Assortment Planning- How to Optimize Retail Inventory
Assortment planning is an effective retail strategy for businesses to create more accurate inventory management systems based on their unique retail sales data.
Assortment planning is much more than simply reordering or restocking inventory. It involves taking into consideration market demands and trends to make the right product selections, at the right time, and ordering them at the most optimal level.
Successful planning involves carefully assessing which products are selling, observing the current demand for certain items, and planning merchandise accordingly. A retail business that is effective in its assortment planning strategy will enjoy a more steady cash flow and higher profit margins by picking and selling products that meet the changing demands.
Why is Assortment Planning Important for Retail Success?
To maximize the opportunity for retail sales, an assortment planning process is a pathway for businesses to enjoy increased profits. This is especially true for shops with physical storefronts as 40% of in-store consumers end up spending more than they had originally intended as opposed to just 25% of online customers.
Therefore, to optimize the sales conversion rates, assortment planning should take into consideration a complex set of factors, including the following.
- The price point of products and savings for bulk ordering
- The shelf life of the product
- Physical space usage (like product dimensions and proportions)
- Store layout and visual displays
- Growth goals
- Promotions and reorder points
- Current retail demand (like fashion trends, for example).
It's also important to remember that increasing the variety of assortments can also increase inventory costs, including carrying, storage, and labor-related expenses involved with handling the new merchandise. Therefore, it's important to strike a healthy balance between variety and optimal inventory volumes.
7 Tips for Successful Assortment Planning
The following 7 tips for assortment planning success outline ways retail businesses of any size and industry can leverage sales by focusing on the changing market demands of products.
1. Set clear goals
A business should have clarity on what their ultimate goal is. Financial objectives are usually prioritized, with profit, of course, as the underlying goal. Though to get there, having set numbers to reach with monthly or yearly targets is crucial to have a clear project management plan for retail assortment.
2. Assess historical data
Examining past retail analytics for sales trends can give a business some benchmarks to consider when planning for future merchandise. Consider why the top sellers have been selling so well - not only the nature of the actual product, but how and where it was displayed in the store, the season when the item was popular, and other metrics to understand the demands of customers and inform future selling tactics.
3. Customer decision trees
The customer decision trees, known as CDT, are product hierarchies that give insight into how customers evaluate products in the same category and reach a buying decision. Understanding this hierarchy involves analyzing what factors buyers prioritize in a product such as quality, material, size, or color. With assortment planning, the CDT can be especially helpful when strategizing for visual merchandising plans to influence customer decisions.
4.Create store clusters
Oftentimes, for large, multichannel retailers, such as department stores, using a clustering method to group similar stores together can simplify the assortment planning process. These shops would be grouped together based on similar performance characteristics or factors like customer demographic, store size, location climate, etc. This allows a company to base its assortment planning on the demands of the grouped cluster as a whole, to address the common needs of those customers.
5. Utilize cross-merchandising
This practice involves creating complementary displays and store space plans to cross-promote items that belong to similar product categories. An extra tip is to observe sales data to base these assortment decisions on. Businesses can analyze sales trends to spot which products are often purchased in the same transactions and display these items together.
6. Take advantage of impulse buying
Many purchases made in the retail industry are actually impulse buys. Strategic assortment planning can be used to place inventory closer to the points-of-purchase (at the register), near other top sellers, or in the most heavily trafficked store areas. The goal is to grab shoppers' attention with small and inexpensive items, allowing this inventory to be moved quickly.
7. Strive for balance
Consider the product assortments of your business - the size, variations, and categories on offer, and be careful to not lean too far towards one direction to avoid missing out on the consumer preferences for variety. Having a balanced product mix with competitive pricing is an intelligent planning approach as it doesn't sacrifice the quality nor the profit margins.
Assortment Planning Tools
It's clear that inventory control runs more smoothly with a strong assortment planning strategy. In the retail industries, successful merchandise plans can lead to maximized profits by making the most of every opportunity. However, to be able to do this effectively, businesses need a clear view of their inventory counts and their turnover rates.
Inventory management software can simplify this process by automatically accessing the data necessary for assortment strategizing. By integrating with POS systems, the software can provide instant and up to date reports on inventory levels that reveal sales trends and avenues for optimal pricing strategies.
- What is Inventory Control? A Guide to Getting Started
- How to Calculate and Lower Inventory Carrying Cost
- Assortment Planning- How to Optimize Retail Inventory
- Top 5 Inventory Methods & the Importance of Inventory Control
- How to Eliminate Excess Inventory Without Losing Money
- How to Reduce Inventory & Why it Matters
- How to Improve Customer Satisfaction With Proper Inventory Control
- Benefits of Efficient Inventory Planning & 3 Models to Implement
- 5 Best Practices for Optimal Inventory Replenishment
- 7 Simple Inventory Optimization Techniques to Limit Costs