Selecting the right products to stock is a crucial decision for any retail business. You want to offer a variety of items that appeal to your target customers, generate sales and profits, and fit your store's image and space. But how do you choose which products to stock and how many of them? Here are some factors to consider when planning your merchandise assortment.
The first and most important factor is customer demand. You need to understand what your customers want, need, and expect from your store. You can use different methods to research your customer preferences, such as surveys, feedback forms, loyalty programs, social media, or sales data. You should also monitor the market trends, competitors' offerings, and customer reviews to identify any gaps or opportunities in your product range. Customer demand can change over time, so you should regularly update your research and adjust your assortment accordingly.
Analyzing historical sales gives helpful insights as to how you can project future customer demand. Look at the sales, sell-through, and of course, cash margin of each category you buy from the same time period of previous years. Evaluate where you overbought (or potentially underbought) then optimize your budget. Assume somewhere between 5%-10% growth so that you buy enough stock to surpass last year's numbers, then lean into the details of customer behaviors and trends as to what you should buy on the product level.
I thing I've found to be effective is to use customer demands and competitor selections in my area to select products. If the customers are demanding products that a competitor offers currently, then I review pricing for competitive advantages before proceeding.
The second factor is product performance. You need to analyze how well your products sell, how much profit they generate, and how they affect your inventory turnover and cash flow. You can use key performance indicators (KPIs), such as sales volume, gross margin, sell-through rate, stock-to-sales ratio, or markdown percentage, to measure your product performance. You should also compare your products against each other and against industry benchmarks to identify your bestsellers, slow movers, and dead stock. Product performance can help you decide which products to keep, reorder, promote, discount, or discontinue.
Product performance is key! If it sits on your shelf, you're losing money. With new products, bring in small quantities to test the market to prevent this from happening.
The third factor is product variety. You need to balance the breadth and depth of your assortment to offer enough choices to your customers without overwhelming them or wasting space. Breadth refers to the number of different product categories or types you carry, such as shoes, bags, or accessories. Depth refers to the number of different items within each category or type, such as sizes, colors, or styles. You should consider your store's concept, size, and location, as well as your customer segments, when determining your optimal product variety. Product variety can help you differentiate your store from your competitors and increase your customer satisfaction and loyalty.
There is a reason why some stores offer no more than 2-3 choices of an item, it tends to overwhelm the customer. An overwhelmed customer buys nothing. As a retail buyer, I try never to offer more than the 3 best options in a store. At the point of 3, you are trading sales between the 3 options. This is only fine, if the market for that item is large enough to support trading sales. If you are stocking items where color variations matter, like apparel, then you would want to key in on the most popular color options and combinations.
The fourth factor is product compatibility. You need to ensure that your products complement each other and create a coherent and consistent image for your store. You can use different strategies to enhance your product compatibility, such as cross-selling, upselling, bundling, or merchandising. You should also consider your store's theme, style, and atmosphere, as well as your customer expectations and emotions, when selecting your products. Product compatibility can help you increase your average order value, customer retention, and word-of-mouth referrals.
The fifth factor is product availability. You need to ensure that you have enough stock of your products to meet your customer demand and avoid stockouts or overstocks. You can use different tools to optimize your product availability, such as forecasting, replenishment, allocation, or inventory management systems. You should also consider your suppliers' reliability, lead times, and costs, as well as your store's capacity and layout, when ordering your products. Product availability can help you improve your customer service, operational efficiency, and profitability.
The sixth factor is product innovation. You need to constantly look for new and improved products that can attract new customers, retain existing ones, and create a competitive advantage for your store. You can use different sources to inspire your product innovation, such as customer feedback, market research, industry trends, or technology. You should also consider your store's vision, mission, and values, as well as your customer needs and wants, when introducing new products. Product innovation can help you grow your market share, brand awareness, and reputation.