Project Description

There seems to be a certain “mystery” about assortment planning. We have seen many different facets of this mystery during conversations within the halls of retail corporate offices and in trying to decode the many perspectives and documentation from other consultants and merchandising solution providers.

A few years ago, The Parker Avery Group unraveled some of this mystery and shed light on assortment planning practices and objectives, including what elements are most important to retailers, the challenges that exist, and plans or considerations for the near future.

Before embarking on this undertaking, we had several hypotheses, some of which turned out to be ill founded:

  • There are numerous definitions across the retail landscape of what exactly is assortment planning and how it is used.
  • While many retailers understand and may employ some assortment planning concepts, fewer retailers actually conduct end-to-end assortment planning activities.
  • Despite vast differences in approaches, we have seen some common traits such as breadth, depth, price points, attributes (product and location), demographics, and more.
  • Assortment planning software solutions are making headway in adoption and are beginning to satisfy the needs of some retailers.

In this research study, Parker Avery takes a deeper dive into assortment planning. We explore retailers’ objectives and challenges, as well as how they are handling supporting technologies and managing organizational responsibility. More than 60 planning and merchandising professionals, representing all retail segments, participated in the study. They collectively provided a wealth of information and insights about their own assortment planning environments.  In addition to the survey findings, Parker Avery offers our own insights on how to best approach your assortment planning challenges to meet your strategic objectives.

The Importance of Assortment Planning

Why is assortment planning so important? Why does this area of retailing really matter – especially in today’s fast-paced, ever-changing retail landscape, and why is it so relevant to many retailers? The answers lie with what should be every retailer’s ultimate focus: the end consumer – indeed, a proven strategy.

Steve Jobs, Apple Inc.’s late co-founder, chairman and chief executive officer, is widely considered to be one of this century’s greatest innovators and iconic public figures. Jobs recognized that customer desires must be the starting point for the development of any new product, not the technical specifications or underlying technology of the gadget. This approach made a significant difference in how the product would ultimately be accepted by the end consumer. Of course, all of Apple’s products had to have the appropriate level of “geek credentials,” but they first and foremost had to be desirable to a segment of consumers. In some cases, Jobs intuited those desires before consumers knew exactly what they wanted.

The same logic holds true for assortment planning. Retailers want to ensure they have the right products, in the right locations and in the right quantities for their customers. They may lead with something more fashion forward or more basic, but it is imperative to start with an intimate understanding of the correct target audience, the consumer.

This is not really a new idea, but the expectations and the capabilities have come a long way. Before the advent of the computer age, the early pioneers of modern retailing like Sears, JCPenney, and other mass merchants had an assortment – often only one – that worked for all stores, as well as their catalogs (perhaps with some minor modifications). Over 100 years ago, these assortments included women’s, men’s and children’s clothes, as well as guns, stoves, furniture, surreys, and even house plans. It is curious to consider: Was planning the assortment more difficult back then, or simpler?

If the assortment does not match your target consumers’ needs, even the most advanced efforts may be rendered fruitless.

Without a doubt, to those early retailers, the assortment was as important then as it is now. But the requirements to define the assortment were much more basic, since typical customers had less information about all of the products available in the marketplace, and there were simply fewer choices. Also, the technology needed to perform advanced planning methods to develop the assortment was certainly not yet in place.

Everything, as always in retail, is dependent on “the product.” Regardless of new technology, store development plans, allocation, fulfillment, and marketing, if the assortment does not match your target consumers’ needs, even the most advanced efforts may be rendered fruitless.

The Great Divide

It often seems that when retailers discuss assortment planning, they are speaking different languages. Based on our many conversations and observations with clients and other retailers, Parker Avery believes this is due to a combination of factors:

We considered providing an upfront definition of assortment planning to level-set this discussion. However the decided variability of the practices currently in place made it difficult to derive. Let us instead look at the main objectives of assortment planning as ranked by our study respondents and see what definitions emerge from their responses.

Assortment Planning Objectives

For more than half of the retailers in our study, the top objectives of assortment planning included:

  1. Developing different assortments by cluster
  2. Developing different assortments by channel (e.g. stores, catalog, online)

These top two objectives were followed closely by:

  1. Quantifying sales at the style/color level (also with more than 50% of respondents)
  2. Planning sales by product attribute (such as color, fabric or brand)
  3. Quantifying purchases or receipts at the style/color level

Additionally, roughly a third of participants included the following as top objectives:

  • Quantify purchases or receipts by vendor
  • Provide development direction to design and production / sourcing teams
  • Quantify sales by vendor
  • Drive purchasing execution (e.g., auto purchase order creation)
  • Quantify sales at the size/SKU level
  • Match assortments to display space

Close to 10% of retailers responded, “We don’t do assortment planning.” We found this number to be both low and encouraging. Not all retailers benefit from assortment planning, for example those with a single store, a single website, or a very limited, focused product offering. Given this, the fact that so few respondents eschew assortment planning shows how valuable the practice is considered to be.

Assortment Planning Top Challenges

When it comes to assortment planning challenges, our retailers considered two issues to be standouts:

These two issues were almost equal in significance, with 55% and 53% of respondents respectively branding them a “significant challenge.” Roughly 80% of respondents agreed that these represented some level of challenge. In addition to responses to a number of our other questions about assortment planning tools, these highlight some interesting conundrums.

Spreadsheets Still Rule

For example, in a separate question we asked respondents to indicate the tools/solutions currently used for assortment planning. From our experience prior to starting this research, we believed spreadsheets were widely utilized. But it came as a surprise that a strong majority – roughly 71% – of retailers in our study use spreadsheets for at least some aspect of assortment planning. To be fair, spreadsheets were sometimes coupled with another solution, but this was still a higher proportion than we expected. Custom developed applications were cited as the next most widely used (38.5%). It seems that while most retailers are using a combination of tools, this mixture frequently does not involve a commercial software solution.

Once we looked beyond in-house or custom software, there was no dominant solution vendor named. SAS, JDA, and Oracle all had about the same penetration (between 7 and 8%), followed by minor representation of a dozen other companies. This also came as a bit of a surprise, as some of these prominent retail software providers have had solutions available for a decade or more. Given this longevity in the marketplace, we expected the industry leaders to exhibit more market penetration in this critical functionality.

The results when the panel was asked about clustering were similar.  Fully 42% of respondents answered that they performed clustering for assortment planning using spreadsheets as their tool.  This was followed by 21% that use their assortment planning tool and 12% that use a commercial clustering tool.  Given the complex nature of the calculations required for meaningful clustering, the reliance on spreadsheets for this functionality was even more unexpected.  (Clustering is discussed in more detail in a subsequent section of this study.)

These findings beg the questions: Do retailers overwhelmingly utilize spreadsheets for assortment planning because they lack maturity in the discipline, or does this indicate a shortcoming in the product offering of the software provider community? The relative prevalence of custom developed applications would seem to indicate dissatisfaction with commercially available solutions.

New Software is a Consideration

On the other hand, we asked our panel the following question: If you are considering implementing a new assortment planning solution, where are you in the process? 7% of respondents are either currently implementing a new solution or have selected a solution and are implementing it within the year. Another 29% are either currently evaluating solutions or are planning to do so within the next year. While there is no indicator in the question about whether the selected or evaluated solutions are custom developed or commercial software, it is reasonable to expect that packaged software will at least be a candidate for consideration. This may indicate that retailers are becoming more interested in the capabilities of third-party software, at least as an option.

Meanwhile, 37% of respondents have no plans to implement a new assortment planning solution. Given the inferred level of unhappiness with current available solutions, this may reflect a lack of recognition and support among senior executives of the importance of assortment planning to the bottom line.

It comes as no surprise, given the prevalence of spreadsheet use and custom solutions, that lack of integration was the second ranking challenge, with 53% of respondents ranking it a significant challenge.  These methods for creating assortment planning tools are notorious for their isolation from upstream and downstream solutions – not tied to either item creation on one side, or purchase order (PO) creation on the other.  Improvements in integration, either through the development of mechanisms to transfer data between current solutions or their replacement with newer tools, promise to improve efficiency, reduce errors and ultimately improve profitability.

Yet Integration is Not a Priority

Underpinning the integration challenge were responses about current and planned integration with other systems. We specifically asked about current and planned integration with merchandise financial planning (MFP), purchase order (PO) creation, demand forecasting, item creation, product lifecycle management (PLM), and space planning.  We found that the combination of “no integration,” or “not integrated but planning to,” beat responses for “currently integrated” on all systems.

Also, some of the respondents’ comments pointed out several areas where they had attempted to integrate the process, but without the solution integration this was ineffective. This again highlights the difficulty of merging systems and data that are often ill defined or incomplete. Topping the list of solutions currently integrated with assortment planning was merchandise financial planning (MFP) with 44% of respondents citing integration.

If anything is extraordinary here, it is that over half of respondents’ assortment planning solutions are not integrated, and yet many of these retailers seemingly have no plans to integrate with forecasting, product lifecycle management (PLM), purchase order (PO) creation, or space planning systems. More significantly, integration is cited as the second most critical challenge. Another potential factor in lack of plans for integration is that a number of retailers are in the process of core merchandising system replacements or upgrades, thus they are focused on foundational elements, with further integration to come later. Moreover, the lack of integration further escalates challenges with data and solution adequacy mentioned earlier.

There is good news, however, regarding integration in the solution front. We have seen an emerging trend in assortment planning and product lifecycle management (PLM) software integration points, as well as assortment planning solutions that have a much more integrated approach to analysis within the tools.

Other Significant Assortment Planning Challenges

Following closely on the heels of tools and integration, respondents cited resources and skillset as the next most prevalent challenge. This means organizations simply do not have the people, bandwidth, or expertise to effectively execute complex assortment planning activities. This may be partly due to the roles within the organization tasked with assortment planning.

In a separate question, we asked which group within our participants’ companies was responsible for assortment planning.

  • 59% said the merchandising/buying organization perform this set of tasks
  • 28% of respondents said the planning organization held the responsibility

Given the multiplicity of other responsibilities on a buyer’s plate, it is no wonder that insufficient resources are available for assortment planning. Also, we have observed in many organizations, the skills required to be a successful buyer do not necessarily match those required to be a top notch assortment planner, leading to a perceived gap in expertise.

We have also seen many retailers that rely on the planning organization to drive assortment planning skimp on the number of resources dedicated to the task. This is typically because assortment planning is added to the portfolio of responsibilities once merchandise financial planning is firmly established. In this scenario, assortment planners are viewed as “incremental headcount,” for which it is often difficult to secure funding. It is also devilishly complicated to estimate the number of assortment planners required by an organization in the abstract, so the typical strategy is to start with a small organization and expand when required.

Besides bandwidth, a more subtle dynamic may be at play.  Effective assortment planning requires a high level of collaboration between buyers and planners.  Yet many companies have a more compartmentalized approach that does not encourage these two groups to work closely together.  A lack of partnership can both increase workload on the role performing assortment planning and promote the perception that work is not being accomplished efficiently.  In fact, a number of responses stressed the shared nature of the activity – in some instances including product design as well.  This also highlights the opportunity and another key challenge with assortment planning.  The process requires merchant/planner collaboration because it truly blends the art and science of merchandising.  Done well, it presents a competitive advantage, but done half-heartedly, or with an unbalanced focus, it will wreak havoc with margins, turns, and profitability.

The process requires merchant/planner collaboration because it truly blends the art and science of merchandising.

Further down the list of challenges, but no less important in our opinion, was a lack of data and/or data integrity and leadership/management that does not visibly understand or support assortment planning capabilities. While these were cited as significant challenges in only 24% and 18% of our respondents, respectively, over 60% identified both as some level of a challenge to effective assortment planning. It goes without saying that the downstream impacts of insufficient and “bad” data can result in inefficient processes, poor decisions and – ultimately – an ineffective assortment plan that does not meet consumer needs or strategic objectives. There is also a logical tie-in to the above challenge of inadequate systems. It is difficult to import and generate good data from spreadsheets and varied, customized systems.

Likewise, management support and understanding of the skillsets, resources and investments required to effectively plan assortments is critical.  With proper support from the C-suite and leadership, many of the other challenges could be greatly mitigated.

Detailed Assortment Planning Study Findings

To better understand specifics on how retailers are performing assortment planning, we took a deeper dive into the following areas:  time frames, use of clusters, other types of planning performed, relationship with merchandise financial planning (MFP), and how different product types are handled within assortment planning.

Time Frames

Assortment planning is mostly done by season, but there is a good amount of variability, dependent upon factors such as the type of retailer and lead times.  Many retailers have major seasons and may also have smaller seasons within those.  As such, planning is often a mix of time frames.  Lead time variations for different products may also influence assortment planning timing.  For example, longer lead time products like imports will typically be planned by season or quarter, while short lead time categories like juniors or contemporary may create one to two month plans, as their markets allow for selection due to the nature of trends and “fast fashion.”

The predominance of seasonal assortment planning may be driven as much by capacity as by the nature of the underlying business.  The creation of an assortment plan is an involved and sometimes arduous task that may be too onerous for a buying or planning organization to undertake with greater frequency.

Use of Clusters

One of the most important – and challenging – areas within the holistic assortment planning process is clustering. In simple terms, clustering means “The process of grouping sales outlets together based on similarities or patterns in underlying customers’ behavior.” These similarities are most often gleaned from data related to historic or forecasted sales, or information that is descriptive of the customers or the store. Examples of the latter include demographic or climatic information.

An ideal state of assortment planning would allow the targeting of an assortment to each customer, based on individual preferences.  However, this state of retail nirvana is typically extremely difficult to even come close to.

Just under two thirds of respondents use clusters, with the remaining balance split evenly between planning the use of clusters and not using clusters.  This finding certainly holds merit, as clustering simply may not make sense to all retailers.  For those with limited stores, or non-traditional business models, such as a television direct marketer or pure play web retailer, clustering would not likely be a priority.  Furthermore, some respondents do not have systems that support clustering, despite the desire to have this capability.

We took an even deeper dive into clustering, as this is another area of mystery for many retailers, yet holds great opportunities for becoming more focused in assortment planning.  For those retailers who do cluster, 42% use spreadsheets, representing by far the dominant clustering tool in use.  This was followed by just over 21% of retailers who leverage the existing clustering capabilities within their assortment planning solutions.  An interesting comment added by one respondent was use of a third-party service provider which assorts by location.

Top clustering factors include: sales dollars and units, store size (or space) and demographics (which might include attributes such as income level or ethnicity). Other factors include gross margin and customer/CRM data. Another factor cited was climate which is typically a popular attribute used. Five to ten clusters is most widely prevalent. This finding was consistent regardless of number of stores. Otherwise the number of clusters in use represents a fairly standard bell curve. Most retailers update their clusters seasonally, followed by quarterly. The question herein would be: Is this frequency enough? And while we did not ask how often tweaks and refinements are made, Parker Avery advises that this be performed on a fairly regular interval to accommodate the fast-paced environment and changing landscape that encompasses retail.

Relationship with MFP and Other Retail Planning

When asked about the linkage with merchandise financial planning (MFP), a close majority (53%) indicated it was an iterative process, with the remainder saying that merchandise financial planning precedes and drives assortment planning (26%) or they are separate, non-integrated processes (18%). Nearly three-quarters of the “iterative” group indicated that merchandise financial planning drove the process, while the remainder acknowledged assortment planning precedes merchandise financial planning.

Most of our study participants (82%) have a merchandise financial planning process, about half perform item planning, and less than half perform location or space planning. This is not a surprise given the breadth of retail segments represented.

A small number of study respondents stated they do not perform assortment planning.  Of these, over half (57%) do both merchandise financial planning and space planning, but only a handful (14%) of these retailers perform item planning; none currently do space planning.

Assorting Different Product Types

We asked how replenishment products, seasonal products, and carry-over inventory are handled within assortment planning and found that nearly half (48%) plan their entire assortment of products, while just under a quarter (24%) said they plan new items only.

Replenishment or basic products are generally included with the assortment planning process, but the level of focus can be from minimal to an integral part of the overall assortment.  Just over a third of respondents admitted that basic replenishment product is considered as a “given” with the primary focus being on fashion or seasonal product.  One point of view is that it may not take the same amount of time or effort as new items, but this then begs the question:  How is the holistic assortment considered without including replenishment products?  A third of respondents look at inventory for carry-over products.

The Ideal Assortment Planning Solution

With an eye to the future, we asked about capabilities desired in the “ideal” assortment planning solution. The majority of our participants identified the following as “very important” capabilities:

  1. Linkage to MFP
  2. The ability to begin planning with a conceptual item/placeholder
  3. Linkage with PLM solutions for item creation
  4. Linkage to allocation/replenishment

These same capabilities were deemed of some level of importance (i.e., “very important” or “important”) for over 90% of our respondents.

Of slightly less importance (but not by much) were:

  • Linkage to PO creation
  • Use of images/pictures
  • Use of statistical forecasting

However these capabilities were still considered important to well over three quarters of the retailers in our study. The least important capability was linkage to space planning or space/fixture information, with less than a third of respondents identifying this as “very important” but 42% saying it is still of some level of importance.

For the small number of study respondents who do not perform assortment planning, their perspectives on the importance of certain capabilities were mostly in line with those who do currently plan their assortments. The key differences were a much stronger level of importance given to linkage with allocation and replenishment, as well as more importance given to the linkage with space planning, use of forecasting and use of images. This may be due to these respondents’ lack of experience in performing assortment planning and less understanding of what capabilities are needed to drive effective planning decisions.

Overall, these findings indicate a clear desire for – and understanding of the importance of – integrated processes and systems, even if these capabilities are not yet in place. Looking back at the top challenges, integration will become increasingly critical to drive efficiencies and make the best use of planning solutions and related supporting technologies.

Final Word

Ultimately, the value of assortment planning, when done correctly, will enable retailers to acutely focus on the objective of aligning product offerings across all channels to the desires of their target consumers. Retailers must focus on putting the appropriately skilled resources and collaborative environments in place for successful assortment planning decisions that align with consumer needs and deliver sales, margin, and inventory effectiveness. Where tools and solutions are still missing or a weakness, it is critically necessary to understand specific business requirements, identify the correct solution set that will enable those capabilities, and perform the requisite system and process integrations to take full advantage of technology investments.

Without a doubt, assortment planning will be a key factor for the success of most retailers. The winning brands in the next decade will fully develop and execute their planning strategies, integrate assortment planning processes and tools within their enterprise, and ensure it is baked into their overall DNA.

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:

Clay Parnell
President and Managing Partner


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