Think about the last time you visited a sporting goods store. Maybe it was the height of summer, and you noticed lots of warm weather equipment, such as camping tents and kayaks. Running shorts and t-shirts formed the bulk of clothing options, and there were flip-flip flops and sandals for beachgoers.
In the winter, the same store might sell skis and heavy-duty jackets. This is because it caters to consumer interests for the season and uses assortment planning to maximize sales.
Importance of Assortment Planning in Retail
Assortment planning is critical to retail stores. Its goal is to provide customers with a solid mix of product options that align with their needs, all while optimizing inventory.
Part one of assortment planning is when retailers plan out their product offerings based on estimated customer demands and previous consumer behaviors. Part two involves right-sizing inventory to avoid stockouts and obsolescence.
Well-developed assortment planning strategies provide customers with the products they want and prevent inventory imbalances.
Key Components of Assortment Planning
Visualize assortment planning as a three-ingredient recipe: product mix selection, demand analysis trends, and seasonal trend adaptation. These three ingredients come together to create a satisfying mix of products that fit your customer’s current needs and interests.
Product Mix Selection
Product assortments reflect the variety of items available for customers to buy. Those items may vary based on their dimension characteristics: width, length, and depth. The dimensions don’t refer to a product’s actual size, but the range of products in a store.
- Width: The different categories of products offered.
- Length: The number of items available for each product category.
- Depth: The available variations of each particular product.
Let’s take an auto manufacturer as an example. It might offer several different categories of vehicles: sedans, SUVs, and pickup trucks. That’s the width of its product mix.
Within each category, there might be two- and four-door vehicle options, representing length. Finally, customers could select from different exterior and interior design options, representing product mix depth.
Demand Analysis Techniques
How do you know what customers want from your store? You’ll find out through demand analysis. Reviewing your historical sales data can help you uncover trends and patterns in customer behavior. Clear insights allow you to forecast the types of products that clients want and when they’re most likely to buy them.
Seasonal Trend Adaptation
Many retailers experience peaks and troughs in customer demand. For instance, sales might pick up in the weeks leading up to the winter holiday season, then dip when January rolls around.
Those ups and downs call for a seasonal twist on inventory management. When you know how sales fluctuate, you can plan your inventory levels accordingly.
Understanding Regional Variations
Your store may have a presence in different regions or countries. If so, consider how local factors may influence product performance.
Let’s take McDonald’s as an example. It’s ubiquitous in the United States, but you’ll find McDonald’s outlets in countries worldwide. Each foreign location offers the basic menu you’ll find at a standard U.S. McDonald’s but also includes other food items catered to local customers’ tastes. A French McDonald’s might offer croissants, while pho may be on the McDonald’s menu in Vietnam.
Think about which regional factors might apply to your store’s product mix and apply them to your assortment plans.
Strategies for Effective Merchandise Assortment Planning
A carefully balanced product mix can keep customers loyal and enhance store revenues. But to see those benefits, you need a strategy.
1. Determine Width and Depth
Big box stores, such as Target and Walmart, have a large width of products. When you walk into either store, you’ll see groceries, clothing, toys, and pretty much anything else a consumer might need. But, not all retailers can afford that type of width, nor does it benefit them.
You might be better off with less width and more depth. Greater depth allows you to offer a wider selection of a certain product. For example, say you’re a retailer of women’s clothing. Offering 16 varieties of women’s sweaters might be a better option than adding toddler clothes to your product mix.
2. Find a Balance Between Variety and Inventory
Some retailers fall into the trap of offering too many options in their product mix. This can result in overwhelmed customers and expensive inventory overstocks.
One goal of assortment planning is to strike an equilibrium that gives clients choices without overextending inventory counts. Look for opportunities to remove underperforming products or reduce their inventory levels.
3. Keep on Top of Market Trends
Sudden changes in consumer buying patterns may affect assortment planning. Be ready to recognize and accommodate these shifts.
To put that in perspective, say you run a small health food store. A TikTok influencer goes viral for showing off avocado protein shakes, and you get a few inquiries from customers interested in trying them. To take advantage of the trend, you might add avocado-flavored protein powder to your product mix.
The Role of Data Analytics in Assortment Planning
Assortment planning goes hand-in-hand with data. Without data, you’re basing product selection and inventory decisions on gut instinct and guesses. As a retailer, you have ample data sources to turn to, including historical sales, inventory levels, and consumer searches on your store’s website.
All of those resources can help you make smart assortment planning decisions. You could lean on your historical sales data to uncover the products people buy most and when they purchase. Your website analytics might inform you of the top products that customers are searching for. And inventory history can help you track stockouts and excess product levels so you can better predict upcoming demand.
Advancements in artificial intelligence (AI) and machine learning (ML) capabilities make it possible to master retail assortment planning through data-intensive platforms. Solutions like GAINS offer demand sensing features that use advanced algorithms and real-time data to help you optimize your product mix and inventory counts.
Assortment Planning Best Practices and Tips
To reap all of the benefits of an effective assortment planning strategy, keep these suggestions in mind.
Set Clear Objectives
Define specific outcomes you hope to achieve through assortment planning. One easy way to do this is to review previous mistakes in your assortment strategies. For instance, if you had a glut of excess products last season, you could make it your goal to find an inventory balance that better matches customer demand in the upcoming fiscal year.
Implement the Right Technology
Use technology to your advantage. Integrate an assortment planning tool to help you understand your clients’ buying patterns. The insights can help you forecast ideal inventory levels for your store.
Monitor Results
Once you implement assortment planning, pay close attention to results. You may need to refine your approach. That’s completely normal! It may take a few rounds to find the perfect balance of product mix and inventory counts.
Common Challenges in Assortment Planning
Keeping inventory levels just right is paramount for business success. If you don’t have enough of an item, clients may be unhappy when they can’t buy what they want. However, too much of a product can lead to losses, as you may need to make price cuts to turn it over.
This is where accurate demand forecasting can help. Monitor sales history and buying patterns to hone inventory counts. Lean on existing data and technological solutions to plan how much inventory to keep on hand.
Discover the Future of Assortment Planning in Retail
GAINS uses advanced ML and AI technology to help retailers optimize product mix and inventory levels. Our solution is easy to implement, and the actionable insights roll in from day one. To explore how GAINS can enhance your organization’s assortment planning process, schedule a demo with our team.
