Assortment Planning In Retail: How To Optimize Your Stocks For Your Store’s Profitability?

One of retail’s biggest struggles is determining what products customers want to buy. Once that’s figured out, the next challenge is to estimate the right amount of inventory. Too little, and you miss out on sales opportunities. Too much, and you tie up capital in excess inventory or are forced to compromise your margins to get rid of it. 

One tactic to avoid these kinds of mishaps is assortment planning. Assortment planning is about selecting the right products and ordering the right quantities to meet market demand at the right moment.

This article will walk you through the different assortment planning strategies with specific examples. You’ll also learn how KORONA POS, a retail POS software, can help you streamline your inventory and assortment planning process.

What Is Assortment Planning In Retail? 

Assortment planning is a process that retailers use to decide what products to sell during a particular time of year. In other words, assortment planning helps retailers know what products to sell and where to sell them based on seasonality and demand at specific locations.

For example, a store based in Florida may carry swimwear year-round, while it is only sold seasonally in Alaska. A clothing company may sell swimsuits and breathable fabrics during the summer but change to sell fleece jackets, boots, and sweaters during winter. So, it’s worth noting that assortment planning is also performed differently depending on the store’s location. 

Retailers do consider several factors when developing assortment planning. Product type alone is not enough to meet customer demand during a given period. They also look at size, color, price, and SKU numbers. 

Retailers generally plan their assortment along two dimensions: breadth and depth. Breadth is the number or variety of different product categories. Depth is the number of variations for each product/category. So, for example, department stores may opt for a broad (generalist) but a shallow selection of clothing and fashion categories. In comparison, someone starting a shoe store will have a narrow (shoe-focused) but deep (many brands and models of shoes) category selection.

When To Consider Assortment Planning?

Certain situations may cause your company to consider assortment planning. Let’s take a look at some of the common scenarios retailers face.

Insufficient storage space

Not having enough space to store all your products can become a real problem as your business grows. With assortment planning, it is possible to strategically plan inventory based on your storage capacity and available shelf space to make the most of your retail store space.

Too much dead stock

If dead stock or obsolete stock becomes a theme at your retail store, it’s a sign that you need better assortment planning. This will help you plan your inventory investments more accurately and avoid investing in products selling slowly or in low demand.

Permanent stockouts

Stockouts are just as much of a concern as dead stock. When you tend to run out of certain products regularly while demand is still high, you need to improve your assortment planning so that you don’t have to restock products frequently to keep up with sales volume.

Uncontrolled SKU proliferation

While SKU proliferation is essential to growth, offering too many SKUs can reduce your profits. Assortment planning enables you to rationalize SKUs, control inventory sprawl, and focus your investments on the most profitable items.

How To Plan a Successful Assortment Planning?

Assortment planning is a task that requires a clear process and can be a bit daunting. Ensure you understand the following best practices for assortment planning before you start. Here are a few of them. 

Leverage data from your POS software for more informed decision-making

Assortment planning is an essential part of inventory management. And for this, accurate data is essential to avoid making the assortment planning process a pure guessing game. Incorrect data can lead to ordering more or less inventory, which can hurt your bottom line.

The most important data central to your assortment planning efforts is data on customer demographics, seasonal trends, and product performance. This data allows you to make thoughtful and logical decisions about what products to order, stock, where to sell them, and when their best sold.

Below are some of the most relevant metrics to track for assortment planning:

• Inventory turnover rate
• Historical sales data
• Lead times
• Cost per unit for each SKU
• Revenue per unit for each SKU
• Conversion rates
• GMROI reports
• Sales rates

Access to this data means using a sophisticated retail POS that can provide you with the sales reports you need in real-time to make decisions.  Point of sale reports are an essential tool for retail point of sale systems. Reports detail sales, staff performance, inventory, profit margins, and more.

Each of these elements can be fully customized to meet your business needs. From gross margin to sales rates, sales per square foot, average customer spend, conversion rates, turnover rates, returns/refunds, and gross margin ROI, sales reports will be paramount to you in assortment planning.

Set realistic goals

Even the most well-thought-out assortment plan can result in stockouts, as customer demand and sales trends are unpredictable. Therefore, your goal should not be to create an assortment plan that perfectly predicts demand but to create a practical and achievable plan that fully utilizes your store’s data.

If you are new to goal setting, review your previous retail analyses to determine benchmarks and growth trends. This will be a great jumping-off point for setting goals and formulating your assortment planning strategy. Set smaller goals, such as optimizing product selection for a single product category or better sales for a site or sales channel.

Take into account the product hierarchy

The product hierarchy, also known as the customer decision tree (CDT), is the principle that customers use to evaluate products in the same category.

For example, let’s say you sell men’s shoes. A customer may enter your store to buy a new shoe. When he heads to the sneaker aisle and browses the options, he will first look at the brand, color, and size. Your assortment planning should reflect this product hierarchy and guide customers through the process. Because every customer is different, there are many ways to reach a final purchase, and different buyers may have a different CDT for the same product.

Leverage cross merchandise

Cross-merchandising is a visual merchandising strategy that involves displaying complementary products next to each other. This strategy is effective because it allows you to target in-store promotions based on product affinity. Cross merchandising makes the shopping experience more convenient for your customers and can inspire ideas or remind them of additional items they need.

A better way to know which products to place next to each other is to check your store’s sales history to see which products are often purchased in the same transaction. Cross-merchandising can increase sales and average order value when executed properly.

Use the high-low pricing strategy

To balance your assortment through pricing, you can also adopt the high-low pricing strategy that Ulta Beauty is known for. The brand offers an assortment of affordable yet luxurious skincare items, allowing shoppers to choose from a wide range of products.

Types of Assortment Strategies And Examples

There are several assortment planning strategies a company can use. And as aforementioned, these strategies are primarily based on two factors: depth and breadth. Here are some examples of common assortment models.

1. Wide assortment

A wide assortment strategy is used when retailers aim to offer many different product lines or categories but with less depth within each category.  For example, a convenience store that offers many different products but only stocks one or two brands for each product type uses a wide assortment strategy.  The Ocean & Co. brand sells many product categories, including bracelets, necklaces, rings, t-shirts, hoodies, bags, mugs, and stickers. Yet, the brand only offers a few options for each product type (for example, three necklace designs).

2. Deep assortment

A deep assortment strategy consists of proposing a large number of options in a given product category. This strategy is common for specialty stores that focus on a few products. For example, a supplement store is likely to offer many options to protein powder shoppers. They use a deep assortment strategy by focusing on fewer product lines but with high depth and variety within each product line.

3. Localized assortment

A localized assortment strategy allocates the product line based on the local population’s preferences and the geographic area’s characteristics. This strategy allows the retailer to satisfy different demands based on geography and thus increase sales.

A clothing retailer like Zara does not sell the same clothing inventory in a store in Mumbai, India, as it does in Vancouver, Canada. Vancouver’s population needs warmer clothing for snow and winter, while India’s population has different clothing preferences and needs.

4. Scrambled assortment

When a company has a scrambled assortment, its product line diversifies to include products outside the core categories it previously offered. Retailers using scrambled assortment strategies aim to provide products outside their core business to attract more customers from different markets.

For example, a store known for its smoothies starts selling fresh fruit and packaged foods, allowing it to target a broader audience, including people who want to make smoothies at home.

5. Mass-market assortment

Mass assortment strategies address the mass market by offering as many product categories as possible and a wide selection of items in each category. Stores use this strategy with large physical storage capacities, such as Walmart and Amazon.

Implementing An Assortment Planning Process With KORONA POS

KORONA POS is a point of sale and inventory management software specifically designed for retail businesses such as dispensary stores, convenience stores, liquor stores, vape shops, and many more. KORONA POS has assortment functionality in addition to its usual product group functionality.

KORONA POS can provide reports that allow you to filter by merchandise group and assortment, allowing you to be very specific about the type of data you want to examine. With KORONA POS software, you can analyze popular order destinations to optimize inventory allocation, track inventory turns and sales history, and better plan for vacations and peak shipping seasons. 

You can even assign products to assortments individually or when creating products. You can also use the bulk product editor or custom data importer to modify the assortment of a large number of products. Better yet, the software can analyze your products and generate assortments based on sales/order factors through assortment clean-up. To learn more about the assortment functionality of KORONA POS, click on the button below for a demo with one of our product specialists.