Getting assortments right is not a new challenge. Retailers have long struggled with the delicate balance between art and science to figure out the right assortment mix that appeals to not only its most loyal customers, but also new customers, resulting in higher sales, lower inventory costs and an improved shopping experience.
However, within the last few months, several new industry-wide obstacles have presented themselves, throwing a wrench in the way retailers approach assortment planning. Customer traffic in stores has waned, top-line revenue has become more unpredictable and the emergence of off-price sales channels in traditionally less price-sensitive segments like specialty, apparel and luxury have muddied the waters.
The new EKN 2016 Assortment Management & Optimization, sponsored by JustEnough Software, surveyed about 50 North American retailers. While the two predominate challenges standing in the way of perfect assortments are the fact that one in three retailers lack predictive tools to forecast demand and roughly the same percentage are unable to plan assortments around multiple product attributes such as size, color and others, the report offers insight into the current state of assortment management. Here is a high-level summary:
Retail executives and customers cite different reasons for why shoppers buy products from the retailer. From the retailer’s perspective, the top five drivers can be summed up in order of importance as: product quality, overall customer experience in store or online, product range, price and, finally, preferences. In contrast, millennials – arguably the most important consumer demographic at 75 million strong – put a premium on price, followed by discounts and promotions, product availability, staff friendliness and ease of navigating the store, according to EKN’s 2014 Millennial Survey. It’s clear young shoppers are focused on price – much more than retailers have estimated. An enhanced assortment can make the shopping experience more enjoyable for consumers, helping them see past the price tag and making them more loyal to the brand – which, in turn, can result in higher full-priced sales and profits.
Retailers are dogged with the decision to deploy a universal versus local assortment strategy. According to the report, 60% of all assortments are universal or applicable to a broad group of consumers. The reason for that is that 70% of retailers, on average, do mere macro-level geographic customer segmentation to plan targeted product lines and product varieties due to a lack of investment in deeper consumer preference and product affinity insights. This leads to generic assortments that don’t meet the needs of specific shopper tastes and lifestyles. However, adequate investments in local customer insights, category and item analysis and store/channel audits can empower retailers to develop more targeted and localized assortments or product lines and varieties.
Disparate and legacy assortment management do not allow for extensive in-process customer insight input. The EKN 2016 Assortment Management & Optimization survey found that 60% of retailers do not process customer-centric, store-level clustering for omni-channel assortments, leading to lower full-priced sales, inventory turns and sell-through of merchandise. Moreover, one-third of retailers do not have formalized processes to integrate assortment management with allocation execution for stores and other channels.
From a planning and execution perspective, these two big merchandise management pillars of are largely handled separately. It’s no wonder the lack of integration between the two sides is harmful to the business. For instance, the coordination between open-to-buy, category and department-level assortment plans and precise allocation of all SKUs for both promoted and non-promoted items is done too late in the in-season planning process, leading to delayed shipments, out-of-stocks and fulfillment delays. The integration of merchandise financial plans and decisions with assortment strategies is critical to ensure that the retailer’s financial goals meet the product and sales goals location by location and channel by channel.
The bullets above describe the state of assortment management today. In the next blog post, we’ll dive deeper into the top business challenges retailers are facing as it relates to creating assortments that truly differentiate them from the competition and drive sales. You can view the full EKN 2016 Assortment Management & Optimization report here.