Project Description

The objective of retail assortment planning is to create a product offering that supports the assortment strategy and meets the needs of the customer.

However, all great product ideas don’t necessarily fit in the space. So, the pressing question is: do you build the assortment to sales potential or to available space? The answer is “yes.” But, which goes first?

The retail assortment plan considers the financial objectives and seasonality of merchandise to ensure proper receipt flow.  It is important to keep in mind that assortment planning for direct businesses will always be done to sales, as space provides relatively little to no constraint.  This means that omnichannel plans will be created to maximize sales potential rather than only to fit space constraints of retail store locations. In this point of view, we provide a high-level background on traditional planning ideologies as well as our recommendation for the industry-leading approach to assortment planning.

Planning to Space

Some traditional brick-and-mortar retail businesses have subjected themselves to planning their assortments according to their space constraints.  That is, they use floor space, fixture size, peg availability, etc. in order to answer the following questions driving their assortment decisions:

  • Which items will be included?
  • How much of each item will be included?
  • When will items enter or exit an assortment?
  • Which locations will receive the specified assortment?

This method of planning is often referred to as “supply-driven planning” or “space-driven planning.”  This means that the retailer, by way of their assortment plan, is making available to the consumer those items – in selection and quantity – that fit the space constraints of the store environment.  For example, if the merchant is given eight linear feet of shelf space for life jackets and the life jacket category averages one linear foot of shelf space each, they will likely have eight facings of product.  Although they have certainly done analysis to know which styles will sell more and managed their buy quantities accordingly, they have in essence dictated to the in-store customer what they may purchase due to the supply they have made available.

Planning to Sales

Leading retailers plan their assortments according to the sales potential of an item.  More importantly, they manage these assortments in order to ebb and flow with changes in customer demand for products.  Assortment planning to sales is, in essence a method of bottom-up planning that combines historical consumer behavior with planned financial objectives to develop an optimal mix of merchandise required to achieve the assortment strategy.

This method of planning is referred to as “demand-driven planning,” “consumer-driven planning” or a combination thereof.  This means that the retailer uses a product’s sales behavior (or consumer’s buying behavior) and forecasts to answer the following questions:

• Which items do they expect to sell best?
• In which styles will these items sell?
• In which quantities will they sell?
• When do they expect these sales?

In a manner similar to the example given above, this would mean that the merchant would have the same eight linear feet of display space for life jackets.  But they would start planning their assortment by allowing the assortment planning system to give them a recommended number of style options – rather than relying on filling the space.

Planning to sales will allow the merchant to develop a more accurate picture of merchandise flow across time.  By utilizing the average per store selling units measure in the assortment planning process, the merchant is able to determine a starting point for the product mix and determine a total number of units, by product category, to use for executing their product buy.  The consideration of space is handled by the plan-o-gram team and the allocation system.

Final Word

Based on the advantages and disadvantages detailed above, The Parker Avery Group recommends retailers adopt a method of assortment planning that utilizes sales or demand-driven planning.  This recommendation is especially important as customers increasingly drive retailers to adopt more omnichannel capabilities. As such, assortment planning must incorporate demand from all channels in which a retailer operates.  Further, this method is considered a retail industry leading practice.

Assortment planning to sales means that assortments are built based on the overall forecasted demand for the retailer’s products rather than the merchant buying product according to the space constraints of floor or fixture space.  This will result in more focused and productive assortments that will help the merchant achieve financial goals and more importantly, produce a better customer shopping experience.

About Parker Avery

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

For more details, contact:

Marty Anderson
Principal

Clay Parnell
President & Managing Partner

770.882.2205

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