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« Key Metrics for Retail, Catalog, Ecommerce, and Wholesale Organizations-Part #1 | Main | 5 Top Tips for Creating a Merchandising or Product Hierarchy »
Wednesday
Jun022010

Assortment Planning Part #1-Six Factors to Consider When Developing Your Assortment Strategy

Whether you are a bricks and mortar retailer, cataloger, selling on the internet, or a wholesaler, your assortment is key to your success, the “heart and soul” of your business as I call it! Therefore, assortment planning is a crucial activity. I have seen many companies do this well but there is often a real opportunity to take more factors into account to produce the most profitable and sustainable assortment for your brand.

Six factors must be taken into account in planning the size and content of your assortment:

1. Your brand strategy
2. Your business model
3. Current market trends
4. Sales and margin history
5. Channel (s)of distribution requirements
6. The organization’s financial plans (sales, margin, and inventory)

(I would term these “top down” factors. Part #2 will discuss the “how to” and “bottoms up” execution of the strategy.)

Brand Strategy-Prior to assortment planning, whether in preparation to shop the market or to develop your own product line, developing your brand strategy is crucial. Merchandising/product development must buy into the brand strategy. What does the brand represent? Who are the current customers (demographics and psychographics)? What are they currently buying? Who is the target customer ( often different than the current one)? What do they want and need from you? Who is the competition? What makes you different?

We can all name brands that have faltered because they did not have a clear strategy, it was diluted and/or execution was poor. From my perspective my Alma Mater, Eddie Bauer has been an example of this over the years.

Business Model-If you have a “scarcity” business model (Gilth, Clymb, or Zulily), a “fast fashion” business model, or even a “close-out” business model the content and price of your assortment are much more important than controlling the size of it. Your business model is designed to turn fast and fulfillment is not as important. In fact, running out of merchandise is part of the model and creates future demand! If your model is more traditional and fulfillment is important then the size and flow of your assortment may be as important as the content. If you disappoint your customers by being out of stock in a key denim size, as an example, it really hurts your current and future business!

Market Trends-No one has a perfect crystal ball but current market trends and potential future market trends must be taken into account. This is very qualitative versus the next factor which is fairly quantitative. Some brands must event create their own market trends because they are the leader in their category. This still must be done based on current and potential future consumer trends, wants, & needs.

Sales and Margin History- It is crucial to see what has sold well both last season and the same season last year for your organization. In addition to sales, final margin must also be considered including all discounting! As always, if something sold well but the margins were very low it’s not worth repeating in the same way. Taking a look at the categories and styles that have sold well in the past is often the starting point for assortment planning but I have certainly seen too much weight given to this activity. Even in a traditional business model newness is important! When looking at this history it is good to begin selecting items that can be “carryover” items prior to developing or buying “new styles”.

Channels of Distribution-Whatever your distribution strategy, the elements listed below must be incorporated into planning your assortment:

Bricks and Mortar-You will need to know how many stores, how stores may be grouped and assorted differently, what the floorset and/or visual merchandising strategy, flow, and timing are. We do NOT recommend planning the assortment or style count based on space in the store. Plan your assortment first based on the factors above and adjust in Part #2 if needed.

Catalog-You will need to know when catalogs are being mailed, and how many pages you need to fill along with a productive density plan (# of styles per spread or page). This is generally more of a space and productivity (DMPC) exercise than retail.

E-Commerce-You will need to know the strategy for pages, layout, and navagation here along with search and promotions. In general the assortment is not limited by space here either. Presentation is key!

Wholesale-You will need to know the sales strategy, types of accounts and timing along with and any special order needs of your customers.

Financial Plans-If your organization is planning a +20% increase in sales you may have room to increase the size of your assortment. If they are planning a -10% decrease you probably need to tighten up the assortment. Likewise if cash, which means inventory for you, are tight you may need to decrease the size of your assortment and get higher unit sales out of each item. If your organization needs to improve profitability, which means increased margin for you, then you will have to either limit discounting or increase your initial margins. These factors all have an impact on the size and content of your assortment and must also be considered.

Category financial plans-Based on the brand strategy, business model, history, and financial plans, initial “tops down” category and or brand financial plans can be developed at this point. An example might be helpful! If you know your new brand positioning is an active brand targeting women in their 30’s, you can probably plan the performance tops category up. If your financial plans are +5% perhaps this category is up 10-15%.

Please see “5 Top Tips for Creating Your Merchandising or Product Hierarchy” @ jlsearsconsulting.blogspot.com

Once again to summarize, six factors must be taken into account when developing both the size and content of your assortment strategy:

1. Your brand strategy
2. Your business model
3. Current market trends
4. Sales and margin history
5. Channel (s)of distribution requirements
6. The organization’s financial plans (Sales, Margin, & Inventory)

Part #2 will talk about the “bottoms up” or “how to” execution of the strategy.

If you would like to discuss assortment planning further we can be contacted @ info@jlsearsconsulting.com or @ 206-369-3726

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