Assortment Optimization

Retailers are constantly looking to optimize the assortment. The goal is to ensure that the best-selling items are available when and where consumers want them. However, there is not always alignment in terms of how to define assortment optimization. Should the focus be put on items with the highest sales, gross profit, or both?

One line of thinking is to start at the category level and identify its most efficient segments. This can be done by comparing each segment’s share of items, to its share of gross profit and its share of sales. This comparison often yields surprising results as you may find that a particularly efficient segment accounts for a small percentage of items, yet a large percentage of gross profit and sales. These efficient segments should be targeted for additional resources such as increased shelf space and increased planogram penetration.

Conversely, this comparison often identifies inefficient segments that may account for a large percentage of items, but a small percentage of gross profit and sales. These poorer performing segments should be further examined and underperforming items should be removed from the assortment. This frees up resources that can be channeled toward more efficient segments.

Once the most efficient and least efficient segments are identified, examine item level performance within each segment. Identify the top-performers within each segment, as well as which items should exit the business.

Keep in mind that once your recommendations have been put into action, your job is not done. A few months down the road take the time to circle back. Have more resources been allocated to the winning segments and has this lead to increased sales? Have new trends emerged in the category, changing the dynamic and warranting further analysis?

As consumer trends change, the SKU Optimization process requires an increasing amount of attention to ensure customer needs are catered to. To make this process more manageable, partner with a solution provider that quickly identifies areas of opportunity in the simplest manner possible.