Multi-unit retail operators often face challenges with their product mix due to varying demographics and store configurations across their network of locations. The product assortment is often standardized across all types of stores, leaving out niche marketing opportunities. Instead of a one-size-fits-all approach, multi-unit operators must segment their stores to optimize product variety.
Store segmentation does not necessarily mean store-by-store plans, but rather a grouping of store “types” that take into account the location, demographic and structural attributes of the entire store network. Grouping stores into these types of segments allows a multi-unit operator to streamline the retail area while managing the SKU management process.
Ideally, managing product assortment on a store-by-store basis would be optimal, but is not practical given the resources available. Store segmentation allows most stores to optimize the neighborhoods they serve, but allows the operator to effectively manage the logistics of segmentation.
Here are some steps to consider when looking at store segmentation:
Know your customer: Customers in their respective business areas can vary greatly. The urban shopper, perhaps without a car, will shop in their urban locations very differently than a rural customer. Not only will they shop differently, but they will also expect specific product assortments that make sense in their neighborhoods. In urban markets, there may be products aimed at more singles and younger audiences, while in rural markets the variety may be more focused on families.
Assign store attributes: Next on the list is assigning key store attributes for each of your store segments. Store size, location, and store type can determine whether the store has a full range of SKUs or more than a limited offering. Larger stores with the right demographics can lend to more than one first offer, both in quality and variety, while smaller and more transient locations may have only a limited variety of products.
Assortment of products described: Not all stores in the network should have the same assortment of products. Bigger, newer stores have more permission to offer more top-tier products than smaller, tired stores. Perception can become reality and placing a top-tier product in a lower placement will backfire for the consumer. Store segmentation helps guide both the products and services that the customer will “allow” to carry in that particular store.
Divide and Conquer: Once the main product assortments by store type are determined, action plans and marketing can be implemented. Store segmentation allows strategic guidance 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 allocate capital investments accordingly. Prime locations may have the greatest advantage and thus receive the largest share of organizations’ discretionary capital investments. On the other hand, basic stores can only receive staying-in-business capital to keep them running. Over time, these allocations may change as demographics change in the targeted business areas.
Store segmentation is a critical tool for the multi-unit operator. He approaches the organization with a strategic direction, as well as a realistic perspective that not all stores are created equal. Delineating your store network in this way allows for a more prudent allocation of both labor and capital investment.
