Merchandise Planning: Part 3 of a Series

Sourcing, shoeline building and assortment planning are critical components that are sometimes taken for granted

Sourcing

Sourcing is about choosing the right channels for buying the right product. There are various channels you may use. Here are the main ones:
〉 Direct – factory. If you purchase direct from the factory you can influence the design and quality of the final product by visiting the factory directly.
〉 Indirect – wholesaler/agent. Wholesalers often provide you with a wide choice of product and information and help you choose the products that are right for your store and market.
〉 Import – from a different country. Import is mostly used to get better price merchandise and/or products that cannot be easily found in the local market.

Often retail buyers will deal with a combination of all three sources.

When sourcing a product, there are at least seven most critical factors that I believe you should consider:
1. Product comfort and performance
2. Product quality
3. Fashion harmony
4. First-class design
5. Brand reputation
6. Reputation for good service to merchants
7. Good retail store reputation

A product (a shoe) must be first comfortable and perform at the highest level, it must be of the highest quality, fashionable or current, have first class design, be known (reputation) as good, the company selling it must have a reputation for service to its customers and it must have a good reputation in the stores where they are sold.

Shoeline Building

Shoeline building is about selecting the right product for your stores. It is done through market research, including:
〉 Window photo shopping, attendance at fairs and review of trade publications. Window shopping is the easiest way to learn about what the new products and trends are. Retailers shop almost daily and take lots of photos of everything they see that can be used in their planning. Mid-size to large retailers even make two to four major trips to the most important footwear cities in the world – London, Paris, Milan, Los Angeles, New York, Amsterdam – to find ideas that can be adopted. Trade fairs are also very important particularly because most of your current suppliers display there and you get a chance to review their collection as well as their competitors’ collections. Finally, trade publications provide good inspiration on trends and suppliers, too.

〉 Sample purchase of key competitive ideas. Competitive sample purchasing allows retailers to provide indications to their suppliers or factory of what features can be adopted with slight variations to make their products more competitive in the market. Remember, most new ideas are built on current ideas.

In building the shoeline, retailers must:
〉 Avoid the creation of duplicate styles and fashions. This is one of the greatest temptations that a retailer has when reviewing the different samples from various suppliers. Many will look very interesting and could be sold in your store. However, the point is to know when you are only selecting duplicates of another item and not adding true choices. Duplicate styles and fashion will cause confusion in your collection if there are too many similar articles in the same sub-category. Besides, the more duplicated lines you buy, the more you must reduce the depth of sizes in each line.
〉 Have a meaningful range of prices. Each sub-category should have a meaningful range of prices for the products in the collection. The number of different prices should reflect the type of merchandise and how wide the range is of the selection. For example: you should not include in the same sub-category articles that have a range of 10 times the difference between articles. If the lowest priced article in the sub-category is $30.00, the highest price should not be above $300.00. Also the price range of the collection must reflect the image of your store in the market place and your company’s objectives. Finally, the price range should not have similar articles where the prices have small differences, i.e., $70, $71, $72, $73, $74, etc. as this will cause the customer to challenge the reasoning of why one shoe is one dollar more than another shoe, which generally is not evident.
〉 Have quantities by standard consumer size and extreme sizes for a particular item. When determining the quantity by size for an order of one product, you must consider not only the standard consumer size profile for this type of article. You should also use the average of the sales by size to date and be sure the sample of the sales by size is large enough and has included sufficient items that had the full size range, to give a correct size profile.
〉 Avoid using too many suppliers. Article exclusivity is generally not possible when you deal with too many suppliers and buy small quantities from each. You do not have the same strength as a buyer who buys large quantities from one or two suppliers, nor dependability of service when you work with too many different suppliers.
〉 Include core and additional lines. If you run a retail chain, ever store’s merchandise business plan must specify how the collection is to be developed in terms of the number of lines that will be given to all stores, and the additional lines required to satisfy local market conditions for specific stores and areas.
〉 Choose articles for in-store impact and presentation and to reflect your company’s store concept and image. You must keep in mind how the collection will be seen by the customer. You must be clear on your company’s store concept and image, and work up from there to build the collection.
Assortment Planning

Assortment planning is the process a retailer goes through to ensure that there is choice for the customer in the merchandise offering. Assortment planning is about determining:
〉 What quantities of each style, price, color, size, etc. to stock
〉 When they will arrive and sell
〉 How you will replenish

The retailer has to answer these questions in order to carry in the store an exciting and profitable assortment of articles.

Key considerations in assortment planning are:
〉 Typically 20% of the inventory generates 80% of the turnover and 80% of the inventory generates 20% of the turnover (80/20 rule). What this is telling you, is that there are always winners in your inventory that customers buy lots of but that you are not supporting with enough inventory and that the majority of your inventory is not selling as well as that small amount and it is therefore unprofitable and a cost to the company. You should focus on the 20% of profitable stock and increase it to ensure improved sales.
〉 Very high fashion has a very small market. For fashion articles the adoption process can occur in less than one season and represent about 3% of the population. About 3% of the population are what we call “extreme” fashion users. These people are referred to as innovators. They have to be the first with anything new. In most cities they live in a very trendy area and they often set fashion trends. If a fashion is to move “mainstream” that is, have a broad appeal, it must cross the “chasm.” It must begin to appeal to the early adopters. If it does not, it is considered a “fad” and never makes it to the large market. If it does cross the “chasm” then it can be called a “trend” and will move from the early adopters to the early and late majority where the bulk of the market is. Very high or extreme fashion has a very small market. It is also useful to note that the movement from innovators to early majority used to take two to three seasons. Today, it can occur in less than one! Almost all assortments should have some (1 or 2 articles!) that appeal to innovators, and the rest should be for early adopters, early majority and late majority. Percentages for each will vary depending on the store and location. For example, a store in New York o Los Angeles would likely have 3% for innovators, 35% for early adopters (fashion conscious customers), 55% for early majority and only a few articles of “classics” for the late majority, and no “basics” for the laggards as indicated in the graphic below.


















Different items require different breath – number of unique articles – and depth – number of sizes – of assortment. Assortments can:
〉 Be both wide and deep - square. This is a store that carries an assortment of 400 styles of shoes with five pairs of every color and size in each shoe! This type of assortment is also called “bankruptcy assortment.” A store carrying this assortment will soon be out of business because the likelihood of customers buying in that breadth and depth is very small. The only time when you would use it is on a brand new article with no similar item history to base your assortment on.
〉 Have lots of breath with little depth – high fashion. This is a store that has 400 styles and only one pair of each size in each style and color. More likely than the previous one to satisfy more customers, except when they run out of a size! Would you buy a dress/suit in a store where there were 50 of the same dress/suit on the rack? The answer is “No” and the reason is that you do not want to look like every woman/man you meet. Fashion means choice. The problem with this assortment is that when you are out of a size you are often out of a sale unless you can move the customer to a different style.
〉 Have not much breath with lots of depth – basics. The basic assortment is for basic products that do not have much choice and sell very well and predictably. If you had a white Nike sock that you sold hundreds of, you would only have a few facings of it but lots of stock behind it. A basic assortment is characterized by depth of stock and not a lot of breadth of choice.
〉 Have the right breath and the right depth based on customer’s demand - tailored /balanced. The balanced assortment, sometimes called the tailored assortment, is often constructed from customer’s purchase history. You know what the best selling styles, sizes or colors are and you carry depth in these. Very common with traditional products, products that sell predictably. For example, in a balanced assortment of women’s Asics GEL-Nimbus® 9, you might carry 1 size 4, 3 size 5, 6 size 6, 10 size 7, 5 size 8, and 3 size 9 based on past selling history of this style of shoe. You have to be careful though that the size you sold in the past reflects a full inventory. For example, if you were always out of size 4 last season, it would not show up as a good seller and you would not re-order it. You always have to be careful not to make a balanced assortment plan a self fulfilling prophecy!










Proper merchandise performance analysis needs to look at a minimum of six dimensions according to which the assortments were created. These dimensions are: sizes, colors, styles, price ranges, fabrications (suede, fabric, etc.) and lifestyles.

The process of assortment planning is complex. Most buyers take years to learn how to do it properly. The problem is that you are dealing with an issue that has many “dimensions” or components. My list is just a short list of what may affect a customer’s decision in buying. As a retailer, if you want to select a range of shoes to buy for the store, you need to first select your styles so that you give your customers plenty of choices (I know that this is what they want!). You then have to make sure that there are choices of colors in each of the styles. You also have to have low, moderate and higher priced shoes for different customers. And, you most likely need to have different materials or fabrications. In addition, you need the shoes to appeal to different lifestyle and sport uses! When you take a total quantity of 5,000 pairs and begin to break them down by all these dimensions, it gets very complex indeed.

This is the way assortments are built. To determine the reasons why certain articles sell very well whereas others don’t, you need to have a look at your stock based on the many dimensions that you used when you created the assortment in the first place. So, if you wanted to know why one item is not selling, you would look at last season’s performance (markdowns) by size, color, lifestyle, etc. You might then decide to not remove the article from your assortment but only specific colors, or sizes that do not sell.

Looking at the past is key and yet it might not work every time. For example, last season’s markdowns on certain styles or fabrications might not have anything to do with this year’s performance of similar products. It might be that a style is good this season, but it was too early last year and is just now catching on. Or a fabrication like canvas will be back “in” or dark colors will make a dramatic turnaround! You must look at the past but not be slaves to it and see if there were significant problems with certain sizes, colors, etc.













ASSORTMENT SIX DIMENSIONS




Jim Dion is the president of Dionco Inc. A retail consulting firm that is headquartered in Chicago.

Jim started his retail career 40 years ago in a menswear store in Chicago. He has been a division manager, catalog merchandiser and buyer for Sears as well as national sales training manager, product manager and merchandise manager for Levi Strauss. He was the executive vice president of Gilmore’s department stores in Kalamazoo, Michigan. He is the author of two books; “Retail Selling Ain’t Brain Surgery, It’s Twice As Hard.” And “How To Start And Run A Retail Business” Jim consults with numerous retailers such as Macy’s, Ace Hardware, Ritz-Carlton, Coleman, Harley-Davidson and many others. Jim will be a speaker at The Running Event in Austin this November 11-14.

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