Achieving Profitability through Retail Assortment Optimization

“Succeeding in the retail business means being good on a number of dimensions; they include service, pricing, marketing, and location selection. But assortment is number one.”

– Dieter Brandes, former managing director of ALDI, Harvard Business Review Forum, The Future of Retail.

A better, more efficient management of assortment creates positive customer shopping experiences that will drive higher sales, reduce markdowns, and increase margins. Planning assortments that are wide enough and deep enough to meet local customer preferences must be the goal of every retailer.

Assortment Intelligence helps retailers find the balance between the number of products within a category (the assortment’s width) and the number of units for each one of those products (the assortment's depth). Because Assortments drive the business for months or even full seasons at a time, retailers must plan their assortments right from the start.

Assortment Intelligence Solutions

If the assortment is too narrow and doesn’t offer the range of products consumers expect, the retailer runs the risk of product obsolescence and paying the ultimate price in the form of markdowns. If the assortment is too broad, retailers must slash prices to get rid of it -- and experience a significantly negative impact on margins.

Advanced assortment solutions can help the retailer develop and implement assortment planning strategies that balance the width and depth of the product selection. That includes real-time information about what products your competitors are carrying that are similar to yours and which are not, so you can make competitive decisions about your own products and your pricing.

Real-time Assortment Intelligence tools help retailers:

• Know their competitors' assortments at all times.
• Increase sales, margin and inventory productivity.
• Avoid costly mistakes by analyzing and projecting product assortment needs in advance.
• Identify new opportunities around changes in product mix, potential cost reduction, and effects on the bottom line.

In short, advanced assortment planning solutions can help retailers better understand which categories are delivering the highest margins; where they’re seeing the best returns on their products; and which categories have the fewest markdowns.

How Retailers Can Focus on Effective Assortment Planning & Management

Assortment management in retail is the process of having the right products in the right place at the right time for the right customers, with the goal of producing long-term growth and profitability.

The following are 6 ways to achieve this:

1. Make getting the right product at the right time for customers a priority.
2. Don't count on suppliers for their opinion of what you need. At the end of the day, their strategy is not yours.
3. Don't count on salespeople or merchandise managers to make the best assortment decisions for you. They may be very capable, but may not understand the big picture of the company's strategy.
4. Don't leave assortment decisions to trial and error. Analyze constantly. Experiment with your assortment, and learn from the results.
5. Seek, find, and hire qualified technology people. Those with prior merchandising, customer relations, AND online experience are fast becoming extremely valuable commodities in the online world.
6. Put the emphasis in the right place. Use tools to create the best inventory, not on managing inventory that you already have.

Retailers need to make sure their customers are happy with the selection of inventory. Without the right product you won't have a customer; without a customer you won't have a sale; and if you don't make a sale, you won't have a profit.

In fact, you probably won't have any income; and then your only choice is to have a going-out-of-business sale, which is obviously NOT the reason you are in the retail business to begin with.