Last week, we talked about the current state of assortment planning according to the EKN 2016 Assortment Management & Optimization report, which surveyed about 50 North American retailers.
Sponsored by JustEnough Software, the report also shed light on the top business challenges retailers face when it comes to creating the perfect assortment. Below is an overview of three major obstacles:
First, retailers find themselves in a tricky position: They need accurate demand forecasts to plan assortments more effectively for their stores and channels, but prevailing demand forecasts leave much to be desired. The average retail forecast accuracy stands at a mere 60% regardless of the forecast methodology used. In addition, legacy ERP and Excel-based forecasting tools do not possess capabilities that utilize heuristics and algorithms for identifying causal and predictive relationships between demand, assortment buys, price elasticity, sales, allocation and supply planning.
The second most pressing business challenge gets at the heart of the assortment planning process for one-third of the companies surveyed: Over the years, the growing range of complexity within retail categories has led to the adoption of assortment planning based on attributes like size, color and style, to name a few. However, many prominent retailers still do bulk top-down plans and universal year-over-year assortment planning without much emphasis on attribute-based segmentation of buys. While multi-attribute based planning helps address scale and assortment specificity, retailer migration towards attribute-based planning has been tepid at best.
Speed-to-market is the third biggest obstacle getting in the way of optimized assortment planning. To meet shifting consumer demand, many retailers are expanding their current assortments daily to add new products. However, assortment expansion introduces speed-to-market and lead-time risks as new products need to be backed by strong marketing, operational plans and field sales training. The average four-month design-deliver cycle time is far too long for both the retailer and its customers.
In the next blog post, we'll explore the top investment areas and strategic levers retailers can pull to overcome these assortment planning obstacles. Be sure to download the EKN 2016 Assortment Management & Optimization report here.