What Has Changed In Merchandise And Assortment Planning Recently - Part 4?


Introduction

This is the final part of a part article on the impact of the last two years on merchandise and assortment planning. This time we address assortment planning. Like the other parts in this series of articles, we are only considering the changes that might follow as a result of the impact of the Covid pandemic and the war in Ukraine.

 

Assortment Planning

There are two main stages to assortment planning:

  • Building the generic assortment plan
  • Populating that plan with real products.

In this article we will address generic assortment planning.

Retail assortments are normally structured as good, better, best as shown in the chart below. Good is products at your entry level price points. These are the ones where your prices need to be competitive with your main competition. The products in this section represent very good value for money. The better products are higher quality, a bit more expensive but they have features or qualities that make them more appealing to your shoppers. The best products are the most expensive, the very best quality and aimed at the most discerning customers.

You should study your competitors good, better, best architectures and design yours to compete where you most want to.



In this example, the assortment is structured to take 25% of the sales in the good section, 50% in the better section and 25% in the best. There is no magic about these numbers. You could have 20% in the good, 65% in the better and 15% in the best, for example. The right answer for you will be how you want to be positioned against your competitors and what the customers you most want to serve require.

The first thing you need to check is how many of your essential products sit in each of the good/better/best segments and does it reflect the split you want in the pandemic? If you cut non-essential products in the long tail are you inadvertently making the best segment smaller than you would like?

We know that during the pandemic, savings rates rose significantly. With the continuing increase in energy costs, consumers are reducing spending and holding money back, to create some protection against current challenges. Hence, you may see a swing away from the best segment in favour of the good or better segments.  (Since writing this, the war in Ukraine, rising inflation and energy prices are continuing this challenge).

A key factor in developing your good better best architecture is to determine the width of offer in each segment and the depth of stock to be held in each segment. Width is the number of SKUs you will offer. You could offer a wider range with all SKUs stocked in the store or you could display a full range but have the slower selling items as order online in the store for home delivery or collection from store.

The chart below shows a ladieswear item stocked in 6 colours in the larger stores (and online) in autumn/winter. However, small stores can’t do enough sales to support 6 colours in stock. The smaller stores stock three colours and other colours can be ordered online. The problem with this example is that it doesn’t show a good fashion offer in the small stores as two of the three colours are basics.

The second chart shows how this situation could be addressed




This latter option shows a better fashion offer and uses the online capability to provide the customer with the basic colours, which will be the biggest percent of sales by colour.

If this is a model that your company uses, you may need to consider changing it during this difficult period, and going back to the first chart. This is because, in this period the consumer is more interested in basics (essentials) and longevity of the product life given their propensity to spend differently.

As consumers change their priorities, it is important to be able to pivot some of these decisions quickly as circumstances change. 

Conclusion

As have discussed in previous articles, merchandise planning is becoming more complex because of the impact of the unique events of the last two years. Planners might well wonder what hit them. This might be a good time to refresh their skills and to train those who will be joining the ranks of the planners in future. Martec provides a comprehensive merchandise and assortment planning e-learning class which can be of great help..

 


Posted by Brian Hume
26th October 2022

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