Have retailers lost the art of managing assortment?
To be fair, the new normal of retail is change at an ever increasing pace. Retailers are not just competing in stores, but online and on mobile devices. Yet, as many as 75+% of consumers still purchase in store, at least for consumer electronics. In the frenzy over competing on ads, promos and price, retailers have tended to neglect their most important job of managing assortment. If management can’t answer the basic question of why consumers shop their stores, they are in deep trouble!
Too many SKUs = Lack of Assortment Management
In the simplest sense, assortment management is curating and customizing an assortment of products that meet your core consumer’s needs and profile. It is perhaps easiest for the high end, specialty retailers who focus on limited SKUs from select brands. For big box retailers and hypermarkets, it is not so easy to assort for the masses.
Walmart is often touted as one of the best merchants at optimizing assortments. They have amassed massive amounts of store data to dissect which SKUs sell by market at the local store level. They have developed new segmentation to optimize assortments for Hispanic communities, seniors and other local factors. Yet, in appealing to the masses, some Walmart stores stock as many as 165,000 SKUs, with as many as 50 kinds of toilet paper. Is that necessary or profitable?
With so many products, assortment is job one!
While a large Walmart or Tesco can stock up to 200,000 different products, Amazon has more than 4 million online. Today’s retail challenge is the abundance of products available, as well as the increasing number of retailers online competing to sell them to you at the lowest price.
A fundamental ground truth of retailing is: retail is detail! Consumers tend to shop a couple of preferred places within a category. Ask them why, and they tend to talk about how those particular stores make them comfortable and have the products “that fit my style and needs”. That’s retail assortment 101! Retailers today can NOT afford to be average or “me too”. One of the best ways to stand out is through managing assortments to achieve brand identify and store differentiation.
Assortment Management – It’s both Art and Science
Another one of the great FREE sources of retail information is the HBR (Harvard Business Review) Forum. They have published a series of great articles on The Future of Retail. In fact, HBR just had a recent post by Dieter Brandes and Nils Brandes entitled: “In Retailing, Assortment is Job One.” The core essence of their post can be summarized in their statement: It’s the assortment, Stupid!
The Science – SKU Rationalization. One aspect of assortment management lies in the science of data and analytics. I have personally participated in “SKU Rationalization” analyses employing metrics like GMROII and Cost-to-Serve, in order to have benchmark criteria to reduce SKUs. But, as Brandes point out, “Don’t leave it to computers!” Walmart used primarily data and metrics to narrow their assortments a couple of years ago, and then suffered a backlash when consumers complained about not finding their favorite brands of peanut butter, cereal or soap.
The Art – Gut Plus Listening. Some retail merchants just have the “gut” feel as to what appeals to their best customers. The best retailers actively engage store managers and staff in listening to consumers and what they want to see in “their store”. However, too much gut and local decision making can result is disparate assortment across stores, a lot of out of stocks, and impossible forecasting for replenishment. Even the assortment artists need to employ some discipline in testing assortments in ways that can be measured, so results can be replicated and scaled.
Most important retail question - Why shop in this store?
In our recent posts, we have been making the case over and over again: Differentiate or Die! Only a select few retailers can compete on lowest price. Bricks and mortar retail stores will die quickly if they try to compete with e-tailers on price. So, if a retailer is to survive in today’s competitive landscape, management cannot “sit between the chairs” and try to be all things to all consumers. They must answer the fundamental question: Why do consumers shop in our store (this can also be applied even if it is a virtual store).
Retailers can differentiate stores in a number of ways:
- Consumer experience
- Quality of staff
- Superior services
- Assortment – selection, variety, customization
It is almost impossible to execute on the first three without having the assortment that draws the consumer to the store!
What Assortment Job One means to Suppliers
In teaching Retail University workshops to suppliers, it is simply alarming how many simply do NOT understand the changing face of retail. Far too many suppliers are still operating on the “sell to” retail model and focus on “selling in” their product lines and assortments. For these old school suppliers, assortment management is interpreted as “getting our SKUs on the shelf in as many stores a possible”. Not only is this strategy more difficult today, it can be very unprofitable.
The most important question for suppliers to ask – Why should our SKUs be in these specific stores of this particular retailer? Not even Walmart needs, or can stock 50 SKUs of mice and keyboards in every color. The question for today’s supplier is not getting on every store shelf, but working with retail merchants to get the right assortments in the right stores where consumers shop and purchase.
When Assortment becomes Job One, suppliers will need to:
- Work with retailers on the science and use data to help determine where to stock specific SKUs
- Be able to localize assortments based on store and consumer attributes and selling patterns
- Understand and assist retailers in differentiating assortments so they don’t compete on the same SKUs
- Accept the fact that not all SKUs will be stocked in all stores
- Understand that retailers must use “house brands” to differentiate assortments
- Become category sensitive and understand the retailer category dynamics, not just their own brand SKUs
When looking at the future of retail, it just got harder. You can’t just sell in the line and ship. Success will require “retail sweat”. What is old is now new again … and Assortment has not only become Job One, it is the foundation for survival.
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Sources:
- HBR—The Future of Retail: In Retailing, Assortment is Job One, December 19, 2011
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Posted by: Bill Payment | February 08, 2012 at 06:11 PM
Agreed that assortment is critical as is the element of the new, unanticipated item. Stores need to anticipate consumer sentiment to succeed
Posted by: EEKKBB | February 08, 2012 at 06:54 AM