost every category manager at some point. In fact, research indicates that poor execution costs brands 25% of sales every year. Here are some of the most common areas where things break down.
Poor salesfloor replenishment
This one may sound like a small thing, but picture this scenario: A customer comes in to buy a particular product, but leaves because they saw an empty shelf, not knowing that the product was actually sitting in the backroom the whole time because nobody got around to restocking the outs. At worst, the customer may not come back.
But even if the retailer doesn’t lose the customer for good, a lost transaction probably means multiple products took a hit. Maybe the customer was planning to buy a whole list of items but left your store so that they could buy everything at one place. Maybe, if the item had been on the shelf, they would have stocked up on impulse items displayed at the register.
Store teams have a lot to do during the day, and with most retailers trying to keep a lid on payroll, they don’t have a lot of wiggle room. But replenishment should always be a priority. There should never be an empty spot on the salesfloor when the merchandise is in the backroom. In fact, there should never be a spot that’s even close to empty! On a busy day, it doesn’t take long to go from three to zero.
Failure to correctly set promotional displays
Store teams may not realize how much work goes into planning a promotion. And they probably don’t realize that promotional campaigns have the potential to increase sales by a staggering 193%. Unfortunately, only half of all promotional displays are set correctly, and that leads to lost sales. In fact, Deepak Marsand, a former executive with PepsiCo and CVS Health, has said that improving compliance by a single percentage point would increase sales across the retail industry by approximately $3 billion.
Product recalls are usually made for safety reasons. Sometimes the manufacturer, the government, or consumer advocates will discover a flaw in a child car seat, for example. Or they’ll discover that a food product has been contaminated with e-coli or some other bacteria.
When it comes to recalls, the communication usually comes from the category manager, and quick and accurate execution is a must. The first priority is to get the item off the sales floor, because the penalty for selling recalled products is more than a slap on the wrist. Home Depot, for example, paid a civil penalty of $5.7 million for selling recalled products.
While getting the product off the sales floor is the most critical part, there’s still work to do. Depending on the reason for the recall, store employees may have to follow specific instructions for packing and labeling the recalled merchandise.
Plus, when the merchandise hangs out in the backroom for too long, three things happen:
There’s a greater risk that an employee will mistakenly put the product back on the salesfloor.
It takes longer for the retailer to be reimbursed.
There’s less room for new merchandise to come in, and a crowded backroom and loading dock make it harder for employees to work.
Leftover seasonal merchandise
After any big holiday, there are usually a few days when savvy shoppers swarm in to stock up for next year. But what happens after that? This is one of those situations where proper execution is critical. The store team has to get the old merchandise off the sales floor as soon as possible to make room for the next wave of product. But it can’t just sit in the backroom, either. Often, the old merchandise is supposed to go back on the same truck that delivered the new merchandise.
Even if the merchandise doesn’t go back on the same truck, it’s important for the store teams to follow instructions. Sometimes all of the merchandise will go to a warehouse, where it will be consolidated and sent back to the vendor. Other times, vendors will pick merchandise up from the stores. Either way, it’s important to have everything packaged and labeled correctly and on time.
Category managers don’t change vendors on impulse. Sometimes they don’t have a choice, such as when a vendor goes out of business or a natural disaster disrupts production. But it usually involves a series of meetings and negotiations with top management of both companies (often called “top-to-top” meetings). So, when it happens, it’s safe to say there was a good reason. Unfortunately, poor execution at the store level can undermine the expected benefits.
For example, sometimes the new vendor agrees to buy back the old vendor’s merchandise so that they can hurry up and get their product on the shelves. That means store teams have to pull the old vendor’s merchandise, pack it up and label it according to precise instructions so that they can get the proper credit, and then restock the shelves with the new vendor’s merchandise.
In this case, poor execution is a recipe for disaster. If a store team doesn’t pull the old products from the shelves, a customer may try to buy something that technically isn’t in the system anymore. Moreover, if stores don’t send those goods back, they don’t get credit from the new vendor. And if they don’t get around to stocking the new vendor’s merchandise, they’ll have empty shelves and will miss out on sales.
Store execution can make or break the best-laid plans
Retailers can have the latest inventory tracking systems and the best category managers on the planet, and it can all fall apart if the store teams don’t execute those plans properly.
That’s where a store communication and task management solution like Retail Zipline can save the day. Retail Zipline improves task execution by:
Letting you send easy-to-understand messages to the right people at the right time
Know who opened which messages and whether the tasks assigned in those messages were completed
Eliminate the confusion caused by overlapping or conflicting messages
Retail Zipline makes things easier at the store level, too:
For bigger tasks, store employees can leave messages for their teammates about what’s been done and what still left to do.
Store teams can communicate with one another if they have questions about a task, instead of waiting on a response from HQ.
Strategic category management is one of the most important jobs that take place at a retailer’s headquarters. But it can all fall apart at the last mile if store teams fail to execute properly.
Retail Zipline is here to make sure that doesn’t happen. Get in touch today to schedule a demo of our store communications and task management platform.