Multi-unit store segmentation

Multi-unit retail operators often face challenges with their product variety due to different demographic and store configurations across their network of locations. Often times, the product assortment is standardized across store types, leaving out niche marketing opportunities. Rather than 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 consideration the location, demographic and structural attributes of the entire store network. The grouping of stores in this type of segment allows a multi-unit operator to optimize the commercial area, while still being able to manage the SKU management process.

Ideally, managing the product assortment store by store would be optimal, but not practical given the resources available. Store segmentation enables most stores to optimize the neighborhoods they serve while allowing the operator to effectively manage the logistics of segmentation.

Here are some steps to consider when analyzing store segmentation:

Know your customer: Customers in their respective business areas can vary greatly. The urban buyer, perhaps without a car, will shop in their urban locations very differently from 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 assortment may be more family-focused.

Assign store attributes: Next on the list is assigning key store attributes for each of the store segmentations. 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 themselves to greater First supply, both in quality and variety, while smaller, transitory locations may have only a limited variety of products.

Assortment of outlined products: Not all stores in the network must have the same assortment of products. Larger and newer stores have more permission to offer more firsts than smaller, tired stores. Perception can be a reality and installing a premium product in a lower location will not suit the consumer. Store segmentation helps target both the products and services that the customer will “allow” to be carried in that particular store.

Divide and conquer: Once the main product assortments by store type are determined, plans and marketing can be implemented. Store segmentation allows a strategic guideline not only for operations, but also for the merchandising and marketing tactics to be employed. Knowing the customer demographics within the limitations of the store’s physical attributes will often dictate the overall marketing and merchandising of the product assortment.

Allocate equity investments: Once the store segmentation process is complete, the organization can allocate capital investments accordingly. Top locations may have the greatest advantage and therefore receive the majority of the organization’s discretionary capital investments. On the other hand, basic stores can only receive capital to stay in business to keep them running. Over time, these allocations may vary as demographic changes occur in the target business areas.

Store segmentation is a critical tool for the multi-unit operator. It approaches the organization with a strategic direction and a realistic perspective that not all stores are the same. Delineating your store network in this way allows for a more prudent allocation of both labor and capital investment.