What is Assortment Planning in Retail & How to Optimize It?

In 2022, more than half of all shoppers reported being unable to buy an item because it was out of stock. There are several explanations for this. However, one of the most prominent causes is improper assortment planning.

As a grocery store owner, you must be prepared for fluctuations in demand. This means ensuring the right product is always stocked at the right time and having enough variety never to disappoint a customer.

You’re left with piles of unsold items if your calculations are wrong. Or, you risk running out of what could potentially be your best seller.

You must improve forecasting, inventory management, and data analysis to avoid this. All processes that fall under merchandise assortment planning.

What is assortment planning in retail?

An assortment plan in retail is a data-driven approach to deciding what items to put on sale and when. It’s a strategy that shapes what product categories can help you maximize sales. The decision on what to stock is based on various factors, including:

• Customer behavior
• Market trends
• Seasonal demand

For example, overstocking turkeys in January is as bad for business as running out in November. Similarly, selling high-end products in a low-income neighborhood puts you at risk of alienating customers.

However, things are rarely as straightforward. Several other variables can influence your decision on what to stock and when. These could include:

• Budgetary constraints
• Storage or shelf space
• Supplier relationships
• Inventory visibility

Why is assortment planning important?

Over the years, multiple experts have attempted to study why customers act as they do. While these professionals offer some valuable insight, there is no set guide. This unpredictability leads to many challenges in retail assortment planning.

With the wrong plan, meanwhile, you could be looking at:

• Hefty markdowns
• Slump in sales
• Unsold inventory
• Dissatisfied customers
• Insufficient storage space

A precise merchandise assortment plan reduces the likelihood of all these outcomes. It ensures customers stay happy, costs stay low, and profits grow.

What are the challenges of assortment planning?

Depending on your operations, assortment planning can be a challenge.

Retailers who sell many different types of items are particularly at risk. It's hard for such large organizations to stay agile and adopt new strategies. Restocking shelves alone requires days of labor and paperwork.

Omnichannel retail presents similar obstacles. Grocery stores that operate both in the online and offline world, must ensure that a consistency of goods is offered. Alternatively, they could choose to take different approaches to tackling each platform. Either way, both can be immensely challenging.

The biggest issue, however, is retailers' negligence regarding the importance of assortment planning. As a result, they continue to rely on outdated techniques and time-consuming manual practices.

A 2024 study found that a staggering 93% of retailers struggled with planning merchandise assortment. Many indicated that the next step was to invest in product assortment optimization.

Best practices for retail assortment planning

What areas will this investment primarily go into? Consider some practices associated with thoughtful assortment planning.

1. Leverage data to make smarter decisions

Most retailers​​—62% to be precise — plan to invest in a data analytics solution. This software can improve operational efficiencies and transform merchandise and assortment planning.

How? For one, it improves demand forecasting, allowing stores to assess better what customers want.

Beyond that, inventory turnover and historical data give you a comprehensive view of your sales. This allows you to identify high-performing products, slow-moving ones, and local buying habits.

Recently, both Walmart and Amazon announced plans to invest in data analysis. Amazon’s advanced algorithms will help it tailor stock to regional preferences, and Walmart will use data to ensure the needs of niche communities are met.

This isn’t out of reach for small stores either. With advanced management software, you can leverage AI and machine learning to make data-driven decisions.

When it comes to ecommerce solutions,  Wave Grocery’s solution, for instance, offers crucial reports for your ecommerce shop, including data that can ease your online store assortment planning.

2. Study demographics and customer behavior

Every grocery store has loyal customers, and that’s great. Building relationships with the community is a great way to earn goodwill and profits.

A successful assortment plan relies on understanding your audience at a granular level.

Customers can be segmented based on income, profession, marital status, hobbies, and more. This helps you tailor product offerings and promotional campaigns to different customer groups.

Once again, gathering and analyzing data helps refine this strategy.

3. Balance evergreen and seasonal products

Seasonal trends determine what items to stock. Holiday items sell out fast, especially when introduced at the right time. Similarly, trending goods—like the latest square croissants—attract more customers.

However, remember that evergreen products account for a significant portion of sales. Striking a balance between the two is a crucial aspect of product assortment planning.

Both could even complement each other. For example, a Thanksgiving turkey could be sold beside carving materials or a roast pan.

Examples of effective assortment plans

While crafting your assortment plan, you may choose to find a unique solution. Or, you could borrow from one of many tried-and-tested approaches. Examples include:

• Deep assortment: A grocery store could offer a wide range of products that fall into a specific category. For example, it could stock multiple brands or flavors of cereal, chocolate, or canned goods. Stores that cater to a niche audience—such as health enthusiasts—may adopt such a model.
• Narrow assortment: On the flip side, stores with little storage space may choose to stock a limited variety of products. This strategy also helps promote the sale of targeted items — such as a supermarket’s product label.
• Wide assortment: A grocery store could also decide to stock several categories of products but with limited options. They could offer limited quantities of fresh, packaged, frozen, and non—food foods.

Local-based assortment planning

Local-based assortment planning involves tailoring the selection of products in each store based on factors such as geographic location, neighborhood demographics, and customer preferences. It allows retailers to create a personalized shopping experience for their customers, which can foster loyalty.

Understanding the unique characteristics of each neighborhood helps businesses stay relevant to their audience and stand out from competitors.

Key considerations include:

• Geographic location and neighborhood demographics: Different regions have different consumer preferences.
• Customer preferences: Varying needs across neighborhoods require different product assortments.

For example, a store located in a high-income neighborhood might stock premium or luxury products, whereas a store in a more budget-conscious area would focus on affordable alternatives. By customizing the product offerings to match local demand, retailers can improve customer satisfaction and boost sales.

This approach also considers the different needs of each community. For example, stores in cities might stock more trendy, quick-grab items for busy professionals. In contrast, stores in suburban or rural areas could focus on family-friendly products or gear for outdoor activities.

Another critical aspect of local-based assortment planning is understanding each neighborhood's cultural and demographic makeup. For example, ethnic grocery stores often stock products catering to the community's tastes, ensuring their offerings resonate with local preferences.

By leveraging data on local demographics, purchasing behavior, and cultural influences, retailers can fine-tune their assortments to ensure they meet the needs of the consumers in that area. This localized approach helps businesses connect more deeply with their customers and can lead to higher conversion rates and stronger brand loyalty.

Local-based assortment planning helps meet customers' immediate needs and allows retailers to respond quickly to changes in local trends and seasonal shifts. It will enable stores to adjust their products to match emerging consumer behaviors, such as changing fashion preferences, seasonal demands, or even regional events.

This adaptability helps stores stay competitive and better serve their local customers, making it an essential strategy for sustained success in retail.

Wave Grocery: supporting your different product lists per store

There’s no denying assortment optimization in retail can be complicated — especially without the right tools.

Micro fulfillment centers (MFCs) are compact, highly automated warehouses built to efficiently process e-commerce orders, often positioned near customers to enable quicker deliveries.

Wave Grocery repurposes physical stores as MFCs, taking advantage of their current infrastructure to enhance operational efficiency, eliminating the need for dark hubs. This is a big step since dark hubs can incur higher operational costs, limit product variety, complicate scalability and logistics, and may negatively impact customer experience.

These stores, however, may offer varying assortments and product lists based on location and customer preferences. To address this challenge, Wave Grocery enables centralized management of multiple product lists. For instance, different product lists can be bulk uploaded and managed by the e-commerce business unit, ensuring uniformity and control across all locations.

However, due to different assortment planning strategies, each local store may offer a distinct range of products even within the same neighborhood.

With Wave Grocery, it's possible to onboard multiple stores without any issues, each catering to a different region.