Modern Merchandising Stage 4: Remove Silos Between Product Creation and Go-to-Market
August 8, 2022
Retail markdowns now cost brands a whopping $300 billion annually, or 12% of total retail sales. The number one cause? According to senior retail decision makers, it’s “inventory misjudgements,” which account for more than half of unplanned markdown costs.
Products that are unable to find buyers even at discounted rates often make their way to landfills like the one in the Atacama Desert in Chile within a year of creation, compounding the environmental waste already created by unsustainable retail manufacturing processes. Clearly, brands are struggling to accurately predict and deliver the right SKU breadths and depths for seasonal assortments — and they have been for a while.
This realization is leading more brands to evolve from the traditional supply-driven, design-led, intuition-fueled product development and merchandising approach to a modern consumer-obsessed model with data and technology at its core. The first part of this shift involves embracing direct consumer feedback and using it to inform product creation. Next, merchants must adopt cutting-edge tools that streamline milestone meetings and accelerate decision making. In our most recent post, we covered the ways teams can collaborate and craft lines with greater confidence and efficiency.
Now, it’s time to tackle one of the primary drivers of retail overproduction: varying consumer preferences and demands across regions and channels. For global, multi-channel brands, regional and go-to-market teams typically aren’t involved in assortment discussions until much later in the line review process, turning subsequent milestone meetings into high-stress “big reveals” where these teams must fight to be heard.
Merchants find themselves scrambling to deliver newness that meets marketing and sales demands. Global hero styles and brand stories miss the mark with regional and direct channel teams, resulting in low forecasts and requests for additional commercial styles that hurt SKU productivity. Final products often end up discounted or disposed of due to poor performance within these segments.
Brands looking to take a more sustainable, proactive, and lucrative route must work to break down the silos that exist in the current product development and merchandising workflows. This means adopting a more cohesive and collaborative “concept-to-consumer” mindset that incorporates cross-functional and regional stakeholders, as well as regional and go-to-market data, much earlier in the assortment development and decision-making process.
What’s “Concept-to-Consumer”?Most brands approach product creation, crafting the line, and go-to-market as three discrete stages of assortment development, with regional and go-to-market teams and information largely excluded from the first two stages. “Concept-to-consumer” reimagines these siloed stages as a single, cohesive workflow that involves sales, marketing, and regional stakeholders from beginning to end.
Stage 4 of the MakerSights Modern Merchandising Maturity Model explains how brands can integrate regional and go-to-market teams and insights into traditional merchandising processes to circumvent assortment roadblocks, maximize SKU productivity, and accurately determine buy depths. Read on to discover whether your brand fits into this stage, the top challenges and biggest opportunities you’ll likely face, and some of the specific actions you can take to reach maturity.
Start at Stage 4 if…
Both qualitative and quantitative stakeholder feedback on specific product details is collected prior to milestone meetings.
Milestone meetings are used to collaborate and drive consensus around key points of contention among stakeholders and consumers, rather than reviewing entire assortments end-to-end.
You’ve begun minimizing scheduled, in-person milestone meetings in favor of virtual, asynchronous collaboration and decision making.
Go-to-market and regional teams are typically not involved in product creation or line review processes until the majority of assortment decisions have already been made.
Your brand struggles to satisfy consumers and hit sales targets across different channels and geographies without becoming over assorted, resulting in high percentages of dead stock and markdowns.
Top Challenges and Opportunities
How to Reach Stage 4 Maturity
1. Determine commerciality across regions and channels early in product creation.
If you’re in stage four of our modern merchandising maturity model, you should already be tuning into the voice of your current and aspirational customers to help guide milestone decisions. Now it’s time to further refine audience profile segments like “The Outdoorsman” or “The Cosmopolitan” by region and channel, and start collecting sentiment data from these specific groups earlier in the concept-to-consumer process.
While tradition still runs deep in many parts of the world, cultural trends move more quickly than ever before, and growing channels like social commerce are giving way to new purchase behaviors (more on that in a minute!). Factoring channel- and region-specific preferences into concept and sketch phases helps brands maximize product commerciality across target markets, as well as identify and plan for key differences up front, rather than scrambling in later go-to-market stages.
Pro Tip:In addition to soliciting feedback on product details, expand consumer testing and zero-party data collection to include advertising themes, packaging, displays, and other key marketing elements for which preferences across channels and geographies may vary.
For example, if a global brand were to test a 3D CAD of a popular men’s hat in a new green colorway, it would quickly become clear that, while this style may do well in the rest of the world, it wouldn’t sell in China. This would allow the brand to allocate resources toward developing a different colorway that would perform well across all markets, or quickly eliminate this style from its China assortment and adjust forecasts accordingly.
Imagine comparing sentiment for the same 3D CAD among US consumers who shop with different retail partners. A high sentiment score across the board could serve as an early indication that the green hat will be a volume-driving style in America, while high sentiment among customers of a single key account may indicate the opportunity for an exclusive. Not only does identifying these nuances early remove downstream roadblocks and accelerate milestone decisions, but it also leads to greater profits and loyalty across every segment.
2. Involve regional and go-to-market teams in seasonal kickoffs and sketch reviews.
Once sales, marketing, eCommerce, and regional managers are brought into the line review process, they’re usually told what’s going to happen, rather than asked for their perspectives and expertise. Not only do these “big reveals” create a lot of stakeholder tension, but they also cause delays and lost opportunities as brands struggle to incorporate the latest insights from eCommerce data, deliver on unforeseen cultural nuances, or meet a partner’s needs in the eleventh hour — information that only these teams have had access to.
In addition to collecting consumer input by channel and region during concept and sketch reviews, brands must also capture cross-functional stakeholder feedback earlier in the concept-to-consumer process. Fortunately, this should be a fairly smooth transition for brands at this stage of merchandising maturity.
Rather than having to fly these stakeholders out to in-person milestone meetings and make time for them to comment on each item in the assortment, simply give them direct access to relevant assortment data and insights via your digital assortment management workspace. Solicit their qualitative and quantitative feedback on specific product details, and compare and contrast it with that of stakeholders across other channels and regions. Identify key points of interest and contention, and invite them to discuss these items virtually during your next digital concept or sketch review!
Pro Tip:Involving go-to-market teams earlier in the concept-to-consumer process helps merchants gain access to all of the consumer data housed in their brand’s CRM. This allows them to solicit feedback directly from their top target segments, as well as work with assortment management technology providers to create and survey “look-alike” audiences.
3. Make eCommerce and social commerce top priorities.
Although eCommerce sales were on the rise prior to 2020, the global COVID-19 pandemic turbo charged the growth of this direct distribution channel. In just eight months, eCommerce’s share of global fashion sales nearly doubled from 16% to 29%. What’s more, while brick-and-mortar retail sales are expected to remain essentially flat over the next year, eCommerce is projected to grow more than 16% in 2022, surpassing the $1 trillion mark for the first time.
Brands without a direct-to-consumer focus must begin prioritizing eCommerce as a key distribution channel and seek to better understand and serve this unique and rapidly growing consumer segment — or risk being left behind. Similarly, it’s time for digitally-native brands to start looking beyond eCommerce to the next direct-to-consumer frontier: social commerce.
Nearly three quarters of consumers say that they are more likely to shop via social networks, like Facebook and Instagram, than they were prior to the pandemic. In the US alone, social commerce sales are expected to grow from $37 billion in 2021 to $56 billion in 2023, with global social commerce anticipated to grow 3x faster than eCommerce by 2025.
While the rise of this trend is undoubtedly driven by Gen Zers coming of age and flexing their buying power, Kate Spade CMO Jenny Campbell cautions, “Whether or not Gen-Z is your primary customer, they definitely set the trends and drive brand heat. And when you look at where trends start and where things go viral, it is almost always with Gen-Z.”
Social Commerce Across the Globe
Don’t forget to further segment eCom and social commerce audiences by geography to get a deeper understanding of their shopping preferences and behaviors:
In the UK, the compound annual growth rate (CAGR) for social commerce is expected to be just under 10% in 2023, with around 15 million people making a social commerce transaction that year.
In the US, the number of people who make at least one purchase via social media per year will grow 50% from 2019-2022, reaching a total of 96 million consumers.
In China, it’s believed that social commerce sales grew 35.5% in the last year alone to over $360 billion — that’s more than 10x higher than in the US.
4. Understand the incremental Reach of each new product.
As the saying goes, you can’t please everybody. While considering channel and region-specific sentiment earlier in the product creation process will help brands develop and adopt newness with greater mass appeal, adding unique SKUs for every consumer segment leads to over assortment and diminishing returns. At the same time, it’s important not to water down the assortment and miss out on emerging trends or important niche but fashion-forward audience targets.
So, how can brands appeal to more customers and meet rising sales goals with the smallest number of SKUs possible? Leading brands are maximizing SKU productivity by measuring the Reach of each product within an assortment, or its potential to attract new customers and add value to the line. They’re identifying and adopting bold styles that extend Reach to niche consumer segments while dropping low Reach products that cannibalize sales from existing styles.
For example, imagine your three top rated T-shirt colorways are all neutrals. By measuring the incremental Reach of each shirt in your assortment, you’re able to see that two of the three neutral styles appeal to the same exact segment of in-store shoppers. You also discover that replacing one of these cannibalized styles with a new electric blue shirt would actually enable you to reach an entirely new segment of eCommerce shoppers that find this bold color highly appealing, thereby increasing revenue with the same number of SKUs.
Focus Groups are Dead: It’s Time for Brands to Refocus
In the 1950s, Betty Crocker made focus groups the go-to method for capturing consumer sentiment and feedback on products. There’s only one problem: It’s 2022, not 1950. And a lot can happen in 70 years.