Is Bad Merchandising Management Killing Your Profits?
The short answer? Yes! But that doesn’t tell the whole story. The how and why bad merchandising management kills profits is a lot more complicated.
Online merchandising (or eCommerce merchandising) is vital in ensuring the right shoppers are seeing the right products at the right time, which drives conversions and AOVs (average order values). However, advanced merchandising should additionally factor in inventory optimization to ensure long-term profitability.
How? This post will answer just that by highlighting:
- The Importance and Benefits of Online Merchandising
- How eCommerce Merchandising Affects Profitability
- 6 eCommerce Merchandising Mistakes Managers Should Avoid
The Importance and Benefits of Online Merchandising
Traditionally, merchandising was done in-store by way of window displays, samples and giveaways, shelf signage, and in-store demos. All in the hopes of getting specific shoppers to see certain products. Why? To boost conversion rates, AOVs, and profits (when pushing products without higher margins).
With the rise of eCommerce and online shopping, online merchandising is pivotal, even for omnichannel retail brands with brick-and-mortar stores. Why? Merchandising:
- Improves inventory turnover and prevents dead stock and other profit-sucking inventory bottlenecks
- Increases brand awareness and traffic to your store through the right PPC product placement
- Attracts and engages customers through your online store’s shopping journey
- Improves and increases AOVs and sales of both first-time shoppers and current customers
- Brings the right targeted shoppers to the right product page
- Strengthens and promotes customer loyalty
- Helps increase conversion chances by showing the right product to the right customer at the right time
- Builds brand equity and strengthens value
- Improves the overall customer experience by making it easy for shoppers to find the products they are looking for
All of these directly affect long-term profitability. And what does bad merchandising do to these benefits?
It should be no surprise that without the right online merchandising strategy in place, brands cannot get the complete benefits that optimized eCommerce merchandising offers.
Even the smallest of tweaks can mean the difference between bad merchandising and a winning online merchandising strategy.
How Online Merchandising Affects Profitability
In its simplest form, your business’s profits amount to the difference between your revenue and the costs your brand incurs. But as we know, that’s not the whole picture. Profitability takes into account net and operating profit margins and is affected by four main factors, all of which can be influenced by or with your merchandising strategy. These include:
- Conversion rates and revenue
- Marketing management and optimization
- Inventory management and optimization
- Brand equity and trustworthiness
Let’s take a quick look at each.
1. Conversion Rates and Revenue
The most obvious way your online merchandising affects your business profitability is through sales and revenue. When optimized correctly, your merchandising strategy is able to tap into intent and desires to get the right eyes on the right products, improving your conversion chances (and rates).
Additionally, merchandising is an essential element of your on-store up-sell and cross-sell marketing strategy — ultimately affecting not just potential buyers but how much they spend. AKA, revenue.
2. Marketing Management and Optimization
Successful online merchandising doesn’t just happen on your site. It’s a key part of your marketing strategy. Being able to display the right products to the right potential customer, before bringing them to the store, helps boost sales in a big way.
Why? Because the traffic is targeted, sending people to your store who are actively searching for what you are selling.
3. Inventory Management and Optimization
When brands focus too much on displaying the same set of best-selling products, they get stuck with slow-moving or dead stock, both of which dramatically affect profits.
However, by implementing product displays and advanced category sorting that factor in marketing and retail KPIs, you can optimize inventory better and increase long-term profitability.
Combining inventory management and optimization also ensures you are able to push products that offer higher margins and, therefore, more profit potential.
4. Brand Equity and Trustworthiness
The more streamlined your shopping journey is, the better your brand perception is to both potential shoppers and existing customers alike. This, in turn, boosts profits for several key reasons. Here are two:
- When you display the exact product a shopper needs to fulfill their current desire, it streamlines the shopping journey, which in turn builds trust. And we know that the better the brand equity is in the eyes of your potential customers, the more likely they are to trust your store and products, and, therefore, buy.
- By ensuring that with each shopping experience, a customer can quickly and easily find just the right product for them, you build long-term trust and loyalty. Both of these are vital for improving return customer rates, which, as we know, boost long-term sales and profit.
Now let’s take a closer look at the bad merchandising mistakes that are your biggest profit drainers.
5 eCommerce Merchandising Mistakes Managers Should Avoid
Want to ensure that bad merchandising management isn’t killing your profits? Then you want to avoid these critical mistakes:
- Ignoring eCommerce Merchandising Trends
- Not Automating Category Management
- Forgetting about Checkout Cross-Merchandising
- Not Keeping It Simple
- Being Stuck on the Same Bestsellers
Let’s look at each.
1. Ignoring eCommerce Merchandising Trends
eCommerce trends are changing all the time, as is the competitive landscape of your niche. The more saturated it gets, the more brands have to stay on top of new trends and technologies to get the upper hand and ensure they are not losing profit share to their biggest competitors.
Some current eCommerce merchandising trends include:
- An increase in advanced AI and machine learning tools
- The need for merchandising to create a more omnichannel shopping experience
- The move to a more holistic customer-experience approach with marketing and merchandising
2. Not Automating Category Management
Your category pages play a key element in your overall visual merchandising strategies. The way you populate products and whether you are able to optimize them in real-time to changing goals and needs, and market shifts, is vital in ensuring your merchandising is not costing you sales but driving profits.
And how do you automate your category management? You want to ensure you use advanced merchandising tools that not only automate your category displays but optimize them in real-time based on key marketing and inventory parameters. Such as:
- Real margins after discounts
- Inventory value
- Days to finish inventory
- Variants stock ratio
- Days in store
- Sales quantities or revenue amount
- Days since back in stock
- Conversion rates
- Product reviews (ratings and total amount)
- Product demand and price competitiveness in the market
3. Forgetting about Checkout Cross-Merchandising
Optimizing your checkout can make or break your conversion rates and revenue. Not only does checkout marketing help increase sales (revenue), but it can also increase order values with up- and cross-sells.
Online merchandising space on product, cart, and checkout pages — all part of the checkout journey — plays a critical role in doing both. Thus, affecting profitability. Tactics such as up- or cross-sell and checkout promotions can go a long way to diminishing the drawbacks of bad merchandising.
Some of these cross-merchandising incentives are:
- Running BOGO sales (Buy one, get the second one half-price/percentage off)
- Offering packages or product bundles to add value
- Including free shipping thresholds whereby shoppers who buy X amount will get free shipping
- Highlighting complementary products and accessories
4. Not Keeping It Simple
We know we have limited time to attract a potential customer's attention. So, it's often tempting to try and bombard them with as much information as possible. However, good merchandising is about keeping displays simple.
Busy visual displays and homepages that go for quantity over quality are actually considered bad merchandising. In fact, as much as 84.6% of designers feel that design overcrowding is the most common mistake new brands make.
Instead, you want to use simple, uncluttered displays. Rather, put your effort into selecting which products to place into these clean spaces. And you want to make sure you are constantly testing and tweaking until you reach maximum performance in terms of total sales, and profitability in terms of margins.
The bottom line is that your store’s UX design affects your customers’ online shopping experience, which in turn directly affects your profitability.
5. Being Stuck on the Same Bestsellers
It’s so common for online stores to use essential merchandising space to show best-selling products. After all, these are the products guaranteed to sell, right?
What about your other inventory (up to 80%)? Inventory that is costing you profits and eating away at the revenue those bestsellers are bringing you. This is called the eCommerce Pareto Principle, and it’s a profit killer.
Additionally, you need to ask yourself if those bestsellers are bestsellers because it’s all a potential customer sees. Unfortunately, this is so often the case. Head over to our How to Identify Best-Selling Products That Convert post to find out how to really choose bestsellers.
There you have it, how bad merchandising management kills profits and how fixing these mistakes can help turn it around.
If you still have questions, feel free to get in touch with our merchandising gurus. You can reach out here.