Anatomy of Assortment Management In Retail
Updated: Dec 22, 2021
Effective retail starts where the seller knows a demand and can satisfy it. How many people, so many preferences. Therefore, choosing a versatile set of goods for a profitable sale is not effortless.
Store employees are always involved in assortment management. Proficiency in Excel is not enough to cope with it. During digital transformation in retail, companies try new approaches to assortment planning process.
Let's consider what a client-oriented assortment comprises and how retailers can provide it.
Assortment strategy: The First Step To Build A Robust AMS
In our last article on assortment management, you might read about 5 core stages of this process:
assortment strategy development;
current assortment update;
assortment policy analysis;
Assortment strategy is an algorithm of actions that helps a retailer to sell certain goods in time. It allows maintaining a high level of product turnover and profitability, respectively. Usually, the document includes a list of goods, forming the frame assortment and factors provoking assortment changes. At this stage, the seller determines the assortment width and depth. Width means the number of product lines (like ice cream, cakes, meat, milk). Assortment depth is the number of product items in each line (like Gouda, Cheddar, Blue Cheeses).
Assortment management is closely related to the space planning system. Brick-and-mortar store owners face the problem of choosing the assortment width or depth due to the limited space. Expansion of space is a costly procedure, so sellers often create the assortment strategy first and then - rent suitable trading floors.
The e-commerce sector also has a problem with defining assortment parameters. Niche representatives should calculate their capabilities regarding the delivery of goods (number of cars, dimensions, and other product characteristics, availability of delivery partners, etc.). Customer behavior also matters in this case. The electronic product catalog congestion confuses the buyer. It is difficult for him to choose from many products, and he prefers not to buy anything at all.
Due to the analysis of customer data, the company's internal conditions, and market changes, companies take one or several types of assortments as the basis of their strategy:
Wide assortment. It's the one containing numerous product lines and a few product items in each line. This approach is typical of convenience stores.
Deep assortment. The complete opposite of the wide one. It has a limited number of product lines and many stock-keeping units (SKUs). This type is used by specialized stores, for example, confectionery, construction, etc.
Scrambled assortment. In other words, a retailer, for various reasons, introduces an SKU that does not correspond to the general concept of its store. Any souvenir shop in a resort town can be a striking example. At the end of the tourist season, the owners are forced to sell essential goods for the indigenous people so that the enterprise is not unprofitable.
Localized assortment. Did you know that fashion stores don't sell the same clothes in different countries? SKUs vary according to the economic situation in a particular country, its dominated religion, etc.
Mass-market assortment. Industry giants like Amazon and Walmart have been successful due to this approach. It implies that the retailer sells various goods, making its audience as wide as possible (for example, books, clothes, ready-made food, household chemicals, etc.)
There is no model assortment strategy template, as every company is unique. Due to robust assortment management software that allows forecasting demand by analyzing market conditions, sellers create their accurate strategies. It minimizes the risk of wasteful investment.
Assortment Planning In Retail
Retail assortment planning is a way to optimize merchandising and SKU placement to improve turnover. And not only. Creating the plan, retailers also define assortment width and depth for each sales channel. Companies plan assortment at a specific frequency: monthly, quarterly, or annually. Thus, it is a dynamic annex, wholly based on an assortment strategy and allowing store employees to navigate where and what products to place/sell in a certain period (say, in autumn or spring).
Drawing up the plan, the seller can determine which products need to be excluded from the range and which ones to include.
Thus, working on a plan always starts with an assessment in warehouses. If necessary, companies exclude and include a specific unit of goods in the future updated assortment. The planning process consists of the following steps:
getting familiar with an assortment strategy to determine which concept the plan should have;
purchasing of suitable software for customer and other data collection;
learning the target audience preferences to provide them with the desirable set of goods;
drawing up a model of an assortment that fully meets the customer demand in a certain period;
analyzing of agreements with suppliers and general requirements for supply chains to make sure that all the items will be delivered without difficulties;
identifying opportunity gaps (like money resources or space limitation) to fill them;
creating a planogram to divide a retail space appropriately.
As seen, actual data plays a central role in planning. Traders always use digital solutions to create an effective plan. Many of them buy ready-made products like Oracle Retail's Assortment & Item Planning Software, Solvoyo Assortment Planning, which optimize all the above procedures. Rarely large retailers order custom software to cover any other non-standard planning processes.
Current Assortment Update For Efficient Sales
Product assortment updates in retail happen based on a plan. Thus, the sale of goods may be suspended for a certain period, some SKUs may be excluded altogether, and some may be added to the list. Why does it happen? Here, variations reflect the retailer's reaction to external circumstances, like:
change in demand;
new agreements with a specific supplier;
features of the supplier operation;
additional costs increasing;
changes in legislation, etc.
If any of the above circumstances took place instantly, the company must quickly find out about it to change its strategy and plans following new realities. Thus, the whole assortment system should be flexible to remain efficient.
Assortment Policy as a Constitution for Assortment Management
Assortment policy is a set of operational rules for the company's activities regarding the assortment planning process, its implementation, and control. The policy regulates all the actions related to the building and change of a general strategy, plans, adding and excluding goods, etc. The retailer needs to actively use this tool to navigate the stages easily and make relevant business decisions rapidly.
There are two types of assortment policy: active and passive. The first one determines an assortment reduction, consolidation, or expansion based on relevant data (i.e., on-demand). It is more efficient in terms of creating a profitable assortment. The passive policy provides for frequent assortment updating and maintenance.
By analogy with strategy, there is no single correct sample of policy. It is built following the enterprise's conditions.
Assortment Inconsistencies Elimination: What Does It Mean For Retail?
It often happens that after making all the above changes, some products no longer fit the general store concept or become less profitable. It is a normal process, somewhat similar to using scrambled assortment. However, companies should make every effort to minimize assortment inconsistencies. The last ones complicate the task of retailer positioning in the market. To adjust the assortment, the staff needs to analyze the new assortment in dynamics and determine what is superfluous or what needs to be changed. The assortment policy should contain the relevant clauses regulating this stage.
Thus, assortment management in retail is subject to many rules and procedures. Real-time data on customer behavior and demand is key and high-integrated and scalable software that provides such information. Since the assortment is the basis for creating a client-oriented retail business, companies should pay attention to implementing multifunctional digital solutions to form a perfectly suitable set of goods.