RETAIL GLOSSARY

Merchandise Hierarchy

A structured classification of products within a retail organisation, typically organised by various levels, from broader groups to specific items (e.g., Division > Department > Class > Category > Subcategory > Style > SKU).

What is Merchandise Hierarchy?

Merchandise Hierarchy is a structured system used by retailers to categorise and organise products from broad to specific levels. It includes departments, categories, subcategories, classes, and individual items. The hierarchy helps retailers analyse sales, manage inventory, and make merchandising decisions effectively.

How Merchandise Hierarchy works

Department: The broadest level of the hierarchy, representing major product groupings. For example, "Apparel" could be a department.

Category: Subdivision of departments, representing more specific product groupings. For example, within the "Apparel" department, there could be categories like "Men's Clothing," "Women's Clothing," and "Accessories."

Subcategory: Further breakdown of categories into more specialised groups. For instance, under "Women's Clothing," subcategories could include "Dresses," "Tops," "Bottoms," etc.

Class: Additional refinement of subcategories based on attributes like brand, style, or material. For example, under "Tops," classes could include "T-shirts," "Blouses," and "Sweaters."

Item: The most granular level, representing individual products. Each item is uniquely identified, such as a specific T-shirt model in a particular color and size.

Overall, market share is a crucial metric that provides valuable insights into a company's market performance and competitive strength. It guides strategic decision-making, helps businesses understand their market position, and plays a vital role in shaping industry dynamics.

Pros of Merchandise Hierarchy

Efficient Data Management: Merchandise Hierarchy helps retailers organise and manage large volumes of product data efficiently. By grouping products into different levels, retailers can easily track sales, inventory, and performance metrics for each category, subcategory, and item. This enables data-driven decision-making and reduces the complexity of analysing product data.
Assortment Planning and Optimisation: The hierarchy allows retailers to understand the performance of product groups at different levels. This knowledge facilitates better assortment planning, helping retailers stock the right products in the right quantities. By analysing sales and customer preferences at each level, retailers can optimise their product mix and ensure that they meet customer demands effectively.
Targeted Marketing and Personalisation: With Merchandise Hierarchy, retailers can segment their customer base based on product attributes. This enables targeted marketing campaigns tailored to specific customer preferences. By understanding which categories, subcategories, or classes appeal to different customer segments, retailers can offer personalised recommendations and promotions, leading to improved customer engagement and loyalty.

Cons of Merchandise Hierarchy

Complex Implementation: Setting up an effective merchandise hierarchy can be a complex and time-consuming process, especially for retailers with a vast product range. It requires careful consideration of various factors, including product attributes, categorisation rules, and data integrity. The initial implementation may require significant effort and resources.
Limited Flexibility: While merchandise hierarchy provides a structured approach to organising product data, it may also limit flexibility in certain cases. Retailers might face challenges when trying to accommodate new product categories or when dealing with products that do not fit neatly into predefined classifications. This rigidity can be a barrier to adapting quickly to market changes or emerging trends.
Data Maintenance and Accuracy: Maintaining the merchandise hierarchy requires ongoing effort to ensure data accuracy and consistency. Product attributes may change over time, and new items may be added or discontinued, requiring regular updates to the hierarchy. Without proper data management processes in place, inaccurate or outdated information can lead to incorrect analysis and decision-making.

FAQ

Below you will find answers to common questions

How does Merchandise Hierarchy help in organising product data?

Merchandise Hierarchy is a systematic way of categorising products based on various attributes such as product type, brand, size, color, and price range. By structuring product data into hierarchies, retailers can create a logical and organised product taxonomy. This helps in better inventory management, assortment planning, and analysing sales performance across different product groups. It also enables retailers to present products in a more user-friendly manner, making it easier for customers to navigate through the store or online catalog.

What are the benefits of using Merchandise Hierarchy for data analysis?

Merchandise Hierarchy provides a standardised framework for data analysis, allowing retailers to gain deeper insights into their product performance. By aggregating sales data at various levels of the hierarchy (e.g., category, subcategory, and SKU), retailers can identify trends, understand which product categories drive the most revenue, and spot underperforming areas. This level of granularity also enables retailers to make informed decisions on pricing, promotions, and assortment optimisation. Moreover, Merchandise Hierarchy facilitates benchmarking and comparison of sales performance across different stores, regions, or time periods, helping retailers to identify best practices and areas for improvement.