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Drug stores need better data analytics to manage assortment growth

Drug store retail has never been a simple enterprise, but recent changes have left operators struggling with a new and still evolving set of challenges around product assortment. Years ago, a store may have stocked between 7,000 and 8,000 over-the-counter SKUs. Retailers now have to account for and optimize anywhere between 15,000 and 20,000 SKUs. Add to that the introduction of fresh and convenience products in many locations, and the scale and scope of a merchandiser’s responsibilities has grown enormously complex.

Given this expanding assortment profile, what new concerns must drug store merchandisers take into consideration? Some challenges remain the same like the evergreen question of how to ensure the right product is available in the right location at the right time. Though the question is familiar, the answer becomes more difficult when the assortment more than doubles in size. It also is complicated by greater assortment diversity. Today’s drug store must account for expiration dates on fresh foods to avoid spoilage and other concerns that are more commonly relevant to supermarkets, such as encouraging customers to shop the whole store.

But unlike supermarkets, drug stores face significant shelf space and throughput capacity constraints, often excluding larger retailers’ strategies and solutions from serving as a viable model. Without a thoughtful strategy in place, products may sit unmoved for extended periods — a problem with the potential to inflict exponential damage as more fresh products are offered.
More often than not, retailers attempt to resolve these problems through brute force, assigning more people to spend more time working at a more detailed level. This approach is neither practical nor sustainable. There’s significant value to be found in reaching the right decisions, but that value should not be eliminated by the cost of the resources required to get there.

As complexity grows, the need for assistance from technology grows as well. Many retailers try to address this by forcing point solutions that weren’t designed to solve these problems. While integrating disparate solutions through data integration can deliver incremental progress, they remain constrained by platform and process limitations that inevitably get in the way of achieving the goal.

These approaches mistakenly assume that data alone can provide clarity — but clarity requires the right technology. Drug stores probably are not able to rely on the previous generation of solutions to address their rapidly evolving needs, and would be better served by a new generation of technology with multiple functionalities built into their core algorithms and platform.
These “unified” solutions are better equipped to negotiate increasing assortment size, diversity, complexity and throughput limitations within the drug store. A unified solution can forecast a demand spike for a fresh product a month ahead of time and then apply that knowledge to make recommendations that reduce potential bottlenecks by adjusting the orders of ambient stock, which is less susceptible to waste, for the forecasted spike. The store may have too much toothpaste for a couple weeks and their hygiene aisle may be force filled to maximize available shelf space, but the toothpaste won’t go bad. The fresh product with the shorter shelf life can be ordered in the necessary quantities and with appropriate timing even through the forecasted demand spike — all staying within the drug store’s space and throughput limitations. Only a holistic view of the problem can truly impact each of the necessary components.

Of course, drug store retailers’ challenges will continue to evolve, and their solutions must be capable to do the same. Retailers should continuously evaluate their technology to ensure it can meet both current and future operational needs. The best modern solutions leverage newer technology to enable flexibility and adaptability to the rapidly changing conditions in retail, thus insulating their users from obsolescence.

Greg Wilson is the vice president of sales and field strategy at Relex Solutions.
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