The Ultimate Guide to Assortment Planning and Retail Optimization
To be competitive in today's retail landscape, offering the right products to the right customers at the right time is critical for driving sales and profitability. Assortment planning helps retailers determine the optimal mix of products across stores, channels and regions by balancing consumer demand, inventory investments and business objectives.
By leveraging data-driven insights, retailers can create assortments that improve customer satisfaction, reduce excess inventory and maximize revenue. This guide explores the fundamentals of assortment planning, its key benefits and the strategies retailers can use to build smarter, more profitable product assortments.
Why is Assortment Planning Needed?
By understanding the needs and desires of customers, retailers can construct a product assortment that resonates with them and drives sales.
Customer demand is highly volatile, shifting rapidly in response to changes in the economy, fashion trends and other external factors. Inaccurate information on customer demand impacts the entire fiscal year. The wrong assortment decisions can lead to:
mediocre sales
excess inventory
slumping margins
risk of stockouts or overstocking
As well as the financial impacts, retail assortment misplanning can lead to poor customer experience, low satisfaction and even irreparable damage to a brand’s reputation and trust.
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 – from initial planning during pre-season, through to in-season allocation – and avoid costly overstocks, aggressive discounting and missed sell-through.
A detailed assortment plan built upon accurate data helps retailers to manage increasing omnichannel complexity, enable SKU rationalization and gain greater insight into the most profitable channels to market to optimize the wider merchandise plan. Retailers can also better understand how to balance evergreen products, 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 will substantially impact a retailer’s bottom line. Ensuring the replenishment strategy is also aligned with the assortment strategy, will ensure less in-season adjustments and reduce further complexity.
What does Assortment Planning Include?
The merchandise assortment planning process begins with an analysis of customer data and trends. Retailers create a product assortment plan based on this information that outlines which products are offered and in what quantities. However, there are many other factors they must also consider when making assortment decision, such as seasonality, promotions and events.
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 to mach customers’ expectations.
Assigning items to relevant clusters to build customer-centric assortments.
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.
Assortment Planning goes Through Several Key Stages.
Segmentation: Assortment planners analyze customer attributes and preferences by identifying consumer personas and the channels they use for purchases. This helps gain insights into diverse customer needs and product preferences.
Localization: Merchandisers group profit centers based on similar trends into store clusters, assigning products accordingly. Seasonality and local events are considered for timely product introductions, with a focus on past performance data for effective planning.
Store Planning: Assortment plans determine product distribution, allowing retailers to visualize how products will be displayed in each store. Analyzing customer buying patterns and insights enhances the creation of store-specific assortments, improving the overall customer experience.
Financial Alignment: The final stage ensures that the assortment plan aligns with the retailer’s financial goals from top down and bottom up. Once strategically selected and finalized, the assortment plan supports the creation of purchase order that maximize profitability, sales and inventory investment.
Retailers employ different assortment strategies based on their objectives, shelf space and business model.
The three primary approaches include:
Deep Assortment
Involves offering a wide array of products within a specific category.
commonly used by specialty stores focusing on niche markets to provide customers with extensive choices.
Narrow Assortment
The opposite of deep assortment, featuring a limited number of products.
Preferred by specialty stores and boutiques with constrained shelf space, prioritizing a targeted product selection.
Wide Assortment
Encompasses a variety of categories or product lines, but with fewer options in each category.
Utilized by big-box retailers aiming to provide diverse product variety.
Considerations such as the retail environment, the number of stores receiving the products and space constraints at each location influence the choice of assortment strategy. Retailers must align their overall product strategy with these factors and anticipate potential obstacles, such as limited shelf space, when making decisions.
Assortment Planning Optimization Tips
When done well, a good product assortment with 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.
While increasing planner efficiency is crucial for leveraging data effectively, failure to accurately optimize assortments may lead to overproduction and heavy discounting, eroding product margin gains.
The data-heavy nature of retail planning and changes in customer behavior means that traditional methods of working in Excel-like environments are no longer sustainable. Spreadsheets and traditional tools are inflexible and cumbersome. There is still a costly element to the time taken to reconcile information across the business, leading to slower reactivity and missed selling opportunities.
Even major companies with enormous resources struggle with this every day. Take iconic fashion retailer, Guess®. Assortment planning was difficult, 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. However, they managed to rationalize their assortments and save $30M in less than 1 year by investing in a modern planning solution made for the omni-channel era.
What are the Primary Goals of Assortment Optimization?
The primary goals of assortment optimizations are:
To ensure customer-desired products are available
To minimize inventory costs while maximizing profits.
During assortment planning optimization, make sure to consider:
Geographic location
Tailoring assortments to local customers to remain competitive and boost sales.
Considering geographic nuances ensures meeting specific customer demands, enhancing satisfaction and improving business performance.
Seasonality
Incorporating weather-related products and staying abreast of fashion trends.
Aligning products with seasonal trends attracts customers seeking the latest styles and optimizes sales during specific buying patterns.
Cross-merchandising
Strategically grouping complementary products to stimulate additional purchases.
Enhancing the shopping experience, increasing sales and optimizing assortment effectiveness through thoughtful cross-merchandising opportunities.
Assortment Planning FAQs
When Should Retailers Consider Assortment Planning?
Retailers should incorporate assortment planning as a routine part of their strategy to enhance product offerings and stand out from competitors. It becomes essential when aiming to refine the product mix, phase out underperforming products, addressing storage constraints, or reduce instances of stockouts.
How Can Assortment Planning Software Benefit Retailers?
Assortment planning software proves invaluable for retailers, ensuring trust in data accessibility and comprehension. A modern planning solution eliminates the guesswork strategy caused by scattered data and enables efficient utilization of talented resources. By automating complex tasks and providing data-driven insights in visually accessible formats, assortment planning solutions accelerate decision-making, allowing merchandisers to focus on strategic planning rather than manual data handling.
Assortment Planning Optimization with Centric Planning
Analytics play a pivotal role in effective assortment planning by uncovering patterns, trends and relationships that might be challenging to discern otherwise. This understanding of customer buying patterns, frequency and spending preferences enables retailers to make informed decisions about their product offerings.
As retail increasingly emphasizes the experiential nature of shopping, personalization and individual preferences, leveraging technology for granular insights becomes crucial. By identifying relevant analytics for their business, retailers can enhance decision-making regarding products and pricing.
To eliminate guesswork, overproduction and heavy discounting, investing in a powerful, AI-driven solution tailored for the omnichannel era is imperative.
Assortment planning software such as Centric Planning and Pricing™ provides data-driven insights in an easy-to-understand and accessible platform. Retailers can see the analytics they need to make sound decisions quickly and efficiently, plan assortments, refine strategies and anticipate in-season trends with ease.
Centric Planning and Pricing's next-generation technology makes light work of complex calculations and multidimensional analyses, with AI-powered tools delivering dependable, accurate forecasts for enhanced decision-making, faster time to market and bottom line growth.