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Harnessing the Power of Merchandising

When it comes to increasing revenues in retail, retailers often tend to focus on roping in big brands, improving visual merchandising, enhancing the interior and exterior design of the store, getting uniforms for sales staff, going for digital marketing, etc. These activities are important. Having brand endorsements make it easier for retailers to increase footfall. Visual merchandising enhances the customer experience in the stores. The design and décor of the store do something similar. The well-trained and uniformed staff shows professionalism. Digital marketing and promotional campaigns help spread the word. But all these activities represent marketing at an exterior level. It may help increase revenues to some extent but it misses out a fundamental force in retailing i.e. merchandising.

Merchandising is an underestimated strategy in retail. Many retailers confuse merchandising with visual merchandising. Merchandising is about what products a retailer chooses to offer for sale. Merchandising strategies affect revenues and profits and more importantly, brand perception. Let us understand the dynamics of merchandising with some grocery examples first. Essential products like cereals, wheat, milk, bread, etc. carry a uniform demand curve throughout the year. Within these products, there are various types and brands. Some product types and brands are preferred more by customers. And even within these preferences, there are popular selling sizes. For example, packaged milk from local dairy farms comes in the standard size packaging of half a litre. Then there is the factor of margin associated with different packaging sizes, products and brands. The goal of merchandising is to maximise revenue and profits by selecting the right match of product, packaging size, brand, or any other relevant consideration in the right quantities. Beyond certain established standards, retailers have a free hand in determining how they should break down the market demand to arrive at the best merchandising strategy for their retail business.

The fundamentals of merchandising strategies are applicable across industries and channels. For example, for an electronics retailer, if power banks are performing better with the eCommerce channel, it would make sense for the retailer to sell power banks from the warehouse and save store space for other products that sell better from the store. For a fashion store, if thermal wear products experienced a high volume of sales in the previous winter, it would be a sensible business decision to stock up not just thermal wear products but also similar products like mufflers, sweaters, woollen gloves, etc. This is where fashion merchandising research helps fashion retailers.

We can also use instances from the retail furniture business. The emergence of the concept of quick furniture revolutionised the furniture industry around the world. Furniture, otherwise an expensive category of product, found a whole new customer segment seeking furniture products made of industrial plastic and steel that are easy to carry and assemble. But it was not the end of traditional wooden-based furniture businesses. This is a case where old-fashioned furniture businesses had to innovate with their product line extension strategy and expand their product mix by introducing new products to cater to the new market realities. This is also a case where they had to move their traditional offerings to niche market segments. With the right merchandising strategies, retailers could not only bring turnaround performances with their revenues and profits but also save their businesses.

Further in this blog, we shall discuss the steps in merchandising planning and how merchandising analysis is done by modern-day retail brands, experts and strategists. We will cover how data analytics could affect the product merchandising decisions of retail businesses. The methodologies used in formulating merchandising strategies and decision-making will be explained in detail. We shall also see how merchandising strategies could be put to use by retail brands and businesses in various industries like fashion, grocery, furniture, beauty and cosmetics, and pharmacy.

Data Analytics – the new way of Merchandising

Data analytics has touched every sphere of business and merchandising is no exception. When we say data analytics for merchandising, there can be two sets of data – historical and trending.

Historical data refers to the data a retail business already possesses of its past sales performances. It is helpful for retailers to churn out meaningful sales information across the product mix and timelines. For example, a bakery business could find out what flavours of cakes it sells the most based on historical data. It could also derive what quantity sizes are sold the most. Adding the timeline variable, the business could further improve its understanding of seasonal demand. Going advanced, it could also be determined if certain products could be sold directly to customers via eCommerce and what kind of distance radius must be brought under the free delivery limits. All this information and insights are vital for businesses to reach out to customers with the right product offering through the right channel and timing.

A big demerit with historical data is that it is limited and it speaks of the past and not the current trends and developments. Trending data takes care of this problem. Access to new and updated data points has become vital for retailers to keep up with the evolving needs and preferences of customers. But retailers must also caution themselves for overrating trending data. Trending data is more useful to retailers when they want to try new product offerings. For example, a bakery business may want to add pizza and pasta to its offerings. Here, trending data may be useful to predict the local demand. But if the bakery uses trending data to question its existing sales, it will end up making a mess out of nothing.

Data-driven product merchandising is also helpful in determining the price elasticity of products. This lets retailers slice their margins and set the prices just at the tipping point. Extending the bakery example from above, it may be examined by the bakery owner if, in the past, any small change in the price of a selected product brought any significant difference in its sales. By adjusting the prices, the margin per unit may fall but it may increase the number of units sold compensating for the margin loss with increased overall profits from total sales of the product.

Merchandise planning in retail and decisions made out of such planning also affect the inventory turnover capabilities of retail businesses. This is where numerical accuracy becomes important. Merchandising decisions can no longer be made only out of intuition and business acumen. There are carrying costs involved in storing inventory. Slower cycles translate to higher carrying costs. With data-driven product merchandising, retailers can be more accurate with their demand forecasts and inventory storage.

In merchandising analytics, eCommerce retail businesses are in a more advantageous position over their brick and mortar counterparts. Online businesses are capable of generating data related to web traffic and visitor behaviour. Using advanced analytics, they are better poised to understand what is working for them and what is not.

Methodology for Merchandising in Retail – strategy, Planning and Decision-Making

Demand Rating

Demand rating or demand analysis is one of the primary tools used in merchandising planning. It uses predictive analysis to forecast the demand for products in the near future. In merchandising planning, demand analysis is used to classify high-performing and low or non-performing products. Retailers can shift their focus on products that matter. These products could be already in offering or might be potential additions. The data used for analytics could be historical or obtained from business intelligence and secondary market research. Market research for understanding retail consumers is essential in merchandising planning. With internal data, retailers can identify which products need more attention and which ones can be put off the shelves for now. This is purely based on the past performance of products. It can also help in identifying similar or complementary products that can be added to the existing portfolio. Retailers need to exercise a certain degree of caution while relying on internal data. They need to also math in what kind of marketing efforts they had put into selling those ‘performing’ products and the prevailing external factors. For example, many products like toilet papers and hand-washing soaps performed exceedingly well during the lockdown period of the year 2020 with little or no effort on the part of retailers. The situation is no longer the same. If those numbers are blindly relied upon, it could result in a merchandising blunder. A corrective perspective could be obtained with the demand analysis using contemporary market data.

Fast Mover Analysis

Every retailer would know that there are fast-moving and slow-moving products. Fast movers endow several advantages. Retailers know these products sell quicker with a high degree of certainty. The revenue and profits are certain to be achieved within a short and known timeframe. Not much effort has to be exerted to sell these products. This is typical with grocery and departmental stores. They have no time to waste on uncertain products. They are not willing to store anything but fast movers. But every retail business has its own list of fast and slow-moving goods. For instance, a pharmacy business experiences shorter inventory cycles with their paracetamol products than maybe for Tetanus IVFs. Fast movers, especially in the branded category, carry less margin but retailers expect or are expected to gain over volume sales. Fast movers also do not always remain the fast movers. Extending the retail pharmacy example, there are seasons when medicines for cough, cold, fever, or upset tummies peak. Especially, during the change of weather, the demand for these medicines skyrockets. Retailers must know, predict, and merchandise their stock as per the realities of what will move fast and what will not.

Slow-moving products are good to be stored as long as they offer good margins and promise the certainty of sale. For example, it may make no business sense for a retail pharmacy store to keep stretchers for sale. Customers who may seek it are likely to get it from a medico-surgical store.

Margin Feasibility

Even if a product exhibits positive demand ratings and falls in the category of fast-moving inventory, the concern of margin feasibility still remains. If a fast-moving product despite the anticipated generous volume of sales yields a low average margin, it might not be worthy of a space on the shelves. Profiting is the ultimate goal of business. A fast-moving product mix with good average margin levels should be the target of every retailer. However, the margin is a relative term. Retail giants can afford to slice their margins. But for a small or medium retail business, such margins may be unthinkable. Hence, they should focus on what their margins allow them to play with. The role of margin assessments in merchandising is not to enable businesses to compete with the behemoths but to focus on their target markets within a given geography. How much price discounts are offered by the next-door competitors? That should be the concern of retailers within the ambit of their competitive ambitions. The same goes for retail giants. If you have ever noticed, the prices of certain products across different online marketplaces remain unflinching. This is because irrespective of the demand and how eagerly customers might be willing to buy those products, the margins do not allow the listed retailers to set their prices any lower.

Investment Risk

All the steps followed so far – demand analysis, fast versus slow-moving inventory classification and margin feasibility are done with the objective of determining a profitable merchandising mix. But these are all forecasts for the future. There is always an element of risk involved with merchandising planning and decisions. The forecasts and assessments may not come true. These reasons are unpredictable. For example, a bakery business may experience that their best selling products are performing poorly. And there may be absolutely no established reason for the same. A pharmacy store may experience below-average footfall and all that could be concluded is that people are actually in good health during the given period. Sometimes there are MOQs imposed by big and exclusive suppliers. That further increases the demand risk exposure of retailers.

There are investment risks also emanating from the supply side. Once a retailer decides to direct investments into a particular product mix, it closes the door for other brands and product options. Sometimes suppliers fail to fulfil their orders because of internal problems or factors beyond their control. Shortage of supply means that retailers will not be able to pull their merchandising strategies in the given period. This is common with many local departmental stores. The unfortunate part is that they stop paying attention to their inabilities in making those products available in the stores that customers seek. Even more unfortunate is that they begin to resort to alternative brands and leave customers with no option.

Retailers need to accept that they always run certain investment risks in merchandising. The demand-induced risks could be minimised with a certain degree of flexibility in their merchandising strategies and proactive marketing and promotional efforts. The supply-side risks could be reduced with better negotiation and stricter compliance conditions with the suppliers.

Leveraging Product Portfolio

The overall product or merchandising mix presented for sale is the product portfolio for retailers. The entire set of merchandise that retailers offer to sell constitutes a critical element of their retail branding strategy. For example, a retail pharmacy store may add health insurance policies in its product portfolio via collaboration with any selected health insurance company. It suddenly alters the brand perception of the business. From selling medicines as a pharmacy to offering health insurance, it is a brilliant leap forward in terms of branding with product range planning. This is the power of product line and brand extension. But it should never appear as upselling or cross-selling. The right product at the right place never fails to find its audience. That is what makes business so much exciting. But retailers have to be careful in showing ingenuity with their product portfolio. The same health insurance idea would be catastrophic for a wine shop.

        A funnel representation of arriving at the final merchandising portfolio

Yes, it is possible to boost the revenues and profitability of any retail business with a sensible and systematic approach towards merchandising. It is all about understanding in great detail what your customers are seeking or would be seeking. Whether you use external research or internal historical data, the bottom line goal is that it should lead you to specify what merchandise your customers will have their eyes on. Focusing on products that matter is the key to success in merchandising strategy and planning. Business acumen and intuition with data-driven analytics is the best foot forward for retailers. There will always be risks but some risks are always worth assuming.

About YRC

YRC is a boutique retail business consulting firm. Over the past 12 years, we have offered business solutions and services to over 500 clients in more than 20 verticals. Our business philosophy is not only to deliver solutions but also to work with clients as partners for mutual growth and success. With a growing international presence, we seek to emerge as one of the finest retail consulting firms in the world dedicated to providing the best business solutions.

YRC’s consulting services are designed and delivered by a team of expert retail and eCommerce consultants. We deploy qualified eCommerce and retail specialist consultants with rich and relevant industry and project exposure. Work from home or work from office, our flexible working system is aimed at ensuring that our services are always on schedule. We work in close coordination with our clients through our robust feedback and reporting mechanism. For service design and delivery, we bank upon our vast repository of tested and proven solutions with extensive groundwork and customisations to frame the best solutions for our clients.

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Author Bio

 Nikhil Agarwal

Nikhil Agarwal

Chief Growth Officer

Nikhil is a calm and composed individual who has a master’s degree in international business and finance from the United Kingdom. Nikhil Agarwal has worked with 300+ retail e-commerce brands and companies from various sectors, since 2012, to define their growth strategy and achieve operational excellence. Nikhil & his team have remarkable success stories of helping brands achieve 10X growth.

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    The idea of having Ecommerce Consultants on-board from the beginning itself points towards reducing the involvement of the promoters in daily operations. Ecommerce Businesses willing to be a brand reaping profits & sustaining the competition must ensure that most of their processes should be automated. The more the manual intervention, the more would be the errors.

    In Ecommerce business, you get only 1 chance to impress the customer & if you mess up there, you lose the customer for long.

    Process automation in respect to all the activities pertaining to customers from order receiving to order fulfilment is a must for a seamless experience for the customers.

    Task Management is another grey area where most deadlines fail as 90% of the tasks are assigned manually & are forgotten, unheard, misunderstood or mistaken.

    YRC Team of Ecommerce Management Consultants helps to make maximum of the processes system-driven to ensure minimalistic manual intervention.


    No matter how good your product is, the customer would know only if it looks good.

    Photography includes the following steps:

    • Cataloguing your products
    • Cataloguing your images
    • Backup your images (A few cloud storage solutions include Dropbox, Google Drive, Bitcasa, Apple’s Cloud Storage etc.)
    • Choose the right camera & lens (You may also outsource the photography to a third party agency)


    Digital Marketing includes SEO & SMM. SEO i.e. Search Engine Optimization includes activities like back-linking, meta tags, blog-writing etc. to ensure your website ranks on the 1st page on Google Search.

    Next comes SMM i.e. “Social Media Marketing” which as the name suggests including promoting your products on all the social media sites, email marketing, influencer marketing & several other BTL activities.

    These activities are going to be recurring & would decide the traffic on the website, the conversions, whether the right target market is tapped, the likes, the views, the orders, the reviews & much more. YRCs Ecommerce Consultants create a budget for digital marketing right from pre-launch to launch & for each month thereafter.

    Building digital marketing strategies in coordination with the agency, selecting them to signing them off would be the role of YRC.

    This ensures seamless coordination, detailed interactions & desired execution as it is always advisable to work with a single agency than multiple of them.


    Selection of the right software for smooth functioning of back-end operations right from production to webstore display would be suggested and integrated by YRC Team.

    YRC’s Team defines SOPs of Product Movement, maps it with the locations & people. They then create a blueprint of all the features required in the software & help in shortlisting & selection.

    IT Integration involves connecting your offline inventories with real-time online webstore so when a sale occurs, inventories get deducted real time across offline as well as online platforms.

    This helps in accurate inventory management, maintaining the MOQs, re-order levels & achieving the optimum inventory levels.

    Some popular software include unicommerce, viniculum for your front-end website management & Genisys for your entire back-end Purchase, Production, Accounting, Invoicing etc. management.


    • How many cities or countries you wish to sell in?
    • Where should your Warehouse be located?
    • Should you have one warehouse in each country or city?
    • Should you be having your own delivery team in your base city?
    • Would the 3rd party vendors be reliable? What happens when they lose or misplace your product during delivery?
    • How should I manage the logistics if my goods are coming from different countries?
    • How should the goods be stored and barcoded?
    • How much space do I require for warehouse?
    • I am sure several such questions must be haunting you while you think of starting your own fashion ecommerce brand.


    At YRC, our warehousing and logistics experts can help you devise a strategy for all of the above mentioned queries and much more.

    We design the layout of the Warehouse considering the inward, goods processing, software entry, barcoding, outward, goods return, scrap storage, goods stacking & much more.

    Logistics route plan is devised considering the manufacturer to your warehouse and from there to last mile delivery locations.


    This Step involves 03 distinct parts:

    Part 1: Choosing the right Platform:

    From several platforms available in the market right from Shopify to magento, woocommerce, prestoshop, wordpress etc. you must choose the one that fits best for your business

    Part 2: UX Designing:

    “UX” denotes User Experience, which if put in simple language is building the functional requirements of the website.

    UX Designing includes designing the features required in the website, customer journey map, website features, the browsing features, navigation features, ecommerce order management process flow, checkout cart features, catalogue management, ecommerce payment system, cross selling features & much more.

    “As per statistics, 68% of the customers abandon the carts before payment”

    An interesting UX ensures the customer sticks on to the website for a longer time.

    Part 3: UI Designing:

    UI stands for User Interface, which means designing the look and feel of the website. UI includes using the right colours, elements and the entire aesthetics of the website.

    A good User Interface ensures the user completes the task that he has come for. It navigates the user through the journey of the brand in the simplest but most effective way.

    The UX designer maps out the bare bones of the user journey; the UI designer then fills it in with visual and interactive elements.

    If User experience is the bare bone, user interface wraps it up with an attractive cape.

    At YRC, our team if experts can help you develop the entire User Journey to ensure it is engaging!


    This step follows the “Designing” Phase, whether you have an in-house design team, freelance designers or an outsourced design company. It is one of the most exciting phases, as here you see your designs turning into products & your ideas turning into reality.

    In most start-up cases, production is outsourced i.e. brands tie-up with the established manufacturers/ job-workers to get their products manufactured.

    Sampling involves multiple 04 Stages, Fit-Sample, Prototype Sample, Pre-Production Sample & the Production Sample.

    Prototype Sample is the first sample provided to the buyer. It can be in any fabric/ colour. This sample is just to understand whether the product design looks equally great in reality.

    Fit Sample, as the name suggests is prepared to check the fit of the garment i.e. the various sizes, length, width etc.

    Pre-production is made by the actual production line. Here the stitching quality and other aspects related to manufacturing are checked. This is the last stage where rejection can be accepted.

    Production Sample is made before the production which is the replica of what is going to be finally produced.

    Once you are through with all this, you are good to go ahead & get your goods manufactured.


    Product Designing or Sourcing is the heart of the Ecommerce Fashion Brand.

    Product Designing / Sourcing can be done in several ways, as follows:

    • In-house Design Team
    • Freelance Designers
    • Outsourced Design Team
    • Ready Product Sourcing (From Manufacturer or Wholesaler)

    At YRC, we evaluate your business strategy & business model to arrive at the decision, which of the above ways would be best-fit for your business. In certain cases, product sourcing may be a combination of the above.

    These are the people who are going to build your brand! Whether they are the designers or merchandiser, your brand look is going to be in their hands.

    If you are designing each garment from the scratch, the sourcing would play crucial role in developing design identity of your brand.

    Sourcing includes fabric, trims, lining & all the raw material required to build the garment.


    Branding is the “Look of the Brand”, right from logo to tagline, the colours used, the brand story, the brand communications on social media, the packaging & all the other aspects which speak directly or indirectly to the customers. Branding constitutes the look & feel of the brand & hence must be thoughtfully planned to match with the product that we are selling.

    Branding must appeal to our target audience. Example : A golden colour logo depicting finesse, art, richness, premium, however beautiful it may be individually cannot go with a brand selling affordable kids wear products. So, your logo must be in-line with your brand positioning, whether you are an expensive brand or a luxury brand or a value for money brand, it must be depicted from your “Branding”.

    It is an integral part to attract the target audience.


    Organogram is the “HR Blueprint” of the business which is created at the onset, to map out the team required across each function at various stages of the business. At the launch, only key people need to be got on board to ensure the project gets started & at this stage, all of them need to multi-task. Similarly, certain financial as well as operational goals are set for addition of the further team. Example, for the operations team, we hire 1 operations manager during the pre-launch phase & we add 1 more only when the business kicks-off & we reach a volume of selling more than 1000 pcs/ month or a turnover of more than 0.1 million USD.

    SOPs are Standard Operating Procedures, a bible to run the entire organization right from Sales, Purchase, HR, Order receiving to Order fulfilment, Inventory Management, Accounts, Warehouse, Logistics, Supply Chain, Production & all the other relevant functions for the business. Business must be organized from its first day of operations; only then the tasks can be delegated.

    At YRC, we design the organization structure, the processes, and approximate time taken to execute each process, job profile of every member within the organization, their KRAs, KPIs & the Reporting Structure.


    Critical Pathway Analysis (CPA), is a project management technique which cannot be overlooked while launching an ecommerce fashion brand. Brand launch process is cumbersome with multiple inter-dependent & time-bound tasks involved, which need to be tracked to ensure the project remains on track.

    CPA outlines key tasks across the project, their turnaround time (TAT) & the dependencies of tasks upon each other. It identifies the sequence of tasks, their interdependent steps from inception to completion, their criticalities, and their dates of onset, target dates of completion along with the key responsible person for the respective activities. Critical Pathway helps in understanding the unimportant & not urgent tasks which may jeopardize the execution of the project because of an unexpected snag! It also maps out the potential bottlenecks which might be posed because of the dependencies of tasks upon each other & cases where the next task cannot be commenced before the completion of the previous one.

    CPA detects the minimum & the maximum time involvement of a particular individual or team to execute the task, thereby arriving at the overall deadlines associated with the project.

    At Your Retail Coach, we design the Critical Pathway & review it periodically to ensure the project is on track & the progress is measurable.


    Business Strategy includes the vision, mission, goals, business model, business plan & strategy for all the functions within the organization.

    Business Strategy is a well-defined plan that outlines who, what, where, why, how & when for the company; for example, who would be the target market, how to attract the target audience, when to launch new products, where to operate from, how to handle competitors, what would be the USP, what would be long term goal of the organization & several other answers to the 5Ws of Strategy.

    Business Strategy aligns the organization towards a common goal. Business SWOT helps company to identify & overcome their weaknesses & focus to sharpen the strengths. Business strategy forecasts future risks and helps business in building skillsets to overcome the potential threats.

    YRC’s Business Plan focuses on creating a “Blueprint” of the business, thereby deriving the feasibility of the concept & gauge whether the opportunity is lucrative to invest time, energy & effort. Business Plan creates cash flow understanding i.e. building inflow & outflow cash projections from Week zero to week 60 i.e. 05 year projection. Business Plan calculates the capital investment, operating costs, one-time costs, recurring costs & all the other numbers relevant to obtain the breakeven sales, return on investment, return on capital, internal rate of return & several other ratios. Business Plan is also one of the important requirements if you are targeting the “Investor Route”. Fund raising becomes extremely transparent & channelized. With business plan panned out clearly, the business will know until what point must it be stretched & where to stop, which reduces the probability of unplanned investments.


    Starting the concept of Ecommerce Fashion brand with Market Research ensures we get detailed understanding of the industry & this research report also acts as a social confirmation for your concept. Market Research helps in understanding the target locations, their population, potential online buyers for your product, competitors for each category, and top selling products of the competitors, competitors’ price range, offers & their responses & much more. Market Research helps in thorough understanding of your brand position as compared to our competitors. It helps in identifying gaps in the market, in your category along with the scope of the said product in the desired market. This will help in validation of your concept & prevents you from making the same mistakes as your fellow brands, eventually saving your time, energy & efforts. This phase is also a make or a break phase, as the market research study may at-times come up with some eye-popping numbers & statistics which might compel you to re-think on your product or category that you are planning to sell or alter your entire concept itself!! Market Research Reports analyse the competitors’ webstore for their traffic, conversion & sales. This is extremely valuable information to derive our inventory budgets & projections, which takes us to our next phase.