Merchandise Planning vs. Pricing and Markdowns: A Discussion with Paula Rosenblum on Retail Blind Spots

In recent “Blind Spot” research on softlines, hardlines and grocery retailers, Paula Rosenblum, managing partner of Retail Systems Research (RSR), found that retailers seem to be obsessed with pricing and markdown solutions while not appreciating the value of good merchandising systems in solving the underlying inventory issues. Supply Chain Nation interviewed Rosenblum to get her insights on this important research.

SCN:      The #1 challenge softlines retailers indicate they face (see: What’s in Softlines Retailers’ Merchandise Planning Blind Spot?) is managing the complexities of cross-channel merchandising, yet they put less value on core merchandising and assortment optimization technologies than retail winners across all retail segments. Why do you think there is this disconnect?

Rosenblum:  I think retailers have gotten fixated on pricing. If you look at our research, retailers would be better served by working their way back through the merchandising processes. They are considering a lot of options, but what they really need is core merchandising. What we have been seeing is if you plan better and you analyze better, you would fixate less on using price as a lever. You wouldn’t have as much extra product to mark down and wouldn’t have as many stock outs to worry about. We find that softlines and other retailers are fixated on price more than proper planning.

SCN:      Both softlines and hardlines retailers are putting more emphasis on price and markdown optimization technologies than on merchandizing and analytic tools that could help them avoid the inventory mismatch issues in the first place. Why do you think that is, and what are they leaving on the table?

Rosenblum:  Retailers truly believe the lowest possible price is what the customer wants, but the question you have to ask yourself is—who is the one creating that desire? The answer is it is much more the retailer than the consumer. The consumer started out not as price sensitive as she has been trained to be.  Now she is becoming much more price-sensitive than she used to be. There is lots of data from studies we have done that tell us pricing has become an obsession, particularly in the U.S. It is much less so in the UK and mainland Europe.

I think it is important to note that this race to the bottom, which is what this obsession with price has turned into, is starting to really reveal its collateral damage. Once you get past the talk of showrooming and price-sensitivity, what you find is that those who have been most active in the race to the bottom have been underperforming. That’s why it is really important to think about what Retail Winners care about.

It turns out that just because you’re big doesn’t mean you are thinking like a Retail Winner. You’ve got Walmart’s CEO abruptly resigning; you have Target’s CEO resigning. And you have the merger of dollar stores, which I calculated based on their own statement of their most optimistic run rate of operational efficiencies they were going to gain, worked out to 0.0001 cent per store. There is an old saying that the one with the lowest cost operations wins. That’s not true. In a race to the bottom, nobody wins. That’s why it is really important to look at what Retail Winners think.

SCN:      For hardlines retailers in particular (see: What’s in Hardlines Retailers’ Merchandise Planning Blind Spot?), a key blind spot is that they seem to own good merchandising tools, but don’t seem to understand their value. Why should they reassess this technology?

Rosenblum:  I think that happens a lot, and not just to hardlines retailers. We see it in store technologies as well. Retailers become enamored with these technologies and think they are going to be really good, but when they get them in, they don’t understand how best to use them. There is a lack of knowledge. It is a training and discipline issue. That’s the truth of it.

SCN:      In Part II of this series, launching September 18, Rosenblum will discuss the problems of underperforming inventory and resistance to change.

See also: What’s in Grocery Retailers’ Merchandise Planning Blind Spot?

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