It’s always important to optimize your store for a better experience and more conversions. Staying where you are is the fastest way to fall behind your competition.
One tactic you may not have heard of: assortment planning.
Below, we’ll look at the definition of assortment planning, why it’s important, how you can use it, and tools for planning your merchandising strategy.
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What is assortment planning in retail?
Assortment planning is defined as: Assortment planning in retail is when the store optimizes visual merchandising, store layout and product placement to optimize conversion. Product range planning occurs by period, be it daily, weekly, monthly, quarterly or any other period.
Retailers often confuse assortment planning with procurement. “Assortment planning boils down to buying more inventory,” says Chris Guillot of Trading method. “It’s much more than that. It’s about what drives cash flow.”
When retailers plan an assortment, they plan what products to place and where during that time period. This is done in such a way as to increase sales – for example, you will highlight bathing suits in the spring and summer, and not in the winter. Although assortment planning is becoming much more complex and detailed. It’s about forecasting demand and understanding how you, as a retailer, can manage that demand.
“The mix is not just any stock you carry over and new stock, it’s also replenishing items that are selling very well and thinking about future items,” says Guillot. “I like to think of the range planning as if the wedding planner knows everything about the aesthetic, the flow and the guest feel.”
Assortment planning is also done differently depending on the location of the store. If you have multiple storefronts, the assortment plan for Store A may differ from that of Store B. For example, a store in Florida may carry bathing suits year-round, while a store in Montana may only sell them seasonally.
When planning the assortment, retailers consider not only the type of product. They also look at size, color, price, SKU and other characteristics in product categories and segments. Category variety refers to the breadth of your range, and variation within that category refers to the depth of your range.
Why is assortment planning important?
On average, in-store shoppers spend more than online shoppers. in fact, 40% of shoppers in stores spend more than they planned, compared to only a quarter of online shoppers.
Probable causes? More opportunities for impulse buys, more personalized hands-on assistance during shopping and accidental product discovery. This higher average transaction value (ATV) can be attributed to strategic assortment planning.
Assortment planning is therefore invaluable in optimizing your retail store for the highest conversion rate.
As we mentioned above, assortment planning goes beyond inventory purchases and seasonality. Other considerations include:
- Price point
- Expiry date
- Proportions category
- Width and depth
- Visual merchandising
- Store layout
- Growth goals
- Change the order of points
- Execution time
Pretty difficult, right? Therefore, assortment planning is usually done in large stores and enterprises.
Tips for successful assortment planning
Now that we’ve covered the basics of assortment planning, let’s see how to put it into practice.
Start by setting goals
As with anything big in your business, start by asking yourself what you hope to get out of this exercise. Setting goals will help you and your team stay aligned, stay accountable, and measure progress.
Your goal could be an ideal conversion rate, a sales target or a defined profit. Whatever it is, share that goal with your entire team for shared ownership.
Use historical data
It’s especially helpful if you’re new to goal setting to look at your past retail analytics identify benchmarks and growth trends. This will be a great starting point for setting goals and informing your assortment planning strategy.
Take a look at the top sellers and analyze why they are so popular. Do they have any common characteristics? Where were they? How did you promote these products? Who bought them? When were they popular? Analytical questions like these will help you dig deeper into your POS data and get actionable insights.
Understanding the product hierarchy
Also known as a customer decision tree (CDT), a product hierarchy is a process that customers use to evaluate products in a general category.
For example, if you sell clothes, a customer might walk into your store and want a new sweater. They’ll go to the sweater department (if that’s how your products are on the floor) and look at the options. They may consider the material first, then the color, and finally the size.
Your assortment planning should reflect this product hierarchy and guide customers through the process.
Keep in mind, every customer is different. There are several ways to arrive at a final purchase, and different buyers may have different CDTs for the same product.
Store clusters are when you group multiple storefronts together based on common characteristics. These general characteristics may include location, size, storefront type, customer demographics, performance, and more.
Based on these common characteristics, you can plan the assortment in the same or similar way for all stores in each cluster.
Cross-merchandising is when you use complementary displays to cross-promote similar products in a common category. This is an effective tactic because it is a way of targeting in-store promotions based on product proximity.
Don’t know what products to put next to it? View data from your POS to see which products are frequently purchased in a single transaction.
Take advantage of impulse purchases
Impulse buys increase the ATV with little effort on the part of the seller. All it takes is strategic promotion and assortment planning.
Small, inexpensive items are perfect impulse buys. Place them at the point of purchase, near your most popular items and in the most visited area of your store.
Other ways to encourage impulse buys include:
- promotions: buy one, get one – or even buy two, get two – and deep discounts can be the extra push a shopper needs to make a choice
- urgency: offer only limited-time products and sales
- trendy: impulse buys are not a necessity – the offer of fashionable novelties creates the excitement of shopping
- Associates: train staff to recommend impulse buys based on the customer’s shopping cart
Find the right balance
Assortment planning is about more than just increasing sales, but that doesn’t mean you have to stock only your best-selling and complementary products. It’s important to vary product offerings by category, type, color, price, and even fashion.
For example, a shoe store may want to add a trendy, seasonal style with a mix of traditional, timeless shoes. This is what Christian Louboutin does well.
While the brand regularly updates its catalog with seasonal styles, Louboutin always offers classic and timeless designs.
This is also true for pricing strategy. Anchor pricing, in particular, comes into play with assortment planning. Anchor pricing is when you have variations of the same or similar item at different prices. Consumers may notice a high price and a low price and feel compelled to purchase products at the average price.
Another way to balance your assortment with pricing is to adopt a high-low strategy, something Ulta Beauty is famous for.
Ulta’s range includes both affordable and luxury skin care products, giving shoppers a wide range of products to choose from.
Use the best assortment planning tools
While you can start with a simple spreadsheet, there are advanced assortment planning tools you can use to make the process easier and more efficient. Here are a few to check out, depending on your needs and budget:
You can also use a planogram, which is a detailed picture of your store, layout, retail displays and merchandise placement. Planograms are also used to maximize profitability. Some great planogram software options include:
We continue to plan our assortment
While assortment planning is best suited to large retailers with merchandising teams and large budgets, these principles apply to any retail chain. Consider the following tips when planning your assortment:
- Start by setting goals to hold yourself and your team accountable, and measure progress over time.
- Examine your historical data to understand which targets are reasonable and which products you need to include in the mix.
- Understand the product hierarchy and how customers make purchasing decisions and incorporate this into assortment planning.
- Use clusters to group similar stores together.
- Cross-merchandise to increase the number of quads and units per transaction.
- Capitalize on small, inexpensive items for impulse purchases.
- Find the right balance of product categories, sizes, variations, SKUs, pricing and more.
Lightspeed comes with built-in tools that make assortment planning and inventory management much easier. Watch the demo to learn more!