Competitive Edge: A more rigorous approach to Merchandise Analysis
In this difficult and increasingly competitive retail environment, catalog merchants are more challenged than ever to increase sales and profit. From what I am seeing, the good news is that merchandising executives are increasingly giving emphasis to both sales and profitability metrics when measuring catalog performance—a healthy direction that will be sure to increase profits for those embracing new analytical approaches.
In my experience, traditional square inch analysis comes up short as a tool for effective catalog planning. “SQUINCH†(the oft-used industry acronym) introduces productivity to catalog analysis. While useful, this can stop at sales per square inch, gross margin, or contribution to fixed overhead and profit. It really misses the critical imperative, to focus on measures of bottom line profitability.
As a former catalog director—and current merchandise consultant—I learned early on that primary emphasis in catalog analysis must be given to another metric: net profit by item. This mandates a full allocation of catalog costs, by category and item, and drills down to determine each item’s contribution to the catalog’s net operating profit. Merchants then learn not only what the best sellers are, but their profit winners as well. At that point, achieving the optimal merchandising plan for future offers becomes much more apparent: the most profitable items can be expanded, while those items draining profits can either be eliminated, or reformulated to make money.
F. Curtis Barry & Company and Reagan Consulting have an alliance to perform product net contribution to profit analysis for multichannel clients. www.fcbco.com
Jon Reagan can be reached at (520-797-0314), or email him at jonreagan@comcast.net
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