October 16, 2015

Retail Merchandising Decisions: Art versus Science

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Choosing which products to purchase and in what quantities is one of the biggest decisions any Chief Merchandising Officer will make. These decisions can make or break a company’s seasonal sales (and, given the thin margins many retailers operate on, can make or break a company financially). Retail systems now provide a wealth of item-level data, enabling complex calculations of expected demand for an item if such demand can be based upon a known trend or comparable item.

An ability to measure the ROI of products more reliably, as transactional tracking being tied to analysis systems has been enabled in the last 10+years, has raised expectations that product performance can be completely predicted based upon data. However, remember that science will never enable us to spot a product that is at the leading edge of a trend using pure data, because the analytics to forecast the demand have not yet occurred.

Have we reached the point where science should completely replace the art of merchandising? Ironically, from a financial perspective, I would say ‘not yet’, though science should certainly be center stage.

While there are many articles on marketing as an art versus a science, a reasonable and productive approach to merchandising might be a blend of science and art, with more weight on the science side but an allowance for some art to be injected. This would give weight to all the ‘interested’ groups: the data geeks, the accountants and the pure (art-based) marketers. Here is how this might work:

  • Set demand forecasting budgets based upon science, but also allow for creativity and judgment in merchandising decisions.
  • Agree that ‘X’ amount of the merchandising decisions will be based upon data (science), not art or gut feel.
  • Allow some part of the merchandising budget, say ‘Y’, to be based upon recommendations from the merchandising team, which may not (yet) be supported by analytic data. This defined limit will force only the products outside of data that the merchandisers feel most strongly about to be selected, which would hopefully be the ones with the highest potential (assuming that the merchandiser’s gut feel has some accuracy).
  • For the finance types, the limit on the ‘art’ decisions should limit risk and down side, while also allowing some intuitive decisions, with potential for unexpected upside.

The key take-away is this: while you should arm your merchandising team with the tools to allow them to fully analyze their purchase decisions, also consider giving them the autonomy to make some decisions based upon their gut instinct. If you give them the option to use their intuition and also provide robust analytical tools to supplement the process, then your company should be able to benefit from both schools of thought.

Without a doubt, data analytics tools have made our lives much easier when it comes to making purchase decisions, but it has also hindered our ability to listen to our instincts. These instincts are important to the decision-making process and cannot be completely replicated by technology. So, finding a balance between art and science is essential when it comes to making superior business decisions in a timely manner.

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