Today’s retail environment is more competitive and challenging than ever before. Retailers are faced with supporting new sales channels and fulfillment options, and the unpredictable digitally enabled consumer. At the same time they need to maximize revenues and margins while controlling inventory, minimizing markdowns and delighting customers. That, combined with keeping up with rapidly changing trends, can mean – as they say on Project Runway – one day you’re in and the next day you’re out. Retailers trying to survive and thrive in this environment need to rethink the old ways of doing things.
The end-to-end retail planning and execution process is complex, so there are lots of places retailers can focus in order to improve performance. For now let’s begin with assortment planning and space planning. In the more typical or traditional approach to these processes, the two are viewed as separate and distinct activities, each beginning and ending at different stages of the overall merchandise planning process. However, this traditional approach has its drawbacks and the outcome can be assortment plans that are not aligned with the space in which they must be presented and sold. The result can be over- or under-assorting, leading to negative impacts on sales and margins.
Today’s more successful retailers view assortment and space planning as integral and married processes. Combining the two results in product assortments that work with the space in which they will be seen and sold. Let’s take a look at why this is important and how it works in the real world.
Let the Planning Begin
As planning begins preseason, the goal is to create assortment plans across your categories that fulfill the trends of the business and drive sales and margin. It’s critical at this stage of the process to consider space to ensure you can support the right depth and breadth of assortment. By considering space, planners can build out assortment plans preseason with the confidence that when products are delivered to the channels they will be properly merchandised for the space.
Let’s look at how a US-based, international fashion apparel retailer with over $1B in annual sale approaches space-aware assortment planning.
The first decision they made was to measure space by store clusters with four clusters per brand. Within those clusters, they established the average number of stacks per cluster that could fit in a store. For instance, the largest cluster in terms of space is 365 stacks per gender. That provides roughly more than 700 stacks in which to assort products for stores in that cluster. That became the minimum requirement in terms of product assorting. By measuring the space and defining it by cluster, the planners have complete visibility into the number of options in the assortment and how it stacks up against the space within each cluster.
The next step is equating the items or options in the assortment to the appropriate number of stacks within that cluster. Once the assortment is filled out correctly, it is double checked against space and tweaked if needed.
Finally, before even one zipper, button or piece of thread is committed to, the assortment is reviewed from a visual merchandising viewpoint to ensure that aesthetically the store works given the planned assortment. The assortment is laid out in large rooms that represent the store cluster using simulated fixtures, drawings and actual sample products.
Planners walk through the “virtual” stores to make sure the store is accomplishing what is expected given the product assortments and space. Any changes made during that review, based on looking at the space and the assortment, are updated in the master plan and reconciled back to the financial targets. Only once that process is complete does the buying process begin.
It Takes Process and Systems
Integrating the assortment and space planning processes increases a retailer’s likelihood of success – leading to increased sales, margins, improved productivity and organizational alignment. Integrating these activities, particularly in preseason planning, requires not only sound process but systems that support the process and encourage collaboration; one can’t get the job done without the other.
Setting yourself up for success via sound process is the first step and the key to defining a sound process is to keep it simple and manageable while ensuring it works within your planning calendar. The process should follow a logical workflow which takes planners through the process ensuring nothing is overlooked. Once the process is defined, systems can be selected and implemented which automate the workflow and help planners to be more efficient and effective in their planning.
So it’s process first, systems second and when the two come together planners can confidently build better plans that meet the business objectives and satisfy and delight customers across all the buying channels.
The result of effectively marrying these once separate processes are assortments that are aligned with the physical and digital space in which they will be seen and sold; driving higher revenues, fewer markdowns, improved margins as well as happier and more loyal customers.