A Step-by-Step Guide to Assortment Planning In Retail

Assortment planning is a crucial aspect of retail merchandising that involves selecting the right mix of products for a store. It is part of a holistic retail merchandising strategy that aims to increase sales, improve customer loyalty, and enhance profitability. In this blog post, we will provide a detailed step-by-step guide to assortment planning in retail, including specific examples, key considerations, common challenges, and the role of merchandise planning and demand forecasting in determining assortment plans.

Assortment Planning Challenges In Retail

Despite the many benefits of retail assortment planning, there are also common challenges that retailers may face. Here are some of the most common challenges in assortment planning:

1. Data Analysis: Assortment planning requires extensive data analysis, which can be time-consuming and complex. Retailers must gather and analyze data from multiple sources, including market research, customer feedback, and sales data.
   
2. Inventory Management: Retailers must effectively manage their inventory levels to ensure that they have the right products in stock at the right time. This requires careful forecasting of demand, as well as effective inventory management strategies. A key issue is limited space for various products in retail stores.
   
3. Changing Consumer Preferences: Consumer preferences and trends are constantly changing, which can make it challenging for retailers to keep up with shifting demand. Retailers must continually analyze consumer behavior and trends to ensure that their assortment plans remain relevant.
   
4. Competitive Landscape: The competitive landscape is constantly evolving, which can make it challenging for retailers to differentiate themselves from their competitors. Retailers must continually analyze the product mix and pricing strategies of competitors to identify opportunities to differentiate their offerings.

Step-by-Step Guide to Assortment Planning

Step 1: Analyze Market Trends and Consumer Behavior

Assortment planning should begin with a thorough analysis of market trends and consumer behavior. Retailers should gather data on customer demographics, shopping preferences, and purchase behavior. They should also monitor industry trends and competitors to identify emerging opportunities and threats. This information can be obtained through market research, data analytics, and social media monitoring.

Best Practice: Utilize Artificial Intelligence (AI) and Machine Learning (ML) tools to analyze data and generate insights. For example, Walmart uses AI and ML tools to analyze customer data and generate personalized recommendations for products and services. This has helped the company increase customer satisfaction and improve sales.

Here’s An Example – A retailer of home goods might analyze trends in home design, such as the growing popularity of minimalist aesthetics or eco-friendly materials. They might also analyze customer behavior, such as the growing preference for online shopping or the increasing demand for sustainable products.

Step 2: Define Assortment Objectives

After analyzing market trends and consumer behavior, retailers should define their assortment objectives. This includes identifying the target audience, determining the product categories to be included in the assortment, and establishing pricing and margin targets. Retailers should also consider the seasonality of products, promotional strategies, and inventory management.

Best Practice: Develop a data-driven assortment strategy that aligns with the overall business objectives. Sephora, a beauty retailer, utilizes data analytics to identify emerging trends in the beauty industry and tailor their product assortment to meet customer demand. This has helped the company increase sales and improve customer loyalty.

Here’s An Example – a retailer of athletic wear might define their assortment objectives as offering high-performance apparel for athletes, with a focus on sustainability and social responsibility. They might also aim to increase sales by expanding their product mix and improving customer loyalty by enhancing the shopping experience.

Step 3: Conduct Demand Forecasting

Demand forecasting is a critical step in determining the right product mix for the assortment. Retailers should use historical sales data and market trends to forecast demand for different product categories. This helps them avoid overstocking or understocking of products, which can result in lost sales and reduced profitability.

Best Practice: Utilize demand forecasting tools and software to generate accurate forecasts. For example, H&M uses a proprietary software system that utilizes data analytics and machine learning algorithms to predict demand for different product categories.

Here’s An Example – a retailer of electronics might use demand forecasting to predict the demand for different types of products, such as laptops, smartphones, and smart home devices. They might also analyze market trends, such as the growing popularity of smart home technology or the increasing demand for affordable laptops.

Step 4: Develop Assortment Plans

Based on the results of demand forecasting, retailers can begin developing assortment plans. This includes selecting the right mix of products, determining product quantities, and identifying product placement and display strategies. Retailers should also consider the visual appeal of the assortment, as well as the availability of complementary products and services.

Best Practice: Utilize cross-functional collaboration to develop assortment plans. Target utilizes cross-functional collaboration to develop assortment plans for their stores. This has helped the company increase sales and improve customer satisfaction.

Here’s An Example – a retailer of beauty products might develop their assortment plan to include a mix of high-end and affordable brands, with a focus on natural and organic ingredients. They might also offer a range of products, including skincare, makeup, and haircare, with a mix of classic and trendy products.

Step 5: Test and Refine Assortment Plans

After developing assortment plans, retailers should test and refine their plans to ensure that they meet customer needs and business objectives. This includes conducting pilot tests, gathering customer feedback, and adjusting the assortment as necessary. Retailers should also monitor sales performance and inventory levels to optimize the assortment over time.

Best Practice: Utilize technology and data analytics to monitor sales performance and inventory levels in real-time. Zara, a fashion retailer, utilizes data analytics and real-time inventory management to adjust their product assortment and pricing strategies based on customer demand. This has helped the company increase sales and improve profitability.

Here’s An Example: a retailer of outdoor gear might test different product displays, such as showcasing products based on outdoor activities or featuring products that are sustainably made. They might also gather customer feedback through surveys or social media to identify areas for improvement.

Key Considerations in Developing Assortment Plans

When developing assortment plans, retailers should also consider the following key factors:

1. Customer preferences: Retailers should conduct market research and analyze consumer behavior to identify customer preferences and needs. This includes understanding the demographics of their target audience, as well as their shopping habits, preferences, and purchase behavior. Retailers can also gather customer feedback through surveys, social media, and customer service interactions. By understanding customer preferences, retailers can develop an assortment that meets their needs and enhances their shopping experience.
   
2. Seasonality: Retailers should consider the seasonality of products when developing their assortment plans. This includes understanding the demand for products during different seasons and holidays, as well as the availability of certain products at different times of the year. Retailers should adjust their product mix accordingly, to ensure that they are offering products that are in demand during specific seasons. For example, a clothing retailer may offer a wider variety of swimsuits and summer clothing during the summer months, and focus on heavier coats and winter clothing during the winter months.
   
3. Complementary products and services: Retailers should consider the availability of complementary products and services when developing their assortment plans. This includes identifying products that can be sold together or that enhance each other’s value, such as accessories or add-ons. Retailers can also offer services that complement their products, such as installation, repairs, or maintenance. By offering complementary products and services, retailers can increase sales and enhance the overall customer experience.

Role of Demand Forecasting in Assortment Planning

Demand forecasting plays a critical role in determining the right product mix for the assortment. Retailers can use historical sales data, market trends, and customer behavior to forecast demand for different product categories. This helps them avoid overstocking or understocking of products, which can result in lost sales and reduced profitability. Demand forecasting can also help retailers identify emerging trends and adjust their assortment plans accordingly.

Best Practice: Utilize demand forecasting tools and software to generate accurate forecasts. These tools can analyze historical sales data, market trends, and customer behavior to generate accurate predictions of future demand. Retailers can use this information to optimize their assortment plans and avoid overstocking or understocking of products.

TL;DR – Assortment planning is a critical aspect of retail merchandising that involves selecting the right mix of products for a store. By analyzing market trends, defining assortment objectives, conducting demand forecasting, developing assortment plans, and testing and refining those plans, retailers can create an optimized assortment that meets customer needs and business objectives. Key considerations in developing assortment plans include customer preferences, seasonality, and complementary products and services. Demand forecasting plays a critical role in determining the right product mix for the assortment, while common challenges include limited space, changing customer preferences, and inventory management. By addressing these challenges and following best practices, retailers can optimize their assortment plans and enhance their sales, customer loyalty, and profitability.