Going Back To The Basics

Confronted with a recession now predicted to be the deepest in modern memory, crafting a unique merchandise strategy supported with effective merchandising tactics appears to be more difficult than anyone imagined. A quick review of the existing basic merchandising strategies.

Price Leader: a clear positioning, supported by real price leadership in destination purchase categories. To be effective, this strategy has to be supported by truly world class operational excellence in either sourcing (driving the cost of merchandise down) and/or logistics (driving the expenses of selling the merchandise down). While the strategy has been tried within a given market segment, it truly only works at the lowest possible level. Superior tactics involve surrounding price-leader items with less well known products at less compelling values, generating larger gross margins while preserving consumer perception. Inevitably, this strategy comes under pressure to "improve margins" by "moving upscale". Most often associated with "mass merchants", Price Leader is a position which exists for department stores, Big Box, and specialty store types.

Category Killer: dominates the competition through the depth and breadth of the assortment. Not consistently a price leader, generates traffic by providing superior choices to potential customers. Attracts a relatively wide range of demographics as a result of the depth of the assortment. Not necessarily world class in sourcing or logistics (although logistics efficiency helps), must have world class store operations. The nature of this strategy is that with sufficient time and resources it can be matched: simply creating large enough "boxes" filled with a wide enough array of merchandise. The market itself tries to help, as Category Killers exercise undesirable market leverage over suppliers. Critical to the strategy is the specific category being "killed". Toys has had great difficulty sustaining even one player with the strategy, while computers and electronics have often had several viable competitors. In the end, operational and marketing excellence proves the competitive litmus test.

Trend Leader: provides an aspirational shopping experience. Usually applied within soft goods categories, this still has validity in consumer electronics as well. The successful retailers adopting this strategy deliver a distinctive added value through the nature of the shopping experience, as well as the rapid revolution of the merchandise assortment. Trend translates differently when applied to various categories. Essentially, a Trend Leader meets the needs of consumers who want to be "first" or ahead of their neighbors. Higher margins are the result, and required skills revolve around sourcing, trend development, in-store marketing and store operations.

What impact does this have within the recessionary environment? Consumer spending patterns shift and alter, impacting each strategy differently, creating new challenges and making existing tactics much less reliable, less impactful and less effective.