Written by Peter Davison, Senior Business Consultant, Galleria Retail Technology Solutions
Monday, 06 August 2012 09:40
Is the range assortment in a supermarket based upon a mathematical calculation? Should it be used as part of an individual retailer’s strategy? Or, should it be applied by the retailer to provide such an assortment so that each store offers all products to serve the need of every individual customer who comes in to shop?
Range assortment is likely a combination of all of these things. But how much analysis work needs to go into deciding what range assortment is right for each store size, or for that matter, each store type?
It’s also probable that most retailers would need an army of people to initially establish which stores are different from each other, determine how those differences apply by product categories and decide if range assortments should differ by store banner.
Research indicates that most customers want a shopping experience that is based on several factors, including:
Ease of navigating the aisles
In short, the whole shopping experience has to exceed each customer’s expectations. And although it’s not unusual for supermarket retailers to strive for all of these attributes, unfortunately only a small number have the time and expertise available to achieve them all.
But the stakes are high in fulfilling all the store attributes expected by customers, because only meeting one or two of these criteria would not be sufficient enough for a retailer to survive.
For example, being the most competitive retailer on pricing alone will not result in customer loyalty. Likewise, having the widest assortment available wouldn’t be enough to endure in the marketplace if there is no competitive edge. And even with a combination of good assortment coupled with a competitive shopping basket, if the store is consistently out of stock it would spell disaster for the retailer.
Retailers must not only attract new customers to their stores, but aim to increase the basket spend of their existing customer base to remain truly competitive.
Only through computeroptimization can retailers go through the millions of iterations required to arrive at a productive assortment that is unique for all stores. To help retailers meet all of these objectives, there are a number of software solutions on the market that can automate the process of assortment planning and space optimization on a separate basis, and recently the introduction of new software that combines the automation process of both simultaneously.
The Assortment Planning Process
Determining what product assortments should go in which stores is the first step in the planning process.
In the past, stores have usually been clustered using a top-down approach – either by banner or linear footage – which has resulted in the same size or type of store receiving exactly the same assortment and space. Unfortunately, this approach ignores the variation in customer purchasing patterns inherent within each store.
There are other factors to consider in determining an assortment, including ‘Rest of Market’ data. Despite the fact that it’s only a collective database of the other retailers’ sales history, it should be considered because it will provide a retailer the ability to recognize shortfalls in their own assortment. This information, coupled with live customer research, will enable retailers to develop an assortment strategy for their future business.
Also, buying decisions should be considered as part of the assortment decision-making process. Deciding an assortment is not just about volume unit sales. Value and overall profitability has to be considered, which certainly opens up a whole new scenario of having the right balanced retail pricing and mix of promotional category strategies.
Lastly, retailers need to determine how much of the category assortment space is determined from promotional sales, or how much of the promotional sales are from off-shelf versus on-shelf.
These are all factors that need to be addressed by the retailer’s software before calculating not just assortment, but adequate space allocation.
Balancing Internal Objectives
A buyer will always want to achieve maximum assortment to cater to innovation and growth markets. However, in achieving the category strategy, buyers will ultimately aim for maximum income.
In contrast, a space planner will want to ensure the assortment fits the space in a productive and aesthetic way to increase the sales-per-square-foot, thus mitigating ever-increasing operational costs and ensuring that the assortment can achieve maximum sales with the minimum inventory.
The other key stakeholder involved in the range and space process, the supply chain manager, needs to be fully involved at each stage to ensure the right quantity of product is supplied to the right stores. This is where the software selected by the retailer plays a major role in the process: optimizing space and assortment, based on rules set by the user, which ensures the correct amount of case fill is achieved while maintaining the required level of days’ supply in inventory.
The end result should be the development of a productive category assortment and space plan that allows all stakeholders to measure the effectiveness of the assortment they select versus their budget, and ultimately against “Rest of Market” data, to ensure the retailer is getting their rightful slice of all sales opportunities.
In the current competitive environment, only retailers who recognize the need to innovate and manage their assortment review process will succeed. To reach this goal, retail technology is the key. Progressive retailers who currently deploy assortment and space planning optimization technology are enjoying the long-term benefits of customer retention and organic growth.
One such retailer is M.Video, a chain of consumer electronics stores in Russia.
“With a wide variety of stores and a fast-changing assortment, our goal is to provide our customers with great value, the latest technology products, a superior shopping experience and great service,” said Konstantin Nechaev , the program director for M.Video. “With retail software that assists us in range assortment, we can now analyze demand patterns, draw conclusions and convert them into particular actions in a very short period of time. Armed with this insight, we’ve been able to tailor the stores more closely to the customer requirements, ensuring that we carry more lines that are appropriate to the needs of customers.”
Peter Davison, a Senior Business Consultant at Galleria Retail Technology Solutions, has more than 35 years of experience in retail store operations, space planning, category management, marketing, and buying. Davison’s role at Galleria is to work closely with retailers and manufacturers as part of the pre-sales process, while identifying customer requirements and opportunities. He also works closely with customers to train and best equip them on how to get the most out of Galleria solutions.