Complete Guide to Merchandising Management for Online Retailers

Online retail merchandising management is the most important aspect of any eCommerce brand. 

You can follow the latest product development and fashion trends and run the perfect offsite PPC campaigns that generate highly targeted traffic itching to buy what you’re selling — but it all means nothing if a browser can’t find the product they are looking for. It’s the oil that makes your sales funnel work. 

And with the online retail industry getting increasingly saturated, now is the time for retailers and merchandise managers to invest in advanced merchandising management. 

This guide is going to help you do just that. Plus, we will brush up on the basics to ensure you have a strong foundation set to boost performance. Here’s what we will cover: 

Let’s jump in. 

What Is Merchandising Management 

When we’re talking about online retail merchandising management, it helps to think of it as the place where business management, inventory optimization, and marketing meet. 

It’s not all visual merchandising — although, of course, that is an essential element of your entire merchandising strategy. 

Ultimately, it’s the curating and displaying of an online store’s products in a way that both drives customer satisfaction and maximizes profitability. It does that by factoring in product selection, placement, and presentation, pricing, promotions, inventory management and merchandise planning, and the personal preferences (of potential customers). 

Everything is then continuously tweaked and optimized as inventories, markets, demands, products, and trends change base. And when done right, it creates a seamless and engaging shopping experience that not only increases revenue but drives profits

But it needs to be done right. We’ll dive deeper into how to do just that. But first, let’s look at the most critical elements of merchandising management. 

Key Components of High-Performing Merchandising Management 

1. User Experience (UX) and Design 

Your store’s layout and design decisions are the foundation of your merchandising strategy. High-performing management ensures the overall shopping experience is as intuitive and cohesive as possible. This means optimizing for fast loading times, a streamlined checkout process, effortless navigation, and overall responsiveness. An excellent example of a brand winning at UX fashion merchandising is a top apparel store example, Adored Vintage..

2. Search Functionality 

Effective search functionality is vital in connecting potential shoppers to the products you want to sell as smoothly — and as quickly — as possible. A well-optimized merchandising management strategy includes faceted search options, intelligent search algorithms, and advanced search analytics.

3. Inventory Optimization and Management 

Another critical element of high-performing merchandising management is inventory optimization — it’s how you ensure that the right products are available at the right time and in the right quantities to meet demand. Some important merchandising management tasks that fall under inventory optimization include demand forecasting, ABC analysis, just-in-time (JIT) inventory strategies, inventory turnover optimization, supplier relationships and procurement strategies, and safety stock management. 

4. Product Collections and Categories 

How you curate and group products is essential to a successful strategy, with product collections and categories directly driving product discoverability. The way you structure them will ensure customers can find relevant products and discover new items of interest. For an advanced merchandising strategy, this means investing heavily in collection and category page optimization, automation, and AI. 

5. Recommendation Engines 

Speaking of AI… Recommendation engines are a must for any advanced merchandising management strategy. Not only do they suggest relevant products to customers based on their browsing and purchasing behaviors (thus increasing conversion chances), but give access to highly valuable data you can use to drive better decision-making. 

6. Brand Identity and Consistency 

How your brand is perceived plays an important role in conversion changes. This is because it goes a long way to building customer trust and loyalty. Therefore, a well-performing merchandising management strategy should also account for branding (ensuring consistency), storytelling, and differentiation (highlighting how your store is different — better — than your competitors). 

A good example of this in practice is from the mega-retailer Chubbies, where every aspect of their frontend merchandising strategy is sure to showcase the brand’s personality. 

7. Social Proof and Trust Signals

Trust-building is inseparable from product discovery if you want to convince new potential customers to buy your products. That is why high-performing merchandising management should include testimonial collections, customer reviews and rating strategies, and trust badges and/or certification displays. 

8. PPC and Social Campaigns (Offsite Merchandising) 

PPC campaigns and other marketing ads are another vital element of high-performing merchandising management in eCommerce. Effectively managing PPC campaigns and social media ads as part of a merchandising management strategy can have a dramatic effect on the type of traffic you’re bringing to your online store. Targeted traffic means more potential customers with high buying intent, resulting in better product matching and higher conversions. 

Benefits of Upgrading Your Merchandising Management 

Even if you think your merchandising strategies are working for you, there is always room for improvement, and you’re bound to be leaving quite a few hypothetical pennies under the sofa, so to speak. 

There are significant benefits to upgrading your merchandising management strategies. Let’s look at some of the most important, particularly in the ever-evolving landscape of online retail.

1. Increased Conversion Rates 

By improving your merchandising management, you ensure that the buyer takes the most straightforward path from product discovery to checkout. This means better intent and more buyers completing their transactions. 

2. Better Data 

In order to implement advanced merchandising management, you’re likely going to be investing in robust tools like Kimonix, which will give you better access to more in-depth analytics. Being able to acquire better insights, you can then make more data-driven decisions, further driving performance. 

3. Improved Shopping Experience 

To enhance your merchandising management, you will need to streamline your customer journey by default. This is because merchandising and the shopping experience should work hand-in-hand to help you decide on product placement, simplify navigation, and drive personalized recommendations. 

4. Upgrade Inventory Management 

By improving your merchandising management, you will improve product visibility and control. This means fewer stockouts (or, on the other side of the spectrum, dead stock), better inventory optimization and planning, and waste reduction. 

5. Elevated Brand Perception

When you combine an improved shopping experience with a good-performing merchandising strategy, you establish yourself in your niche — standing out from your biggest competitors. Having a cohesive plan that shows products a shopper is actively searching for in a professional way builds trust. Trust that improves perception and builds long-term loyalty. 

6. Refined Cross-Selling and Upselling Strategies 

Cross-selling and upselling are essential to a well-optimized, sophisticated merchandising strategy. Therefore, by improving your merchandising management, you open your strategy up to more upselling and cross-selling opportunities that help boost AOVs (average order values).

The bottom line is that upgrading and streamlining merchandising management is essential to the success of your eCommerce brand. Additionally, it will help you tap into consumer preferences and trends, ensuring your inventory, branding, and marketing strategies are always on point to build long-term profitability and success. 

Using the 5 Rs of Merchandising Management to Boost Performance 

If you’re unfamiliar with the five Rs of merchandising management, they are the fundamental principles that form the foundation of any good merchandising strategy. They include the…

  • right product
  • right price
  • right placement
  • right promotion 
  • right time

…all working together to ensure everything is coordinated in a way to take a new browser from discovery to sale. 

Let’s quickly look at how each of the Rs can significantly boost performance for online retailers and merchandising managers. 

Right Product 

To leverage the “right product” prong of the five Rs of merchandising management, you want to ensure that your market research and customer data analysis is thorough and in-depth to truly understand product preferences. You also need to regularly evaluate and update product assortment to ensure it aligns with customer needs and preferences.

Right Price

After conducting pricing analysis to determine optimal price points (based on production costs, competitor pricing, and perceived value), you can use dynamic pricing strategies to change the market or demand. Even better if this can be done regularly and automatically to stay competitive while remaining profitable. 

Right Placement

Determining where you display each product and in what order you display them is vital if you want to boost revenue and profits. Ultimately, this is where you would analyze store layout and online store traffic patterns to identify prime product placement opportunities and strategies for how you will group related products together — think, optimized product sorting strategy. 

Here’s an example from Pura Vida, excelling at product discovery, who we highlighted in our Product Sorting Strategies guide.

[Source: Pura Vida]

Right Promotion

Your on-store promotions are another vital piece of a well-thought-out online merchandising strategy puzzle. You want to build promotional campaigns that align with your business objectives, seasonality, and customer preferences. This will not only help improve conversions and AOVs but build long-term brand loyalty as well. 

Your offsite promotions and marketing also fall into this R prong of merchandising management. By utilizing multiple channels from email marketing, social media, and search advertising, you can reach target audiences more effectively and encourage them to click on your product pages. 

Right Time

Lastly, you want to ensure that all your R’s are working together to reach a potential customer at just the right time to elicit a conversion. This means strategically planning promotions and product launches around peak shopping periods, holidays, and special events, as well as continuously monitoring market trends and consumer behavior to identify opportunities. And then, above all, harnessing the power of dynamic merchandising practices to ensure that just the right product is shown to just the right shopper at just the right time — boosting sales. 

Here’s an example of online fashion merchandising capitalizing on the “right time,” Summum. By upgrading merchandising management to incorporate advanced strategies and technologies (thanks to Kimonix!), they were able to improve their conversion rates by 19% in just five weeks. 

[Source: Summum]

You can read more about this merchandising case study, here.  

How To Upgrade Your eCommerce Merchandising Management Strategy  

Now that we know everything that makes merchandising management optimization so important to eCommerce profitability and long-term success, we give you the key steps you need to optimize your strategy — which include the following:  

  1. Do a comprehensive audit
  2. Take a deep dive into market trends and customer insights 
  3. Sift through data for opportunities
  4. Review and redefine your goals and objectives 
  5. Factor in inventory optimization and retail KPIs
  6. Review and revamp your store’s shopping experience  
  7. Upgrade your product sorting strategies 
  8. Examine and tweak product displays and placement  
  9. Elevate your promotional marketing 
  10. Invest in advanced automation and AI 

Step #1: Do a Comprehensive Audit

The first thing you or your merchandising manager needs to do when upgrading your merchandising strategy is to check in to see where your online retail business stands. Identifying your biggest strengths, as well as your weaknesses, means conducting a thorough audit of your current merchandising strategy to assess product sorting, pricing, user experience along digital touchpoints, on and offsite promotions, product sorting, and more. Here’s a list of everything you want to audit to assess how your merchandising management is performing: 

  1. Marketing and online retail KPIs
  2. Product sorting strategy
  3. Promotional strategy performance 
  4. Product discoverability effectiveness 
  5. Inventory management 
  6. Your standing against niche benchmarks 

Step #2: Take a Deep Dive into Market Trends and Customer Insights 

Next, you want to take a look at the latest market trends, industry best practices, and evolving consumer preferences. This means closely analyzing customer data, feedback, and behavior to gather valuable insights into their purchasing patterns and preferences that you can use to drive new strategies. Doing this will also enable you to get up close and personal with your target audience to look for ways your strategy can be better tailored to them. 

Step #3: Sift Through Data for Opportunities

One of the most essential optimization tools online retail stores have at their disposal is their data. By studying market, customer, and business analytics, you can leverage actionable insights to boost merchandising performance. This means you will want to monitor everything from supply chain management data to checkout statistics for conversion metrics. 

Step #4: Review and Redefine Your Goals and Objectives 

Once you clearly understand where you stand and have taken a good look at your customer and business analytics, you will want to update your online retail store’s goals and objectives. You need them to be clear and measurable. Following are some examples of goals and corresponding KPIs. 

Goal: Increase sales revenue  

  • Total Sales Revenue
  • AOVs
  • Conversion Rate
  • Product Performance
  • CLV (Customer Lifetime Value) 
  • Revenue by Traffic Source
  • Repeat Purchase Rate
  • Shopping Cart Abandonment Rate
  • Promotional Effectiveness

Goal: Improve conversion rates 

  • Conversion Rate
  • AOVs
  • Cart Abandonment Rate
  • Bounce Rate
  • Page Load Time
  • Exit Rate
  • Checkout Abandonment Rate
  • CTRs
  • Product Pageviews
  • User Experience (UX) Score

Goal: Increase AOVs 

  • Cross-sell Rate
  • Upsell Rate
  • Product Bundle Sales
  • Revenue per Customer
  • Average Items per Order
  • Average Spend per Visit
  • Average Spend per Customer
  • Product Category Mix
  • Discount Redemption Rate

Goal: Enhance brand perception and increase awareness 

  • Brand Recognition 
  • Brand/Product Recall 
  • Brand Awareness
  • Campaign Reach 

Goal: Improve customer engagement 

  • Website Engagement Metrics
  • Social Media Engagement
  • Email Engagement
  • Customer Feedback and Reviews
  • Customer Interaction Frequency
  • Loyalty Program Participation
  • Community Engagement
  • Content Engagement
  • Interactive Features Usage
  • Event Participation

Goal: Optimize inventory management 

  • Inventory Turnover Ratio
  • Stockout Rate
  • Carrying Cost of Inventory
  • Fill Rate
  • Backorder Rate
  • Lead Time
  • Inventory Accuracy
  • Slow-Moving Inventory
  • Sell-Through Rate
  • Gross Margin Return on Investment (GMROI)
  • Supplier Performance

Goal: Improve customer retention 

  • Customer Retention Rate
  • Repeat Purchase Rate
  • Churn Rate
  • Average Customer Lifetime Value (CLV)
  • Customer Satisfaction Score (CSAT)
  • Net Promoter Score (NPS)
  • Average Order Frequency
  • Customer Engagement Metrics
  • Loyalty Program Participation
  • Referral Rate
  • Customer Feedback and Reviews

Goal: Reduce non-moving inventory 

  • Non-Moving Inventory Percentage
  • Aging Inventory Analysis
  • Slow-Moving Inventory Turnover Rate
  • Stock Turnover Ratio for Non-Moving Items
  • Inventory Obsolescence Cost
  • Non-Moving Inventory Value
  • Excess Inventory Levels
  • Inventory Age Distribution
  • Write-Off Rate for Non-Moving Inventory
  • Non-Moving Inventory Trends
  • Reasons for Non-Movement Analysis

Step #5: Factor in Inventory Optimization and Retail KPIs 

The only way to build an advanced merchandising management strategy is by factoring in both retail (inventory and business) and marketing KPIs into your strategy. This will ensure that you can provide the right product at the right time to the right shopper in the right quantities while ensuring maximum retail profitability. 

Inventory optimization is about more than merchandise management; it’s the balance between your marketing KPIs and objectives. While inventory management helps balance ordering and stock, inventory optimization is about selling the right stock to balance out inventory on the backend and meet marketing needs on the frontend. 

Let’s look at a fashion merchandising management example of this in practice from the footwear brand Yellow Shoes. Wanting to overcome the challenge of managing over 200 collections, their merchandising manager was looking to streamline their merchandising strategy while also increasing their add-to-cart ratio and conversions. 

To do this, they adapted a multi-parameter sorting strategy factoring in both marketing and retail KPIs. These included: 

  • Sizing inventory (which, as you know, is one of the most crucial parameters for apparel stores, as it has the most impact on product conversion)
  • Sales
  • Conversion rate

They also needed a way to fully automate their product categories and sort them by various parameters. To achieve these merchandising upgrades, they harnessed the power and advanced merchandising expertise of Kimonix.  

And the results? 

Yellow Shoes increased their YoY add-to-cart rate by 30% while eliminating a LOT of manual fashion merchandising admin. 

You can head over to our How to Create Merchandising Strategy That Answers Retail and Marketing KPIs post for a step-by-step guide to duplicating their retail management automation strategy — or get Kimonix to do it for you. 

Get a free demo

Step #6: Review and Revamp Your Store’s Shopping Experience 

Next, you want to review your shopping experience and sales journey to ensure it’s working with your inventory optimization and marketing strategy. In other words, you’re looking for bottlenecks that could be hurting your conversion potential. 

To do this, you should be auditing your user experience (UX) and your customer journey mapping to ensure that the flow from one digital touchpoint to another is seamless. You also want to reassess your store’s design, visual merchandising layouts, checkout process, retail category management, product displays, and onsite personalization and product recommendation strategies.

And don’t forget your trust signals, testimonials, and product reviews. You want to ensure they are at strategic places on your customer journey to help build trust from beginning to end. 

Step #7: Upgrade Your Product Sorting Strategies 

To upgrade your merchandising management strategy for your online store, you need to ensure your on-store product sorting tactics (or merchandise mix) are aligned with your inventory management and optimization. If, for instance, your collection page is just pushing bestsellers to the top without factoring in things like “current variants stock ratio for each product” or the “average time the product is in stock before shipment” — then you’re leaving a lot of profit on the table. This is called the eCommerce Pareto Principle. 

Let’s quickly explain.  

According to the Pareto Principle, the majority of outcomes stem from a small fraction of inputs. In the realm of eCommerce retail, this translates to a scenario where a mere fraction of a brand’s product offerings (often as little as 20%) drives the lion's share of its revenue. This leaves 80% of the inventory as non-moving or slow-moving inventory, eating up as much as 20% of a retail business’s much-worked-for profits!

Instead, you need a sorting strategy and display merchandise mix that aligns with current market trends, customer preferences, and critical retail KPIs, and it should be adapted in real-time. 

Step #8: Examine and Tweak Product Displays and Placement  

Are your visual merchandising techniques and promotions compelling enough to grab attention? Are you including 1:1 personalization in your product recommendation engines? Are your category pages well-structured and easy to navigate? Are you promoting the right mix of products to up or cross-sell to boost AOVs? 

These are all questions you or your merchandise manager should be asking when examining your online retail store displays and product placements. The best way to answer yes to all of these questions is by leveraging the strength of smart collections

But as we know from the previous steps, we need to factor in multiple parameters to advance retail merchandise optimization. Therefore, you may want to consider advanced merchandising and product display tools

Step #9: Elevate Your Promotional Marketing 

Once you have optimized and tweaked your on-store merchandising, it’s time to take a look at your offsite merchandising. You need to ensure that your marketing campaigns and promotional strategies are also tailored to specific customer segments, seasonal trends, or product categories — while still factoring in inventory optimization and remaining relevant to the collection, category, landing, or product pages you send shoppers to.  

Let’s say you are selling in the pet fashion industry; let’s take email marketing as an example. Here is an email from Chelsea Dogs. As you can see below, they have incorporated a collection of products. 

What you can’t see here is that this collection was personalized to the specific user receiving it, while also factoring in multiple product sorting parameters to ensure they also meet business and merchandise objectives! You can read more about the specifics of how Chelsea Dogs did this, here

Step #10: Invest in Advanced Automation and AI 

Last but not least, it’s time to invest in advanced automation AI. In the growing saturation of eCommerce and the ever-changing market landscape, you need automation AI to help manage merchandising in real-time. Yes, this saves heaps of time and streamlines workflow, but as you have seen in the steps above, that’s not the only benefit. Automation drives results — especially when you combine AI with a multi-parameter advanced merchandising strategy. 

Here are five must-use tools worth investing in to upgrade your merchandising management: 

Final Thoughts: Test, Tweak, and Test Again 

As any merchandise manager knows, merchandising planning management isn’t static; it’s very dynamic — changing to evolving business administration needs, supply chain management, market trends, customer preferences, and more, on an almost continuous basis. 

Ideally, you want to test different merchandising tactics, promotional offers, and pricing strategies to identify what resonates best with your audience and use merchandising tools like Kimonix that factor in A/B testing that lets you test, tweak, and test again! 

Still have merchandising management questions? Reach out to us here

Happy selling! 

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