Define what each of your retail categories does best to maximize your collective category potential
Every retailer has a vision of what it wants to be and where it wants to go. Some strategy roadmaps are crisper than others, but everyone has at least a “fuzzy vision” of what it wants to be famous for: customer service, product selection, innovation, profitability, growth…
But – at the risk of sounding like we’re minimizing the importance of strategy – that’s the easy part.
What’s hard is getting there.
It’s hard because it means saying “yes” to some things and “no” to others. It’s hard because it means doing things on purpose. It’s hard because it tests the will of the company. In other words, it tests how much you do, in fact, have a strategy that everyone understands and supports.
We realize we’re not saying anything new. A lot has been written about the importance of determining a clear strategic objective – or destination – and aligning your organization to travel toward that destination in unison; we’re not going to pile on. What we do want to introduce you to is a concrete, repeatable tool that will help you navigate your optimal strategic path…and avoid the detours. It’s called Portfolio Management.
For a retailer, one of the best indicators of how committed the company is to its strategy is how (and how well) it manages its product portfolio. If your company’s strategy is like a compass that points to your “true north” goal, then Portfolio Management is like the street-level, turn-by-turn GPS app that helps you figure out the most efficient way to actually get where you want to go.
Similar to an investment or IT portfolio, product-centric Portfolio Management is about maximizing the profit potential of your products and services - not just for today, but also for the next 3-5 years. As the name implies, it helps you manage decisions and resources -- establish target inventory levels, set pricing, commit labor dollars, spend advertising budgets, allocate retail space, and make all the other decisions that you have to make as part of the budgeting and planning process.
Why We Fight: The World Without Portfolio Management
Before we define Portfolio Management, let’s take a look at what happens in the absence of it. We come from retail, so we know that retail merchants are a competitive bunch. Left to their own devices, individual merchants – and the individual categories they’re responsible for – will tend to try to “do it all”: drive topline sales, margin, traffic… a kitchen-sink of priorities driven by a category-centric, tunnel-visioned view of the world. (And probably a bonus plan that rewards it.)
That might be great for the merchant (depending on that bonus plan) – and it might even be great in the short term for the company. More of everything. But the truth is, every product category is different… some are growing (and some are flattening out), some are margin-rich (and some are commoditizing), some lend themselves to attachment sales (and some simply do not have a natural “basket”)…
…but if you ignore these differences, and unleash every category merchant to determine their own goals, they will naturally default to their hard-wired tendency to “do it all,” and you will essentially be declaring that every product category IS the same.
And if you treat them all the same, with the same goals peanut-buttered across all your product categories, it leads inevitably to a rounding-off-and-dumbing-down of your strategic direction, a dilution of your retail presence, and an increasingly muddled message for your customer and your own people. They won’t know what you stand for… because you don’t stand for anything.
Portfolio Management, Defined
Okay, that’s what Portfolio Management is up against. So, exactly what IS Portfolio Management?
Portfolio Management is a process that provides retailers the means to purposefully execute its strategy – and budget and allocate its resources – by letting categories (both products and services) specialize in what they do best and focusing them on a set of measurable objectives that supports the whole.
It is a strategy playbook and an alignment tool that models your data with various scoring techniques to determine each category’s role (the job it does for the company; how it adds value) and intent (where it is in its lifecycle; how much investment it warrants).
The result is maximized sales and profitability as well as a balanced portfolio of sellable items – each with their own set of strengths – that informs the budgeting process, investment planning and resource allocation.