Welcome to the new world of merchandising

Retailing is and always has been an inefficient business. Retailers, partic ularly those that operate large chains, have to predict the desires of fick le consumers, buy and allocate complex sets of merchandise, set the right p rices, and offer the right promotions for each individual item. Inevitably, there are gaps between supply and demand, leaving stores holding too much of what customers don't want and too little of what they do. Now, however, a new set of software tools promises to revolutionize the ent ire merchandising chain. These merchandising optimization systems, as they' re called, determine the right quantity, allocation, and price of items to maximize retailers' returns. By applying sophisticated data-processing tech niques to existing inventory and sales data, they accurately model future p atterns of supply and demand at the item and store level. In other words, t hey turn the art of merchandising into a science. Early users of the new software, such as Gymboree and J.C. Penney, are alre ady reporting promising gains in gross margins in the range Of 5% to 10%. R etailers are also seeing significant increases in efficiency. At one chain, for instance, planners' productivity rose 20%. Equally important, retailer s are showing improvements in customer satisfaction, as shoppers become mor e Likely to find desired merchandise in stock at fair prices. This article provides retailers with a guide to merchandising optimization systems, explaining how they work and how they change processes at each ste p of the merchandising chain.