Retail assortment can vary significantly between retailers – even when they are within the same vertical making detailed and accurate assortment plans a vital element for retail success.
In fact, a retailer’s assortment planning process can make or break their selling season (or even their entire fiscal year).
If your predictions are inaccurate (or your assortment plan fails to reflect consumer demand) — you’ll be facing out-of-stock, markdowns, and unhappy customers all year.
But if you manage to predict consumer demand accurately and plan your assortment accordingly — you’ll rake in the profits.
This is easier said than done.
Even if you could predict exactly when (and how) to shrink or expand your assortment on a macro-level, it is a task of herculean complexity to effectively translate this to individual store assortments (especially if you work for a large retailer). Think of the man-hours required to wrestle tens of millions of spreadsheet cells into compliance.
That’s why many medium and large retailers don’t bother planning so granularly during the pre-season.
Their only option may be high-level planning that doesn’t take individual stores, demographics, and constraints into account.
Furthermore, there’s no “one-size-fits-all” approach to assortment planning. Your assortment planning process will look very different depending on whether:
- You sell hardgoods or softgoods
- You have access to an accurate demand forecast
- You’re using Excel or a specialized assortment planning software
Given the complexity (and variability) of assortment planning, you won’t be able to perfect your assortment planning process by reading one article.
The best place to start is to ask (and answer) the right questions.
But first, let’s define assortment planning.
What is assortment planning?
Assortment planning is defined at its simplest, as the process retailers use to decide which products and variations to carry and sell in an upcoming season.
Retailers plan their assortment along two dimensions:
- Breadth/width: the number of product types and categories.
- Depth: The number of variations for each product/category
A wide and shallow assortment means lots of different product types and categories with few variations of each (like Walmart).
A deep assortment means few product types, but lots of variations (like Footlocker).
So, what are the most important considerations for an assortment planning process?
1. Where does assortment planning fit in your overall process?
No assortment planning process exists in a vacuum.
Assortment planning is just one of the many interconnected steps of pre-season planning — and not all retailers agree on the order of these steps.
For example, some retailers start all planning with a financial plan that drives downstream decisions. They plan for sales and margin targets, oftentimes breaking them down by category. In these organizations, assortment planning is constrained by the financials first and foremost.
Others will begin by considering that brick-and-mortar assortments must reflect the reality of store layouts. Thus, their plans must address the physical constraints of each store’s planogram and warehouse capacity.
Still, others might take an assortment-first approach. In this case, they plan the products and variations first, and then develop budgets and store plans to execute on their assortment plan.
A clear understanding of your company’s priorities is the foundation of effective assortment planning in retail. Answering this question will not only shed some light on your organization’s current priorities but may also highlight some glaring process issues.
Without knowing your business priorities, your plan could easily fall apart due to being at odds with your financial, merchandising, or store goals.
2. What business rules constrain your assortment plan?
Now that you know the “order of business,” and where assortment planning fits into the overall process, it’s important to start mapping out all the constraints your assortment plans should account for.
Some examples include:
- Physical space at distribution centers
- Physical space on shelves (and shelf-space variability between stores)
- Budget for initial POs
- Vendor relationships
- Contractual obligations
Once you understand the constraints imposed by business priorities, you know the kinds of limits you must factor into your assortment plan.
That’s the easy part.
The hard part is actually accounting for all the variables in your assortment plan.
How do retail giants manage to account for these constraints?
- Some retailers use dozens of Excel spreadsheets in combination with algorithms/macros/formulas that account for constraints or flag exceptions. Unfortunately, these methods are still very time-consuming and require a lot of manual reconciliation across spreadsheets and departments.
- Some retailers use centralized data management software like ERPs. If correctly configured, an ERP can act as a single source of truth, providing consistent data for different departments. However, this route still requires manual or algorithmic calculations and manual reconciliations for exceptions.
- The most sophisticated retailers use assortment planning software to calculate real demand, leverage AI to determine when to shrink or expand assortment, and automatically reconcile their plans with all business constraints.
3. What are your assortment planning goals?
Hitting and exceeding sales targets may be the end goal — but it’s far from being the only goal in retail assortment planning.
Retailers need to define these goals clearly to build a good, actionable plan. Otherwise, they risk building a plan that won’t reflect on-the-ground reality when purchasing inventory and allocating it to stores.
Retailers may require their assortment plans to identify:
- Specific items to add to next season’s assortment
- Which lines to expand, and which lines to shrink
- The best approach is to vary the assortment based on store size and type
- How to vary assortment by location and demographic
Let’s say your organization requires an assortment plan broken down by store size and type, but it isn’t. You’ll either have a nasty number of inventory issues during your season, or your buyers will ignore your plan (invalidating it), or both.
Going into the planning process with clear intentions and goals leads to better-defined constraints and more usable assortment plans.
4. What time period does your assortment plan cover?
Perhaps you have evergreen product categories that need a twelve-month plan that accounts for seasonality. Or perhaps you need an assortment plan for a short seasonal event. Maybe your retail business uses a rolling assortment and is constantly refreshing your inventory throughout the year.
Each time period will require a unique assortment planning approach.
In fact, you may need to develop multiple plans to reflect the various selling seasons that your business will be going through. For example, in the case of an apparel retailer, seasons, holidays, and specific categories of products may require separate assortment plans.
While this can be done manually (and often is, to the detriment of retailers) — some retailers have started using advanced analytics with machine learning to account for demand in real-time, automatically optimizing assortment for any given fixed or rolling period.
5. How detailed and specific does your assortment plan need to be?
Depending on a retailer’s size, industry, and assortment type, they may either need very general, high-level plans, or very granular and specific plans.
Unfortunately, many retailers who need a granular assortment plan are still using a general one — because they perceive the former to be too complicated to achieve.
Before taking any options off the table, you need to honestly determine if you are looking for:
- A high-level assortment plan that applies to all locations/channels
- A medium-granularity plan that will optimize at store cluster/type level
- A high-granularity plan that will optimize at an individual Store / SKU level by identifying exactly which items to bring into which stores and when
A high-level assortment plan may be enough if you are a small retailer or have an incredibly standardized retailing model across all locations (demographics, store size and layout, etc.). Any exceptions/outliers can be fixed manually.
However, if you are a medium or large retailer with a complex assortment and many locations of varying size, layout, and demographics — you need a more granular assortment plan. Otherwise, you’re either creating way too many exceptions for your buyers to reconcile by themselves, or a situation where inventory distortion becomes unavoidable.
Either way, it’ll end up costing your business.
Simplify and Optimize Your Assortment Planning Process
Answering these five questions about business priorities, constraints, goals, time periods, and specificity will help you define an ideal assortment planning process.
But this is just the start.
As they say, the devil is in the details. Your specific business will still have to address many unique questions during the planning process. For example:
- How will last season’s terminal stock blend into the new assortment?
- How will the plan account for both seasonal and evergreen products?
- How will the plan bridge the gaps between peak seasons?
By leveraging AI and Machine learning technology you can optimize your assortment planning process to fit your business-specific constraints, preferences, and goals. However choosing the right analytics software can be a minefield. The solution must account for the above-mentioned questions.
An analytics solution should be straightforward and convenient to use. A good analytics solution should also provide all the bells and whistles such as wedge view, visual assortment view, and colour pallet view. If you are interested in optimizing and simplifying your assortment planning process, let one of our team members provide a personalized demo and see the benefits for yourself.