Category Management 101

Category Management has been around more than a decade. It has not been embraced by smaller retailers and methinks the bigger chains and some vendors (?) have complicated things somewhat - possibly explaining the slow uptake.

Category management is the process by which we manage our business at the category level to deliver better product, pricing and service to our customers. A category is a group or assortment of merchandise that the customer finds interchangeable; i.e. customers define category structure. As a rule of thumb:

  • No more than 10 departments per store

  • No more than 10 categories per department

  • No more than 10 subcategories per category

 

In practice it would look like this for a newsagency:

 

Store Newsagent

 

Departments Magazines, Newspapers, Gifts, Stationery

 

Categories Women’s Interest, Teenager, Adult

 

Sub-categories Bridal, Gossip Weeklies

 

Items Woman’s Day

 

Consider how categories may be differently defined if you were for instance determining the categories for a Discount Department Store?

 

Category management means:


  • Display at the category level

  • Planning at the category level

  • Open to Buy at the category level

  • Reporting at the category level

  • Price analysis at the category level

 

When open to buy is determined, look at price point history by category. Use this information to buy replacement and new products in the category and avoid “price point proliferation.” The retailer must judge as accurately as possible what the sales potential of any given product is, and buy that amount of merchandise (in bulk) and sell the individual units at a profit.

The first step is therefore to develop a sales plan. Merchandise Management follows these five steps (although each step can obviously be divided into further sub-steps.)

Of your core product categories, what proportion of annual sales goes to each core product category and what proportion of floor space (or shelf space) does each require?


Core Product Category 



% of GM$ 



% of Floor space 



1



%



%



2



%



%



3



%



%



4



%



%



5



%



%



6



%



%



7



%



%



8



%



%