SKU tracking critical to meeting consumer demand in small-format stores

Small-format stores are designed using SKU trackers to better cater to shoppers in their new locations.
Elizabeth Christenson
Editor, Retail Leader
Elizabeth Christenson profile picture
Target Irvine
University of California Irvine Target is a small-format store serving college students.

While more than a dozen major retailers are closing their storefronts this year, Target is opening up small-format location stores with flexible designs to better serve their designated community. For these strategies to be successful, keeping the right mix of SKUs in these locations is critical to anticipate and meet consumer needs. 

Eric Voyer, vice president of  sales and marketing at Traqline, uses his expertise to help brands such as Lowe’s, Home Depot, Ace Hardware, Walmart and Best Buy harness data to understand market share dynamics, online vs. brick-and-mortar trends and consumer behavior in the retail space. Retail Leader chatted with Voyer about how small-format stores are designed using SKU trackers to better cater to their new locations.

Retail Leader (RL): What are the benefits of comprehensive data when brands are looking for new store locations? How does this allow them to open stores that meet the needs of their demographic?   

Eric Voyer
Eric Voyer

Eric Voyer: When evaluating new store locations, comprehensive data is critical to analyze effectively the market potential —companies should consider the following four key factors:

  1. Environmental dataIt may seem obvious, but identifying a store location starts by ensuring your products are appropriate for the local environmental conditions — don’t try to build a farm implement store in Manhattan or sell snow throwers in Florida. 
  2. Consumer behavior data – Understanding your target audience — who buys your products, how much do they buy, why do they buy, what motivates them to buy from your store instead of the competition — is critical to any new store opening. Retailers can use local consumer information such as age, gender, income level, education and other demographic categories to identify areas with a higher concentration of their target audience that are ripe for a new location.   
  3. Economic conditions –Do consumers live close by? Are they more concentrated in certain areas? Are your products in season, or is purchase behavior being influenced by external factors, such as during the pandemic? Is there demand for these products? Retailers need this essential information to predict demand for their products. And beyond buyer data, retailers should also evaluate other economic considerations in play that could drive or suppress purchase activity (e.g., local new housing starts could help drive sales of new appliances). 
  4. Competition data – Retailers need to know what the competition looks like in the area. When stacked against them, do you have a competitive advantage? If so, what is it, and how can you leverage that to improve traffic and sales?

Using demand modeling, retailers can estimate projected sales revenue of a new store based on the factors like those above, plus the purchasing power and size of the local population and community, making it easier to identify and prioritize locations with higher growth capabilities. 

Here are a few examples of the type of data-driven decisions retailers could make:  

  • Opening a Dollar Tree in a lower income (e.g., location where more than 50% of small appliance buyers make less than $25,000) and lower education (e.g., where 80% of small appliance buyers report having no college degree) neighborhood located near a bus route. 
  • Opening an IKEA near a college town in the median income range (e.g., where the highest portion of purchasers for furniture had an income of $50,000 to $74,999). 
  • Establishing a Restoration Hardware store near a higher income, higher education town with a higher percentage of homeowners. 

RL: How does the use of SKU trackers enable unique, customized shopping experiences that full-size stores in major cities do not have?

Voyer: Nearly all retailers use their POS systems to understand which SKUs sell more and sell faster. But having access to time, volume and geographic SKU-level data can help brands and retailers sell more products to the right customers in the right places. It can also help ensure that pricing meets the demands of the customer while maximizing the value to the seller.

Using SKU tracking data, retailers can determine which products perform best within these smaller markets. This in-depth consumer understanding allows retailers to then customize and adapt their product mix to ensure the identified areas of unique consumer opportunity are filled — putting the right stock on the right shelves (or floor). Subsequently, this should also mean aligning with what will generate the greatest revenue for the smallest amount of available space. In other words, that store must prioritize a very narrow selection of products that buyers are passionate about, rather than having a wide selection that buyers may browse but not purchase. 

For instance, understanding that a low margin SKU has sat on the floor for a longer period than normal can allow a retailer to adjust the price in order to move that SKU off the floor and make way for a higher margin product that consumers are more likely to buy. Without tracking which SKUs are moving this can’t be done.

This level of customization can help differentiate smaller retail stores from traditional full-size stores in major cities, which strive to meet and appeal to their broadest target demographic, attracting and retaining customers by filling areas of opportunity for the community that are currently vacant.

RL: How does SKU tracking make inventory management easier in the long run to drive brick-and-mortar business expansion?

Voyer: Not having an inventory management system would make it nearly impossible for any retailer to survive. One of the things that separates the good from the great is the frequency and depth of analysis of the data. Best-in-class stores will frequently dive deep into their inventory to find which products (SKUs) are moving and which are not. The best information comes when you have a view into your competitors’ top selling SKUs. Competitive SKU tracking tools can provide SKU level data for your products, allowing any brand or retailer to understand what the fastest moving models at the top retailers are – even if they are not the products you sell.

Naturally, once you get this information, this can help you decide which products to put on the shelves and sales floor. Combined with environmental and behavioral information, these systems lead to an understanding of consumer preferences. For example, which parts of the country sell more battery-powered lawnmowers and how is that changing? Putting these products in the right places helps you get ahead of trends, driving sales with the target customer who wants your products.