Assortment Planning in Retail and Ecommerce (+ Examples)

Picture this: you’re about to head into your busiest time of the year. Sales soar across all categories throughout the Black Friday Cyber Monday weekend, but you have no idea which products to sell. You’re working with limited storage and shelving space. Every piece of stock within your warehouse needs to be gone by year-end.

Effective assortment planning is a retail merchandising strategy that makes this possible. By carefully planning which items you’ll stock at each point of the year, you can optimize your inventory and offer items that customers are actively looking to buy. 

This guide shares how to do it, with tips on creating an inventory assortment plan and examples to illustrate.

What is assortment planning?

Assortment planning describes the thought process behind which products—including the sizes, colors, or categories—you’ll stock at any time. 

Retailers often plan assortment in the months before Christmas. Gift-related products tend to sell best during this time, so a retailer would plan to include more giftable products in their inventory plan over the later months of the year.

Why is assortment planning important?

Assortment planning is an important part of inventory management because it:

• Improves the customer experience. When you meet customer demand throughout the year, people can visit your store and buy the items they’re looking for—like umbrellas during rainy season. This increases customer satisfaction because products they’re interested in aren’t out of stock. (Collectively, stockouts cost retailers an estimated $350 billion per year.)
• Drives year-round sales. An office retailer, for example, might see a surge in sales during back-to-school season while revenue for the rest of the year remains stagnant. An assortment plan, however, could see them drive sales year-round by stocking diaries in the New Year or gift wrapping throughout the holidays. 
• Increase basket size. An assortment plan that expands your product range for a limited time can increase average order value. For example, if a fashion retailer knows to stock dresses in the summer months, they could stock different sizes or colors. These additional, related items provide upselling or cross-selling opportunities that increase average basket size.
• Optimizes inventory and maximizes profits. Matching future demand to product availability allows you to increase sales and ultimately operate a more profitable store. You don’t need to heavily discount out-of-season products to free up space in your stockroom if items are well-matched to demand throughout the year. This reduces inventory carrying costs and prevents dead stock.
• Calculate open-to-buy (OTB) budgets. OTB is the money you spend on new inventory during a specific period. By knowing exactly what’s in demand at each point throughout the year, you can calculate OTB budgets more efficiently and prevent overspending on inventory that won’t sell. 

When to consider assortment planning

Product assortment planning is useful when contending with one of the following scenarios:

• Seasonality. Some products are used most at specific times of the year. Create an annual plan that outlines new seasons (e.g., spring, summer, autumn, and winter) and annual events like Black Friday, Christmas, or Valentine’s Day to plan your inventory accordingly. 
• New store launch. Launching a new retail location or a pop-up shop can be daunting, especially if it’s in an area where you have no historical data to base your inventory decisions. In this case, your merchandise assortment plans should prioritize online bestsellers and items that similar competitors stock until you gauge consumer demand more accurately. 
• Product line expansion. New products will likely take center stage in your retail store, but you must drop other inventory to make space. 
• Limited storage space. Whether in a retail store or a shipping warehouse, storing products before they’re sold is expensive. Assortment plans can help maximize storage space by prioritizing items likely to sell quickly.
• Market trends. Not all changes in demand are predictable. By keeping your finger on the pulse, you can spot shifts in customer preferences or emerging trends and review your assortment plan accordingly.
• Supply chain disruptions. Retail supply chains are notoriously unreliable. Whether a supplier is discontinuing a product or you start working with a new one, retail assortment plans help you plan around the disruption and prevent stock sourcing issues driving customers away. 

How to prepare an effective assortment plan

1. Define your assortment strategy
2. Build a category structure
3. Establish sales targets for each category
4. Develop a planogram
5. Create your inventory management plan

1. Define your assortment strategy

An assortment strategy is a top-line overview of products you’ll stock. It involves deciding the types of products you’ll carry, how many variations (e.g., sizes, colors, or brands) to offer, and how much budget and storage space you’ll allocate to each product. 

You can break down inventory into three categories:

• Core: Evergreen products that sell well year-round. 
• Seasonal: Items specific to a time of year, like SPF skincare in the summer.
• Trend: Products that customers are interested in right now that aren’t tied to a particular time of year, like kitten heels. 

There is no perfect balance between either of these categories; it takes trial and error to figure out what works for your store.

Bear in mind that these allocations can fluctuate throughout the year. For example, you might have 50% of your inventory as bestsellers, 20% seasonal, and 30% trend-based. During the BFCM weekend, when seasonal sales tend to ramp up, you could switch around the allocations for trend and seasonal inventory to capitalize on demand.

2. Build a category structure

Assortment planning aims to optimize inventory by focusing on the most profitable and in-demand products and removing underperforming items from store shelves. SKU rationalization can help you achieve this. 

Comb through your inventory and divide each item into one of the following categories: core, seasonal, or trend. Remember that this should be done on an SKU basis. Darker variations of jeans might sell best in the winter, whereas white jeans sell best throughout the summer, even though they’re classed as the same product. 

Don’t fall into the trap of relying on gut instinct throughout this process. Historical data is your best friend—you can confidently shortlist products proven to sell best each time of year with sales reports in your inventory management system. Shopify, for example, provides product recommendations based on sales data and customer interactions.

3. Establish sales targets for each category

Sales targets can provide a realistic estimate of revenue generated from each product category. This dictates a sensible open-to-buy budget and can improve the business’ cash flow since you’re not spending more money than your inventory will bring in.

To set sensible sales targets:

• Review sales data. What was the sell-through rate of each product or category at the same point last year?
• Do market research. Are there any up-and-coming seasonal trends that could impact sales for a particular product or category?
• Review the supply chain. Are you anticipating any problems with product sourcing that could affect the amount of inventory you can sell?

4. Develop a planogram

A planogram is a visual merchandising tool that shows how your inventory will be displayed in the store. It can help your customers find the items they’re looking for at that specific time of year, especially if you’re showing seasonal or trending items in prime spots like at eye-level or in end caps. 

Planograms also show how much space you have allocated to each product. This information helps you accurately determine how much inventory you need on hand to fill the shelves.

Take a similar approach if you’re developing an assortment plan for an online business. Your website’s homepage and image carousels take pride of place, so assign seasonal or best-selling products to these prime areas.

5. Create your inventory management plan

By this point of the assortment planning process, you should know which inventory you’re stocking, the breakdown of core, seasonal, and trending products, and how they’ll look on your shelves.

There are two final things to consider in your inventory planning process:

• Safety stock. Think of this like your store’s emergency fund. It’s the minimum stock level you’ll need to serve customers and meet demand, helping you to avoid stockouts by placing backup stock on the shelves while you source replacements.
• Stock replenishment. Consider an inventory management tool like Stocky to automatically replenish stock once quantities dip below your safety stock level.

Assortment planning examples

Fashion merchandising is notoriously difficult to balance. Customers buy different items during different seasons (like coats in the winter time); other products are evergreen and bought year-round (like jeans). Assortment planning helps the retailer balance the two without understocking or overstocking specific SKUs at any given time. 

Here’s an assortment planning example to show what that might look like for a fashion retailer that makes most of its money during the summer months:

Retail assortment planning tips

Before you launch a new assortment plan, consider these tips to not only make sure yours is realistic, but also to stick to it:

• Gather customer feedback. Customers are the people who turn your inventory into revenue, so it makes sense to incorporate their feedback into your assortment plans. Conduct focus groups or feedback surveys to determine which items people are most likely to buy at certain points throughout the year and whether they’re considering any trending products you haven’t yet picked up on.
• Use assortment planning tools. Uncover historical sales data with demand planning tools, including a product’s sell-through rate, sales volume, or stockout rate. This can help you identify items that sell best at each point throughout the year.
• Balance breadth and depth. Breadth is the variety of products you sell; depth is how many variations (sizes and/or colors) you have of each. Popular seasonal items usually have more depth, whereas smaller shopping seasons (like the 4th of July) might not need a full-scale collection exclusive to that event.
• Keep bestsellers in play. Bestsellers are proven to sell year-round, so they’re a safe bet to continue bringing money in while you’re experimenting with new inventory you’ve never sold.
• Collaborate with suppliers. Your assortment plan can only become a reality if you can source the shortlisted products within your specified timeframe. Work closely with suppliers to receive inventory on time—but not too far in advance that it affects your inventory carrying capabilities.