Assortment Strategy

What Is an Assortment Strategy?

An assortment strategy is the set of decisions a business makes about the range of products it sells. It covers which items to carry, how many different products to offer within each category, and how many units of each to keep available. The term is used most often in retail, where stores and online sellers must decide what goes on shelves and into their catalogs. Manufacturers and wholesalers use similar planning when deciding which product lines to produce.

Key Dimensions

Retailers often describe their range using two measures. Width is the number of different product categories carried. Depth is the number of options within a single category, such as sizes, colors or flavors. A store can be broad and shallow, carrying many categories with few choices in each, or narrow and deep, focusing on a few categories with extensive selection.

Other common choices include:

• Core products that are stocked continuously
• Seasonal or trend items that rotate in and out
• Private-label goods that the retailer produces under its own brand
• Localized selections tailored to particular stores or regions

How It Is Applied

Assortment decisions draw on sales history, profit margin data, inventory costs and customer research. A retailer might drop slow-moving items to free shelf space and working capital. It might also add products that attract shoppers who then buy other goods. Many retailers use a tiered approach, keeping a stable core while testing new items in a limited number of stores before expanding them. This is often called a test-and-learn process.

Why It Matters to Investors

A company's assortment choices affect its sales mix, gross margin and inventory levels, all of which appear in financial statements. Heavy inventory of unsold items can lead to price cuts called markdowns, which reduce profit. A range that is too narrow may lose customers to competitors. Investors often examine how well a retailer manages its product mix by reviewing inventory turnover, margin trends and management commentary on merchandising. Changes in assortment strategy can signal a shift in a company's focus, such as moving toward private-label goods or exiting a product category.