ASSORTMENT TIP: Get lean in '07

The winter holidays have come and gone, but the effects of our indulgences linger on. By the end of the year most of our categories have become as bloated with items as our waistlines. Every study done in the past 10 years has shown that a lean assortment increases sales, reduces consumer confusion, and improves profitability. Isn't it time you got your category and shape. Doing an efficient assortment review may be as intimidating as committing to a workout regimen, but it doesn't need to be. Here are three simple steps and a practical template that will get you to a lean assortment:

1. Review segment performance and set targets for the number of items in each segment: The primary reason efficient assortment analyses take so long is that people start with the item level data. Every item selected to be discontinued feels like lost sales, making every decision arduous. By setting an aggressive target for the total number of items to be included in the category, as well as specific targets by segment, a framework can be established that makes decisions easier and faster. Additionally, this approach more effectively eliminates duplication while protecting specialized niche products. For example, if you’ve determined that the category should have about 5 specialty items, you won’t feel so bad about keeping them and you’ll be more likely to pick the right ones.

How do you know where to set your targets? I like to start with the objective of cutting 20% of the items in the category. Harsh? Yep, but you’re unlikely to stick to that number in the end, so it’s better to start aggressively. So, if you started with a hundred items you should try to get to 80. Next, divvy up those 80 items across segments allocating more for important segments and fewer for secondary segments. If you know of new items that are coming, be sure to count those as well since they'll need space soon enough. (TIP: It usually makes sense to set targets by sub-segment, for example, “premium adult” instead of the broader “premium” segment. This will break your review into manageable chunks instead of huge groups of items they're hard to differentiate.) Then, and only then, start reviewing item performance to identify which items have to go.

2. Review items in one file on the computer (preferably using our best-in-class template):
   No matter what report you use, never make assortment decisions working off of paper. Printing out a hard copy of a report necessitates a fixed sorting. There is simply no way to sort the data effectively to answer every question that you will have in your analysis. The best approach is to bring all the metrics you will need together in a single file and review it with all the key decision-makers in the same room, looking at the same data using a projector. Everyone will literally be on the same page and the data can be dynamically resorted to answer any questions that come up. Additionally, items can be marked for discontinuation before a final decision has been made, allowing the group to quickly see if the item count targets are being met.
   
   So what metrics are most important? That depends, but I'm pretty partial to dollar sales. It's not the only factor to consider, but it's hard to disagree with cold hard cash. My recommendation is to build a robust report that includes numerous metrics, sorted by segment, in descending order of sales. That way, you can quickly see what is selling best and you have the context of the additional measures. I also like to include a notation of which accounts in a market carry a given item. This helps quickly identify if an item is true variety or simply duplication of a similar item at another account.

A sample of the report I have described is available here. You may prefer different measures, but I have found this to be the most effective layout for assortment decisions on the planet. It may take a little extra time to create an advance, but I guarantee the time invested will be saved many times over in the analysis process.

3. Monitor item counts quarterly to keep the fat off: Efficient assortment really is a lot like dieting; it's not just about getting lean but also staying lean. Every category needs new items just like we all need that occasional piece of chocolate cake. The key to maintaining a lean assortment is to stay true to your segment item targets. Once a quarter, simply review each segment’s share of sales and share of items versus the targets you originally set. You'll never match your targets perfectly, and it's okay to put on a few extra items, but you need to ensure that your bottom is not getting too big. (TIP: If you're really smart, you'll insist that new items build sales in excess of the segment average when they were added. If they don't, cut them since they're pulling your segment down.)

If you just take a few hours each quarter to monitor your assortment, you won't need to go on a painful crash diet again. If you'd like to learn more about how CM solutions can help grow your business with efficient assortment tools and training, give us a call. I'm off to the gym.