Executive Summary of Sales Opportunity by vub33762


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                                                                           Prepared for NARMS
                                                              by Willard Bishop Consulting, Ltd.

                                                                             March 2000


     National Association for Retail Merchandising Services
 Retailers and brand marketers are struggling with the issue of efficient implementation of
 retail merchandising activities. They understand the direct impact that these activities
 have in providing consumers with the right products, in the right place at the right time.
 In fact, there are already a number of studies being conducted in this area. However,
 until now, there have not been any studies that focus on documenting the value of
 professional merchandising service organizations.

 The National Association for Retail Merchandising Services (NARMS) recently
 conducted an extensive study with Willard Bishop Consulting, Ltd. (WBC) entitled,
  Documenting the Value of Merchandising. NARMS commissioned this study to help
 retailers and brand marketers understand the importance of getting it right at retail and
 how the skills of professional merchandising service organizations can be used to
 enhance planogram implementation and new product introductions. This executive
 summary highlights the most significant findings of that study.

 NARMS conducts and publishes ongoing industry research as well as offering
 educational networking forums. NARMS members provide quality professional
 merchandising services to all classes of trade, such as: grocery, drug, discount,
 department, hardware, home and building centers, computer/office supply, electronic,
 specialty, and convenience retailers.

 NARMS can be accessed on the world wide web at: http://www.narms.com.

Executive Summary                           1
Background & Objectives

   Evolutionary market pressures are affecting the way brand marketers and retailers conduct
       ! Brand marketers are downsizing and, in some cases, shifting away from a direct
         field sales force.
       ! At headquarters, retailers are moving to centralized buying.
       ! At stores, retailers are increasing customer service.
       ! Both brand marketers and retailers are experiencing the effects of an unprecedented
         labor shortage.
   In this environment, many retailers are devoting less attention and fewer resources to
   merchandising their stores, while category management and the surge in new product
   introductions are increasing retail labor demands. Therefore, stores are systematically
   losing sales because of inadequate attention to inventory and display issues. Professional
   merchandising service organizations have a significant opportunity to supplement current
   merchandising activities in a way that benefits brand marketers, retailers—a d most
   Many brand marketers and retailers are, however, unaware of the advantages that can be
   achieved by using merchandising service organizations. This study is designed to measure
   the sales impact of merchandising service organizations and provide retailers and brand
   marketers with an indication of the benefits that can be achieved by using the services of
   merchandising service organizations.
   The objective of this study is to document the increased sales potential and enhanced
   shelving efficiencies of using merchandising service organizations. Specifically, the study
   documents the benefits achieved from merchandising in two critical areas.

  Merchandising Activity                     Benefit Measures
  1.  Implementing & maintaining             ! Percent of planogram compliance
      planograms                             ! Sales lost because of slower implementation

  2.   Cutting-in new items                  ! Speed to shelf
                                             ! Sales lost due to slower speed to shelf

   These two areas were chosen because of the increased demand for these activities brought
   about by category management and the increase in new product introductions.

 Executive Summary                            2

 This research project features a 13-week test/control store study at two leading retailers. A
 group of study stores were chosen and divided into two matched panels.

                                      Control-Test Study
                       Control Store Panel              Test Store Panel

                          No Change           period     No Change
                                             (13 wks)
        Store                                  Test
                            Gradual                       Immediate              organizations
    responsible                               period
                            Change           (13 wks)      Change               responsible for
      for shelf

                           Difference                     Difference

                                           % Change
 As soon as decisions about new planograms and new product cut-ins were made at retail
 headquarters, merchandising service organizations conducted a scheduled planogram reset,
 cut in selected new products, and revisited these test stores every week to maintain the reset.
 Control stores practiced busi ness as usual, wi th the store responsible for any resets or new
 product cut-ins.

 On a weekly basis, merchandisers tracked planogram compliance and new product cut-ins
 across 17 categories at both test and control stores. Additionally, WBC collected POS data
 for each test and control store.

   ! Baseline—13 weeks of hi
                           storical scan data from the period immediately preceding the
     start of the study.
   ! Test—13 weeks of scan data from th study timeframe.

 The information from the in-field reports and retailer POS data was analyzed to quantify the
 impact of merchandising compliance. Additionally, WBC interviewed retailers participating
 in the study to further substantiate the findings of this study.

 Executive Summary                              3
Key Findings: Planogram Implementation

  There are three key findings in this executive summary that will demonstrate to retailers
  and brand marketers the significant benefits that can be achieved by using professional
  merchandising service organizations for planogram implementation.
1. Merchandising service organizations implement planogram resets faster
   than retailers current methods.
  Merchandising service organizations implemented new planograms in the test stores
  within two weeks after the introduction of the new planogram. However, the majority of
  the control stores did not complete the reset within the same two-week time frame. In
  fact, a large portion of the control stores were unsuccessful in implementing the reset
  during the entire 13-week study time frame.

        Length of Time to Implement Planogram Reset
                            (% of Stores Implemented)
           50%                                                                Test Stores
           40%                                                                (Supported by
           30%                                                                Service
                      11%                                                     Control Stores
           10%                                                                (No Merchandising
                                                                              Service Organization
             0%                                                               Support)
                   1 2     3 4 5 6 7 8            9 10 11 12 13

  Traditional in-store support is stretched so thin that planogram implementation may not
  occur as often as retailers would like. This is demonstrated by the fact that 44% of the
  control stores were unable to complete the reset within the study timeframe. Professional
  merchandising service organizations were able to implement the resets quickly, because
  they could focus all their attention on the job at hand.

 Executive Summary                            4
Key Findings: Planogram Implementation

2. Merchandising service organizations had a higher quality of initial
   planogram compliance than retailers current methods.
  All the test stores serviced by merchandising service organizations implemented the reset
  to 100% compliance with the planogram (i.e., the shelf perfectly matched the planogram).
  However, the average rate of planogram compliance among the control stores that
  implemented the planogram reset was only 78%.

                              Initial Planogram Compliance
                                         (% of Compliance)



                          Test Stores           Control Stores
                         (Supported by     (No Merchandising Service
                      Merchandising Service Organization Support)

  The high level of planogram compliance achieved by merchandising service organizations
  is a clear demonstration of one of their core competencies. This competency is further
  enhanced by the fact that merchandising service organizations also maintained the
  planogram at a compliance rate of 98% during the 13-week test period. In fact, the only
  reason merchandising service organizations were not able to maintain a rate of 100%
  compliance was due to out-of-stocks.
  Since merchandising service organizations can focus on efficiently conducting and
  maintaining the reset, they not only implement planograms quickly, but maintain them at
  an optimal level of compliance.

 Executive Summary                               5
Key Findings: Planogram Implementation

3. Faster, more accurate planogram implementation and maintenance
   provided by merchandising service organizations boosts sales and

  While the lift in sales can vary by category, it is clear that the efficient planogram
  implementation and maintenance provided by merchandising service organizations can
  increase sales.

                              Sales & Profit Lift* in
                              Typical Test Category

                                     7.8%           8.1%

                                Sales        Profits

  Faster, more accurate planogram impl ementation and maintenance provided by
  merchandising service organizations resulted in a typical category sales lift of 7.8%.
  This lift in sales also provided the retailer with an 8.1% increase in profits. It is
  important to keep in mind, however, that the amount of lift can vary by category, as
  well as:

     ! the condition of shelf prior to the reset.

     ! the impact of the new planogram.

  * Lift is the incremental increase in test stores over and above changes in the control

 Executive Summary                            6
Key Findings: New Product Cut-Ins
   New items are being introduced at record rates, and securing immediate shelf distribution is
   paramount to the success of a new item. However, speed-to-shelf isn t alway s emphasized at
   store level. Since new items build category sales and increase consumer satisfaction, getting
   new products to the shelf quickly is key, and the following three key findings demonstrate
   the effectiveness of merchandising service organizations in new item speed-to-shelf.
1. Many retailers have difficulty cutting in new products, but merchandising
   service organizations get new products on the shelf in a fraction of the time.
   With so many demands placed on the retailer, cutting in new products is not happening as
   quickly as retailers would like. Here are two quotes from retailers.
      ! W e have 100 things to do and only enough time to get to 50 of them. When we
        have time available, we ll cut in new items.
      ! It can take us weeks or months to cut in a new item.
   Unfortunately, cutting in new items is frequently not at the top of the retailer s m any
   To illustrate this, fully 85% of the cut-ins completed by merchandising service organizations
   were done within two weeks of the date the product was authorized, while only 28% of the
   new cut-ins were completed in the control stores.
                                         New Product Cut-Ins
                          (% Completed Within Two Weeks of Authorization)


                                  Test                  Control
                            (Supported by        (No Merchandising Service
                         Merchandising Service     Organization Support)

   Importantly, the primary reasons that merchandising service organizations were unable to
   complete 100% of the new product cut-ins are:
      ! product did not arrive in the store.
      ! product was not entered into the POS system.
   By contrast, in some of the control stores, it s li kely that new product had been delivered and
   was in the POS system, but had not been shelved.

 Executive Summary                                  7
Key Findings: New Product Cut-Ins

  2. During the study, merchandising service organizations eventually
     implemented 98% of the new product cut-ins, while retailers could only
     implement 60%.

                                          New Product Cut-Ins
                        (% of Cut-Ins Completed During the 13-Week Test)

                  Test Stores                                         Control Stores
                     (Supported by                                    (No Merchandising Service
                  Merchandising Service                                 Organization Support)

                                                         Cut-In Not
                                             Cut-In    Implemented
                                           Completed        40%
  Cut-In Not
      2%                                                                                          Completed

     Merchandising service organizations achieved a new product cut-in rate of 98%. This
     rate would have been 100% if the retailer had been able to enter all the new product cut-
     in items into the POS system within the timeframe of the study. This modest shortfall
     highlights the importance of not only focusing on speed-to-shelf, but also putting
     attention on properly coordinating each new item introduction with all involved parts of
     the business.

     The results show how merchandising service organizations improve the speed-to-shelf
     opportunity for new item cut-ins. So, if speed-to-shelf and enhancing the consumer
     shopping experience is important, merchandising service organizations can play a critical
     role in ensuring that consumers can find the new products they want.

   Executive Summary                               8
Key Findings: New Product Cut-Ins

3. Faster implementation of new product cut-ins can provide substantial
   increases to the bottom line.

  In a period of less than two months, faster implementation of new product cut-ins by
  merchandising service organizations provided the test stores with 45% more sales dollars
  from new items than the control stores, where there was slower speed-to-shelf.
                             Sales from New Product Cut-Ins
                                         (8 SKUs/8 Weeks)



                           Control Stores          Test Stores
                      (No Merchandising Service (Supported by Merchandising
                        Organization Support)      Service Organizations)

  Typically there are an average of 20,000* new item introductions each year, and
  merchandising service organizations can get these products to the shelf faster, providing an
  increase in sales dollars of approximately 45% from the sale of these new products.

  Retailers and brand marketers cannot afford the risk of not getting new products to the shelf
  quickly, especially when:

      ! Retailers are striving to be fi rst to shelf wi th new item initiatives to please their

      ! Brand marketers want consumers to be able to find their new products, particularly
        after making a significant investment to develop and promote new products.

  Using merchandising service organizations to implement new product cut-ins gives retailers
  and brand marketers a way to increase their share of market while also enhancing the
  shopping experience for their customers.

  *New Product News

 Executive Summary                                 9
Summary and Conclusion

 It is becoming increasingly difficult to meet consumer needs, as changing demographics and
 lifestyles give rise to an increasingly complex consumer base. Consumers are more
 sophisticated and are demanding more from brand marketers and retailers, expecting to have the
 right products, in the right place at the right time.
 This evolving and increasingly more sophisticated marketplace has created a need for retail
 execution systems that are accurate, timely and disciplined. Merchandising service
 organizations were created to fulfill the unmet needs of the marketplace and have emerged as the
 logical choice to provide effective retail execution solutions for both retailers and brand
 Planogram Implementation
 In the area of planogram implementation, merchandising service organizations have
 demonstrated their superior ability to implement planograms.
      ! Merchandising service organizations implement planogram resets faster than retailers
        current methods.
      ! Merchandising service organizations have a higher quality of initial planogram compliance
        than retailers c urrent methods.
      ! Planogram implementation and maintenance services provided by merchandising service
        organizations can provide a typical category sales increase of 7.8%.
 Merchandising service organizations eliminate the retailer s current dil emma of struggling to
 find the time and resources necessary to conduct category resets. The services supplied by
 merchandising service organizations are applicable across the store and are more productive than
 current retail practices.
 To realize the full potential of effective retail implementation by merchandising service
 organizations, retailers and brand marketers need to focus more management attention on the
 process. The three key steps are:
 1.      Evaluate current planogram implementation processes and identify opportunities for
                " Is implementation complete and timely?
                " Does the implementation process make efficient use of resources?
 2.      Prior to scheduling a reset, make sure planogram is:
                " expected to produce a significant sales increase.
                " covers most or all of the actual store conditions.

 Executive Summary                              10
Summary and Conclusion

  3.      For each reset, provide the implementation team with the tools necessary to get the
          job done.
              " Detailed planogram (color preferred) and supporting documentation
              " New product and discontinued product lists
              " Shelf tags
              " Equipment and supplies

  New Product Cut-Ins
  Regarding the introduction of new items, merchandising service organizations improve
  speed-to-shelf, which in turn has a meaningful sales impact for retailers and brand marketers.
  Merchandising service organizations:
       ! get new products to the shelf faster than retailers c urrent methods.
       ! implement 98% of the new product cut-ins, compared with the retailers abi lity to
         implement only 60% of the new product cut-ins.
  Faster implementation of new product cut-ins has tremendous sales potential and can provide
  a boost in sales of approximately 45%.
  Brand marketers and retailers understand that new items build categories, and improving
  speed-to-shelf of new products brings a lift that much sooner. Until now, however, they did
  not know there was a lag.
  Merchandising service organizations bring the urgency to speed-to-shelf and provide brand
  marketers and retailers with other benefits through their enhanced services.
  To help ensure fast, accurate new product speed-to-shelf by merchandising service
  organizations, retailers and brand marketers should make sure that each store has:
       ! the new product available.
       ! entered the new product into the POS system.
       ! plans for where the new product will go on the shelf.
       ! shelf tags available.
  The space crunch, exacerbated by consumer demand for increased variety, makes it
  mandatory that retailers and brand marketers find effective methods to achieve speed-to-
  shelf. In fact, the future health of the retail and consumer products industries depends largely
  on the creation of new retail execution programs that provide timely, accurate, efficient, and
  disciplined implementation of category plans and new product introductions.

 Executive Summary                            11
  NARMS thanks its Board Members for their dedicated guidance and participation in this
  Pat Blackwell                                   Jim Hall
  A.I.M. Field Service                            Advanced Retail Merchandising

  Alex Yakulis                                    Lori Sakorafis
  CROSSMARK Sales & Marketing                     Kelly Merchandising Resources

  Leslie Gorman                                   Ralph Bartolotta
  Merchandising Specialists                       Gage Merchandising Services (PIMMS)

  Vincent N. Willis                               Chuck Belding
  Storecast Merchandising Corporation             Team Management, Inc.

  Brian Ferris                                    Gary Ebben
  Total Merchandising Services                    Executive Director - NARMS

  NARMS would also like to thank the participating retailers for their cooperation in this
  important study. This study would not have been possible without their support.
  Additionally, the Association acknowledges Willard Bishop Consulting for their
  leadership on the project. The firm has been a leader in improving shelf planning and
  retail implementation. This experience and expertise is reflected in the study results.

  The National Association for Retail Merchandising Services and its 190 member
  companies represent the Professional Merchandising Service Industry on a national basis.
  Its members perform well over $1 billion in merchandising services each year. The
  association promotes the benefits associated with professional merchandising service
  organizations, and establishes industry standards for merchandising performance. Its
  membership includes: brand marketers/suppliers with i n-house m erchandising
  divisions, sales and marketing companies with merchandising companies or divisions,
  independent professional merchandising service organizations, and fixture and assembly
  companies. NARMS members are the industry.
  For more information, or to order a copy of the study contact:
  National Association for Retail Merchandising Services
  P.O. Box 906
  Plover, WI 54467
  Or, visit our web site at: http://www.narms.com.

 Executive Summary                           12

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