Abstract
In brick-and-mortar retailing format, retailers need to ensure minimum level of inventorydisplayed at each store for each category irrespective of the revenue or profit generated by aparticular category. It is observed that majority of bricks-and-mortar retailers in India assume;(a) existing category mix is ideal for their stores, (b) any modification in the existing categorymix could possibly lead to loss of sale of an existing category, (c) it is preferred to havecategories generating higher average transaction values and most importantly,(d) categorieswith lower average selling price products and generating lower average transaction valuesnegatively impact store’s revenue. Such assumptions and widely followed practice havecreated a predisposition and mindset in store managers and they believe that, their storedelivers revenue and profit to the best of its potential with the existing category mix. In thisresearch, we have analysed the existing category mix of a select retailer, attempted to alter theexisting category mix through an experiment and evaluated change in (a) category levelprofitability, and (b) overall store profitability.
Highlights
It is observed that majority of bricks-and-mortar retailers in India assume; (a) existing category mix is ideal for their stores, (b) any modification in the existing category mix could possibly lead to loss of sale of an existing category, (c) it is preferred to have categories generating higher average transaction values and most importantly,(d) categories with lower average selling price products and generating lower average transaction values negatively impact store’s revenue
Retailers categorise all the products which are predominantly made up of textile base in to Softline such as Apparels, products which are not predominantly made up of textile base are categorised as Hardlines such as Furnitures and products which are basic need of consumers and required by them for frequent usage are categorised as FMCG such as non-durable household items
KEY FINDINGS AND INSIGHTS : Using pre-test post-test real treatment effect formula, we have found that the real treatment effect has shown a 164.36 percent improvement in the overall store profitability of experimental group as shown in table 1;about 111.41 percent improvement in FMCG category profit as shown in table 2;about 49.31 percent deterioration in Hardlines category profit as shown in table 3;and a 68.08 percent improvement in Softline category profit as shown in table 4over their pre-test period
Summary
Inventory is one of the most important costs in retailing which holds significant share of overall retailing cost structure. Classify these products into different sections either based on consumer needs (demand side) or product’s behaviour (supply side) or visual appeal (communication side) or consumer life-stage (solution side) and this classification is known as categories Each of these categories include multiple sub-categories and each sub-category is comprised of multiple brands, models, colours and SKUs. Usually retailers categorise all the products which are predominantly made up of textile base in to Softline such as Apparels, products which are not predominantly made up of textile base are categorised as Hardlines such as Furnitures and products which are basic need of consumers and required by them for frequent usage are categorised as FMCG (fast moving consumer goods) such as non-durable household items. Few have suggested to make use of software tools and solutions and others have recommended to adopt different techniques available in category management
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