research report on customer centric assortment planning - india vs. rest
TRANSCRIPT
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8/14/2019 Research Report on Customer Centric Assortment Planning - India vs. Rest
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Enabling Sustained Business Excellence
Released on: February 25th 2009Retail Industry VerticalKINDUZ Business Consulting Pvt. Ltd.
India Office: [email protected]://www.kinduz.com/
Released by: Aartee RoyIndia Mobile: +91-9790915023Email:[email protected] full report athttp://kinduz.ning.com/group/retail
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8/14/2019 Research Report on Customer Centric Assortment Planning - India vs. Rest
2/14
Customer Centric Assortment Planning India vs. Rest
A KINDUZ Research Initiative
Page 2 of 14Version 1.0Release Date: February 25th 09
uncontrolled ifcopied or printed
2009 KINDUZ Business Consultinghttp://www.kinduz.com/
Confidential, All Rights Reserved
About This report
Indian Retail Industry is the largest employer after Agriculture (around 8% ofthe Indian population) and it has the highest outlet density in the world
however the organized retail industry is still in a very nascent stage. The
market is mostly unorganized and it is dominated by fragmented Kirana
stores (mom-and-pop stores) further weakened, by poor supply chain and
backward integration. Desired skill sets (for e.g. logistics, demand planning,
merchandizing, etc.) are not easily available due to the low maturity of the
industry.
Retailers attraction for India is understandable but there are various reasons
why the organized sector is still a negligible component of the complete retail
industry in India. Regional tastes in the Indian context take on a completely
new dimension the purchasing parity, language, food, religion, and festivals
acquire a distinctly local element, within a few 100 kilometers. Understanding
these and tailoring the product offering, while maintaining the operational
profitability is a key skill that retailers will need to build to survive in this very
dynamic market.
For most retailers a significant paradigm shift is necessary to realize true
customer-centric assortment, one which will initiate a fresh vision of how they
can consistently meet and ideally exceed consumer expectations. The key
would be to strategically decide on which levels (e.g. product level, store
level, etc.) differentiation is needed, while limiting the complexity and cost of
differentiating the assortment to local needs.
KINDUZ research shows that retailers need a system where the assortment
planning starts and ends with the customer. A system where the analysis of
customer trends and behavior, catchment analysis & competitor analysis are
all key to the assortment plan. A system where subsequently the actual
assortment is planned on a more granular level, for example by item and by
store cluster, which achieves previously set targets and supports the
assortment architecture from the category plans.
Internationally, retail giants like Walmart have initiated the incorporation of
localized elements into their product offering to capture the lost opportunity at
a regional level. Walmart has upgraded and tailored its merchandise mix infive key categories that appeal to occasional Wal-Mart shoppers: consumer
electronics, pharmaceuticals, home goods, apparel and fresh food.
KINDUZ initiated a global research on how retailers approach Customer
Centric Assortment Planning in India, and compare it with rest of the world.
Indian Retail
209 million households,
46 million consuming
classes
Modern Retail accounts
for 2-3% of the $350
billion Indian retail
industry.
Indian Food market is
estimated at $182 billion
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8/14/2019 Research Report on Customer Centric Assortment Planning - India vs. Rest
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Table of Contents
Key Conclusions from the Research ........................................................... 4Research Area 1: Challenges for 2009 ....................................................... 6Research Area 2: Top Line Fulfillment at Store Level ................................. 7Research Area 3: Regional Disparity .......................................................... 8Research Area 4: Store Clustering for Mix Optimization ............................. 9Research Area 5: Capturing Lost Opportunities at Regional Level ............ 10Research Area 6: Securing Bottom lines in a Decentralized Environment 11Research Area 7: Most Popular Inventory Management Practices ........... 12Research Methodology ............................................................................. 13Respondent Profile ................................................................................... 13
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Customer Centric Assortment Planning India vs. Rest
A KINDUZ Research Initiative
Page 4 of 14Version 1.0Release Date: February 25th 09
uncontrolled ifcopied or printed
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Confidential, All Rights Reserved
Key Conclusions from the Research
After aggregating our research results based on online surveys and face-to-face discussions with retailers
across the globe, certain key conclusions have emerged regarding current retail industry practices.
Conclusions that are directly related to the top line and bottom line
Key Conclusion 1: Retailers across the globe are struggling with shrinking top lines
The toll of the recession is visible in full swing and most retailers around the world are struggling to uplift
their receding top lines. Ambitious business plans had been set during the 2007- 08 economic boom and
had been supported by aggressive resource allocations. Retailers are now figuring out how best to
salvage what is left of their resources, going into a consolidation and cost cutting mode.
Key Conclusion 2: For a stores success, merchandise mix is the second most critical factor afterlocation
Good locations without a mix that captures the interest of the catchment, cannot sustain themselves for
long. If the location and mix are right for the target customer they would be pulled to the store and
reduces the need for push selling. Spending on aspects like right location, benchmarking against local
competitors can minimize the excess resource drain to market a concept.
Key Conclusion 3: Localized assortments can help boost sales volumes
While global retailers understand the importance of a localized mix, there are gaps in customer profiling
and catchment analytics to help customize the range to local requirements. In the Indian context whilemix and location are given equal importance, customer profiling does not feature at any priority level,
reinforcing the need for Indian retailers to research their target market segments before allocating serious
resources for unplanned expansions both geographically and categorically.
Key Conclusion 4: Store clustering and mix standardization form the basis of assortment planning
Since resource efficiency and economies of scale will be hit if each store was to have a different mix,
stores are normally clustered based on average sales for mix optimization. However average bill sizes
need to be also reviewed while taking the average sale into account.
Key Conclusion 5: Assortment plans need to be benchmarked against regional brands
A wide variety of Stock Keeping Units (SKUs) could theoretically provide the Average Sale and Bill Size
projected for a store however the regional brand mix already existing at a location should never be
overlooked. The regional brands, be it at a store or product level, have over their period of operation,
acquired insights and relationships with their customers which reflect in their brand positioning.
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Customer Centric Assortment Planning India vs. Rest
A KINDUZ Research Initiative
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Key Conclusion 6: Backward integration of store requirements is critical to prevent bottom line
depletion
If decentralized sourcing is considered to inject the local feel into the merchandise mix, it is advisable to
maintain a pull strategy through the system whereby localized orders are consolidated at the corporatelevel. This will help maintain predictable bottom lines and reduces the risk of brand dilution.
Key Conclusion 7: Inventory visibility across the chain is required to keep ageing under control.
In both decentralized and centralized environments, Stock On Hand visibility across the chain of
operation is critical, in order to improve Return on Investment (ROI) and prevent accumulation of ageing
inventory. This requires dedicated and integrated Information Technology (IT) and Supply Chain
Management (SCM) departments to take charge of the complete Supply Chain.
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Customer Centric Assortment Planning India vs. Rest
A KINDUZ Research Initiative
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Research Area 1: Challenges for 2009
The four most recent recessions began with falling sales and falling
EBITA (Earning Before Interest, Tax and Amortization) in the consumer
discretionary sector while some sectors like consumer staples and health
care have been fairly resistant to recessions. In almost every recession
which was studied, sectors contracted much more quickly than they
recovered. Typically, it takes six to eight quarters for a sectors EBITA to
bottom outfewer in 197375 and more in 198082. After the recession
of 2001, however, it took just over two years for most sectors to recover
their peak EBITA levels once they reached bottom.
As expected, unfulfilled sales targets emerged as the single biggest factor
impacting retailers across countries. Considering the state of the global
economy when the sales targets would have been set in beginning 2008
and the extent of recession at the time these responses were received,
much larger share of the international respondents claimed to have taken a
hit to their bottom lines as well, while inventories were not such a bigconcern. But on the Indian side piling inventories have emerged as a slightly
greater concern area than the margin reductions, indicating that demand
planning in India is an area needing more focused attention. Indian
perception seems to fare better with regards to the expected hit to top lines
and bottom lines, when compared with the rest of the world.
Key Conclusion 1:Retailers across the
globe are strugglingwith shrinking Top
Lines
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Customer Centric Assortment Planning India vs. Rest
A KINDUZ Research Initiative
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Research Area 2: Top Line Fulfillment at
Store Level
While the challenges at a macro level are clear, these need to be drilleddown to a store level to be able to arrive at possible solutions. Across the
globe, location and then the merchandise mix emerged as the two most
critical factors for the success of a store. Internationally store location is
the primary success factor for a store followed by the assortment
offering. However, in India both location and merchandise mix are
equally important reinstating, the diverse needs and preferences of
over a billion people.
It is important to reaffirm that location and mix cannot be successful in
isolation, they both need to be right. Location and store size will define
the brands positioning in the catchment, and further benchmarking the
regional brand mix will minimize the excess resource drain to market a
concept. The location and the mix need to be marketed with a clear
focus on the target customer to be able to spearhead the brand
acceptability. However, it is the customers experience on the floor and
their interaction with the sales staff which will encourage or discouragethem to visit again. Customer analytics which is the basis for identifying
the target customer and hence determining the estimated market size is
completely ignored in India as per the data available. Industry should
consider investing in research pertaining to customer demographics
before committing resources to aggressive plans.
Key Conclusion 2:Merchandise mix is the
most critical factor
after location, for thesuccess of a store
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Customer Centric Assortment Planning India vs. Rest
A KINDUZ Research Initiative
Page 8 of 14Version 1.0Release Date: February 25th 09
uncontrolled ifcopied or printed
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Confidential, All Rights Reserved
Research Area 3: Regional Disparity
The fact that merchandise mix is critical has been established without a
doubt and similarly what is it within the merchandise mix that needs to be
addressed is also critical. Globally the lack of localization of the
assortment is claimed to be the reason for the disparity in regional sales,
emerging from an inadequate understanding of the customer profile at
these regions. Inconsistency in replenishment leading to stock outs of
key SKUs followed as the third leading factor.
In the Indian context, extent of inefficiencies in replenishment clearly
state the maturity of international retail compared to India. Indian retailers
need to invest resources to streamline their end to end supply chain
networks to not only avoid stock outs but also better manage their
inventory positions.
While lack of customization of merchandise mix to local needs emerges
as the second most critical factor for Indian retailers, the correlation to
customer profiling does not exist. Reinforcing, again the need for Indian
retailers to research their target market segments before allocating
serious resources for unplanned expansions both geographically and
across categories. Without even attempting to research the customer
and catchment, there is no way that the mix can be suited to these
segments.
Key Conclusion 3:Localized assortments
can help boost salesvolumes
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Customer Centric Assortment Planning India vs. Rest
A KINDUZ Research Initiative
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Research Area 4: Store Clustering for Mix
OptimizationJohn Fleming (Chief Merchandising Officer, Walmart)I worry most
about the in-store execution. Its one thing to say, Weve got six
segments. We understand the assortment. We understand the
occasions. We understand the experience. We understand the
competitive set. And its another thing to really make that work
operationally at the store level.
While a localized merchandise mix would definitely benefit both the top
line and the bottom line, achieving it, requires resources to be invested in
terms of catchment studies, customer profiling, benchmarking local
competitors etc. Since resource efficiency and economies of scale will be
hit if each store was to have a different mix, stores need to be clustered
based on some common parameters which will help standardize the mix
for that particular lot. Average sales are globally favored as the basis for
store clustering followed by geographical span. Clustering stores
geographically works well logistically, and helps combine similar regional
preferences. However, clusters based on average sales definitely need
to be viewed along with average ticket sizes to be able to arrive at the
correct pricing strategy for the target market segment. Ideally a mix of
geography and sales volumes should be considered, to arrive at the
most commercially viable basis for store clustering.
Key Conclusion 4:Store Clustering andMix Standardization
forms the basis forAssortment Planning
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Customer Centric Assortment Planning India vs. Rest
A KINDUZ Research Initiative
Page 10 of 14Version 1.0Release Date: February 25th 09
uncontrolled ifcopied or printed
2009 KINDUZ Business Consultinghttp://www.kinduz.com/
Confidential, All Rights Reserved
Research Area 5: Capturing Lost
Opportunities at Regional Level
Store clustering will help standardize the assortment plan to a largeextent thus streamlining the use of resources and time. Retailers can
adopt various means to identify and incorporate the localized elements
which can then become a part of the standard mix for a cluster of stores.
Globally, benchmarking product mix to include regional brands is the
most favored method to bring in the local touch into an otherwise
standard assortment. However, benchmarking requires a deep
understanding of not only the local catchment but also the brand
positioning of the retailer itself, to be able to capture regional elements
which fit or can be upgraded into the bigger picture.
As a secondary alternative, retailers are tied whether to increase
marketing spends; invest in better tracking and capturing of lost sales
into centralized assortments or to completely decentralize the whole
buying operation to the regional level. Decentralization could be a valid
proposition where the IT infrastructure is strong enough to provide clear
visibility across all levels of operation covering all geographical locations.
However despite that, decentralization could risk bringing in too much
diversity in the mix whereby the brand identity is lost. While fashion might
not be able to risk this extent of diversification, decentralization can be
ideal for consumer staples.
Key Conclusion 5:Assortment Plans need
to benchmark mixagainst regional
brands
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Customer Centric Assortment Planning India vs. Rest
A KINDUZ Research Initiative
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Confidential, All Rights Reserved
Research Area 6: Securing Bottom lines in a
Decentralized Environment
Decentralization can also put the bottom lines at stake if the contractsare not being negotiated in a centralized way. Decentralization could be
considered an option where complete visibility of regional operations is
possible and checks and balances can be put in place.
To preserve economies of scale and control bottom line depletion,
supplier negotiations need to be controlled at the center while actual
buying based on agreed terms could be carried forward by the regional
teams. This is only possible if the regional teams are equipped to handle
demand planning and forecasting.
Internationally, both push and pull strategies are favoured equally as
long as the control stays at the corporate be it in terms of supplier
negotiations or backward consolidation of store orders respectively. This
would ensure better control on the buying patterns and efficient
implementation of changes in strategy.
Indian retailers do not favour backward integration of store requirements
and would rather consider allowing the region to operate as an
independent profit center, which might put their brand values at risk. How
they tackle this risk would be interesting to notice in the future.
Key Conclusion 6:Backward integration
of store requirementsto prevent bottom line
depletion
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Customer Centric Assortment Planning India vs. Rest
A KINDUZ Research Initiative
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uncontrolled ifcopied or printed
2009 KINDUZ Business Consultinghttp://www.kinduz.com/
Confidential, All Rights Reserved
Research Area 7: Most Popular Inventory
Management PracticesAs was evident in earlier graphs, inventory seemed to be a bigger
problem for India than for the rest of the world even when most retailers
are operating in a centralized environment. Likelihood of this concern
growing in a decentralized environment is greater. Hence it is important
to understand global preferred practices for ageing inventory
management.
Globally in-store discounting and ensuring inventory visibility across all
locations are the two most preferred options for liquidating ageing
inventory. These are not possible without immaculate IT and SCM
backbones that are integrated. Predefined stock cover targets at store
and warehouse levels would need to work in tandem with the inventory
visibility. Mass discounters are a good channel for liquidating excessinventory but at a further reduced margin; while discounting within your
store could generate additional sales and also salvage some minimum
margin. Retailers need to take a conscious call regarding the scale and
promotion of in store discounts, in tune with the brand image that they
want to communicate.
Key Conclusion 7:Inventory visibilityacross the chain is
required to keepageing under control
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Customer Centric Assortment Planning India vs. Rest
A KINDUZ Research Initiative
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Research Methodology
Target respondents across the globe were approachedthrough emails, blog posts, invitations on various retail forumsand through personal meetings, to complete the surveyquestionnaire. Post the initial contact three weeks time wasallowed to pass before the required sample size wascollected. Responses were then aggregated to provide anoverview. The respondents were further clustered into Indianand international participants and responses wereaggregated again. The analysis also takes into account thefeedback received during face to face meetings with twelveIndian retailers.
Respondent Profile
The survey received three hundred and twenty six responses
from all over the world, out which 69% were from India while
38% were from the rest of the world primarily USA, UK,
Ireland, Russia and Thailand. 72% of responses were
received from people functioning in managerial to leadership
levels with greater than 4 years of industry experience. In
terms of business formats hypermarkets took the lead with
32% respondents selecting that format as the basis for their
choices. Department stores and mass discounters featured in
the same proportion with 25% respondents selecting each of
these formats. 43% of the respondents claimed that their
business format was meeting existing requirements of
customers while 32% were involved in aspirational selling of
select brands.
Respondent profiles did not vary much between Indian and
international respondents, excluding that bias from the
survey.
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Customer Centric Assortment Planning India vs. Rest
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