Assortment

Retailing MKTG 3346

Retail Assortments Professor Edward Fox Cox School of Business/SMU

Variety and Assortment WHY IS IT IMPORTANT?  Influences Willingness to Shop the Store Does 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 Store Brand Choice Unplanned Items

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

Variety and Assortment KEY 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 $20

Price levels

$20

Fabric composition

Reg denim Stonewashed

Reg denim Stonewashed

Reg denim Stonewashed

Colors

Light blue

Light blue

Light blue

Light blue

$35

T I O N A L

B O O T

$35

$45

Light blue

$45

Light blue

C U T

Price levels Fabric composition

$25 $25 Reg denim Stonewashed

$40 $40 Reg denim Stonewashed

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

2

4

7

5

8

4

6

3

2

%

9

17

30

21

34

17

26

12

9

units

0

2

2

2

3

2

2

1

0

%

0

9

9

9

12

9

9

4

0

units 100% 429 units

Medium

Long Total

Source: Levy/Weitz

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

Adapted from Levy/Weitz

Variety and Assortment TYPES OF PRODUCTS Staple

Seasonal

Sales over many seasons

No

Yes

Yes

Yes

Sales of a specific style over many seasons

No

No

Yes

Yes

Sales vary dramatically from one season to the next

No

Yes

No

Yes

TIME

SALES

SALES

Illustration (Sales against Time)

SALES

Fashion

SALES

Fad

TIME

TIME

TIME

Source: Levy/Weitz

Variety and Assortment NEW PRODUCTS

All Channels

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

1 Million SKUs

40,000 SKUs in Supermarket 180 SKUs per Avg. Family

Source: Ad Age 11/27/99

Variety and Assortment ITEM SELECTION  Affects the profitability of the category through: Utilization of shelf space Meeting customer needs and preferences in  Brand  Size  Type Access to supplier’s specialized distribution, deal and markdown funds

Item Selection and Profitability REVENUES 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 Profitability COSTS 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-Making NEW ITEMS

Classification “New” or “Me-Too”

Evaluation Factors

-

Helps Establish Criteria for Acceptance Compare with

Acceptance Criteria

Potential Negative Factors

=

Accept or

Reject

Overall Evaluation

•Consumer Demand •Packaging •Sales & Trend Analysis Appearance •Trade Money •Package Size •Category Growth Source: Center for Retail Management, Northwestern University

Assortment Decision-Making CLASSIFICATION “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? or

 Is the item a line extension? Is it just like other products on the shelf? “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

Assortment Decision-Making EVALUATION FACTORS Consumer Demand/Demand Generation

Is there strong evidence of consumer demand?

Sales and Market Analysis

Does this product address category sales trends?

Vendor Money

How much money does the manufacturer offer up front?

Contribution to Category Growth

Will this product grow the category?

Source: Center for Retail Management, Northwestern University

Assortment Decision-Making EVALUATION FACTOR IMPORTANCE Consumer Demand/Demand Generation

Percentage of Evaluation

45%

Sales and Market Analysis

20%

Vendor Money

15%

Contribution to Category Growth

10%

Other Considerations (Vary)

10% Source: Center for Retail Management, Northwestern University

Assortment Decision-Making POTENTIAL NEGATIVE FACTORS Packaging Appearance

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

Item Size

Does the item fit on the shelf?

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

Assortment Decision-Making NEW 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 newproduct-driven?)

Source: Center for Retail Management, Northwestern University

Assortment Decision-Making PRODUCT DELETION PROCESS 1

Supplier Recommends Deletion

=

Delete

PROCESS 2 Sales Analysis

Delete or

+

Retention Factors

-

•Uniqueness •Item profit •Private label

Elimination Factors

=

Retain

• Logistical & Administrative Costs

Source: Center for Retail Management, Northwestern University

Assortment Decision-Making DELETION – 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 recommended deletion of its own item without analysis Source: Center for Retail Management, Northwestern University

Assortment Decision-Making DELETION – 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

Assortment Decision-Making DELETION – RETENTION FACTORS Uniqueness

Is the item unique in the category?

 Are there other items of the same size, brand, type, or other attribute? Item Profitability

Is the item particularly profitable among items in the category?

 Does the item have a particularly high gross margin? Is it tied to some other product which is profitable? Source: Center for Retail Management, Northwestern University

Assortment Decision-Making DELETION – RETENTION FACTORS Private Label

Is the item a private label?

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

Source: Center for Retail Management, Northwestern University

Assortment Decision-Making DELETION – 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 item’s profit per square foot of space? Are there extraordinary costs associated with the item?

Source: Center for Retail Management, Northwestern University

Assortment Decision-Making DELETION –FACTOR IMPORTANCE Percentage of Evaluation

Sales Analysis

55%

Logistical/ Administrative Costs

20%

Uniqueness & Private Label

20%

Item Profitability

5%

Source: Center for Retail Management, Northwestern University

Assortment Decision-Making PRODUCT 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