RESEARCH STARTERS

ACADEMIC TOPIC OVERVIEWS

Retail Merchandising
Marketing > Retail Merchandising
Table of Contents
Abstract Keywords effective, however, merchandising activities need to be based on marketing data of the customers wants and needs.

Overview
A Real Life Illustration A few years ago, a long-standing and popular supermarket chain in my area was bought out by another firm. Although the chain had been doing poorly for some time, local residents had mixed feelings about the takeover. On the one hand, if an influx of new money and new ideas was not found quickly, the chain would soon cease to exist. On the other hand, many customers wondered at the wisdom of selling the chain to a firm that was located in an area that was used to much higher grocery prices and very different ways of doing things. After the takeover, one of the first changes to be observed was the renovation of some of the key stores across the area. One such store was not very old, having been built only a few years before as part of a new shopping plaza at the center of a planned community. However, after the takeover, the store soon became a confusing mess as not only stock but the physical shelving were rearranged all for the convenience of the shopper. Every morning, the store published a new store directory so that customers could more easily find where the items on the shopping lists happened to be that day. To say the least, it was a time of great confusion, but the local customers had a great deal of loyalty to the original chain and continued to shop there in the hope that as soon as the renovation was complete, all would be better. Eventually, the renovation was completed, and the store once again took on a bright, shiny new look that welcomed customers. The area near the front door had been rearranged to include most of the items that many people need on quick trips to the grocery store. One entered the store to be greeted by a coffee bar where one could pick up a drink or a snack to make the grocery shopping experience more pleasant. Near the coffee bar was located the bakery, where the aroma of fresh baked goods enticed one to that corner. Along the wall was a very large deli counter that included not only meats and cheeses sliced to ones specifications, but an assortment of salads, desserts, and even entrees that could be taken home and popped in the microwave for dinner. In the adjoining space was a newly designed produce area with wide aisles, attractive displays,

Overview
A Real Life Illustration The Value & Elements of Merchandising Buying Decisions Category Management Product Display JIT Systems

Applications
Online Sales Merchandising Cues

Conclusion Terms & Concepts Bibliography Suggested Reading

Abstract
Retail merchandising comprises the activities, policies and procedures that are intended to help a business sell goods and products directly to consumers. Merchandising activities are important for a retail business whether that business has a brick-and-mortar store or an online one. Far from being an unnecessary expense, appropriate merchandising of retail items can help shape the image of the store and influence the customers decision to purchase not only a given item, but related items as well. To be

EBSCO Research Starters Copyright 2009 EBSCO Publishing Inc. All Rights Reserved

Retail Merchandising

Essay by Ruth A. Wienclaw, Ph.D.

Keywords
E-Business Inventory Management Just-in-Time (JIT) Inventory Merchandising Cues Retail Merchandising Return on Investment (ROI) Supply Chain Visual Merchandising
and both salad and olive bars. Then came aisle after aisle of stock, a seemingly virtual paradise for the shopper. At first, of course, even though the stock was no longer moved every day and signs labeling what was found on each aisle were hung over each aisle, it was still somewhat difficult to locate many items as shoppers learned the new system. Unfortunately, this confusion persisted even several years later for a number of reasons. First, the store is no longer laid out as it has been in the past, but is patterned after another American chain owned by the same parent company. This makes some items difficult to find because other local stores even of different chains carry them in another place. As a result, on almost every shopping trip, one can find a conversation between shoppers asking each other where one might find X since it was not where it would be logically (at least to the shoppers) located. Store personnel seem to not only be restocking but reshelving the aisles every week in an effort to better display merchandise. The customers, however, do not find this helpful and the chains revenues continue to drop. Second, the signs designating what types of items are kept on each aisle contain different information on each side, which means that if one missed an item as one went through the store, a quick glance at the aisle signs has a 50 percent chance of giving the information needed to locate the item. Third, stock keeps moving according to the dictates of the remote corporate headquarters. For example, one might find a national brand of frozen sliders next to the frozen hamburgers one week and next to the frozen snack foods another week. As part of their strategy to recoup some of their losses, the chain next decided to focus on carrying more store brand items and

reducing the number of national brand items. As a result, customers with brand loyalty to various items were required to make the decision as to whether or not to continue to shop at the chain or go to another chain that carries the brands for which they are looking. Some customers solve this problem by shopping at other stores for certain items. However, this can often lead to a situation in which an entire grocery list is purchased at a different chain for the sake of convenience. Whether or not the shopper switches to the other store on a more permanent basis, the sales for the chain will decrease to some extent. Another change that was instituted by the chain after the take over was the concept of everyday low prices rather than sales prices. As a result, the weekly flyer for the chain has become much smaller and advertises the regular price (with the implication that it is lower than the competitions or the chains regular price). This means that those people who sit down with their weekly sales flyer to plan the weeks meals based on sales have much fewer options. The concept of low prices is furthered by shelf talkers in the stores, but the higher prices that are used for comparison often come from stores halfway across the county rather than local stores. As a result of these and other problems with merchandising, several years later, the chain is again in trouble, and newer stores with approaches more in tune with the needs of contemporary shoppers are moving into the area. The Value & Elements of Merchandising This case provides a cautionary tale regarding the implications of a number of business concepts. One of the most obvious of these is the effectiveness of the merchandising efforts of a store. In general, retail merchandising can be defined as the activities, policies and procedures of an organization that are intended to help a business sell goods and products directly to consumers. According to American Marketing Association, merchandising encompasses the planning involved in marketing the right merchandise or service at the right place, at the right time, in the right quantities, and at the right price. Merchandising includes the placement of products (including the layout of the store, where the products are displayed, and how the visual display is designed), promotions (including trial offers, bundling, and coupons), and pricing to appeal to the target market. Closely related are the concepts of inventory management (including ordering sufficient stock in time to meet customer demand and how problems of overstock i.e., having too much of an item on hand so that it needs to be reduced to sell and understock having too little of an item on hand so that customers cannot buy their desired items are handled), warehousing (where the stock will be physically located), and the decision of what categories of products to carry and what range to carry within each category. As this case study illustrates, there is more to retail merchandising that just arranging goods and products in a retail store in a manner that is pleasing to the eye. In particular, the case study illustrates the importance of both having the appropriate data and having the correct decision makers determining what products are offered in the store, employing appropriate category and product range management, properly allocating space to prodPage 2

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Retail Merchandising

Essay by Ruth A. Wienclaw, Ph.D.

ucts, and designing the merchandise displays in ways that are not only eye-catching but appropriate and memorable.
Buying Decisions

Frequently, decisions regarding what to carry in a retail store that is part of a chain is made at a level higher than the individual store. This approach has the advantage of allowing the chain to negotiate better prices with manufacturers, giving marketers consistent data for better forecasting, and allowing for better quality control across all stores (Varley, 2000). However, as illustrated above, centralized buying is not without its disadvantages as well. In this case, the decision on what brands and items are to be carried is made by corporate decision-makers living in another area of the country where different products and brands are popular. The local manager who at least in theory has greater understanding of what customers at that particular store or in that particular area of the country want is allowed little to no input into what is carried in the store.
Category Management

space to allot to each item. Devoting an entire aisle to bread and baked goods might make sense in a large supermarket, for example, but would make less sense in a convenience store. In addition, consideration needs to be given to the way that items are displayed within the store. Displays should be designed to attract the customers attention and elicit a purchase response.
JIT Systems

Buying decisions are typically not made based on individual items. For example, a grocery store is unlikely to decide to buy strawberries, lettuce, potatoes, and cabbage in isolation of other factors. Rather, the category of produce would more than likely be broken into the subcategories of vegetables and fruits, which might further be broken down into seasonal, prepackaged, or any one of a number of other categories. Category management is a marketing strategy in which a full line of products is managed together as a strategic business unit. One way to do this is through efficient consumer response, which starts with consumer demand and then organizes the supply chain to meet that demand. In the case above, however, regional differences between consumer purchasing habits was not taken into account, ending in a situation in which some regions were no longer offering the items and goods desired by the local customers.
Product Display

Another way to increase profitability across the supply chain is to institute just-in-time systems at appropriate places in the chain. Just-in-time (JIT) manufacturing, for example, strives to eliminate waste and continually improve productivity. The primary characteristics of JIT manufacturing include having the required inventory only when it is needed for manufacturing and reducing lead times and set up times. Similarly, JIT inventory management systems attempt to produce, deliver, or receive products just in time to provide the next business in the supply chain with the stock that they need at the time that they need it. (For example, a toy manufacturer would not produce a toy until it could be shipped directly to the retail stores per their request so that the manufacturer did not incur the cost of warehousing the toys.) The major objective of just-in-time inventories is to reduce the need to physically warehouse stock anywhere within the supply chain. It can be easy to dismiss a retailers efforts at merchandising as unnecessary expenses that increase the cost of items without adding value. However, as can be seen in the example above, if a customer cannot locate an item s/he wants or needs or becomes frustrated in the task because of poor merchandising policies, the retailer will lose money. Although merchandising efforts require funds on the front end of the process, when well done, merchandising can help maximize the return on investment of a retail business.

Applications
Online Sales In the 21st century, an increasing amount of shopping is no longer being done in brick-and-mortar stores. Increasingly, customers are turning to the Internet and e-businesses for goods and services. Traditionally, shopping meant physically going to a store, searching aisles for products of interest, comparing product features, and purchasing. With the advent of information technology, customers frequently now have the opportunity to do these tasks electronically by shopping online. With the click of a mouse, one can easily purchase groceries, clothing, electronics, books, and more over the Internet from the comfort of ones own home. Such business-to-consumer (B2C) approaches reduce the costs associated with large sales staffs; rent, utilities, and other overhead costs; and physical inventories for the business. However, because the customer cannot physically see the actual item being purchased (e.g., feel how ripe a tomato is at an online grocery store or try on the shoes at the online shoe store), a number of problems need to be solved. One of these is the determination of how best to merchandise ones products. Many of
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Once it has been determined what items to carry, one must next determine how best to display the products to encourage customers to purchase them. This aspect of merchandising includes questions of space allocation, store design, and visual merchandising. Like items are typically found together. For example, in a grocery store, one could reasonably expect to find all bread-related products on the same aisle. If pizza crusts are located in the deli section instead (as was done in one of the stores of the chain in the case above), the item becomes difficult to find and the customer becomes frustrated. Similarly, no matter how well a display for potato chips is designed and implemented, for example, if it is in the middle of the juice aisle of the store, it is unlikely to earn the return on investment expected by the store. Even when the chip display is prominently positioned at the entrance to the store the weekend before the big game, if customers are not looking for chips (or even desirous of chips) at that point, it is only wasting retail space and money for merchandising that could be better spent elsewhere. Similarly, it needs to be determined how much shelf

EBSCO Research Starters Copyright 2009 EBSCO Publishing Inc. All Rights Reserved

Retail Merchandising

Essay by Ruth A. Wienclaw, Ph.D.

the approaches to merchandising in the real world have parallels in the virtual world as well: Physical coupons become electronic coupon codes, physical displays become a series of pictures of an item from different angles, shelf talkers may become pop-ups or advertising sidebars. However, the very nature of virtual sales in a B2C environment versus physical sales in a brick-and-mortar store raises some unique merchandising problems. A great deal of research and effort has gone into developing techniques and tools that help online retail businesses maximize their return on investment. However, there has not been as much attention paid to the merchandising aspect of such online businesses. Although it may be tempting to see merchandising for online stores as the virtual equivalent of merchandising for brick-and-mortar stores, the challenges faced by e-businesses do differ somewhat from those of brick-and-mortar businesses. Lee, Podlaseck, Schonberg, Hoch, and Gomory (2000) examined the merchandising requirements of e-business and how these can best be met. As with other types of merchandising, merchandising online requires that the website be effective in order to maximize ones return on investment. Online merchandising, like traditional merchandising, comprises all the activities necessary for a retailer to make products available to consumers at the right price and in a timely manner in order to meet the businesss objectives. Similarly, just like retailers with brick-and-mortar stores, online merchants must select the appropriate categories and assortment of merchandise to offer and determine how best to display and promote these.
Merchandising Cues

Conclusion
Retail merchandising comprises the activities, policies and procedures of an organization that are intended to help a business sell goods and products directly to consumers. Whether merchandising is done for a brick-and-mortar store or for an online one, it is important that merchandising be based on marketing data of the customers wants and needs. Far from being an unnecessary expense, appropriate merchandising of items in a retail store can help shape the image of the store and influence the customers decision to purchase not only a given item, but related items as well.

Terms & Concepts

E-Business: E-business (i.e., electronic business) is the process of buying and selling goods or services electronically rather than through conventional means along with the support activities and transactions necessary to do these tasks. E-business is typically conducted over the Internet. Business-to-Consumer (B2C) E-Business: E-business in which a business markets and sells directly to consumers. Hyperlinks: Text or symbols on a web site that allow the user to automatically link with another page or document. Hyperlinks are usually identified by being different from regular, unlinked text through the use of a different font color, underlining, etc. Inventory Management: Policies and procedures designed to help a business maintain the optimum quantity of each item in its inventory in order to provide uninterrupted production or sales at the minimum cost. Also referred to as inventory control. Just-in-Time (JIT) Inventory: An inventory management system in which products are produced, delivered, or received just in time to provide the next business in the supply chain with the stock that they need at the time that they need it. The major objective of just-in-time inventories is to reduce the need to physically warehouse stock anywhere within the supply chain. Marketing: According to the American Marketing Association, marketing is an organizational function and a set of processes for creating, communicating and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders (AMA, 2009). Merchandising Cues: A category of techniques that are used to present or group products in an online store with the objective of motivating a customer to buy. Retail Merchandising: The activities, policies and procedures of an organization that are intended to help a business sell goods and products directly to consumers. According to the American Marketing Association, merchandising encompasses planning involved in marketing the right merchandise or service at the right place, at the right time, in the right quantities, and at the right price.

For an online store to be effective, Lee, Podlaseck, Schonberg, Hoch, and Gomory recommend that online retailers optimize their use of merchandising cues. These are a category of techniques used to present or group products in an online store with the objective of motivating a customer to buy. Commonly used merchandising cues include cross-sells in which a hyperlink refers the visitor to another web page that markets an item complementing the item that the visitor was viewing (e.g., hot dog buns to go along with ones hot dogs). Another type of merchandising cue is the up-sell. This is a hyperlink that refers visitors to a web page the sells a similar, but higher priced, item (e.g., a national brand orange juice rather than the store brand orange juice). Recommendation hyperlinks are another type of merchandising cue that highlight product pages that in which the shopper (based on past or current behavior) or the population at large might find of interest. Promotion hyperlinks may refer visitors to a product page or high traffic area (e.g., the home page for the business) to present other information that intended to help the visitor make a decision to purchase from the online store. In addition to merchandising cues, online stores also may use shopping metaphors that help visitors find products of interest. For example, a visitor might be able to browse an online catalog or use other forms of searching in order to find the product in which s/he is interested. Web design features can also be used in merchandising for online stores.

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Retail Merchandising

Essay by Ruth A. Wienclaw, Ph.D.

Return on Investment (ROI): A measure of the organizations profitability or how effectively it uses its capital to produce profit. In general terms, return on investment is the income that is produced by a financial investment within a given time period (usually a year). There are a number of formulas that can be used in calculating ROI. One frequently used formula for determining ROI is (profits costs) (costs) x 100. The higher the ROI, the more profitable the organization. Sales Promotion: A set of activities and concomitant materials intended to attract the attention of potential customers and persuade them to purchase the organizations product or service. Sales promotions frequently offer an incentive to the customer to make a purchase such as coupons, discount prices, rebates, free samples, or contests. Sales promotions are often categorized into two classifications: Those that target the ultimate user and those that target the wholesaler or reseller of a product. Shelf Talker: A printed sign containing information about a product or item in a store (e.g., sales price, new item, compare price) that is attached to a shelf in a store. The objective of shelf talkers is to call the buyers attention to a particular product or item. Shelf talkers are also referred to as shelf screamers. Strategy: In business, a strategy is a plan of action to help the organization reach its goals and objectives. A good business strategy is based on the rigorous analysis of empirical data, including market needs and trends, competitor capabilities and offerings, and the organizations resources and abilities. Supply Chain: A network of organizations involved in production, delivery, and sale of a product. The supply chain may include suppliers, manufacturers, storage facilities, transporters, and retailers. Each organization in the network provides a value-added activity to the product or service. The supply chain includes the flow of tangible goods and materials, funds, and information between the organizations in the network. Target Market: The people or businesses to whom the entrepreneur wishes to sell goods or services. Visual Merchandising: The way in which products are displayed. The goal of visual merchandising is to make products more attractive, appealing, and accessible to customers in an attempt to induce them to purchase the product. Visual merchandising is also known as product merchandising, retail display, or merchandising design.

online stores. Electronic Markets, 10(1), 20-28. Retrieved February 20, 2009, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?dir ect=true&db=bth&AN=3960437&site=ehost-live Varley, R. (2000). Retail product management: Buying and merchandising. Oxford: Taylor & Francis.

Suggested Reading
Bellizzi, J. A., Krueckeberg, H. F., Hamilton, J. R., & Martin, W. S. (1981). Consumer perceptions of national, private, and generic brands. Journal of Retailing, 57(4), 56-70. Retrieved February 20, 2009, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=4667302 &site=ehost-live Bemmaor, A. C., Franses, P. H., & Kippers, J. (1999). Estimating the impact of displays and other merchandising support on retail brand sales: Partial pooling with examples. Marketing Letters, 10(1), 87-100. Retrieved February 20, 2009, from EBSCO Online Database Business Source Complete. http:// search.ebscohost.com/login.aspx?direct=true&db=bth&AN =7583634&site=ehost-live Hart, C. (1999). The retail accordion and assortment strategies: An exploratory study. The International Review of Retail, Distribution and Consumer Research, 9(2), 111126. Retrieved February 20, 2009, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=4176514& site=ehost-live Hart, C. & Rafiq, M. (2006). The dimensions of assortment: A proposed hierarchy of assortment decision making. International Review of Retail, Distribution and Consumer Research, 16(3), 333-351. Retrieved February 20, 2009, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct= true&db=bth&AN=22018351&site=ehost-live Janiszewski, C. (1998). The influence of display characteristics on visual exploratory search behavior. Journal of Consumer Research, 25(3), 290-301. Retrieved February 20, 2009, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=t rue&db=bth&AN=1433409&site=ehost-live King, C. W., Tigert, D. J., & Ring, L. J. (1979). Pragmatic applications of consumer research in retailing. Advances in Consumer Research, 6(1), 20-26. Retrieved February 20, 2009, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=t rue&db=bth&AN=6602460&site=ehost-live

Bibliography
American Marketing Association. (2009). Marketing. AMA Resource Library: Dictionary. Retrieved February 20, 2009, from http://www.marketingpower.com/_layouts/ Dictionary.aspx?dLetter=M Lee, J., Podlaseck, M., Schonberg, E., Hoch, R., & Gomory, S. (2000). Understanding merchandising effectiveness of

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Retail Merchandising

Essay by Ruth A. Wienclaw, Ph.D.

McCann, J., Tadlaoui, A., & Gallagher, J. (1990). Knowledge systems in merchandising: Advertising design. Journal of Retailing, 66(3), 257-277. Retrieved February 20, 2009, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=t rue&db=bth&AN=4667772&site=ehost-live Olsen, S. O. (2007). Repurchase loyalty: The role of involvement and satisfaction. Psychology and Marketing, 24(4), 315-341. Retrieved February 20, 2009, from EBSCO Online Database Business Source Complete. http://search. ebscohost.com/login.aspx?direct=true&db=bth&AN=2439 8334&site=ehost-live

Rosenberg, L. J. & Hirschman, E. C. (1980). Retailing without stores: Will telecommunication and related technologies transform shopping? Harvard Business Review, 58(4), 103-112. Retrieved February 20, 2009, from EBSCO Online Database Business Source Complete. http://search. ebscohost.com/login.aspx?direct=true&db=bth&AN=3867 822&site=ehost-live Smith, S. A., Agrawal, N., & McIntyre, S. H. (1998). A discrete optimization model for seasonal merchandise planning. Journal of Retailing, 74(2), 193-221. Retrieved February 20, 2009, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=tru e&db=bth&AN=939279&site=ehost-live

Essay by Ruth A. Wienclaw, Ph.D.

Dr. Ruth A. Wienclaw holds a Ph.D. in industrial/organizational psychology with a specialization in organization development from the University of Memphis. She is the owner of a small business that works with organizations in both the public and private sectors, consulting on matters of strategic planning, training, and human/systems integration.
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