Merchandising is something we don’t talk about enough in the DTC world. So I brought in an expert to help explain what “merchandising” even is, and how you can use it to grow your fashion brand.
Before we get into it, I want to thank this week's sponsor: Segments Analytics.
Segments Analytics integrates with your Shopify store and finds you actionable, profitable customer segments instantly, then lets you push those segments to your marketing channels seamlessly.
Nicole Guena has worked as a merchant for globally recognized brands like GH Bass, DKNY and Karl Lagerfeld. We also worked together at Donald Pliner.
Like me, she is now working as a consultant–if you need help with building out your assortment architecture, producing more best sellers, running more profitable promotions, or tightening up your inventory planning, you should hire her.
To write this week’s issue I interviewed Nicole, then condensed our conversation into 12 critical pieces of advice. I’m sharing 6 this week for all subscribers, and 6 next week exclusively for members.
#1: Does My Brand Need A Merchant, A Buyer, A Planner, Or All 3?
Merchandisers, or merchants, are a cross-functional role that connects the design team (creatively-driven) and the planning team (finance-driven).
Specific responsibilities vary a lot from brand to brand but include: grouping collections into deliveries, editing/buying the collection for DTC channels and determining the assortment architecture (SKUs per category & class).
Buyers are usually found in department stores and multi-brand retailers, where they purchase from other brands’ lines. But brands with a big DTC business (eCom and/or stores) can have internal buyers. A centralized collection is produced, and the buyers edit it down for the stores in their region.
Planners work closely with finance. They take the annual and monthly sales goals and distill them into category-level (dresses, shirts) and class-level (tees, tank tops) plans.
Merchants will work with planners to apply more comprehensive view of the market to the plan. Planners live in spreadsheets; they know that short sleeve dresses grew 7% YoY, but they don’t know what dresses.
These three roles often get mixed up because every brand has its own terminology. For example, Nicole’s title and Donald Pliner was “Buyer”, but she was functionally a merchant-slash-planner.
If a brand is making their first hire in this area, they are probably going to want a hybrid merchant-planner. But the more units a brand sells, the more they’re going to need inventory planning expertise.
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#2: How Does A Merchant Add Value Throughout The Product Lifecycle?
Merchandisers work with design at the start of the season to ensure that key trends are represented. As the collection develops, they might provide feedback on styles to include or potential iterations of core styles.
Fashion brands that sell to wholesale accounts typically have at least four “market weeks” each season. This is when wholesale buyers view the collection and give feedback on the styles they’re interested in buying. Merchants will synthesize this feedback for design, and they might also place orders for the brand’s DTC business.
Merchants will work with planning to place seasonal orders from the factories and then keep an eye on delivery dates. They’ll work with marketing to ensure that the right products are included in any photo shoots or other long-lead marketing activities.
When inventory arrives, they’ll track selling in DTC channels and will work with planning to manage the markdown process. They’ll also make sure styles go live on eCom in a timely manner and are photographed and categorized appropriately.
If the brand has a wholesale business, they’ll also coordinate the DTC markdown and promotion calendar to ensure it follows the brand’s wholesale sales contracts. Typically, DTC is not allowed to undercut wholesale accounts.
When a brand is DTC-focused and doing under $10M/year, the product lifecycle is going to be slightly different–the founder is often the designer, and DTC brands usually follow a “buy now, wear now” calendar instead of the traditional wholesale calendar.
For these brands, a merchant can use their industry expertise to help expand the assortment strategically into new categories and help the designer improve his/her “hit rate” aka turn more new products into best sellers.
#3: How To Look At Your Assortment With A Merchant’s Eye
We talk a lot about “core” at DTC (fashion) Decoded and Nicole is in agreement: it’s almost impossible to run a successful fashion business without core product.
True “core” product tends to be classic; it can be recut season after season with little to no variation. True Classic is an example of a core-driven business. They sell the same tees in the same fabric year-round and don’t “sunset” those styles.
Mens brands tend to have more of this true core product, while women’s brands skew more towards “fashion core”: popular silhouettes that are brought back season after season in different prints or fabrics, or with slight modification (hem or sleeve length, neckline detailing, etc.).
The number of SKUs in a product category should correspond to that category’s relative importance to the business. Your hero category should contain the most SKUs. The relative importance of categories and subcategories shifts each year with the trends (think: skinny jeans now vs 10 years ago).
For those reasons, you typically can’t clone last year’s assortment when you’re building out this year’s plan.
Merchants are always trying to balance proven products with newness. A good merchant makes sure the assortment covers what’s worked in the past, but also has enough new product to pique the customer’s interest.
#4: What KPIs Should I Be Reviewing?
Every week, merchants look at:
- Sales net of promotions and actuals vs plan–is the business behind or ahead of where we thought it would be? If so, should we adjust the forecast?
- Margin dollars, margin % and actuals vs plan–this is net sales less COGS, not contribution margin.
- Sell through (what percent of inventory has sold)–which styles are best sellers? Rising stars?
- Inventory units on hand YoY–do we have enough inventory to achieve our plan? Or is there too much, and a promotion is needed?
Merchants also provide context to trends that might look “weird” from a pure numbers perspective. If dress sales are down 10% YoY, it may be due to a trend-driven shift in the assortment architecture, not simply poor sales performance.
In terms of improving your “hit rate” (aka producing more best-sellers), you should be analyzing sellthrough by product by week, and comparing each product to the historical average.
Look at the similarities between products with the strongest sellthrough. Literally print out the pictures, pin them on a board, and describe what they have in common.
You should also be looking at the number of new SKUs launched per season, and what percent of those became best sellers. To continually produce best sellers, you’ll have to release a certain number of new SKUs per season.
A dramatic pullback in new SKU development can often harm brands’ growth because it leads to fewer best sellers.
#5: What Are Common Things Brands Get Wrong Re: Merchandising?
Nicole called out two main issues here.
The first issue: lack of core product! If you don’t have core product, you don’t really have a business (see question #3).
The second issue (another common theme at D(f)D: communication breakdown or dueling objectives between merchandising and marketing.
Marketing campaigns really can drive a lift in sales…but only if the products featured in those campaigns have enough inventory behind them to put up meaningful numbers.
In an ideal world, merchandising, planning and marketing will align on each season’s product priorities before orders are placed and marketing plans are developed. Influencer gifting and PR efforts would focus on these products. Campaign-style photo shoots would feature them prominently.
I’ve personally been involved in these efforts–they’re hard. The creative side of marketing often wants to push the new, “directional” stuff. Merchandising and performance marketing want to use the power of core to lift conversion rates.
#6: What Should A Brand Do When They’re Too Small To Bring In Merchandising Expertise?
IMO, you should hire Nicole for hourly consults, one-off projects or retainer support!
My POV: when a brand is DTC-focused, they should minimize full time headcount as much as possible until they’ve reached $25M/yr+ in revenues with healthy profit margin. My full philosophy on hiring is here (I shared this in my other newsletter, No Best Practices).
There are a few specific use cases when a smaller brand should bring in outside merchandising or planning expertise:
- It’s been 12+ months since the brand has been able to reproduce the success of its current best seller.
- The brand is looking to expand into a new category, but isn’t sure which category to pick, how to price it, what styles to focus on, etc.
- The brand is constantly selling out of a specific style and wants to put it on replenishment.
- The brand needs to “level up” inventory investment to grow, but this requires a level of financial risk that makes the founder nervous.
That’s it for this week! We don’t talk enough about merchandising in the DTC world, so I hope this has been helpful and informative.
If you have burning merchandising questions, you can click here to book a 60 minute call with Nicole.
Next week, DTC (fashion) Decoded members are getting even more merchandising advice from Nicole, including answers to these questions:
- How many SKUs do I need?
- When should I put my products on sale?
- What are “best practices” for website merchandising?
Click here to become an annual member for just $50/yr. You’ll make that back in less than a week if you implement the advice I share in the members-only issues.