Next-Gen Assortment Planning for a Changing Retail Landscape

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Next-Gen Assortment Planning for a Changing Retail Landscape

By Jenn Markey, VP Marketing, 360pi - 08/08/2016
Apparel isn't an easy industry to be in. In addition to being part of the cutthroat and rapidly evolving retail landscape, apparel retailers are confronted with swift shifts in style trends that can lead to crippling overstocks. Then there's mega-competitor Amazon that continues to bully its way into the market. Managing merchandise to keep up with these threats is an art form, but one that absolutely must rely on science in order to be successful.

Competitive pressures
Amazon's increasing focus on the apparel industry is well acknowledged. Examples abound, from the company's introduction of seven private label apparel brands earlier this year, to the fact that men's wear saw more products on sale on Amazon Prime Day than any other category. As in any battle Amazon digs into, the opponent is hit with the double whammy of reduced market share and smaller margins as they are forced to drop prices to keep up.

Similarly, the rise of fast fashion, a market dominated by hyper-efficient retailers such as  Zara, has meant that traditionally limited selling windows continue to get even smaller as the latest fashions become obsolete almost as soon as they arrive on the rack.

This has led to a retail arena where there is no room for error. Buy the wrong pieces or too much of something, and you'll lose precious margins due to markdowns. Don't buy the right items or enough stock, and you're missing out on revenues while forcing your customers to defect to competitors to get what they want.

Managing margins
A 2015 report from retail consulting firm IHL found that overstocks and out-of-stocks combined accounted for more than $1.1 trillion in disappearing worldwide revenues. That equates to more than 7.5 percent of the $14.5 trillion global retail economy.

An optimized assortment allows retailers to buy only what they can sell, allowing them to avoid overstocks and protect margins. So how can retailers manage the competitive pressures on their assortments and pricing while maintaining customer loyalty?

You can't sell what you don't understand
Amazon has proven the power of customer and product data. Amazon knows more than anyone about how people search for and buy products by analyzing its own site statistics. The e-commerce giant uses this information to invest in areas of high margin growth, letting marketplace sellers fill in the gaps to make it a one-stop-shopping destination.

Looking at your competitors' assortments is a useful starting point, but the value is limited to hindsight. While directionally insightful, it does not provide the level of future visibility to support the next generation of assortment planning. Similarly, assortment decisions based on syndicated market data are backward-looking due to delayed data availability, and they ignore the growing penetration of online retailing competition, such as Amazon and others. Neither source provides specific or forward-looking opportunities for retailers to differentiate effectively.

Intelligent data drives intelligent decisions. The ability to predict what people will buy based on their behaviors in store and online is a saving grace. Only the ability to combine real-time retailer insights with shopper demand helps level the playing field with the likes of Amazon in this new retail landscape.

Buy better, sell better, compete better
Retailers understand that competing directly with Amazon isn't their mandate. Yet performance can improve if they can understand how their product assortment aligns to market demand and how to protect margins by stocking up on the products people want to buy, when they want to buy them.

Only when retailers manage to create single data streams for their own operations can they begin to identify market, product and competitive opportunities that will enable them to not only survive, but also thrive in the era of fast fashion and big data. 

Jenn Markey is vice president of marketing for 360pi, a retail price and product intelligence solutions company.