Retail AssortmentsRetail Assortments

RetailingMKTG 6211

Professor Edward Fox

Cox School of Business/SMU

Variety and AssortmentWHY IS IT IMPORTANT?

Influences Willingness to Shop the StoreDoes the retailer carry the consumer’s preferred

products?Does the consumer have many product

alternatives?Can the consumer buy all of the goods that she

needs?

Influences Purchases in StoreBrand ChoiceUnplanned Items

Variety and Assortment

For Retailers of Merchandise, Variety and Assortment are Composed of:

Branded ProductsSold at competing retailersBrands have value for consumersLower margin for retailers

Private Label ProductsExclusive to the retailer Higher margins

Variety and AssortmentKEY FACTORS

Profitability of Merchandise Mix

Corporate Philosophy Toward Assortment

Physical Characteristics of Store

Complementary Merchandise

Source: Levy/Weitz

Assortment Plan for Girls’ Jeans

Styles T R A D I T I O N A L

Price levels $20 $20 $35 $35 $45 $45

Fabric Reg denim Stone- Reg denim Stone- Reg denim Stone-composition washed washed washed

Colors Light blue Light blue Light blue Light blue Light blue Light blue

B O O T C U T

Price levels $25 $25 $40 $40

Fabric Reg denim Stone- Reg denim Stone- composition washed washed

Colors Light blue Light blue Light blue Light blue

Indigo Indigo Indigo Indigo

Black Black Black Black

Source: Levy/Weitz

Size Distribution for Traditional $20 Denim Jeans in Light Blue for a Large Store

SIZE

Length 1 2 4 5 6 8 10 12 14

Short 2 4 7 6 8 5 7 4 2 %

9 17 30 26 34 21 30 17 9 units

Medium 2 4 7 5 8 4 6 3 2 %

9 17 30 21 34 17 26 12 9 units

Long 0 2 2 2 3 2 2 1 0 %

0 9 9 9 12 9 9 4 0 unitsTotal 100%

429 units

Source: Levy/Weitz

A productproduct categorycategory is an assortment of items that the customer sees as reasonable substitutes for each other: girls’ apparel, boys’ apparel, infants’ apparel

Variety and Assortment THE PRODUCT CATEGORY

Adapted from Levy/Weitz

CategoryCategory ManagementManagement is the process of managing a retail business with the objective of maximizing the sales and profits of a category

• Objective is to maximize the sales and profits of the entire category, not just a particular brand

• One person is totally responsible for the success or failure of a category

• “Buyers” sometimes called “category managers”

Category CaptainCategory Captain - supplier forms an alliance with a retailer

• Potential problem – It’s like letting a fox into the chicken coop

Variety and Assortment CATEGORY MANAGEMENT

Adapted from Levy/Weitz

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)

SA

LE

S

SA

LE

S

SA

LE

S

SA

LE

S

TIMETIMETIME TIME

Variety and Assortment TYPES OF PRODUCTS

Source: Levy/Weitz

Source: Ad Age 11/27/99

An average family gets 80 – 85% of their needs from 180 SKUs

180 SKUs per Avg. Family

40,000 SKUs inSupermarket

1 Million SKUs

All Channels

Variety and Assortment NEW PRODUCTS

Variety and AssortmentITEM SELECTION

Affects the profitability of the category through:

Utilization of shelf space

Meeting customer needs and preferences inBrandSizeType

Access to supplier’s specialized distribution, deal and markdown funds

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

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/manufacturer shipment costs

Assortment Decision-Making

Assortment Decision-MakingNEW ITEMS

Classification “New” or “Me-Too”

Evaluation Factors

Potential Negative Factors

Accept

or

Reject

- =

Helps Establish Criteria for Acceptance Compare with

Acceptance Criteria

Overall Evaluation

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

•Packaging Appearance•Package Size

Source: Center for Retail Management, Northwestern University

Assortment Decision-MakingCLASSIFICATION

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?

““Me-too” products are evaluated more stringently Me-too” products are evaluated more stringently than “new” products, and must offer other benefits than “new” products, and must offer other benefits

in order to be acceptedin order to be accepted

“New” or “Me-Too”

or

Source: Center for Retail Management, Northwestern University

Assortment Decision-MakingEVALUATION FACTORS

Is there strong evidence of consumer demand?

Vendor Money

Sales and Market Analysis

Contribution to Category Growth

Consumer Demand/Demand Generation

Does this product address category sales trends?

How much money does the manufacturer offer up front?

Will this product grow the category?

Source: Center for Retail Management, Northwestern University

Assortment Decision-MakingEVALUATION FACTOR IMPORTANCE

Percentage of Evaluation

Other Considerations (Vary) 10%

Vendor Money

Sales and Market Analysis

Contribution to Category Growth

Consumer Demand/Demand Generation

45%

20%

10%

15%

Source: Center for Retail Management, Northwestern University

Assortment Decision-MakingPOTENTIAL NEGATIVE FACTORS

Does the product’s packaging look dull, unexciting or unprofessional?

Item Size

Packaging Appearance

Does the item fit on the shelf?

If the item does not fit on the shelf or in the set, If the item does not fit on the shelf or in the set, it will not generally be acceptedit will not generally be accepted

Source: Center for Retail Management, Northwestern University

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

Assortment Decision-MakingPRODUCT DELETION

Supplier Recommends

Deletion= Delete

•Logistical & Administrative Costs

•Uniqueness•Item profit•Private label

Sales Analysis

Elimination Factors

Retention Factors -+ =

Delete

or

Retain

PROCESS2

PROCESS1

Source: Center for Retail Management, Northwestern University

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 manufacturer’s The category manager accepts the manufacturer’s recommended deletion of its own item without recommended deletion of its own item without

analysisanalysis

Source: Center for Retail Management, Northwestern University

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 Items that rank low in sales movement and sales dollars will be considered for deletiondollars will be considered for deletion

Source: Center for Retail Management, Northwestern University

Assortment Decision-MakingDELETION – RETENTION FACTORS

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?

Uniqueness Is the item unique in the category?

Item Profitability Is the item particularly profitable among items in the category?

Source: Center for Retail Management, Northwestern University

Assortment Decision-MakingDELETION – RETENTION FACTORS

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

Private Label Is the item a private label?

Source: Center for Retail Management, Northwestern University

Assortment Decision-MakingDELETION – ELIMINATION FACTORS

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 item’s profit per square foot of space?

Are there extraordinary costs associated with the item?

Logistical/Administrative Costs

Source: Center for Retail Management, Northwestern University

Assortment Decision-MakingDELETION –FACTOR IMPORTANCE

Percentage ofEvaluation

55%

20%

20%

Logistical/ Administrative Costs

Sales Analysis

Uniqueness & Private Label

Item Profitability 5%

Source: Center for Retail Management, Northwestern University

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