E-Commerce Assortment Planning and Merchandising 101

I find myself scrolling and scrolling through product after product on many websites. From my perspective, as a retail consultant and a consumer, basic assortment planning and merchandising is often getting lost amid all the wonderful technology and in the e-commerce space.  Many online retailers are forgetting (or never learned) the “art and science” of assortment planning and merchandising. I see opportunities for basic improvement in these areas every day:

Assortment Planning

Merchandise Hierarchy and Navigation

Home Page Presentation

Product Page Presentation

Assortment Planning – Many e-commerce businesses suffer from “over assortment”. In “bricks and mortar” the assortment is naturally limited by space and by inventory investment. In the ole Catalog business the assortment is limited by paper, printing, and postage cost – another form of space. And, inventory investment. These traditional limits on assortments don’t exist in the same way online. In fact, it’s fairly easy to put an image online and begin to sell the product.

For discussion purposes, I’ll break e-commerce into two worlds, “commodity” and “specialty”.  “Commodities” are highly identifiable products or brands. K2 skis are an example.  Shoppers search for their skis on Google. They often pick the best price. They arrive at the selected website via the product page.  “Specialty” exists in multi-channel and in online retailers. “Specialty” has its own brand (even though they may carry other brands) and often its own private label products. I’ll use Nasty Gal, an apparel retailer focused on young women, as an example since it’s in hyper growth mode. More customers enter a “specialty” website via the home page versus product pages.

Assortment planning from a customer selection standpoint is more crucial for the “specialty” e-commerce retailer. But, basic merchandising, where the retailer focuses or limits their assortment on behalf of the customer (and the brand) often isn’t a priority. The poor shopper has to scroll down pages and pages of styles if they choose to spend the time. Inventory investment and cash flow, is another reason to limit the assortment – too much. And, customer satisfaction can be lost by carrying too many styles if one can’t keep the sizes/colors in stock for the customer – too little. “Sku rationalization” or “culling” is the “science” of assortment reduction. The “art” of developing your assortment is crucial also. Brand positioning among other things must be considered. (See my blog, Assortment Planning Part #1 – Six Factors to Consider When Developing Your Assortment Strategy for more.)

This is not “as” true for “commodity” websites. But, “commodity” websites still have some shoppers entering via the home page versus the product pages.  (There is a Google Analytics report which shows this flow and “drop offs” very well.) And, most companies still need to manage inventory investment and cash flow along with stock outs and the customer experience.  

Merchandise Hierarchy and Website NavigationMerchandise hierarchy (the way products are organized and categorized in any retailer) is primarily an internal merchandising tool in traditional retail. From my perspective, a good merchandise hierarchy has never been more important than it is in the growing e-commerce space. It should be the basis for shopping and navigating the website.  I usually suggest that the merchandise hierarchy have no more than four levels (ie division, dept, class, style). An example is Women’s, blouses, long sleeve, and then the specific styles are shown – in three clicks. Most often the merchandise hierarchy runs across the top of the website. “Double merchandising” or “browse taxonomy” is also extremely important. This comes in the form of additional “sorts” or “features” often down the left hand side of the website. Price, brands and colors are great examples of “sorts”. New, best sellers, SALE, and Holiday are all examples of other “features” that may rotate down the left hand side of the website or on the home page. All this is much easier with a well thought out merchandise hierarchy focused on the way the consumer shops. (See my blog, Five Top Tips for Creating a Merchandising or Product Hierarchy for more.)

Home Page Presentation – From my perspective, many websites simply try to do too much on their home page. There are just too many messages. I suggest limiting messages to two or three – in addition to basic navigation. And, the messages need to be prioritized. In general, the first message – especially for “specialty” - is about the brand. What is the brand positioning and what is unique about the brand? This must be presented in a clear manner on the home page. The second priority should be what is going on right now that’s compelling for your customer. Maybe it’s outdoor dining or maybe it’s a new product or technology. It could also be a sale or other promotion. The final but most important feature is “shopping” (ie where and how to quickly get to products – merchandise hierarchy from above). The home page can be treated just like the windows and entrance to a “brick and mortar” store or the cover of a catalog. You want to get shoppers to “come in”!

Product Page Presentation – Ever heard the saying “product is hero”?  That is certainly true on product pages. Photos must clearly show the “product” and its features. So often photos are not compelling or they don’t show the product (and true colors). Descriptions (sizes, colors, fit, and features) must be clear. Remember, that in “commodity” businesses this is where the customer usually enters the website. So, price is probably the most important to them.  Tools that help compare products, show like products, and show customer reviews are great. But, nothing is as important as showing the product, its features, and price very clearly first! On these pages, the customer is “in the store” or “flipping through the catalog”. This is where they need to easily see what they want or need in order to buy!

To summarize, there is a wonderful opportunity in e-commerce to improve:

Assortment Planning

Merchandise Hierarchy and Navigation

Home Page Presentation

Product Page Presentation

I’d love to hear about your needs in these areas. I can be contacted at Janice@JLSearsConsulting.com or 206-369-3726.

Assortment Planning Part #1-Six Factors to Consider When Developing Your Assortment Strategy

Whether you are a bricks and mortar retailer, cataloger, selling on the internet, or a wholesaler, your assortment is key to your success, the “heart and soul” of your business as I call it! Therefore, assortment planning is a crucial activity. I have seen many companies do this well but there is often a real opportunity to take more factors into account to produce the most profitable and sustainable assortment for your brand.

Six factors must be taken into account in planning the size and content of your assortment:

1. Your brand strategy
2. Your business model
3. Current market trends
4. Sales and margin history
5. Channel (s)of distribution requirements
6. The organization’s financial plans (sales, margin, and inventory)

(I would term these “top down” factors. Part #2 will discuss the “how to” and “bottoms up” execution of the strategy.)

Brand Strategy-Prior to assortment planning, whether in preparation to shop the market or to develop your own product line, developing your brand strategy is crucial. Merchandising/product development must buy into the brand strategy. What does the brand represent? Who are the current customers (demographics and psychographics)? What are they currently buying? Who is the target customer ( often different than the current one)? What do they want and need from you? Who is the competition? What makes you different?

We can all name brands that have faltered because they did not have a clear strategy, it was diluted and/or execution was poor. From my perspective my Alma Mater, Eddie Bauer has been an example of this over the years.

Business Model-If you have a “scarcity” business model (Gilth, Clymb, or Zulily), a “fast fashion” business model, or even a “close-out” business model the content and price of your assortment are much more important than controlling the size of it. Your business model is designed to turn fast and fulfillment is not as important. In fact, running out of merchandise is part of the model and creates future demand! If your model is more traditional and fulfillment is important then the size and flow of your assortment may be as important as the content. If you disappoint your customers by being out of stock in a key denim size, as an example, it really hurts your current and future business!

Market Trends-No one has a perfect crystal ball but current market trends and potential future market trends must be taken into account. This is very qualitative versus the next factor which is fairly quantitative. Some brands must event create their own market trends because they are the leader in their category. This still must be done based on current and potential future consumer trends, wants, & needs.

Sales and Margin History- It is crucial to see what has sold well both last season and the same season last year for your organization. In addition to sales, final margin must also be considered including all discounting! As always, if something sold well but the margins were very low it’s not worth repeating in the same way. Taking a look at the categories and styles that have sold well in the past is often the starting point for assortment planning but I have certainly seen too much weight given to this activity. Even in a traditional business model newness is important! When looking at this history it is good to begin selecting items that can be “carryover” items prior to developing or buying “new styles”.

Channels of Distribution-Whatever your distribution strategy, the elements listed below must be incorporated into planning your assortment:

Bricks and Mortar-You will need to know how many stores, how stores may be grouped and assorted differently, what the floorset and/or visual merchandising strategy, flow, and timing are. We do NOT recommend planning the assortment or style count based on space in the store. Plan your assortment first based on the factors above and adjust in Part #2 if needed.

Catalog-You will need to know when catalogs are being mailed, and how many pages you need to fill along with a productive density plan (# of styles per spread or page). This is generally more of a space and productivity (DMPC) exercise than retail.

E-Commerce-You will need to know the strategy for pages, layout, and navagation here along with search and promotions. In general the assortment is not limited by space here either. Presentation is key!

Wholesale-You will need to know the sales strategy, types of accounts and timing along with and any special order needs of your customers.

Financial Plans-If your organization is planning a +20% increase in sales you may have room to increase the size of your assortment. If they are planning a -10% decrease you probably need to tighten up the assortment. Likewise if cash, which means inventory for you, are tight you may need to decrease the size of your assortment and get higher unit sales out of each item. If your organization needs to improve profitability, which means increased margin for you, then you will have to either limit discounting or increase your initial margins. These factors all have an impact on the size and content of your assortment and must also be considered.

Category financial plans-Based on the brand strategy, business model, history, and financial plans, initial “tops down” category and or brand financial plans can be developed at this point. An example might be helpful! If you know your new brand positioning is an active brand targeting women in their 30’s, you can probably plan the performance tops category up. If your financial plans are +5% perhaps this category is up 10-15%.

Please see “5 Top Tips for Creating Your Merchandising or Product Hierarchy” @ jlsearsconsulting.blogspot.com

Once again to summarize, six factors must be taken into account when developing both the size and content of your assortment strategy:

1. Your brand strategy
2. Your business model
3. Current market trends
4. Sales and margin history
5. Channel (s)of distribution requirements
6. The organization’s financial plans (Sales, Margin, & Inventory)

Part #2 will talk about the “bottoms up” or “how to” execution of the strategy.

If you would like to discuss assortment planning further we can be contacted @ info@jlsearsconsulting.com or @ 206-369-3726

5 Top Tips for Creating a Merchandising or Product Hierarchy

The first place to start in developing a merchandising strategy is to develop a solid merchandise hierarchy. Often a merchandise hierarchy has five levels such as division, department, and classification in addition to style and sku level. Some systems give the ability to do six levels but most of the time five is plenty.

In developing a merchandise hierarchy it’s important to remember that this hierarchy will be in place for several years and that it will be a key way to organize, plan, & analyze the merchandise strategy and results. Changing a merchandise hierarchy is difficult and often gives “apples to oranges” data for one year following the change. Therefore, it’s a good idea to view this as a very universal hierarchy that accommodates annual style changes.

Maybe an example would help at this point!

Divisions may be defined as: Men’s Apparel, Women’s Apparel, Kids Apparel, & Hardgoods

Departments may be defined as: Jackets, Woven Tops, Knit Tops, Pants, Skirts, Shorts

Classifications may be defined as: Sleeveless tops, short sleeve tops, long sleeve tops

Let’s say that next fall short wool plaid skirts are a trend and this on line retailer is planning on going after that trend. Many retailers make the mistake of developing a classification for short wool plaid skirts. The problem with that is that next year the new trend is going to be floral long skirts and that classification won’t be available. So in the merchandise hierarchy a good way to approach it is to have short patterned skirts, long patterned skirts, short solid skirts, long solid skirts. The universal classifications should be able to accommodate trend changes.

While developing the merchandise hierarchy is a merchandise function it’s important to involve cross functional partners because they will also be working things such as search and marketing spend by departments given growth plans etc. It’s also important to organize cross functional business teams to manage the sales, margin, and profit of a business unit (perhaps the Men’s division) so they need to be involved in the final decision. Some areas such as sourcing are usually organized by fabric so it’s hard to do this across all divisions. Some Merchandise systems allow “super groups” and alternate way to sub-total merchandise so if classifications are set up under each department by fabric then it’s easy to sub-total another way.

Now that you have a workable merchandise hierarchy, a good cross functional team (Merchandising, Sales, Marketing, Finance) to plan and manage the business you will develop sales, margin, inventory, and even the number of skus by department so that a buyer can go shopping for these styles with a number in mind and/or you can give the sku count to your product development team!

In Summary:

1. Develop a universal and timeless merchandise hierarchy ( Division, Department, Classification, and sku) that will work to accommodate seasonal trend changes.

2. Include your cross functional partners in the final decision.

3. Plan your cross functional teams around these divisions.

4. Plan and manage your key metrics (Sales, Margin, Inventory, skus) by these departments

5. Utilize the style/sku plans by department in the marketplace to shop or with product development to design and develop your line

If you would like to discuss your merchandising strategy further please contact us @ info@jlsearsconsulting.com or 206-369-3726