Assortment Planning

Retail assortment planning has historically been a very broadly defined capability under which many different activities fall. However, at a high level, this critical retail process represents the practice of developing different product ranges or collections for targeted groups of customers. While sometimes combined with item planning, assortment planning is typically a precursor to item planning and is done pre-season.

In this article, we provide a comprehensive, expert overview of the assortment planning process, key assortment planning competencies and their importance, as well as common mistakes and challenges we have witnessed throughout Parker Avery’s many client projects. We also explore assortment planning best practices and innovations that can help improve this key retail capability.

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What is retail assortment planning?

Assortment planning is a term that has been in widespread use throughout the industry, yet does not have a clear, consistent definition. The meaning can vary depending on the perspective of the user and the situation. The term has been used variously to mean quantifying item/style-level sales and purchases, developing targeted assortments, assortment/space optimization, and more.

In looking at industry and academic literature dealing with assortment planning ranging over 40 years, nearly every aspect of merchandise planning and space planning has been included in some way. An early publication on the subject even included the design of the product hierarchy as well as the layout of in-store display spaces as part of the scope of assortment planning. We believe that definition is too broad for the current activities most associated with assortment planning.

The primary purpose of retail assortment planning is the development of tailored product ranges or collections.

Assortment planning includes defining financial targets for a specific time period at appropriate levels of the product hierarchy. These targets are then tied to an overall merchandising strategy. As a result, assortment planning often includes both assortment creation and item planning. However, there still may be other functions of the assortment plan depending on the organization and its planning cadence and expertise. It may, for instance, be used to quantify purchases for each item or even help determine the amounts of inventory to be distributed to each store and held back for direct sales.

Yet, for this discussion, the primary purpose of retail assortment planning is the development of tailored product ranges or collections.

The assortment plan considers the retailer’s financial objectives and seasonality of merchandise to ensure proper receipt flow. Outputs of assortment planning include initial purchase quantities and the receipt flow across time that will inform the allocation and replenishment processes. The level of detail in the assortment planning process will also differ depending on the type of product being planned.

What is the assortment planning process?

When performing retail assortment planning, there are several activities required to construct assortments that are aligned with the organization’s merchandising strategy. These activities include:

  • Location clustering

Location clustering is where selling locations are grouped by similar characteristics such as performance, regionality, space, or other user-defined attributes. Each cluster contains similar locations according to the criteria chosen, allowing for more efficient management of multiple customer-centric assortments.

In the above sample, customers in the stores that make up Cluster 1 have a clear preference for new age, teas, vitamin, and energy drinks. These same customers are not as interested in traditional beverages, such as still water, sparkling water, and juice. Cluster 2 seems much more oriented toward thirst-quenching, over-indexing on still water, soda, and isotonic (such as Gatorade), at the expense of new age, vitamin, and energy. The strength of those preferences can even be gauged by the magnitude of the index number. In Cluster 1, customers have bought 1.4X the overall average amount of energy drinks, while they have purchased half the overall average amount of sparkling water. This kind of precise preference data can directly inform the number of choices assigned to each cluster that bears each attribute.

  • Breakdown MFP targets

The objective of this activity is to disaggregate the planner-created merchandise financial plans/targets (MFP) from strategic levels down to lower levels in the product hierarchy. Typically, the plans start at the department/class levels and are spread down to the subclass level during this process. During this activity, total sales are split into both regular and promotional sales, while also keeping the clearance sales separate.

  • Assortment curation

The assortment curation process includes:

  • Reviewing historical information (LY or LLY);
  • Setting target sales that align with the MFP targets;
  • Defining the carryover assortment;
  • Creating placeholder options;
  • Selecting the assortment attribute targets; and
  • Approving the assortment plan

The approved assortment plan creates the shopping list (line sheet, assortment list) that is used for the next set of process steps. For long lifecycle products (such as grocery, vitamins, health/beauty, and fashion basics), this may be done as an assortment rationalization exercise. The merchant would look at the existing assortment and decide to add, drop, or keep different options. The assortment time period declaration is also a key activity that assigns clusters to time periods from the assortment as well as various receipt lead times and flows for the desired time period.

What is a line sheet?

Traditionally, a line sheet is a paper copy of a vendor assortment offering for a season. In fashion, this may be the result of a style-out, where sample products are hung on walls to visually build the assortment before offering it to their trading partners. In basics or seasonal products, it may be new color stories, new flavors, new scents, etc. Buyers would go to market, view samples, and use the line sheet as reference for their selections.

Today, these processes have become more automated with curated collections offered in a digital showroom or marketplace. Companies like Joor and NuORDER offer brands the opportunity to create a virtual showroom with digital store footprints to create a virtual style-out for the retail and wholesale buyers. For multi-branded retailers, this can allow them to blend multiple vendors into a single assortment if those vendors use the same platforms.

  • Wedge-building

Wedge-building assigns items to the clusters and is typically owned and initiated by a buyer or merchant. This process determines which products will be stocked and available in each location. A receipt flow for each item is then assigned along with inventory parameters that will be used to create a recommended sales and receipt plan for the assortment time period (typical time periods are seasons).

wedge chart
  • Pre-season item planning

Item planning is an important task that follows assortment creation and is often closely linked with retail assortment planning. A merchandise (or item) planner will typically use the approved assortment plan as the starting point to create an initial pre-season SKU plan which is applied across weeks for the assortment time period. Business-specific sales curves are used to spread the regular and promotional sales unit targets over the weeks in the assortment time period to start this planning activity. The item plans are then reconciled to the MFP and assortment plans through collaboration with the buyers/merchants before being approved and released.

  • Writing orders

Once a pre-season item plan is approved, initial orders (or re-orders) are proposed. A buyer/merchant will then review and/or edit the proposed orders, group/organize them where applicable, and release them for conversion into final purchase orders (POs). Final POs are then approved and released to vendors or suppliers.

  • In-season item planning

Once the assortment time period (typically season) has begun, in-season planning takes over. The planner now uses the plan created in the pre-season planning process as the benchmark for successful in-season planning. To begin the in-season planning process, the planner reviews trends and ranks items or item/colors by relevant KPIs (such as sales, margin, turn, initial markup/IMU, and weeks of supply) compared against actual performance. The planner then reviews, and updates sales expectations based on trends and also applies statistical forecasts and promotional plans. Once the sales have been re-planned, an updated receipt plan is generated based on how SKUs are performing. Finally, the updated plan is approved, and reorders are proposed, reviewed, and approved for the creation of new or updated purchase orders.

The initial allocation of new items to the stores must also be considered:

  • Is the original assortment strategy honored exactly?
  • Or should changing business needs be taken into account?

If product is cross-docked, it may be challenging to have the agility to unpack, repack, and/or put away bulk products into a distribution center. If inventory is a challenge, it may be better to initially allocate smaller quantities to physical locations and hold back more inventory in the warehouse. This way, a retailer can then distribute products to the locations/channels that need them most and not have to initiate store transfers to balance stock.

What assortment planning capabilities are the most important?

Considering the breadth or processes and activities that are required to produce an effective assortment plan, there are several capabilities that when done well, can make the difference in determining how well the assortment meets customers’ needs.

Why is assortment planning so difficult for retailers?

What retailers excel at assortment planning?

Leading retailers consider their end-to-end processes and how assortment planning fits into their operational environment. Because assortment planning sits firmly between the merchandising and planning functions, it is imperative that both upstream and downstream business processes and systems which supply critical data or consume the assortment planning outputs are fully considered when designing the process. Companies that have a solid core merchandising system and have thoroughly evaluated all of their up and downstream systems that require assortment data, have a head start in assortment planning implementations.

The real key of retail assortment planning is ensuring it is not a standalone process. Rather, assortment planning has touch points with merchandise financial planning (MFP), product life cycle management (PLM), space planning, and even purchase order (PO) creation. Assortment planning is the art of the creative merchant mindset for understanding the customer’s desires and needs, combined with the science of solid data and modern ways of analytically modeling the optimal combination of assortment decisions to support the retailer’s overall merchandising strategy.

An effective way to ensure a thorough assortment planning process design is to strategically answer questions such as:

  • How will assortment planning fit into the overall business planning process?
  • What organizational role development is needed to support the assortment planning process?
  • What is the quality and completeness of our master data?
  • How stable are the overall merchandising calendar and product development/sourcing timelines?
  • What other related business processes do we need to think through?

What innovations can improve a company’s assortment planning capabilities?

  • Advanced analytics (AI/ML)

Recently, general acceptance of artificial intelligence (AI) and machine learning (ML) concepts and competencies has grown across the retail landscape. The ability to leverage advanced analytics supplements foundational retail assortment planning functionality and produces more productive assortments leveraging a broader set of customer and market-based variables in a more efficient and timely way. One area where this is also evolving is the recommended choice count by department/category. As a fashion example, suppose business pants are in decline, but leisure pants are on the rise. A system may recommend reducing the number of items in business pants and increasing the number of items in leisure pants. As stated earlier, this is a recommendation that would need to be evaluated by the business team for feasibility and alignment with an overarching merchandising strategy.

  • Computational power

Closely tied to AI/ML capabilities is improved computational power that can support advanced analytics. Cloud solutions and their “endless” access to robust data processing are certainly driving the adoption of advanced analytics. Specifically, advanced clustering algorithms are benefitting from the technology and leading to improved clustering solutions which ultimately drive productive assortments.

  • Integration up/down stream  

While seemingly obvious and not necessarily a new concept, end to end integration will greatly accelerate the implementation, adoption, and overall efficiency of a retailer’s assortment planning solution. Nonetheless, many retailers do not have the integration required and thus should invest in it in prior to starting down the AP/IP path. Integration focus areas should include core merchandising, PLM, forecasting, replenishment/allocation, and PO creation.

  • Omnichannel

Driven by the focus on “the last mile” order fulfillment and intensified consumer demands, capabilities supporting assortment planning and store clustering must optimize what you offer and where your products are to meet the shoppers’ need for instant gratification. This involves expanding and focusing on product and location attributes targeted at driving omnichannel capabilities such as BOPIS (buy online, pickup in store), BOPAC (buy online, pickup at curb) BOSFS (buy online, ship from store), returns optimization, SFS (ship from store), BNPL (buy now, pay later), etc.

All of these innovations are directed at supporting efficient assortment plan creation which satisfies the numerous unique customer groups while doing so in a profitable and brand-centric way.

Final Word

Based on the extensive, detailed activities required to produce an effective assortment plan, the process must be carefully orchestrated over time and across critical merchandising roles such as merchants and planners. Technology applications exist that can help facilitate the process but should never be considered a silver bullet. Assortment planning software has just recently reached the level of sophistication and flexibility to begin truly supporting the breadth of retailers’ various assortment planning needs. Without question many assortment planning solutions are making headway in development and adoption and are better able to satisfy the diverse needs of retailers. Others are starting to add technical innovations and advanced analytics that support more advanced planning capabilities. However, effective assortment planning requires investment in designing an efficient business process as well as organizational preparation to overcome many of the challenges inherent in this complex activity.


Lee Whitaker, Senior Manager

Lee Whitaker
Senior Manager

Robert Kaufman, CEO

Heidi Csencsits
Senior Manager

The Parker Avery Group is a leading retail and consumer goods consulting firm that transforms organizations and optimizes operational execution through development of competitive strategies, business process design, deep analytics expertise, change management leadership, and implementation of solutions that enable key capabilities.


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