By John Matthews, founder of Gray Cat Enterprises.
Multi-unit retail operators are often presented with challenges with their product assortment due to varying demographic and store configurations throughout their network of locations. Often, product assortment is standardized across all store types which leaves opportunities for niche marketing on the sidelines. Rather than a one-size-fits-all approach, multi-unit operators should segment their stores in order to optimize the product assortment.
Store segmentation doesn’t necessarily mean store-by-store plan-o-grams, but rather a grouping of store “types” that take in to consideration location, demographic and structural attributes of the entire network of stores. Grouping stores in these types of segments, allow a multi-unit operator to optimize the trade area, while still being able to manage the process of SKU management.
Ideally, managing product assortment store-by-store would be optimal, but it is impractical given the resources at hand. Store segmentation allows for the majority of stores to optimize the neighborhoods in which they serve, yet allow for the operator to effectively manage the logistics of segmentation.
Here are some steps to consider when looking at store segmentation:
Know Thy Customer: Customers throughout your respective trade areas can vary greatly. The urban shopper – perhaps without a car – will shop your urban locations vastly differently than a rural customer. Not only will they shop differently, but also they will be expecting targeted product assortments that make sense in their neighborhoods. In urban markets, there may be products geared toward more singles and younger audiences where in rural markets the assortment may be focused more on families.
Assign Store Attributes: Next on the list is to assign key store attributes for each of the store segmentations. Size of store, location and store type may all dictate whether the store carries a full array of SKU’s or more of a limited offering. Larger stores with the appropriate demographic makeup may lend itself to more of a premier offering – both in quality and assortment – whereas smaller, transient locations may carry only a limited product assortment.
Delineate Product Assortment: Not every store in the network should carry the same product assortment. Larger, newer stores have greater permission to offer more premier products then tired, smaller stores. Perception can be reality and fitting a premier product into an inferior location will fall flat with the consumer. Store segmentation helps guide both the products and services that will be “permitted” by the customer to be carried in that particular store.
Divide And Conquer: Once the core product assortments are determined by store type, plan-o-grams and marketing can then be put into place. Store segmentation allows for a strategic guideline not only for operations but also for the merchandising and marketing tactics to be employed. Knowing the customer demographic within the constraints of the physical attributes of the store will often dictate the overall marketing and merchandising of the product assortment.
Allocate Capital Investments: Once the store segmentation process is complete, the organization can then allocate capital investments accordingly. Premier locations may have the greatest upside and therefore receive the lions-share of the organizations discretionary capital investments. On the flipside, basic stores may only receive stay-in-business capital in order to keep them operating. Over time, these allocations may vary as demographic shifts in the targeted trade areas take place.
Store segmenting is a critical tool for the multi-unit operator. It focuses the organization with a strategic direction as well as a realistic perspective that not all stores are created equal. Delineating your network of stores in this fashion allows for a more prudent allocation of both labor and capital investment.
John Matthews is the founder and president of Gray Cat Enterprises, Inc., a strategic planning and marketing services firm that specializes in helping businesses grow in the restaurant, convenience and general retail industries. With more than 25 years of senior-level experience in retail and a speaker at retail-group events throughout the U.S., Matthews has recently written two step-by-step manuals, Local Store Marketing Manual for Retailers and Grand Opening Manual for Retailers, which are available at www.graycatenterprises.com.