1. Retail Assortments Retailing MKTG 6211 Professor Edward Fox Cox School of Business/SMU

2. 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?  Can the consumer buy all of the goods that she needs? Influences Purchases in Store  Brand Choice  Unplanned Items

3. 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

4. Variety and Assortment KEY FACTORS Profitability of Merchandise Mix Corporate Philosophy Toward Assortment Physical Characteristics of Store Complementary Merchandise Source: Levy/Weitz

5. Assortment Plan for Girls’ Jeans StylesTRA D I T IO N A L Price levels $20 $20 $35 $35 $45 $45 FabricReg denim Stone- Reg denim Stone- Reg denim Stone- composition washedwashed washed ColorsLight blue Light blue Light blueLight blue Light blue Light blue BOOTCUT Price levels $25 $25 $40 $40 FabricReg denim Stone- Reg denim Stone- composition washedwashed ColorsLight blue Light blue Light blueLight blue Indigo Indigo IndigoIndigo Black Black BlackBlack Source: Levy/Weitz

6. Size Distribution for Traditional $20 Denim Jeans in Light Blue for a Large Store SIZE Length 124568101214 Short 247685742% 9173026342130179units Medium 247584632% 9173021341726129units Long 022232210% 0999129940units Total100% 429 units Source: Levy/Weitz

7. product category A product category is an assortment of items that the customer sees as reasonable substitutes for each other: girls’ apparel, boys’ apparel, infants’ apparel Variety and Assortment THE PRODUCT CATEGORY Adapted from Levy/Weitz

8. Category Management Category Management is the process of managing a retail business with the objective of maximizing the sales and profits of a category Objective is to maximize the sales and profits of the entire category, not just a particular brand One person is totally responsible for the success or failure of a category “Buyers” sometimes called “category managers” Category Captain Category Captain - supplier forms an alliance with a retailer Potential problem – It’s like letting a fox into the chicken coop Variety and Assortment CATEGORY MANAGEMENT Adapted from Levy/Weitz

9. Fad Fashion Staple Seasonal Sales over many seasons No Yes Yes Yes Sales of a specific style No No Yes Yes over many seasons Sales vary dramatically No Yes No Yes from one season to the next Illustration (Sales against Time) SALES TIME Variety and Assortment TYPES OF PRODUCTS Source: Levy/Weitz

10. Source: Ad Age 11/27/99 An average family gets 80 – 85% of their needs from 180 SKUs 180 SKUs per Avg. Family 40,000 SKUs in Supermarket 1 Million SKUs All Channels Variety and Assortment NEW PRODUCTS

11. Variety and Assortment ITEM 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

12. Item Selection and Profitability REVENUES 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

13. Item Selection and Profitability COSTS 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

14. Assortment Decision-Making

15. Assortment Decision-Making NEW ITEMS Classification “New” or “Me-Too” Evaluation Factors Potential Negative Factors Accept or Reject -= Helps Establish Criteria for Acceptance Compare with Acceptance Criteria Overall Evaluation Consumer Demand Sales & Trend Analysis Trade Money Category Growth Packaging Appearance Package Size Source: Center for Retail Management, Northwestern University

16. Assortment Decision-Making CLASSIFICATION 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? “Me-too” products are evaluated more stringently than “new” products, and must offer other benefits in order to be accepted “New” or “Me-Too” or Source: Center for Retail Management, Northwestern University

17. Assortment Decision-Making EVALUATION FACTORS Is there strong evidence of consumer demand? Vendor Money Sales and Market Analysis Contribution to Category Growth Consumer Demand/Demand Generation Does this product address category sales trends? How much money does the manufacturer offer up front? Will this product grow the category? Source: Center for Retail Management, Northwestern University

18. Assortment Decision-Making EVALUATION FACTOR IMPORTANCE Percentage of Evaluation Other Considerations (Vary) 10% Vendor Money Sales and Market Analysis Contribution to Category Growth Consumer Demand/Demand Generation 45% 20% 10% 15% Source: Center for Retail Management, Northwestern University

19. Assortment Decision-Making POTENTIAL NEGATIVE FACTORS Does the product’s packaging look dull, unexciting or unprofessional? Item Size Packaging Appearance 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

20. Assortment Decision-Making NEW 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

21. Assortment Decision-Making PRODUCT DELETION Supplier Recommends Deletion = Delete Logistical & Administrative Costs Uniqueness Item profit Private label Sales Analysis Elimination Factors Retention Factors -+= Delete or Retain PROCESS 2 PROCESS 1 Source: Center for Retail Management, Northwestern University

22. Assortment Decision-Making DELETION – 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

23. Assortment Decision-Making DELETION – 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

24. Assortment Decision-Making DELETION – 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? Uniqueness Is the item unique in the category? Item Profitability Is the item particularly profitable among items in the category? Source: Center for Retail Management, Northwestern University

25. Assortment Decision-Making DELETION – RETENTION FACTORS Buyers/category managers are predisposed to keep private label items as compared to branded items Private Label Is the item a private label? Source: Center for Retail Management, Northwestern University

26. Assortment Decision-Making DELETION – 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

27. Assortment Decision-Making DELETION –FACTOR IMPORTANCE Percentage of Evaluation 55% 20% Logistical/ Administrative Costs Sales Analysis Uniqueness & Private Label Item Profitability 5% Source: Center for Retail Management, Northwestern University

28. Assortment Decision-Making PRODUCT 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