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Assortment Planning: Get Your Product Mix Right
What is Assortment Planning?
Assortment planning is the process by which brands and retailers evaluate data and decide which products and variations to sell in the upcoming seasons, aligning assortment strategies with financial plans. Merchandise assortment planning determines which products to offer for specific markets, channels, or locations and during which periods to maximize sales, margins and brand consistency.
By carefully planning their assortments, retailers can ensure that they offer the products their customers want and need, driving revenue growth.
For both brands and retailers within the fashion, luxury, outdoor and consumer goods industries, assortment planning is at the heart of healthy margins. While products need to be designed well and developed flawlessly, the real challenge begins earlier on with planning. The right product in the wrong location or channel can mean missed sales or heavy discounting. So too can the wrong quantities and pricing strategy end just as badly.
For many, assortment planning is the challenge and the stakes are high, as everyone from the C-suite to operations, fulfilment and supply chain – all the way through to the planners, merchandisers and buyers – well know.
When done well, product assortment – the merchandising mix of specific quantities of each product within a line – can yield the right product at the right place and the right time. Quantities that perfectly match what your customer wants — easy, right?
No. Even big companies struggle with this every day. Take iconic fashion retailer, Guess®. With a retail and wholesale business, a complex product range, thousands of products and SKUs housed in a myriad of spreadsheets and lack of easy to use, easy to access shared, live data, assortment planning had its difficulties. But they managed to save €30M in less than 1 year. So, how did they do it? With a modern planning solution made for the omni-channel era, read their story!
Having access to the right information is not enough. That information needs to be actionable. Live, actionable data enables planners and buyers to make better, more calculated decisions – even in-season- and avoid costly overstocks, aggressive discounting and missed sell-through.
Assortment Planning in Retail Involves:
- Finding the right balance between seasonal, carryover and permanent products.
- Initiating the placeholder and new item creation process in conjunction with PLM.
- Defining the optimal size distribution matching customers’ expectations.
- Assigning items to relevant clusters to build customer-centric assortment.
- Visualizing the merchandising plan to present products in the most appealing way.
- Calculating the right amount of merchandise to meet customer demand and hit financial targets.
Why is Assortment Planning Important
Creating an assortment plan is a crucial part of any product assortment strategy. By understanding the customer’s needs and wants, retailers can create a product assortment that will appeal to them and generate sales.
Customer demand can be highly volatile, often changing rapidly in response to changes in the economy, fashion trends and other external factors. An inaccurate prediction of customer demand affects the entire fiscal year. The wrong assortment decisions can lead to mediocre sales, excess inventory, and slumping margins. Furthermore, erroneous estimation of buying quantities can also lead to a risk of stockouts or overstocking, which impacts the bottom line. These inaccuracies ultimately lead to poor customer experience, low satisfaction and even irreparable damage to a brand’s reputation and trust.
A detailed assortment plan built upon accurate data helps retailers to manage increasing omnichannel complexity and manage SKU proliferation by enabling SKU rationalization and greater insight into the most profitable channels to market to optimize the wider merchandise plan. Retailers can also better understand the required balance of their evergreen products, or otherwise known as NOS (Never Out of Stock), and their seasonal offering by reviewing and optimizing the assortment plan year on year. A thoughtful and well-researched assortment plan can substantially impact a retailer’s bottom line.
How to Create an Assortment Plan
The merchandise assortment planning process begins with an analysis of customer data and trends. Based on this information, retailers create a product assortment plan that outlines which products are offered and in what quantities. But they must also consider other factors, such as seasonality, promotions, and events, when making decisions.
Assortment planning involves first dissecting the historic data to establish the customer segmentation and CDTs (consumer decision trees).
1. Segmentation
This is where the selection and purchasing process of the customer is mapped out into product attributes to better understand the values of the customer. By asking ‘who is the customer’ and digging into the details of where they shop and what they like to buy, assortment planners can yield new insights into their customer base. This requires analyzing multiple consumer personas and the channels they use to make purchases. Each has different needs, different types of products they are looking for and where they might expect to find them.
2. Localization
The next step in assortment planning is to understand the demographics of their profit centers and group them by similar trends into store clusters. Merchandisers must then assign products to different store clusters and, even more specifically, down to individual stores for the initial allocation plan.
Seasonality of goods is another important step most assortment planners look at when starting to build out their plans. Today it’s no longer the traditional seasonal changes of spring and fall lines, many companies want to capitalize on lifestyle practices, local festivals or celebrated holidays with more product refreshes and product introductions. For instance, this could mean stocking swimsuits ahead of a traditionally popular vacation month, or themed products close to a festival or celebrated holiday. Examining past product performance data is key to understanding how well this type of strategy works, particularly highlighting products which failed to move or those that lacked the inventory to meet demand.
3. Store Planning
At this stage, the assortment plan determines how products are distributed and allows retailers to visualize how the assortment will look in each store. Analyzing customer buying patterns and shopper insight can provide the next steps merchandise financial planners need to fill in data gaps to create better-performing store and cluster-specific assortments. Greater insight into the customer experience creates assortment strategies based on real-world information that is predictable and logical, not just aspirational.
4. Financial Alignment
Once the assortment is finalized and aligned with the merchandise financial plan, retailers can proceed with purchase orders.
Types of Product Assortment Planning: Depth vs. Breadth:
The type of assortment strategy that a retailer chooses to utilize often depends on their objectives, access to shelf space and business model. The various product assortment planning strategies include deep, narrow, and wide assortment.
Deep Assortment
This involves carrying a multitude of products within a particular product category. This is common for specialty stores that focus on a specific niche and want to offer their customers a wide range of choices.
Narrow Assortment
This is the opposite of a deep assortment and involves carrying a limited number of products. This is also common for specialty stores and boutiques where shelf space is limited and offering customers a targeted selection of products is more important.
Wide Assortment
This strategy entails offering a variety of categories or product lines but with a less options in each category. The objective of a wide assortment strategy is to provide more product variety. Big box retailers are the most prominent example of retailers who use a wide assortment strategy.
But other factors must be accounted for, including the retail environment. How many stores will receive products and what are the space constraints at each retail location? What is the right allocation for each store type by region? When deciding on an assortment strategy, retailers need to consider their overall product strategy and identify potential obstacles (i.e., shelf space) that may impact their decision.
What are the Challenges of Assortment Planning?
Assortment planning poses several challenges for retailers as they attempt to maintain pace with the ever-changing market demands, inventory management, customer satisfaction and brand reputation. The danger of miscalculating the needs and desires of consumers can significantly impact a brand’s reputation and earnings. Too many of the wrong items lead to undesirable outcomes like extra inventory, which is costly to manage. Companies are then forced to heavily discount to clear excess stock. This eats into product margins and tarnishes brand reputation, with some customers choosing to wait for the huge end-of-season sales to bag themselves a bargain. Conversely, not having enough of a popular product means missed chances for greater revenue. Not only that, but continuously out-of-stock items can frustrate loyal customers.
Although scarcity can have its appealing qualities in luxury branding, too many moments of deficient inventory can cause brands to lose momentum and customer loyalty.
Optimizing Assortment Planning
Assortment optimization is the process of aligning a company’s product mix with customer demand to maximize revenue. In other words, it is the science of choosing the right products to sell in the proper distribution channels at the right time. Increasing planner efficiency is essential for making data useful and usable. But if planners, merchandisers and buyers cannot accurately optimize assortments so the right products are available in the right places in the right quantities at the right time then overproduction and heavy discounting will quickly diminish all those product margin gains acquired during the product development phase.
The goal of assortment optimization is twofold:
- To ensure that the products sold are those that customers want to purchase.
- To minimize the cost of inventory and maximize profits.
To do this, retailers must understand their customer base and what they are looking for. They also need to be able to predict future trends in customer demand.
Too often, assortment optimization is deemed too complex to achieve due to the enormous volume and complexity of the data required. However, modern analytical planning solutions can easily manipulate these vast amounts of data and allow retailers to gain valuable insight to help them make more informed decisions about what products to stock and when. With the ability to accurately plan, teams can truly understand product performance, feeding historical data into effective assortment planning.
Inaccurate Data
However, without reliable foundational data from which to base forecasts and trends for the upcoming season, retailers are immediately at a disadvantage and risk misallocation, poor sell-through and profitability, and ultimately reduced customer satisfaction. Managing large volumes of data across a myriad of spreadsheets and siloed systems will inevitably lead to manual errors along the way.
Agility
The data-heavy nature of retail planning and changes in customer behavior such as the rise of fast fashion, omnichannel and working towards SKU proliferation, means that traditional methods of working in excel-like environments are no longer sustainable. The inflexibility of spreadsheets and traditional tools means that there is still a costly element to the time taken to reconcile information across the business, leading to slower reactivity and missed selling opportunities.
Inventory Management
As a brand and its product portfolio grows, the volume and variety of data becomes unmanageable. Information stored on multiple spreadsheets scattered amongst different sources can become a hugely significant problem, making the information hard to obtain or too time consuming to incorporate into the planning stage. Even before any consolidation, retailers are left unable to take valuable insights from their own data due to untimeliness and inaccuracies.
How Can Assortment Planning Software Benefit Retailers?
Retailers need to trust their data and be able to access and understand it in easily digestible formats. A lack of consolidated data leads to a guesswork strategy. Although data can be cumbersome to collect, hiring and training talented planners only for them to spend hours in front of a spreadsheet to clean data, is a huge waste of talented resources. Without giving teams the right tools to manage the complexities of the job, they have significantly less time to accurately plan and analyze. Without past product data to work from, the lack of visibility into product performance or the ability to automate much of the planning process, planners and merchandisers are shooting in the dark when it comes to assortment decision making. Trying to work out this key information manually for thousands of product SKUs across a number of collections will lead to data overload. Today teams must be able to plan with data and decide visually to understand how a collection looks together as a completed line. Identifying what textures, products and items are missing is easier and more efficient if able to look through plans visually.
One of the most valuable tools retailers can use for assortment planning is retail planning software that provides powerful data-driven insights. Assortment planning software accelerates decision-making by identifying trends, analyzing data from multiple entry points and displaying data visually for easier readability, giving time back to merchandisers to focus on strategic decision making.
Assortment Planning Analytics
Analytics play a vital role in effective assortment planning, as they help to identify patterns, trends and relationships that would otherwise be difficult to discern. By understanding what customers are buying, how often they are buying it and the amount they are willing to spend, retailers can make more informed decisions about the products they offer.
As retail shifts towards an experiential-centric focus for the customer based upon individuals’ chosen medium of shopping; their personal tastes and purchasing habits, it is more crucial than ever that retailers take full advantage of technology that can deliver these granular insights in critical time to act upon them.
By understanding which analytics are most relevant to their business, retailers can make better decisions about their products and how to price them. For businesses to truly eliminate guesswork planning, overproduction and heavy discounting, a company must invest in a powerful, AI-driven solution built for the omnichannel era.
Assortment planning software such as Centric Planning provides data-driven insights in an easy-to-understand and accessible platform. Retailers can see the analytics they need to help them make sound decisions quickly and efficiently. Centric Planning’s next-generation technology makes light work of complex calculations and multidimensional analyses, with augmented intelligence (AI) delivering dependable, accurate ML-driven (Machine Learning) forecasts for enhanced decision-making and speeding time to market/growing bottom lines.