What makes a successful merchant? Creativity? Brand awareness? Strong analytics skills? Or perhaps simply luck? While I am sure luck plays into any situation, it is the combination of the other factors that determines a merchant’s success.
Although I am not a merchant in the creative sense of the word (I joke that I find it hard to match a pattern tie with a solid shirt), my consistent and successful relationship with merchants has been founded on analytic support and an understanding of their brand focus.
Factoid: For every 10 new products introduced, 7 or 8 will either fail or perform below average. Or stated another way, a 30% success rate. So how does a merchant succeed?
She starts with a plan. With lead times stretching 6-8 months, it is not uncommon to create a plan 12 months or more in advance. Of course, like any long term plan it is subject to change. In my presentations I often use the analogy of building a house. We would not simply hire a contractor and say “build a house,” but would have plans drawn in advance as to how many rooms (categories), the size of the rooms (share of business), anticipated budget (attributable costs), price point targets, etc., etc. These plans will undoubtedly change numerous times, yet we recognize that as we make spending commitments, although changes are still possible, they now involve a cost.
Besides having an “eye” for merchandise that fits their brand, using basic analytic thresholds helps her select ever improving product. A successful merchant, when sourcing product, has a preliminary plan and recognizes what an average item needs in terms of demand and margin to cover its costs (merchandise, selling, variable and fixed, etc.) and contribute to profit. While searching for product, a merchant uses this knowledge to continually compare potential product against this target threshold.
For example, if a merchant needs to find an item to generate $20,000 in demand at xxx margin, given its estimated selling, variable and fixed costs, if she finds an item she believes can generate $25,000 in demand, that becomes their benchmark item as they continue to source, thus always “raising the bar”?
A professional baseball player understands that to have a place in the hall of fame you generally have to achieve a batting average over .300 or 30%. To do that, they don’t need more home runs or stolen bases, but simply an average of one extra base hit a week. And so too, a good merchant understands that instead of swinging for the fences and looking for 10 new successful items, by simply and methodically raising the bar to achieve 4 or 5 winning new items instead of three, they will be hugely successful.