Introduction to Category Management And Assortment Planning in the Retail Industry

Enabling Sustained Business Excellence Category Management & Assortment planning Aartee Roy Senior VP, Retail Industry Consulting KINDUZ Business Consulting Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/

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Contents  What is a Category ?  What is Category Management ?  Key areas of Category Management  Identifying Product Groups  Space Planning  Assortment Planning  Visual Merchandising  Inventory Management  Complete Process Flow Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

What is a Category ?  A Category is a group of similar or related items which the customer would ideally like to find together in a store.  Categories are mainly used as organizational aids to better manage and monitor predefined groups of products. Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

What is Category Management ? Right product At right price To right location At right time To meet projected sale Generate required Margin And maintain defined stock cover Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Key Areas of Category Management.  Category Managemnent includes : • Space Planning to ensure desired display space. • Assortment Planning to facilitate the achievement of required financial objectives. • Visual Merchandising to optimize display efficiency and aid walkins/conversions in a store. • Inventory Management to ensure required stock cover and avoid being out of stock. Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Identifying Product Groups Product Groups/Categories should be defined based on the consumer’s needs and purchasing habits. Home Fashion Lighting Decor Acc. Jewellery Aroma Watches Wall décor Perfumes Flowers Leather Bags. Garden Jute Bags. Decorative Acc. Travel Bags Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Space Planning Considerations for Layout Decisions :  High margin items should be placed in high traffic areas. Home Decor  High demand items should be placed in low traffic areas.  Complementary items should be placed near each other.  Seasonal needs should be considered. Leather Acc. Niche Products  Items needing frequent restocking should be placed near storerooms Perfumes or cash registers.  Larger departments should be placed in lower traffic areas.  Impulse items should be placed in Jewellery closer to billing.  Shopping behavior and Cash Till operational considerations should be recognized. Impulse items Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Layout Options Straight Floor Plan Geometric Floor Plan Angular Floor Plan Mixed Floor Plan Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Benefits of Space Planning  Inviting store layout improves walkins into the store.  Improved circulation space within the store allowing for accessibility to all products.  Improved conversion rates by better product visibility and display.  Reduction in shrinkage.  The store layout can impact the customer’s perception of the store’s positioning. Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Assortment Planning Competition Analysis Assortment Plan Forecasting/Trends Analysis Revenue & Margin Projection Demand Planning Customer Analytics Assortment Plan or the Merchandise Mix is rated around the globe as the second most important factor for a store, after its location. The assortment plan defines the revenue stream, impacting not only the top lines and bottom lines but also the working capital locked in inventory. Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Key Deliverables of an Assortment Plan  Required Average Revenue/sft.  Required Gross Margin  Required Average Ticket size  Required Stock cover based on demand forecast  Suitable product as per catchment analysis and target customer profile.  Based on competition study, merchandise mix should define the store’s USP. Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Assortment Planning Process • Customer & Catchment Centric Assortment Plan • Benchmarking • Category composition which will deliver • Customer Profile • Sub Group Planning required financial • Financial Projections targets. • Sourcing strategy • Store Layout • Pricing strategy Input Output Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Benchmarking Fashion Boutique Department Stores Volume--- Volume +++ Department Stores Mass Discounters – Coupon, Brand Factory Hypermarket Mass Incorrect market positioning results in wasted resources by competing with players that are not the right match. Define your focus market segment, key competitors and identify where YOUR opportunity is. Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Customer Analytics Age-wise Spending Power Category-wise Spend 3500 4000 3500 3000 3000 2500 Spending Amount Spending Amount 2500 2000 2000 1500 1500 1000 1000 500 500 0 0 18-25 26-30 31-50 50+ Books Entertainment Toys Stationery Gifts Understanding of customer buying patterns is critical for all retailers. Defining the target customer’s buying power, age, category preferences and regional influences can positively impact your top-line Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Store Layout The store layout clearly defines the stocking capacity of the store and hence enables detailed SKU qty ordering. Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Category Composition Once the Broad categories are defined, the finer details need to be planned. The above example summary is based on a detailed subgroup level plan, both in terms of space allocation and sale projection. Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Sub- Category Planning Within a category, shelf displays are planned product wise and supplier/brand wise. Based on past sales experience or market figures, a sales projection is created which confirms the inventory requirement and hence the investment required for the first fill. Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Sourcing Strategy Based on:  Lead-time to store launch  Margin requirement  Stock availability  Working capital availability Highest Margin Lower Margin Lowest Margin Wholesaler/ Factory Distributor Retailer Importer Longest lead-time Shorter lead-time Shortest lead-time Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Pricing Strategy • Whether to buy outright or on consignment ? • Is it better to get the products as a Shop in Shop ? Purchase terms • To what extent will the price be competitive for exclusive products ? • Should some products carry a promotional discount ? Pricing • To what extent can the credit period be renegotiated ? • Will bigger volumes help in improving the credit period ? Credit Period • Will the supplier accept returns of ageing stock ? • Who will bear logistic cost of returns ? Returns Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Visual Merchandising “Visual Merchandising”, the art of attracting patrons with visual cues, is central to a retailer’s ability to generate sales. Visual Merchandising got its start at the turn of the century, when department stores began using theatrical set design and lighting to create exotic displays. Today, the way the departments are arranged, the location of the escalators, the lighting--all are carefully planned to earn the store more sales per square foot. Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Store Display Decisions 1. Fixture Types 1. Shelving 1. Value/fashion image 2. Merchandise 2. Hanging Presentation Planning 2. Angles and 3. Pegging sightlines 3. Selecting Fixtures 4. Folding for Merchandise 3. Vertical color 5. Stacking blocking 4. Visual 6. Dumping Merchandising Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Planogramming Inventory Control and merchandise display technique which enables the retailer to maximize shelf space utilization. Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Planogramming Benefits  Improved sales presentations & closure results  Increased consumer appeal of product displays  Better brand awareness through consistency  Improved efficiency of shelf space allocations  Improved financial performance of assortments  Faster, more accurate replenishments  Quicker inventory resets  Much better marketing through targeted displays Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Inventory Management S2 S2 S1 S3 S1 S3 DC1 DC1 Corporate Supplier Corporate Supplier S4 S4 DC 2 DC 2 S5 S5 S6 S6 Inventory in a PUSH system is managed at the corporate Inventory in a PULL system involves store level where all buying decisions are made and then pushed requirements to be consolidated at the corporate to the distribution centers for allocation to stores. level via the DC and then procured. Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Ageing Inventory Liquidation Routes Transfer to Tieups with Instore Return to stores Mass where Discounting vendor Discounters required Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Complete Process Flow Assortment Assortment Planning Planning Realign Mix close Sourcing to Best Sellers Identify Top Ordering Performers Delivery to Monitor Margins warehouse Delivery to Store Monitor Sales Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ Business Consulting - All rights reserved

Contacts Aartee Roy Sundeep M Principal Consultant, Retail Vertical Senior Director, Customer Relationships Website: http://www.kinduz.com/ Website: http://www.kinduz.com/ Email: aartee.roy@kinduz.com Email: sundeep.m@kinduz.com India Mobile: +91-924685184 India Mobile: +91-9246085180 India Office: +91-40-40165594 India Office: +91-40-40165594 US Phone: +1-312-473-9767 US Phone: + 1-312-473-9767 Category Management & Assortment Planning in the Retail Industry | KINDUZ Business Consulting | http://www.kinduz.com/ © 2009 KINDUZ - All rights reserved 29

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Introduction to Category Management And Assortment Planning in the Retail Industry

by KINDUZ Business Consulting on Mar 22, 2009

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Introduction to Category Management And Assortment Planning in the Retail Industry — Presentation Transcript