Supercharging Category Performance with AI Solutions for Merchants

The intuitive, flexible merchant analytics applications in Merch AI by BCG X provide insights that decode one of retailers’ fundamental challenges: how to offer customers the right products in the right stores at the right cost. Merch AI provides the infrastructure, algorithms, and workflows that help retailers build the customer-centric assortments and cost advantage they need in order to succeed.

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2%-5%

sales lift

1%-3%

margin lift

2%-3%

cost of goods sold savings

About Merch AI by BCG X

For retailers, having enough data on merchandising options isn’t the problem; it’s gleaning the critical insights hiding inside internal and external data—insights needed to optimize decisions about products, suppliers, shelf space, and stores. An integral element of our larger Retail AI offering, Merch AI’s suite of nine automated merchant applications helps retailers uncover insights that would otherwise remain hidden, achieving deeper customer satisfaction, greater cost advantage, and, ultimately, increased topline growth and margin.

Merch AI brings more than just advanced algorithms and applications to the table. Our team of over 50 BCG X engineers partners with BCG consultants to offer deep retail expertise, a customized and scalable approach, and best-in-class implementation and change management. Retailers can select the tailored solutions most relevant to their specific starting point and business needs to realize value quickly—or implement the full suite of merchant analytics applications as part of a broader AI transformation initiative.

Benefits

Harnessing Data and AI Solutions to Extract Maximum Value

Our AI solutions for merchants rapidly generate actionable insights to inform supplier negotiations, assortment decisions, and more. We quickly pull together disparate data sources into a “single source of truth” to inform insightful visualizations and predictive recommendations via advanced AI and GenAI models. We ensure sustained impact and long-term success through our enablement-focused approach; we recognize that only 10% of the value from data analytics comes from advanced algorithms, 20% from the data and tech backbone, and 70% from change management, new processes, and people upskilling.

Data Foundations

Creating a robust data foundation is the first step toward unlocking advanced insights and operational efficiency. By integrating internal and external data sources with proprietary AI models, Merch AI provides retailers with critical metrics such as true dead net profit, item attributes, customer exclusivity, and product cost breakdowns.
Active Cost Management

Staying ahead in cost management requires a proactive approach powered by advanced analytics. Retailers can leverage Merch AI’s merchant analytics applications to assess vendor performance, track commodity-based opportunities, evaluate cost changes in real-time, and generate negotiation materials with precision and agility.
Customer-Centric Assortment

Tailoring assortments to customer preferences is a necessity. Using Merch AI to benchmark assortments against the market and optimize category and item space allocation by store cluster, retailers can better address local customer needs. Our automated merchant applications enhance customer satisfaction while boosting category performance.
Store Optimization

Optimizing the physical store network is essential for long-term growth, ensuring investments align with the latest market demands and consumer behaviors. Merch AI enables retailers to refine store footprints and formats, identifying key sites in both new and existing markets while modeling the impact of openings or closures.
Always-On Diagnostics

Sustaining a competitive edge requires constant attention. Merch AI’s always-on diagnostics allow retailers to identify category performance drivers and uncover root causes of category gaps, recommending actionable opportunities for both quick wins and long-term improvement.

Built on a flexible cloud platform, Merch AI’s merchant analytics applications deeper insights at a larger scale in less time. The applications are highly customizable, with our engineering and Merch AI experts ensuring seamless integration into existing environments. Retailers can select the relevant use cases and leverage tailor-made algorithms and workflows to automate key analyses, reduce time spent on manual tasks, and enhance merchant skills and capabilities to drive sustained impact and long-term success.

1/9

Category Performance

A cloud-based app with scalable dead net profit (DNP) database and visualization tools analyzes, models, and prioritizes categories, builds category fact sets, creates assortment scenarios, and quantifies performance gaps—all to support client and vendor discussions.

2/9

Commodity Opportunity

Commodity Opportunity tracks over 20,000 food and non-food commodities, identifying trends, price fluctuations, and cost increases. It generates product “recipes” and fact packs for vendor discussions, uncovering high-value opportunities and running “what if” scenarios to proactively or reactively manage costs.

3/9

Item Attribution

This AI solution for merchants is used to analyze internal and external data and generate consistent descriptions of a retailer’s entire product catalog. Retailers can use the data-based tags to create pricing structures, plan how to introduce new products by region or market, and analyze competitors’ assortments.

4/9

Customer Decision Tree

Retailers can identify the best moves to make when addressing customer needs with this automated merchant analytics app, assessing the products that customers buy and their purchasing preferences, all to identify critical overlaps or gaps in assortment.

5/9

Assortment Optimization

Taking the data produced by Customer Decision Tree a step further, this app helps merchandisers translate customer buying behaviors into recommendations for optimizing assortment and shelf space for specific store clusters, trading off micro and macro space considerations.

6/9

Supplier Hub

Using this web-based merchant analytics application, retailers can offer subscription access to data on their business performance and other metrics—which suppliers can use to evaluate their own business. The white-label hub is secure and quick to launch with access to multiple data tiers.

7/9

Merchant Hub

Merchant Hub is a multipurpose productivity tool and merchandising information control center, keeping tabs on pricing, planning, and assortment while identifying performance drivers. Leveraging GenAI, the all-in-one hub also links to the Commodity Opportunity and Assortment Optimization apps.

8/9

Store Network

Built on an optimization algorithm, Store Network analyzes data from multiple predictive models and upstream inputs to determine a retailer’s best possible omni-channel real estate network, making cross-brand recommendations for sites to add, relocate, or close.

9/9

Macro Space Allocation

This machine learning-based application recommends the right space to allocate to every product category based on historical data, external demand, and business constraints. Retailers can generate multiple layouts simultaneously to evaluate options for layouts, configurations, and adjacent products.

From Family Story to AI-Driven Impact: The Story of Merch AI by BCG X

What will customers want, where will they want it, and how much will they be prepared to pay? These are questions retailers grapple with every day. Now, Merch AI by BCG X enables merchants to develop data-led strategies around their product selection and placement decisions.

In this video, BCG X’s Nicholas Goad explains how his early experiences in his grandparents’ store led to a passion for helping retailers with inventory and pricing.

Deeper Insight into Vendor Cost and Profitability

With limited visibility into true dead net profitability (DNP), a major US grocery retailer could not negotiate vendor costs and funding effectively. We deployed a custom software that calculated DNP, modeled optimal product cost based on commodities, and automated negotiation analytics. Improved data transparency and standardized processes led to more than $100 million in annual impact on the organization’s bottom line.

$100M+

in bottom-line impact

Customized Store Merchandising for Targeted Growth

A North American retailer wanted to customize uniform store merchandising to attract new customers and drive growth. We collaborated with the company to identify key data required to localize store layouts, design, product assortment, and space allocation. Our Merch AI experts helped pilot changes in 25 stores before scaling them company-wide. The updates led to a 25% consumables growth and up to 4% increase in overall sales.

increase in overall sales

Smart Store Network Optimization

To adapt to changing consumer preferences, a major US apparel, beauty, and home retailer needed to rethink its physical footprint. Our Merch AI team helped the retailer customize category performance tools and create models to predict store metrics, identifying underperforming locations and sites for new, smaller-format stores. Opportunities were identified to increase in-store revenue by $2.8 billion and e-commerce revenues by $165 million.

$2.8B

in-store revenue increase identified

Experts

Meet the Merch AI Team

Dedicated merchant process automation experts provide fully customizable tools paired with new ways of working. Close collaboration eliminates key knowledge gaps, ensuring our merchant analytics applications exceed expectations and provide sustained excellence.