Retail Assortments

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Retailing MKTG 3346
Retail Assortments
Professor Edward Fox Cox School of Business/SMU
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Variety and AssortmentWHY IS IT IMPORTANT?

• Influences Willingness to Shop the Store
• Does the retailer carry the consumers preferred
  products?
• Does the consumer have many product alternatives?
• Can the consumer buy all of the goods that she
  needs?
• Influences Purchases in Store
• Brand Choice
• Unplanned Items

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Variety and Assortment

• For Retailers of Merchandise, Variety and
  Assortment are Composed of
• Branded Products
• Sold at competing retailers
• Brands have value for consumers
• Lower margin for retailers
• Private Label Products
• Exclusive to the retailer
• Higher margins

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Variety and AssortmentKEY FACTORS

• Profitability of Merchandise Mix
• Corporate Philosophy Toward Assortment
• Physical Characteristics of Store
• Complementary Merchandise

Source Levy/Weitz
5
Assortment Plan for Girls Jeans
Source Levy/Weitz
6
Size Distribution for Traditional 20 Denim
Jeans in Light Blue for a Large Store
Source Levy/Weitz
7
Variety and Assortment CATEGORY MANAGEMENT

• Category Management is the process of managing a
  retail business with the objective of maximizing
  the sales and profits of specific categories
• Objective is to maximize the sales and profits of
  the category, not particular brand(s)
• One person is totally responsible for the success
  or failure of a category
• Buyers sometimes called category managers
• Category Captain - supplier forms an alliance
  with a retailer
• Potential problem Its like letting a fox into
  the chicken coop

Adapted from Levy/Weitz
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Variety and Assortment TYPES OF PRODUCTS
Fad Fashion Staple Seasonal Sales
over many seasons No Yes Yes
Yes Sales of a specific style No No
Yes Yesover many seasons Sales vary
dramatically No Yes No Yesfrom one
season to the next Illustration (Sales against
Time)
Source Levy/Weitz
9
Variety and Assortment NEW PRODUCTS
1,000,000 NEW SKUS A YEAR!
All Channels
An average family gets 80 85 of their needs
from 180 SKUs
Source Ad Age 11/27/99
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Variety and AssortmentITEM SELECTION

• Affects the profitability of the category
  through
• Utilization of shelf space
• Meeting customer needs and preferences in
• Brand
• Size
• Type
• Access to suppliers specialized distribution,
  deal and markdown funds

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Item Selection and ProfitabilityREVENUES

• Revenues from adding items
• Ongoing
• Item sales revenues
• Sales in other categories due to customer traffic
  drawn in by the new items
• On-going promotional funds from the manufacturer
• One time
• Slotting allowances
• New item introductory promotional funds from the
  manufacturer

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Item Selection and ProfitabilityCOSTS

• As the number of SKUs in the category increases

Cannibalization Inventory carrying
costs Shelf-space opportunity costs Cost of
warehouse/back room space used Wholesaler/manufact
urer shipment costs
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Assortment Decision-Making
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Assortment Decision-MakingNEW ITEMS
Helps Establish Criteria for Acceptance
Classification New or Me-Too
Compare with Acceptance Criteria
Accept or Reject
Evaluation Factors
Potential Negative Factors
Overall Evaluation
-

• Consumer Demand
• Sales Trend Analysis
• Trade Money
• Category Growth

• Packaging
• Appearance
• Package Size

Source Center for Retail Management,
Northwestern University
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Assortment Decision-MakingCLASSIFICATION
New or Me-Too

• Is the item unique? Is it new to the world?
  Does it have some combination of attributes that
  no other product offers?
• Is the item a line extension? Is it just like
  other products on the shelf?

or
Me-too products are evaluated more stringently
than new products, and must offer other
benefits in order to be accepted
Source Center for Retail Management,
Northwestern University
16
Assortment Decision-MakingEVALUATION FACTORS
Source Center for Retail Management,
Northwestern University
17
Assortment Decision-MakingEVALUATION FACTOR
IMPORTANCE
Percentage of Evaluation
Consumer Demand/Demand Generation
45
Sales and Market Analysis
20
15
Vendor Money
Contribution to Category Growth
10
Other Considerations (Vary)
10
Source Center for Retail Management,
Northwestern University
18
Assortment Decision-MakingPOTENTIAL NEGATIVE
FACTORS
If the item does not fit on the shelf or in the
set, it will not generally be accepted
Source Center for Retail Management,
Northwestern University
19
Assortment Decision-MakingNEW ITEM SUMMARY

• The key evaluation factors are consumer
  demand/demand generation and sales and market
  analysis.
• Category managers want market-specific
  information
• Category managers want long-term evidence of
  trends
• Acceptance criteria for new products differ
  across categories depending upon
• Classification -- new or me-too?
• Category characteristics (e.g. Is the category
  stable or new-product-driven?)

Source Center for Retail Management,
Northwestern University
20
Assortment Decision-MakingPRODUCT DELETION
Supplier Recommends Deletion
Delete

Delete or Retain
Sales Analysis
Elimination Factors
Retention Factors
-

• Uniqueness
• Item profit
• Private label

• Logistical Administrative Costs

Source Center for Retail Management,
Northwestern University
21
Assortment Decision-MakingDELETION VENDOR
RECOMMENDATION

• Category manager may require that the vendor
  delete one of its own items in order to have a
  new item accepted.
• or
• The vendor (category captain?) may recommend one
  of its own items be deleted

The category manager accepts the manufacturers
recommended deletion of its own item without
analysis
Source Center for Retail Management,
Northwestern University
22
Assortment Decision-MakingDELETION SALES
ANALYSIS

• How does the item rank in sales movement in the
  category/subcategory?
• How does the item rank in sales dollars in the
  category/subcategory?
• Is the category/subcategory growing or shrinking?

Items that rank low in sales movement and sales
dollars will be considered for deletion
Source Center for Retail Management,
Northwestern University
23
Assortment Decision-MakingDELETION RETENTION
FACTORS
Is the item unique in the category?
Uniqueness

• Are there other items of the same size, brand,
  type, or other attribute?
• Does the item have a particularly high gross
  margin? Is it tied to some other product which
  is profitable?

Is the item particularly profitable among items
in the category?
Item Profitability
Source Center for Retail Management,
Northwestern University
24
Assortment Decision-MakingDELETION RETENTION
FACTORS
Is the item a private label?
Private Label

• Buyers/category managers are predisposed to keep
  private label items as compared to branded items

Source Center for Retail Management,
Northwestern University
25
Assortment Decision-MakingDELETION ELIMINATION
FACTORS
Logistical/Administrative Costs

• Can suppliers be consolidated? Are there any
  other efficiencies to be gained by deleting the
  item?
• Does the item justify its space on the shelf?
  Its slot in the warehouse?
• Is the item DSD? What is the items profit per
  square foot of space?
• Are there extraordinary costs associated with the
  item?

Source Center for Retail Management,
Northwestern University
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Assortment Decision-MakingDELETION FACTOR
IMPORTANCE
Percentage of Evaluation
55
Sales Analysis
Logistical/ Administrative Costs
20
20
Uniqueness Private Label
5
Item Profitability
Source Center for Retail Management,
Northwestern University
27
Assortment Decision-MakingPRODUCT DELETION
SUMMARY

• Some category managers consider only sales
  analysis. They always cut the tail, deleting
  the slowest moving items.
• Uniqueness of the item is not a consideration for
  all category managers.
• The amount of trade support to the retailer is of
  little importance in the deletion decision.

Source Center for Retail Management,
Northwestern University