When and How Retailers Should Evaluate New Business Opportunities  

Over the course of my retail career, I’ve had the opportunity to partner with cross-functional team members to identify, develop, and manage new product lines. These have ranged from quirky activewear to plus sized bridal dresses. While it’s exciting to see new categories launch on your eCommerce site or emerge in your brick and mortar stores, there is a lot of analysis and preparation that goes into the development of new product lines. Let’s take a look at a few of the important considerations to make when assessing new business opportunities.

Understand Strengths in your Business

Before working with your counterparts to brainstorm new product ideas, It is important to outline the strongest performing segments of your business. By doing this, you internalize your core competencies and can start to strategically identify product opportunities related to the “hits” in your current business. When assessing the strengths in your business, be sure to take into account strong margin drivers, consistent unit sales movers, and products/categories with overwhelmingly strong and positive customer feedback.

Example:

When I was managing women’s tops for an eCommerce apparel startup, I realized that lightweight knit tops and sleeveless graphic tees were consistently beating their forecasts. These two categories required minimal discounting to move through inventory and were unit drivers because of their compelling price points and ease of wear. I was impressed by the consistently strong business performance and high average customer ratings and positive reviews noting the comfort and versatility of these items. From a supply chain perspective, our knit tops and graphic tees were easy to acquire from a local vendor base. These insights signaled to me an opportunity to capitalize on the success of easy, lightweight, knit pieces. I decided to explore the “athleisure” category as a potential new area of opportunity due to the similar fabric composition, versatile end-use, and the emergence of activewear in the marketplace. From that moment on, I decided to partner with my buyer to further explore this idea.

Critically Assess Timing & Capabilities:

So you’ve detailed the strengths in your business, aligned on core competencies, and have brainstormed ideas for new business opportunities. At this stage, one must objectively assess the timing and feasibility of developing new product lines. Ask yourself these questions: Is your company supporting growth initiatives ? Are there key cross functional partners currently missing from your organization? Is overall company performance showing strength? Are you able to balance your daily responsibilities with the research and analysis required to pitch a new business idea? Based on your answers, it may be wise to put a pause on your new business plans. Lackluster business trends coupled with organizational gaps signal that attention should be directed to existing categories rather than new opportunities.

Develop High, Mid, Low Financial Projections

After you and your buying counterparts have brainstormed potential new category opportunities, it is time to create a financial projection detailing the potential costs and gains from the new venture. Since you will likely be presenting this information to your management and leadership team, it is important to illustrate “high, mid, and low” scenarios. A high scenario would detail higher than expected performance, a mid scenario would highlight your baseline expectations, and the low scenario would account for lower than anticipated results. The key takeaway from these scenarios is the potential risk to your margin and inventory ownership should performance falter. In addition to creating financial projections, it is important to develop both a chase and exit strategy. Specifically, what would need to happen if inventory turn surpasses expectations and you need to satisfy customer demand. And, conversely, how to exit out of a poor performing investment.

Example:

After creating my high, mid, and low projections for my proposed “athleisure” concept, I realized that strong performance could lead to an inventory stockout within a mere thirty days. To combat this inventory risk, I proposed the idea of purchasing replenishment units of the top five key driver styles to mitigate any risk of sell outs. Alternatively, my low scenario yielded a significant backup in inventory turn and days on hand ownership. To alleviate this, I proposed the idea of a promotional event to spur an uptick in sales velocity.

These are just a few of the critical stages in the planning and development of new investment opportunities. This is a cross-functional process that may initially begin with a session between buyers and planners but then progresses to pitch meetings with key stakeholders from across the organization. The assessment of new opportunities must be rooted in a rich understanding of financials. While it may be easy to point out gaps in your assortment based on competitive research and trend, it is crucial to quantify ROI and financial risk of proposed ideas and ensure these ideas truly align with your business’s core competencies.

For more information on the metrics inventory planners need to track, and how to track them, download our Retail Math Guide. For more information on the inventory planning role and how to do it effectively at your retail business, download A Guide to Inventory Planning.

Anusha Mohan

Anusha has worked in the retail industry for over six years, with experience in both the Inventory Management and Merchandising functions. She's a big fan of live music, solo museum trips, and can be easily convinced to perform a spoken word piece.

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