Retailing
MKTG 6211
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
T I O N A L
Price levels
Fabric
composition
$20
$20
Reg denim Stonewashed
$35
$35
Reg denim Stonewashed
$45
$45
Reg denim Stonewashed
Colors
Light blue
Light blue
Light blue
Light blue
B O O T
Light blue
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
THE PRODUCT CATEGORY
A product category is an assortment of items
that the customer sees as reasonable
substitutes for each other: girls’ apparel, boys’
apparel, infants’ apparel
Adapted from 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 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 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
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
SALES
Illustration
(Sales against Time)
TIME
TIME
SALES
Staple
SALES
Fashion
SALES
Fad
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
Percentage of
Evaluation
Consumer
Demand/Demand
Generation
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