Assortment planning is the process of choosing which items to buy, and in what quantities by location, to ensure you have the best chances of retailing them profitably. Most retailers have their own unique ways of doing this, with the buyers at the center of the action. But there’s always room for improvement, and this is an area of the retail business that has been left to the status quo for a long time.
With that in mind, here are three ways you can improve your assortment planning process.
1. Put customer demand first
Here’s the typical buying process: Planning does the open to buy, merchants buy inventory according to their financial plans, and allocation distributes items according to customer demand. We see a problem with this.
Once a buy is committed, it’s impossible to go back and change it. If a merchant buys too much or too little of a particular product, it’s up to the allocation department to figure out what to do with it. Allocators do their best with what’s made available to them, but ultimately their hands are tied.
Instead, we advocate considering customer demand before assortments are bought. During the buy planning process, merchants should look at each customer touchpoint’s ability to sell different types of items according to customer preferences. By selecting which groups of stores each product should be bought for and calculating the appropriate quantity to purchase before placing the buy, merchants can ensure they’re setting allocation up for success.
This approach improves gross margins in a number of ways. It ensures merchandise won’t be bought for stores that don’t need it, reducing the need for markdowns. It also ensures your best-selling locations won’t be left to disappoint customers by selling out before demand is exhausted.
2. Exercise the whole team’s expertise
Many retailers’ instinct is to put the details in the hands of planners. The merchandise planning team builds out an incredibly detailed open to buy that dictates buy units and dollars down to each individual style. Merchants then buy inventory to match the plan provided to them. This is a top-down approach that helps senior managers keep tight control over how budgets are spent.
Having financial control is important, but using too heavy a hand can actually do more harm than good. Planners have tremendous expertise when it comes to the financials of the business. They understand better than anyone else how different types of products are performing, and where to allocate funds to ensure the product mix is right. But they don’t have the knowledge of your customers’ preference to make more nuanced decisions like how many styles of a particular product should be bought. Buyers have a much better idea of fashion trends and what customers want to make those calls.
Giving buyers the freedom to find the best fashions and the power to align their selections and quantities to customer demand puts the detail decisions in the hands of the people most qualified to make them. Planning can (and should) still provide the financial framework, as well as the appropriate checks and balances. But the depth and breadth of products within an assortment should be chosen based on customer preferences rather than financial goals alone.
Merchandise financial planning and buying should inform each other, and work together to find the best use of funds to maximize return. Putting decision making power in the right hands can help make sure your customers are always put first. Planning should give well-defined boundaries, but only to a store or product level. Buyers should then work within those boundaries to buy the best possible assortment based on their knowledge of fashion and customer trends.
3. Empower managers to make decisions
If your process requires everyone to stop what they’re doing once a week to enter their updated buy plan for a management roll up, it’s terribly inefficient. Not only do buyers have to stop what they’re doing to focus on data entry, but managers have to wait for information to come in and try to make sense of the data they’re given.
Assortment planning is about information, and your entire process should be built to keep everyone up to date at all times. Doing roll-ups on a weekly basis creates hours of unnecessary work and makes it an unpleasant interruption. Instead, you should build roll-ups into your process so that buyers don’t have to pause their work, and managers don’t have to wait to get current information.
This unfortunately isn’t possible in a world dominated by spreadsheets. The best way to eliminate roll ups is to use a central database for your buy plans that everyone can access simultaneously. That way, everyone can have the most recent numbers without having to take any action. Not only does this strategy improve your ability to make smart decisions based on data, but it frees up hours of time that buyers can put to use on more productive tasks.
In summary, your assortment planning process might not be broken, but it can probably be made more efficient by making a few changes to the way you think about the buying process.
Moving to a bottom-up planning approach gives control over the fine details to the people who have the best knowledge of what your customers want and helps you be more adaptive to change. Considering customer demand before assortments are bought helps you manage inventory better, and takes pressure off of allocation. And empowering your managers to make better decisions helps everybody in the organization work more cohesively toward a common goal.