Is Assortment Planning for You?

The only constant in life is change. That phrase has perhaps never felt as accurate in the convenience store industry as it has in the years since the beginning of the COVID-19 pandemic. Owners and managers have re-evaluated their business strategy as they quickly changed from in-store sales to curbside pickup, take-and-go meals, and new cafe settings. As leaders struggle to optimize every square foot for maximum profitability, one strategy some retailers are taking is assortment planning.

Assortment planning is a strategic process that involves selecting the most suitable product lineup for a business, and it holds significant importance for convenience store managers. This process determines the specific product mix allocated to each store, tailored to the store’s physical space, customer preferences, and buying patterns, ultimately contributing to increased sales and improved cash flow. In this process, managers evaluate the sales of every SKU and discontinue a pre-determined percentage of the lowest ranking while boosting the inventory of others.

Assortment planning is also conducted on a store-by-store level. Since each store may serve a slightly different market, SKUs eliminated from one location will likely not be identical to those eliminated from others.

While it seems like a n0-brainer to eliminate the lowest 5 to 15% ranking SKUs in your inventory, there are both advantages and disadvantages to assortment planning you should consider before moving forward.

Should you add assortment planning to your strategy for next year?

H&S Energy Group works with convenience store owners and managers nationwide to help them implement strategies and programs to enhance their revenues and productivity. There are many options for convenience store owners to gain more foot traffic and greater sales-per-ticket. When conducted with a strong foundation of data analysis, assortment planning is one way your store can become more successful in your marketplace.

Advantages of Assortment Planning

Evaluating store sales and eliminating the lowest-ranking items from your inventory has several advantages. Just a few of those benefits include:

1. Increased Sales: In most cases, good decisions around product mix will lead to increased sales. By ensuring that each store offers the appropriate styles in the right quantities, assortment planning can lead to elevated sales and improved cash flow.
2. Competitiveness: When you carry the products your customers are looking for, you develop a reputation for being the go-to convenience store in the community. Providing pertinent products not only secures the loyalty of customers but also elevates the brand’s prominence within its specific industry.
3. Mitigate Stock Shortages: When you have fewer SKUs to manage, it’s easier to monitor and keep your high-sale items in stock. Assortment planning helps avoid inventory risks and dead stock, minimizing out-of-stock ranges.
4. Customer Satisfaction: Of course, it goes without saying that when you meet your customers’ needs, they are more likely to feel satisfied and return. Assortment planning helps optimize elements that increase conversions and spur impulse purchases, such as visual appeal, layout flow, and product placement.

Disadvantages of Assortment Planning

Convenience store managers should also be aware of the potential drawbacks of assortment planning, such as:

• Overly Optimistic or Pessimistic Plans: One of the most significant issues with assortment planning occurs when managers use “gut feelings” or visual assessments rather than proper data analysis from sales data to determine which products to promote and eliminate. Managers can be overly optimistic about specific items or discontinue others that don’t seem to drive sales without appropriate data.
• Inventory Risks: Insufficient analysis exposes retailers to the risk of stocking insufficient quantities of highly sought-after items while accumulating excess inventory of underperforming ones, leading to potential losses compared to their competitors. For example, a grocery store decided to eliminate the lowest-ranking 20% of dry goods from its inventory to enhance its selection of fresh produce. While that seemed like a good idea to attract more customers, it lost many customers who no longer felt the store had the selections they wanted and switched to the competitor instead. As a result, sales dropped 40%, and the store became bankrupt.
• Space Constraints: If managers cannot make clear decisions about high and low-ranking SKUs, store shelves can become overstocked quickly. Choosing both a wide variety and a deep assortment of products simultaneously requires a large amount of space, which may be challenging for convenience stores with limited physical space.

Types of Assortment Planning Strategies

Not one model fits all stores. Several models are used in assortment planning, each tailored to the business’s specific needs. These models help retailers decide which products and variations to carry and sell in an upcoming season. The two main dimensions considered in assortment planning are breadth/width (the number of product types and categories) and depth (the number of variations for each product/category). Some standard assortment models include:

• Wide Assortment: Businesses with a broad product assortment sell many different categories of products, but product variety within each category is limited. This model suits retailers aiming to cater to a wide customer base. With this strategy, few SKUs are eliminated while many new SKUs are introduced.
• Deep Assortment: This model offers various product variations within a specific category. It benefits businesses looking to provide extensive options within a particular product category, appealing to customers with diverse preferences. Low-ranking SKUs in other categories are eliminated to bulk up on SKUs in the desired product lines.
• Assortment-First Approach: In this approach, retailers plan the products and variations first and then develop budgets and store plans to execute the assortment plan. In other words, the product mix trumps budget and store placement decisions. This model suits businesses that prioritize product selection before budgeting and store planning.

Are you ready to gear up your operations in the coming year?

Businesses determine which assortment planning model to use based on factors such as store size, sales potential, customer demographics, and market trends. Selecting the right assortment planning model is crucial for retailers to optimize their product lineup and drive business success. Retailers consider their target market, customer preferences, and sales data from previous seasons to determine the most suitable assortment planning model for their business.

Our experienced professionals at H&S Energy Group will work with you to understand your business and get you on the highway to success. From franchising opportunities with loyalty rewards programs to state-of-the-art car wash units, we’ll help you become the preferred convenience store in your locale. Contact us today to get started.