A retailer’s biggest question once they start generating sales is: What other products should I offer?
With the initial interest already established, adding more products to the mix is the next logical step to growing a business. The challenge is knowing what products will create a good selection.
Assortment planning focuses on finding the best products to sell for particular periods. It looks at previous sales, current market data, and then provides a clear strategy for how to expand your retail offerings to increase sales and attract new markets.
What is assortment planning?
Assortment planning is the process of deciding what products to sell during a given time period, as well as the optimal store location and placement for each product.
A retailer starts by defining its product assortment according to depth. Product depth refers to how many varieties a store carries for a particular product, such as different brands, colors, and sizes. Product width refers to the range of products and categories a store sells. The wider the range, the more types of product categories are offered. (More of these assortment examples are discussed in later sections.)
Aside from these product dimensions, multiple other factors create an effective assortment strategy: inventory costs, warehousing space, seasonal trends, product lifecycles, and other historical sales data.
By taking a comprehensive approach, retail businesses can offer the product assortment that best meets market demand and maximizes profit.
How can assortment planning increase revenue?
Assortment planning determines what products will bring in the most sales with the least cost and effort. By applying this strategic approach to its inventory selection, retailers can increase revenue and quickly respond to any market changes. Here are some ways assortment planning helps companies drive more sales.
Increases average order value
Aside from catering to new markets, another faster way to increase revenue is selling more products to existing customers. Not only do you have an existing relationship, but it’s also easy to see what products will do well based on previous purchases. Tailoring an assortment of products to your best customers can increase their average order value, promote customer satisfaction, and keep them coming back to your store.
Optimizes inventory management
As retailers grow, there’s a tendency to simply add more products to inventory. This can lead to bloated storage costs, unnecessary warehouse labor, and a higher chance of deadstock. Instead, assortment planning combines historical sales and current demand to only stock products most likely to sell during the given sales period.
Builds a competitive advantage
A benefit of optimizing for product assortment is that no other company will have the exact same selection. Whether the store focuses on niche products or carries more general offerings, striving for the best assortment can help a retailer stand out from the competition.
How to get started with assortment planning in your business
The assortment planning process affects all areas of business and should be performed regularly to maintain optimal inventory. Here are proven steps to get started with assortment planning:
Collect and analyze relevant data
Planning what products to sell starts with collecting as much data as possible. This includes customer demographics, seasonal trends, demand forecasts, costs and revenue for each SKU, and any other relevant retail analytics across all locations.
From here, retailers can group or cluster locations with similar characteristics and apply the same assortment strategy to each cluster. By drawing from what’s done well in the past, companies can make more informed assortment decisions for upcoming seasons.
Set specific and realistic goals
Even the best assortment planning solution doesn't guarantee a company will ultimately sell all its inventory. Aside from hitting sales targets, retailers should focus on what they hope to achieve for their product assortment. Goals should be specific and realistic, acknowledging physical constraints, financial budgets, and vendor contracts.
For example, some realistic goals can be to optimize the depth of product assortment for a target region or to increase the sales of particular ecommerce categories.
Create an actionable plan
Once assortment planning goals are set, outline the necessary steps to put the plan into action. Consider all the ways a new strategy will affect business. Perhaps it requires additional storage shelf space, new visual merchandising, or changes to supply chain delivery lead times. Note any changes that need to be made for the business to deliver the right products to the correct location on time.
Examples of assortment planning in action
In most cases, the assortment planning approach involves optimizing for width and depth. A retailer uses these dimensions to update its product mix and attract more customer sales. The following are the most common examples of assortment planning strategies:
Wide assortment
A wide assortment offers many different product categories, but only a few options within each category. Wide assortments are common in general department stores and groceries, where the aim is to capture a broad customer base.
Deep assortment
Businesses with a deep assortment offer one or two product categories; with numerous options for each category. This is found in specialty stores, like REI for camping goods or Warby Parker for eyewear.
Scrambled assortment
Scrambled assortments are an additional strategy for retailers with deep product assortments. It involves selling something outside a company’s core offering to attract a wider market. An example of this strategy is when a drug store offers packaged food, gift cards, or other non-medical products.
Localized assortment
Alocalized assortment is optimized to meet customer demand and needs within a specific location. For example, for its winter season, a clothing label would stock a different localized assortment in its North America stores than in its Asia locations.
Mass market assortment
Retailers catering to mass markets carry a wide and deep product assortment. They offer as many categories as possible with as many products within each category. This requires significant storage space and resources and is more common among big companies like Costco, Target, or Walmart.
4 Tips for successful assortment planning
Assortment planning is an effective strategy aimed at increasing profits with an optimal inventory selection. As an area that requires constant monitoring, the planning process should be as efficient as possible. Here are four proven tips that lead to successful assortment planning:
Stay updated on changing market trends
Historical data only tells one side of the sales story. To build a more accurate inventory forecast for future assortments, keeping an eye on any changing market trends and customer behavior is important. The ability to meet growing demand with the right product selection helps pave the way to long-term retail success.
Use the right assortment planning data and tools
With all the metrics to track in assortment planning, the right inventory management software can help streamline the entire process. For instance, QuickBooks Enterprise tracks inventory and sales in real-time in multiple locations, making it easier to determine what products should stay in next season’s assortment.
Managing inventory levels is also important when planning how much warehouse space is needed for new product assortments. Visual merchandising tools like planograms can further help place products in areas where they’ll sell best.
Find opportunities to cross-merchandise
Cross-merchandising is the strategy of displaying complementary products beside each other to encourage additional purchases. Not only does cross-merchandise planning create an opportunity to highlight new releases and invite product discovery, but it also saves customers time by putting everything they need in one place.
For ideas on what products will go well together, look for frequently purchased combinations in previous sales and use any findings to inform your retail store displays.
Focus on store clusters and localization
Store clusters are retail locations with similar characteristics, including the store size, sales volume, sales channels, and customer demographics and demand. These clusters make it easier to plan assortments that address the specific needs of different retail locations.
For example, ecommerce channels typically have a wider customer reach across locations and therefore require a different mix of evergreen and seasonal product types.
How QuickBooks Enterprise supports your assortment planning efforts
The most successful retail assortment planning comes from having the right data. While manual tracking and spreadsheets take a lot of work and are prone to error, QuickBooks Enterprise provides a streamlined way to get the critical information you need.
QuickBooks Enterprise tracks all available vendors, inventory, and current sales for every location in your business. It automatically updates the inventory status, enabling companies to see which products consistently generate the most profit.
A retailer can draw the business insights needed to perform effective assortment management with customized inventory reports and real-time data.
Final thoughts
While not every company performs assortment planning, the strategy can significantly facilitate market growth. Any retail company can start building a more attractive product assortment and consistently grow its bottom line by evaluating all factors related to product sales, from inventory replenishment rates to visual merchandising.
