Assortment Planning

ASSORTMENT PLANNINGASSORTMENT PLANNING

RETAIL BUYING and CATEGORY MANAGEMENTRETAIL BUYING and CATEGORY MANAGEMENT

Objectives:Objectives:

•To understand the need for Assortment Planning.

•To understand the components of Assortment Planning.

•To understand the factors affecting an Assortment Plan.

•To understand the process of Assortment Planning.

Stock outs & non-availability

Excessive Inventory

Low Service Levels

Promotion’s negative ROI

Lost of Revenue

Long Manufacture

Lead Times

Promotions Fluctuate

demand

Poor collaboration between Sales,

Marketing, Demand

Management, Operations

and withCUSTOMERS

MultipleProduct

attributes make Demand Planning

challenging

Sell in Vs Sell through

New customers

Planning

New lines & Products

High Inventory

Costs

The Chaos in the Marketplace

Real-Time Sales and Operations Planning

KPI and Management DashboardsDemand / Supply Balancing

Sales and Marketing ForecastAnnual Budget

Shape Demand

Understand Demand

Plan for Demand

Respond to Demand

Demantra’s End-to-End Solution for Demand-Driven Planning

Trade PromotionManagement &Optimization

Event Planning

Funds Management

Volume Planning

DemandManagement

Forecasting

Collaboration

POS Monitoring

Assumptions Planning

Store Planning &Replenishment

Assortment Planning

New Product Introduction

Replenishment

Openings

Optimization

Merchandise and Assortment Merchandise and Assortment Planning (MAP) - COMPONENTSPlanning (MAP) - COMPONENTS

Strategic Planning Strategic Planning

Merchandise PlanningMerchandise Planning

Assortment PlanningAssortment Planning

Slow –seller ManagementSlow –seller Management

Location Planning Location Planning

Strategic Planning

• In a strategic plan - also referred to as a business plan - a retail company defines strategic retailing targets.

• The business plan is created on the highest level for the whole company but also for individual distribution channels or higher levels in the merchandise hierarchy.

• Some of the stock and sales data planned on the higher levels may sometimes be transferred to the store and merchandise plans.

• As the store plan and the merchandise plan are often created more or less independently of one another, it must be possible to compare both plans to ensure that the most important key figures are contained within a particular tolerance range.

Merchandise and Assortment Planning Merchandise and Assortment Planning (MAP) is composed of the following (MAP) is composed of the following components:components:

Merchandise Planning

• Like location planning, merchandise planning is used to create a more detailed structure for higher-level strategic guidelines.

• Operative processes such as reporting or allocation are hardly used in merchandise planning.

• The merchandise category hierarchy is used in the planning process but the merchandise itself is not looked at in detail.

• Therefore merchandise planning does not extend to product level.

• Other important planning levels are the distribution chain, the season, the purchasing group and, to some extent, the price margins.


• Assortment Planning

The aim of assortment planning is to create assortments and define which products are listed for which stores and the quantity of these that should be allotted to individual stores.

Within an article hierarchy , the buyer can plan several levels, for example, product (style), color (variant) or the price band.


Slow Seller Management The aim of slow seller management is to ensure that at the end of the selling period for merchandise - particularly for fashion and high fashion merchandise - only a small amount of stock remains.

This means that markdowns can be reduced to a minimum.

Slow seller management is composed of markdown planning and controlling.

In markdown planning the markdown budget is defined on different levels.

For markdown planning one must define scaled price reductions in the form of a set of rules (markdown profile).

This markdown profile provides products with a target sales curve. It is then possible to perform markdown simulation (when will the product be sold, what quantity of it and at what price?).

In markdown controlling, slow seller analysis is performed to monitor merchandise sales and ensure that planned sales rates and gross margins are actually met. ·


• Location Planning

The location plan (store plan) is the concrete structure of the strategic plan that takes into account different factors within the store hierarchy: •regional marketing, •competition, •demographic changes and preferences, as well as particular events.

Planning costs and income for retail is performed in line with the strategic plan. These key figures are planned to store level or to store/division or store/department level (for example, ladies' wear or men's wear), but not to any further level of detail.


Assortment planning -- which involves asking questions such as: Which product? How much of it? What colors? What sizes? Where to place it? Who is the target customer? and so forth -- although it directly affects product selection, price, timing and micro-merchandising, has traditionally been de-emphasized due to hectic retail schedules.

Meeting delivery schedules and marketing and financial planning obligations use valuable time, forcing companies to take the easy approach to merchandising: repeating assortment breadth and depth from previous seasons, creating store assortments based on store volume and ranking items by sales volume alone.

Yet, to attract the right customer in today's increasingly competitive environment, assortment planning must focus on creating appropriate product breadth and depth based on the customer's desires and shopping patterns, taking into account lifestyles, climates and trends. Furthermore, assortment planning must present a compelling mix of products to illustrate the company's strategic vision.

Assortment Planning - Importance

The primary benefits of effective assortment planning fall into two categories: 1. financial impact and 2. personal impact.

•The financial impact is a result of matching product assortment with market potential, while aligning inventory to sales. This leads to increased sales, fewer mark-downs and improved margins. In turn, these factors dramatically impact profit and shareholder value.

* The personal impact of effective assortment planning is improved employee morale and overall efficiency. Increased store collaboration, buying and planning groups, more complete analytical information, clearly defined roles and responsibilities, and a detailed plan of action all work together proactively for this improvement.

Assortment Planning - Importance

When implemented correctly, assortment planning is circular in nature. The findings and analysis of one season become the input into the planning of the next. Given this circularity, it is important to step back and examine the big picture to determine the preliminary steps that should be considered before beginning the process.

Often relegated to senior management, the first step to successful assortment planning is the development of a clear, actionable merchandising strategy based on the corporate mission and current retail environment. During this stage, planners identify the right customers and develop a plan to attract them.

Next, management should set corporate financial goals. It is crucial that these plans be developed early enough to allow sufficient time for all parties -- buyers, planners and designers -- to collectively coordinate a particular season's line, while maintaining the flexibility to react to current trends.

Assortment Planning - Implementation


Most companies rely on processes used year after year, regardless of the realization that performance can be improved. The term "process" can instil fear in the creative and instinctual worlds of design and buying, making it difficult to implement a new assortment-planning process.

It is critical, therefore, to approach the implementation of the new process with the same attention to detail as its creation.

The pain of implementation can be alleviated through effective communication. In many cases, it may be best to implement the new process in small pieces -- by company division, for example. Problems or issues resulting from the process in one division will most likely be applicable to others. Therefore as the process evolves, the problems can be corrected.


The best test for the success of any process is time. As more parties utilize the process and discover the benefits -- whether increased sales, margins or customer satisfaction -- the company's culture will absorb the assortment planning process into its daily activities, making it the normal way of doing business.

Today's marketplace demands the right mix of products for the right customers. Old methods for determining product assortments SHOULD NOT hinder chance to succeed.

Defining an actionable strategy, setting financial goals early, developing lines using appropriate breadth analysis and assign merchandise to stores based on attribute matches. This will result in bottom line performance growth.

Assortment planning turning strategy into action

1. Annual/Seasonal Strategy Development

* Decide on merchandising vision for year and/or season.

* Review business unit emphasis.

* Communicate vision to all parties involved (design, planning, buying, etc.).

* Begin to develop conceptual assortment (line) plans for season (i.e., key

items, ratio targets and category emphasis).

2. Pre-Market Analysis and Preparation

* Develop financial targets for season based on historical data, current trends,

market information, strategic direction, etc.

* Add further details at the category, style and SKU levels to the conceptual

assortment plan.

* Perform forecasts to determine store needs.

* Drill down the conceptual assortment plan to specific needs of stores or

groups of stores based on forecasts; store/product attributes; and, where

possible, store feedback.

3. Market Execution/Product Selection

*Select merchandise for stores or groups of stores based on conceptual assortment plan.

* Ensure plans balance seasonal ,financial and product goals.

4. In-Season Analysis and Tactical Adjustments (on-going)

* Collect store performance information -- both quantitative and qualitative.

* Monitor current sales data and determine buying patterns and any potential shifts in

merchandise/strategies.

5. Post-Season Performance Review

* Conduct assortment breadth analysis at the chain and/or store level to provide

feedback for the next season's assortment decisions

* SKU Productivity -- To demonstrate the importance and contribution of best sellers

in each class, category, etc.

* SKU Contribution -- To show the relationship between the number of SKUs,

purchases and sales per class, category, etc.

* SKU Rationalization -- To evaluate the margin performance of individual SKUs vs.

peers in the same class, category, etc.

* Color Productivity -- To demonstrate the importance and contribution of colors

represented in each class.

Factors affecting a well-planned Factors affecting a well-planned AssortmentAssortment

•Quality of merchandise offered for sale.•Price Range•Choice of National Brands or Private Brands•Good Taste•Proper Timing•Product Life Cycle•Variety of Product Lines, and•Assortment Strategies

Key Concepts in Merchandise Key Concepts in Merchandise Assortment PlansAssortment Plans

•Product Line : is a broad category of products having similar characteristics and similar uses.

•Breadth : the number of product lines carried or the number of brands carried within a product classification.

•Depth : the number of choices offered to customers within each brand or product classification.

Assortment StrategiesAssortment Strategies

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•Faster Turnover•Ease of Stocking•Using less room & display area•Ease of re-ordering, checking & receiving•Simplified counting, and•Avoidance of Markdowns

•Faster Turnover•Ease of Stocking•Using less room & display area•Ease of re-ordering, checking & receiving•Simplified counting, and•Avoidance of Markdowns

•Presentation of a wide variety of goods•A high degree of stopping & pulling power•A slant to those customers of discriminating taste

•Presentation of a wide variety of goods•A high degree of stopping & pulling power•A slant to those customers of discriminating taste

Customers are not offered a wide selection of products

Frequent re-ordering is required which makes it a costly method of inventory

Managing AssortmentsManaging Assortments

•In order to satisfy customers and remain ahead of competition, new products must be continuously added while others must be deleted.

•Stock Breadth can be increased by adding other product lines or additional items in an existing product line but new products may divert sales from present assortments.

•Cannibalization occurs when potential sales of existing products are lost to new items.

Factors affecting Assortment Factors affecting Assortment Planning DecisionsPlanning Decisions

Merchandise ClassificationsMerchandise Classifications

A merchandise classification system is needed to provide the means for better planning and control of inventory.

Classification & Sub-Classification:

Classification: refers to the particular kinds of goods in a store or department. E.g. Men’s Shoe Department

Each of these broad product categories could be further divided into Sub-Classification. E.g. Men’s Dress Shoes, Casual Shoes etc.

The type/size of the store/dept. , the image , the target market and financial resources available will affect the number of classifications and sub-classifications needed.


Examples of Merchandise Classifications:

Men’s Shoes Women’s Shoes

Dress Shoes Dress ShoesOxfords High HeelsSlip-Ons Medium Heels

Low Heels

Casual Shoes Evening ShoesOxfords High HeelsSlip-Ons Medium Heels

Low Heels

Athletic Shoes Casual ShoesRunning Shoes Medium HeelsCourt Shoes Low HeelsCleated Shoes Wedge Heels


Selection Factors:Selection Factors:

Each sub-classification of merchandise can also be broken down by various selection factors, which are product characteristics most important for the customers as they make their purchasing decisions.

Key selection factors include:

•Brand•Price•Size•Colour•Material

Preparing an Assortment Plan: Preparing an Assortment Plan: The The Concept of Model StockConcept of Model Stock

•The unit assortment plans are not randomly selected collection of merchandise.

•Assortments of merchandise are balanced to customer needs while being bound by the financial constraints of the merchandise buying plan.

•It results in establishing a Model Stock, the desired assortment of stock broken down according to factors important to the target market .

•While developing model stocks, cues should be taken from Current Trends as well as Previous Sales .

•The Objective of establishing a Model Stock is to maximize the Sales and Profits from the Inventory Investment.

Preparing an Assortment Preparing an Assortment PlanPlan

•A Model Stock does not have to be followed rigidly during selling season.

•It should serve only as a guide because demand in regard to various selection factors will vary during the season.

•Adjustments have to be made once the selling season is underway.•Re-orders also change the nature of Model Stock.

•Fashion Buyers cannot be as specific as other buyers when developing model stocks.

Preparing an Assortment PlanPreparing an Assortment Plan

Preparing an Assortment PlanPreparing an Assortment Plan- An Example- An Example

•Department - Wristbands.

•Past Sales show Maxi has been the most popular brand with customers.

•Buying plan indicates – Rs 3000/- for buying the category.

•The Buyer decides he only wants to keep Maxi.

•Each Maxi wristband costs Rs 10/-

•The total number of pieces that can be purchased is 300.


•The wristbands are available in sizes from XS to XL in 20 colors.

•Also available in 100% cotton or a polyester/cotton blend.

•Embroidered and Non-embroidered options are also available.


According to past sales records:1. The size distribution is as under-S = 15%M = 20%L = 45%XL = 20%

2. The higher selling colors are:White = 20%Gray = 35%Black = 15%

The buyer decides to supplement these 3 colors with 2 new colors that are predicted to be very fashionable for the Fall season.

Each of these will represent 15% of the assortment plan.

The Unit Plan looks like:The Unit Plan looks like:

SIZE

Total number of Units to be bought S M L XL Total

300 15% 20% 45% 20% 100%

45 60 135 60 300

COLORS

White 20% 9 12 27 12 60

Gray 35% 16 21 47 21 105

Black 15% 7 9 20 9 45

Green 15% 7 9 20 9 45

Garnet 15% 7 9 20 9 45

TOTAL 100% 45 60 135 60 300

A well-balanced Assortment is the A well-balanced Assortment is the Cornerstone of Retail SuccessCornerstone of Retail Success

Assortment Planning

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