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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?

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slide1

Retailing

MKTG 3346

Retail Assortments

Professor Edward Fox

Cox School of Business/SMU

variety and assortment why is it important
Variety and AssortmentWHY 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
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
Variety and AssortmentKEY FACTORS
  • Profitability of Merchandise Mix
  • Corporate Philosophy Toward Assortment
  • Physical Characteristics of Store
  • Complementary Merchandise

Source: Levy/Weitz

assortment plan for girls jeans
Assortment Plan for Girls’ Jeans

StylesT R A D I T I O N A L

Price levels $20 $20 $35 $35 $45 $45

Fabric Reg denim Stone- Reg denim Stone- Reg denim Stone-

composition washed washed washed

Colors Light blue Light blue Light blue Light blue Light blue Light blue

B O O T C U T

Price levels $25 $25 $40 $40

Fabric Reg denim Stone- Reg denim Stone-

composition washed washed

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 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

Medium 2 4 7 5 8 4 6 3 2 %

9 17 30 21 34 17 26 12 9 units

Long 0 2 2 2 3 2 2 1 0 %

0 9 9 9 12 9 9 4 0 units

Total 100%

429 units

Source: Levy/Weitz

variety and assortment category management
Variety and Assortment CATEGORY MANAGEMENT
  • CategoryManagement 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
Variety and Assortment TYPES OF PRODUCTS

SALES

SALES

SALES

SALES

TIME

TIME

TIME

TIME

Fad Fashion Staple Seasonal

Sales over many seasonsNo Yes Yes Yes

Sales of a specific style No No Yes Yesover many seasons

Sales vary dramatically No Yes No Yesfrom one season to the next

Illustration

(Sales against Time)

Source: Levy/Weitz

variety and assortment new products
Variety and Assortment NEW PRODUCTS

1 Million SKUs

40,000 SKUs in

Supermarket

180 SKUs per Avg. Family

1,000,000 NEW SKUS A YEAR!

All Channels

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

Source: Ad Age 11/27/99

variety and assortment item selection
Variety and AssortmentITEM 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
Item Selection and ProfitabilityREVENUES

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
Item Selection and ProfitabilityCOSTS
  • 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 new items
Assortment Decision-MakingNEW ITEMS

Helps Establish Criteria for Acceptance

Classification “New” or “Me-Too”

Compare with Acceptance Criteria

Accept

or

Reject

Evaluation Factors

Potential Negative Factors

Overall Evaluation

-

=

  • Consumer Demand
  • Sales & Trend Analysis
  • Trade Money
  • Category Growth
  • Packaging
  • Appearance
  • Package Size

Source: Center for Retail Management, Northwestern University

assortment decision making classification
Assortment Decision-MakingCLASSIFICATION

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

or

“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
Assortment Decision-MakingEVALUATION FACTORS

Consumer Demand/Demand Generation

Is there strong evidence of consumer demand?

Sales and Market Analysis

Does this product address category sales trends?

How much money does the manufacturer offer up front?

Vendor Money

Contribution to Category Growth

Will this product grow the category?

Source: Center for Retail Management, Northwestern University

assortment decision making evaluation factor importance
Assortment Decision-MakingEVALUATION FACTOR IMPORTANCE

Percentage of Evaluation

Consumer Demand/Demand Generation

45%

Sales and Market Analysis

20%

15%

Vendor Money

Contribution to Category Growth

10%

Other Considerations (Vary)

10%

Source: Center for Retail Management, Northwestern University

assortment decision making potential negative factors
Assortment Decision-MakingPOTENTIAL NEGATIVE FACTORS

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

Packaging Appearance

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
Assortment Decision-MakingNEW 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 new-product-driven?)

Source: Center for Retail Management, Northwestern University

slide20

Assortment Decision-MakingPRODUCT DELETION

PROCESS

1

PROCESS

2

Supplier Recommends Deletion

Delete

=

Delete

or

Retain

Sales Analysis

Retention Factors

Elimination Factors

+

-

=

  • Uniqueness
  • Item profit
  • Private label
  • Logistical & Administrative Costs

Source: Center for Retail Management, Northwestern University

assortment decision making deletion vendor recommendation
Assortment Decision-MakingDELETION – 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
Assortment Decision-MakingDELETION – 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
Assortment Decision-MakingDELETION – RETENTION FACTORS
  • Are there other items of the same size, brand, type, or other attribute?
  • Does the item have a particularly high gross margin? Is it tied to some other product which is profitable?

Is the item unique in the category?

Uniqueness

Is the item particularly profitable among items in the category?

Item Profitability

Source: Center for Retail Management, Northwestern University

assortment decision making deletion retention factors1
Assortment Decision-MakingDELETION – RETENTION FACTORS
  • Buyers/category managers are predisposed to keep private label items as compared to branded items

Is the item a private label?

Private Label

Source: Center for Retail Management, Northwestern University

assortment decision making deletion elimination factors
Assortment Decision-MakingDELETION – ELIMINATION FACTORS
  • 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?

Logistical/Administrative Costs

Source: Center for Retail Management, Northwestern University

assortment decision making deletion factor importance
Assortment Decision-MakingDELETION –FACTOR IMPORTANCE

Percentage of

Evaluation

55%

Sales Analysis

Logistical/ Administrative Costs

20%

20%

Uniqueness & Private Label

5%

Item Profitability

Source: Center for Retail Management, Northwestern University

assortment decision making product deletion summary
Assortment Decision-MakingPRODUCT 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