The Power of Store Clustering
In the past 50 years, retailers have mastered the concept of grouping their stores to maximize profits and optimize inventory. Grouping stores allows retailers to localize their presence with customers, offering the most appealing products to the shoppers most likely to frequent those particular stores. That’s why you can visit the same retailer yet find different selections of products depending on region.
But like so much in retail, grouping is outmoded—it’s simply not enough to attempt to predict the behavior of today’s omnichannel shopper. Instead, retailers are exploring store clustering as a more sophisticated solution. Like store grouping, store clustering takes into account historical data, geographic location and population size. However, it also provides retailers with the ability to apply new criteria governing how stores can be assigned, opening up the potential for significant new insights to drive revenue. For instance, retailers can use best-selling items, product categories or even customer-centric data to cluster stores.
Retailers are employing store clustering as a supply chain management tool to ensure that their brick-and-mortar locations reflect their omnichannel offerings in the same manner that their e-commerce presence does. That means localized store offerings, assortments that create efficiency and save resources and inventory forecasting to meet demand more accurately. This capability adds speed and efficiency by allowing retailers to create a localized assortment for multiple locations at once based on the criteria used for clustering.
Clustering is examining the behavior of customers in locations that are similar to each other, but it also tells companies about the health of their stores and the health of their assortments. For example, retailers can gain insight into why stores may be over or underperforming and apply those lessons to other locations with similar geographic, historical or customer population profiles to drive sales or adjust performance.
Store clustering initiatives should be considered as part of an overall omnichannel investment. It’s also advisable to begin with a simplified test-and-learn cluster strategy that expands to include more locations over time. In many cases, retailers can expect to see a return on investment within a single season.
Like other omnichannel efforts, store clustering represents a new market opportunity for fashion, specialty and grocery retailers, among others, to refine their offerings and achieve greater customer personalization.