With my experience in buying, merchandising and planning, I am often asked to help retailers improve their Assortment Planning. From the CEO to the most junior member of the team there is an opinion on the assortment or range in store/online today; what there is too much of, what there is too little of, what is missing versus other retailers and what should just not be there at all.
What is assortment planning?
Once it’s in store or online everyone is wise but for those commercial buyers and merchandisers putting the assortment together, months in advance, it is not so simple.
Sounds simple right? And for some products it is relatively straightforward.
- You have lines that live for a long time, so on something like milk, your range changes are going to be minimal and likely to be considered for a long time, researched and trialled. Your risk is very low.
- But for other products, like clothing…
- You are bringing new lines in every week
- You are in a constant cycle of range building
- And you are exiting lines, which is often forgotten
Why is assortment planning so important in retail?
Many clothing and home products have long lead-times, some production is so tight that orders need to be placed a year, or more, in advance. Predicting that far out what customers will want is challenging and carries an inherent risk.
Retailers who have operated in a branded model often want to develop their private label business because it affords much greater margins without really understanding the level of risk which comes with it.
Putting together a long lead time range where you own the stock is a highly skilled activity and is much broader than product selection in a branded environment.
How does Assortment Planning differ from Merchandise Planning?
Assortment Planning does not happen in isolation, it is part of the retail cycle of Strategy, Plan, Buy, Move, Trade, Learn. Merchandise Planning activities cover the whole of this cycle and Assortment Planning is one activity within that cycle.
At its simplest, Assortment Planning is the process by which retailers decide which products to stock and sell in an upcoming season.
How is an Assortment created?
Assortment Planning requires many inputs and has clear and potentially very costly results.
The base for most assortment planning is ‘last year’.
The merchandiser will use a WSSI (Weekly Stock Sales and Intake) to review the performance groups of products (department, category, subcategory) last year by week to understand where there was missed opportunity because:
- The assortment was too late
- There was insufficient stock for the demand
- There was too much stock which cost too much in markdown
- Stock came in too early and took up space that could have been better used
Beyond the WSSI, attributes/line descriptors like colour, style, price are analysed to quantify mistakes and opportunities.
- If I have 20% of my stock in yellow but only took 10% of my sales on yellow then I need to decrease the mix of yellow options/volume in my range next time
- Conversely, if I took 15% of my sales on orange but only had 6% of my stock in orange it looks like there is opportunity and I should look to increase my orange offer
This historical view at a relatively high level begins the assortment planning process; fix the mistakes from last year and we have a base to move from.
It is a very objective place to start but requires skill to quantify, partly because a matrix of factors are at play all at once:
- Orange may have sold well because the lines were well priced
- Yellow may have sold poorly because the shapes or styles were poor
It’s why trading activities and strong merchandise capability is critical to assortment planning.
Meanwhile the buyer will have been looking at trend forecasts, fashion shows, press, competitors, supplier information etc to see what the future of the assortment should be.
- Will last year’s trend get bigger?
- Or be replaced by something else?
- Is the new trend as strong, as commercial for the particular retailer’s customer as the previous one?
It is a much more subjective place to start and equally requires skill and experience to take appropriate account of the different factors.
These 2 viewpoints are then debated, challenged, and eventually combined to create a high-level sales and stock plan, which is then phase over time in the WSSI.
Not all lines are equal
Before we can turn this into an assortment plan or shopping list for the buyer, we need to think about how much of our assortment will be made up of basic (also called running, core, continuity) lines which we keep in stock every week and how much will be fashion lines that have a much shorter line life.
It may surprise you but up to 80% of your sales may come from as few as 20% of your lines/options.
Planning basic, core and continuity lines
Basics are a very important part of any fashion or home retailers’ business. They are the lines customers demand every week and underpin your business, they are reliable and far less risky than your fashion lines.
Often people make the mistake of thinking these lines are simple and will keep being a cash cow forever. They need just as much attention as the new lines,
- Are they still relevant?
- Are they well and reliably sourced?
- Has the negotiation on cost considered the volume being placed ?
- Have discussions happened with the supplier about holding stock?
The better this foundation is, the more freedom the buyer has to take some risk with the newer, more fashion-oriented, more unknown parts of the range.
With the basics agreed, you know how much of your Open to Buy is accounted for across the season and therefore what is left to spend on fashion product.
This cash is then translated into the number of options required by channel/grade / cluster of store, often using a tool called an Option Framework, Range Framework or Option Plan which uses the following to calculate the options and volume required by phase in that product grouping:
- Space (for bricks retailers)
- Line life
- Average selling price
- Rate of Sale (units sold per store, per option, per week)
You are basically turning a cash requirement into a shopping list of items you need to source with the associated volume to be able to negotiate the cost and delivery date.
It’s beginning to be clear how many steps there are and quite how much skill there is in being able to create even the framework for the assortment.
This kind of assortment planning requires a lot of experience and skill and is why the organisational structure needs to be different when you own the range creation of high volatile products.
Buyers and Merchandisers/Planners combine their skills to work as a collaborative team to both delight customers and ensure profitability.
Excel or in-house tools are most often used to support assortment planning but software companies have been trying to build systems which support this process for a long time. They are notoriously difficult to land well and there are a lot of shiny systems lying fallow in this space.
I’ll talk more about assortment planning systems and the challenges with implementing them in my next article. I see lots of hope in this area for the future.
Components of the Assortment
Assortment planning is about far more than choosing the right products – now we must think about margin.
It is likely that the basics have a lower margin than the fashion lines; as a commodity product it is usual for your competitors to have a version and therefore the selling price will have been driven down.
You are taking less risk so it’s not a major problem, but it means that your fashion lines will need to achieve a higher intake margin whilst remaining competitively priced in the market.
This often leads to placing product in lower production cost countries which by their nature are further away and so take longer to get here. The longer the product takes between placing and receiving the bigger risk you are taking:
- Will you have placed enough/too much volume?
- By the time it arrives will customers want it?
- There are more things that can go wrong and delay your delivery
So yes, it’s likely to be a higher intake margin but your risk is higher so you may exit with a lower margin in the end. Probably best not to place all your fashion buy here then!
Some fashion is likely to be placed in more expensive production countries where the lead-time is shorter, and you have more ability to react to the sales.
This is often how really new trends are trialled, you might place a small buy ahead of the main season to test the water, see if there really is the demand you think there will be.
The margin can be so low on these products that they make no actual profit but if they do well, they give you the ability to source somewhere more cost-effective. It’s all about the balance of risk.
At the same time the assortment itself needs to balance.
Achieving a balanced assortment
As I mentioned retailers use attributes to enable them to analyse the right balance of various elements – e.g., price, colour, sleeve length, fabric, print vs plain etc. These will change depending on the area you are buying but are critical to ensuring that what the customer sees makes sense to them and addresses their needs.
There will be multiple attributes to balance and whilst the analysis will help you spot whether you are on track or not it’s absolutely vital that the range is reviewed visually by grade –
- Are you presenting the customer with a commercial, interesting range at every store grade, in every channel?
- Is there enough newness coming through?
- Are there enough reasons to come into store / visit the website regularly?
- Are the products relevant to what’s going on in a customer’s life at that time of year
In Summary: Assortment planning is (so!) much more than just selecting product
There will be other elements buyers and merchandisers need to consider when building their ranges – ethical sourcing, warehouse constraints, time to store/customer, geographical differences to name just a few. My aim in this article is not to be all-encompassing but rather to highlight just how broad the input is to the decision-making, that an assortment plan is so much more than selecting product.
That might give you an insight into why it’s challenging to implement Assortment Planning systems, next time we’ll have a look at why this is, which types of retailers might benefit most and what associated dependencies there are.
Next time we’ll have a look at why this is, which types of retailers might benefit most, and what associated dependencies there are.
In the meantime, find out more about our retail consulting services, or get in touch to speak with one of our expert retail consultants about how we can help your business.
Or check out our course on Assortment Planning & Range Building.