Smart technology that monitors the success
of a product can quickly pay for itself as it
optimizes your offering, reduces inventory
and increases sales
cut the wrong product you could potentially lose some of your loyal customers
– it isn’t rocket science.
Most retailers have some concept of a
product or category’s performance based
on store sales. When assessing a product’s
performance, consider removing it from
the assortment when it isn’t meeting expectations. That doesn’t mean the decision
to remove an item should be made solely
on that product’s sales performance. You
could end up losing a product that helps
drive the sales of associated products.
Worse, you could lose customers to your
competition. Therefore, it’s important to
know who’s buying the product on the
chopping block and what else they buy.
Accessing transactional data (what items
sold in the same transaction) or loyalty card
information (which customers are associated with sales of those items and what
those customers spent in the last year) are
two means of addressing that question. You
could also briefly discontinue the product’s
replenishment and review how quickly it
sells out and if the sales of any associated
product slump after it’s removed from the
floor. After this analysis it should be fairly
obvious whether or not the item should
stay or be removed.
When beginning the rationalization
process here are the top three things
1. The direct impact the SKU will have on
your store’s performance through its sales
2. The indirect impact the SKU will have
on the sales of other related merchandise
3. The hard-to-measure image impact
generated by the item. For instance, does
the existence of the item impact your
customers’ perception of your store?
For retailers that bring unique items
in for each season, SKU rationalization
should be done as part of pre-season
planning. In many cases, the process of
SKU rationalization is more effective with
longer-living merchandise because you can
track an item’s progress and make reasonable adjustments. With seasonal products
it’s more difficult (but not impossible) to
base next season’s assortments on the previous season’s sales performances when the
performance of the previous season may
have been impacted by particular styles.
It can also be revealing to review product performance based on package size,
brand and value.
There are tools today that constantly
and automatically monitor the success of
a product and make recommendations on
the breadth and depth of your assortment.
The assistance of smart technology like this
can quickly pay for itself as it optimizes your
offering, reduces inventory and increases
sales. If, however, you’ll be performing SKU
rationalization manually, start with your
poorest performing categories. Where are
you losing margin? Are these categories
under or over assorted?
Remember, SKU rationalization isn’t
a once or twice-a-year exercise – it should
S TEP 2: FORECAS TING WITHIN AN
ASSORTMEN T PLAN
Traditional forecasting systems need long
periods of historical activity to identify
selling trends. Yet, a typical retailer constantly introduces new products to keep
the assortment fresh and give the customer
something new to see each time they walk
into the store. New products obviously have
the ability to add value to the assortment
and help meet the goals of your financial
plan, but knowing which new products will
perform involves some sophistication.
When looking at a new product and
attempting to determine its demand, choose
a like product or a combination of like
products based on given attributes such
as price points and merchandise type. By
consolidating the histories of many prod-
ucts that have similarities to the product
in question, you can confidently predict
how the item will perform.
STEP 3: ASSORTMENTS & FINANCIAL PLANS
WORKING TOGE THER
The financial planning process typically
starts off by planning sales. Usually this plan
is then broken down into categories and
planned sales by category.
Once a sales plan has been developed,
the next piece of the planning process is to
build an inventory plan. How much inventory do you need to meet the sales plan that
you just laid out? Going beyond the total
inventory amount with an assortment plan
is a powerful vehicle for increasing your sales
and profitability. At this point in the planning process, the critical issue isn’t how
much to buy, but what to buy and where to
put it. By coordinating a constantly updated
financial forecast with an assortment planning tool or technique, you can ensure that
you’re buying the products that will perform
the best, as well as identifying opportunities
to improve your financial goals.
A financial plan isn’t complete without
an assortment plan.