A merchandise hierarchy is something your customers will never see, but it is a critical tool for running an efficient, successful retail business.

A merchandise hierarchy is exactly what it sounds like – it organizes retail products into a pyramid-like structure. That could start with the company name at the top, then large departments, then silhouettes and finally individual products. Within each level are “nodes,” i.e. the classifications like NORSO, Women’s Wear and Bottoms in the example below. No two businesses are the same, so they can organize their products in different ways and add as many levels as they want.

The primary purpose of a merchandise hierarchy is to support detailed reporting that drives smarter business decisions. Instead of just looking at the number of a single SKU sold and the revenue from that one product, management can see a detailed breakdown of every sub-level from a department like Men’s Tops down to individual items (men’s black/white checkered flannel, for example).

NetSuite allows customers to build merchandise hierarchy reports by any custom field. That means reports can be tailored to exact needs based on what is most valuable for the business, whether that’s breaking down the product catalog by material, color or other attributes.

Ideally, retailers have a user-friendly way to manage this hierarchy – like the hierarchy manager in NetSuite – to add to and adjust as necessary. It’s important to note that the merchandise hierarchy does not affect how the product catalog shows up on the ecommerce website – it’s strictly a back-end reporting tool.

There are countless reports retailers can pull once your merchandise hierarchy is set up properly. Here are five uses that have the potential to make an immediate business impact:

Sales By Item

Every retailer needs an easy way to see how different merchandise categories and specific items are performing. A Sales By Item report is extremely valuable for that reason – it provides a breakdown of every step in the pyramid. For example, it will reveal how much revenue all Women’s Products, Women’s Bottoms, Skirts and individual styles of skirts generated. It also shows how many of each item a company sold.

 A Sales By Item report is a simple way to identify the categories and items responsible for the most revenue. That drives better decisions by merchandisers about which products to drop, leave be and invest in more. If Women’s Footwear outperformed expectations the last two quarters, a retailer should consider adding some new styles of shoes. This kind of informed decision-making will help companies stay ahead of the competition.

Purchase By Item

The Purchase By Item report is something that can help buyers on a regular basis. The report displays the quantity of a certain item purchased and the cost for those orders. Just like with the Sales By Item report, it will show the total spend on a department, such as Tops, and a class, like Jackets.

Then, retailers can put the purchase and sales reports side-by-side to see where customer demand does not justify the expenses. If Men’s Jackets account for 20 percent of the total men’s apparel purchasing budget and only five percent of sales, it’s time to re-evaluate. On the other hand, a retailer may need to put in larger orders for a certain skirt that spiked in popularity heading into spring. But that is not so clear without these reports easily accessible.

Current Inventory

While the preceding reports offer strategic guidance, the Current Inventory report will signal more immediate problems. It shows how many products are on-hand and currently ordered at each level in the hierarchy. This is something inventory planners must keep a close eye on daily, because things can change in short order. If a retailer runs a big sale or gets a mention in a major media outlet, inventory could deplete quickly. It’s also easy to see if a particular style or color is selling faster than the rest.

In many cases, the Current Inventory report warns of a potential issue before it turns into an actual problem. Additionally, the report prevents retailers from building up an unnecessary amount of inventory to keep those costs down.

Compare Current and Historical Data

NetSuite also supports merchandise hierarchy “versioning.” This allows retailers to capture snapshots of merchandise hierarchies at different times. Product categories and item locations could change seasonally or annually, and retailers may want reports from that period for future reference. For example, sweaters and jackets may be classified in the “core” category during the fall and winter but in “offseason” during the spring and summer. Those two setups would require two different hierarchies, and versioning preserves both reporting structures for future reference.

Historical data can be valuable down the line. Do the summer or winter offseason products generate more revenue? What are the biggest out-of-season sellers during those two periods? Retailers can answer these questions with access to past versions of the merchandise hierarchy.

Saved Searches

Saved searches are one of the most popular features in NetSuite and the merchandise hierarchy can make them even more useful. When setting up a saved search, retailers can select hierarchy nodes as a filter. These saved searches are a great way to set up a sale for a particular group of products. If a certain category will soon be out-of-season or is underperforming, it’s easy to apply a discount to all the items within that category through saved searches.

The merchandise hierarchy functionality within NetSuite is a beneficial tool that helps retailers increase profit margins, reduce inventory costs and drive sales because you sell the right products at the right time and avoid excess inventory.

For retailers without a merchandise hierarchy, it might be time to explore a new solution like NetSuite to run your business. These are the features that empower you to run a smarter business and stay a step ahead of the competition.

If you are a NetSuite user and would like to learn more about the merchandise hierarchy, you can watch a detailed training webinar. To find it, log into NetSuite, click the Support tab > Go To SuiteAnswers > Training Videos (bottom right-hand corner) > 2018.2 New Feature Training > SuiteCommerce: Merchandise Hierarchy (on last page).