ASSORTMENT MANAGEMENT IN RETAIL

Optimization of a store is always important for better experience and more conversions. There are tons of ways to increase profitability, from in-store events to influencer marketing and everything in between. One of the tactics retailers go for is assortment planning.

Assortment planning in retail is when a store optimizes visual merchandising, store layout, and product placement for the most conversions. Product assortment planning happens by period, whether daily, weekly, monthly, quarterly, or some other cadence. Retailers often confuse merchandise assortment planning with purchasing. When retailers plan assortment, they’re planning which products to place and where during that period of time. This is done in a way that will drive the most sales. For instance, retailers will highlight bathing suits in springs and summers instead of winters. Though assortment planning gets way more complex and drilled down than that. It’s about forecasting demand and understanding how the retailers can manage that demand. Assortment planning also happens differently depending on store location. If one has multiple storefronts, the assortment plan for store A might be different than store B. When planning assortment, retailers consider more than just the product type. They also look at size, color, price, SKU, and other characteristics within product categories and segments. The variety of categories refers to the width of the assortment, while the variations within that category is the depth of assortment.

On average, in-store shoppers spend more than online shoppers. In fact, 40% of in-store customers spend more than they had planned compared to just a quarter of online shoppers. This is due to more opportunities for impulse buys, more personalized, hands-on assistance during the shopping experience, and unintentional product discovery. This higher average transaction value (ATV) could be attributed to strategic assortment planning. However, assortment planning goes beyond inventory purchasing and seasonality.

Product hierarchy is the process in which customers use to evaluate products of a shared category. Assortment planning mirrors this product hierarchy and guide customers through the process. Additional to this, store clusters are when retailers group multiple storefront locations based on shared characteristics. These shared characteristics could include location, size, storefront type, customer demographics, performance, and more. Based on these shared characteristics, one might conduct assortment planning in the same or a similar way for all of the stores in each cluster.

Further we have cross merchandising, which is used in complementary displays to cross-promote similar products in a shared category. This is an effective tactic because it’s a way of targeted in-store promotion based on product affinity. If retailers have no idea of which products to put next to one another, then they might look at the data from  their POS to see which products are often purchased in the same transaction.

While assortment planning is best for larger retailers with merchandising teams and bigger budgets, the principles apply to any retail environment. Retailers should begin by setting goals to hold themselves and their team accountable, as well as evaluate progress over time. They should examine their historical data to understand which goals are reasonable and which products are required to include in the mix. They need to understand product hierarchy and how customers arrive at the purchase decision, and incorporate that into their assortment planning. They should use clusters to group similar stores together and cross merchandise to increase ATV and units per transaction. Lastly, they need to capitalize on small and inexpensive products for impulse buys and find the right balance in product categories, sizes, variations, SKUs, prices and more.