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


© 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.



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



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.



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



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



Layout Options

Straight Floor Plan Geometric Floor Plan

Angular Floor Plan Mixed Floor Plan


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.



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.



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.



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



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.


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



Store Layout

The store layout clearly defines the stocking capacity of the store and hence enables detailed SKU qty ordering.



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.



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.


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



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



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.



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



Visual communication



Planogramming

Inventory Control and merchandise display technique which enables the
retailer to maximize shelf space utilization.



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



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.


Ageing Inventory Liquidation Routes

Transfer to
Tieups with
Instore Return to
stores
Mass
where
Discounting vendor
Discounters
required



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



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


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Introduction to Category Management And Assortment Planning in the Retail Industry

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