What kind of assortment positions become residues? How can I prolong the effect of liquidity models? How does the balance of the assortment affect overstock? These difficult questions are answered by Galina Kravchenko, a leading expert on the assortment and forecasting trends of Fashion Consulting Group, head of the FCG representative office of the international trend bureau FASHIONSNOOPS.COM.
Director of the Assortment Department, Fashion Consulting Group, representative of the international online trend bureau FashionSnoops.com.
@ galina_kravchenko79, @fcgmedia
Optimization of balances is, first of all, optimization of the assortment purchase. Today it is important to balance the assortment of previous seasons with the new purchase models. During the previous economic downturn 2008-2009 years. The key mistake of shoe retailers was the exclusion from the assortment of models that were more risky in purchasing: trend, color, and avant-garde. The absence of such innovations affected the sales in the stores of the “medium” and “premium” segments most strongly, as they offered mainly basic models, and such an assortment was already in the wardrobe of buyers of this price niche. Thus, the new boring basic collections did not arouse consumer interest. This experience of previous periods must be taken into account today. It is important to note that this applies to retailers of all price segments.
To properly balance the risks in the procurement, we developed the FCN 3D matrix of the assortment, which was described in detail in the previous issue of SHOES REPORT (127), in the article “Balanced Assortment - Recipe for Anti-Crisis Optimization”. For accurate gradation of models into clusters in the 3D matrix of the FCG * assortment, 2 of the article grouping principle intersect:
- according to risk reduction criteria;
- according to the criteria “food mix”.
Such a tool allows you to clearly build a procurement strategy. Here are two options (leading among FCG customers) that allow you to optimize your procurement strategies by narrowing the range. Both of them suggest that the company retains the purchase of key subspecies of the Core Product assortment (50-60% of VP), while optimizing less significant groups, such as the “Core Product Extension” (20-30% of VP) - products that complement the main line goods, as well as the “Additional Assortment” (not more than 10% of VP) - subspecies of the assortment that make the store’s space more lively and mobile, which, of course, positively affects sales. For example, in terms of an additional assortment for shoe stores, you can use a group of textile accessories (scarves and stoles), as well as jewelry.
Strategy - keep balance of all risk groups
The first option assumes that, despite the narrowing and / or optimization of the assortment according to the Product Mix criterion, the company, nevertheless, retains in the assortment structure an effective combination of models of varying degrees of risk: volume drivers, must haves, high risk. It is important to understand that the volume drivers group is not just a basic assortment. These are exactly the models, drivers of profit and sales, which are successful in your specific business format. In another shoe store, such models may not occupy leading lines in sales. For example, ALL STAR sneakers are models of volume drivers in ADIDAS, but they will not be such in the format of Econika women's shoe carts.
Strategy for a shoe company specializing in women's heels
In the spring-summer collection for this company are the key CORE PRODUCT models: pumps, opera shoes, and sandals. That is why all types of assortment will be represented by all three risk groups (volume drivers, must haves, high risk), due to which we will see a rich color palette of both basic and summer shades, various decors, as well as different heel heights. As for the models expanding the key range of the company, here we will see shoes and wedge sandals, in a smaller number of products in the line, however, with the adjusted correlation of basic and trend colors preserved.
In addition to the above, in the assortment will also be presented several models of hybrids (symbiosis of sandals and ankle boots). As models of an additional assortment, these products will be presented in a minimal amount. However, even this group will offer color solutions for the articles must have and high risk.
The criteria by which models / articles can be attributed to different groups of “risk” in the purchase.
• often purchased assortment, basic wardrobe models of the brand’s target audience
• an exact copy of successful models and designs of previous seasons
• best-selling solutions in designs, soles (heel height, materials and sole shapes), materials, colors, patterns and prints
• new articles, updated models of the season
• can repeat the designs of volume drivers models, but with the introduction of changes: in color, sole, texture of material, pattern / print, decoration
• differ in the use of commercial fashion trends that the target audience is ready to buy
• fundamentally new models in the collection
• rarely repeat the designs of models of previous seasons
• may include models proposed for special events and models to attract the attention of the buyer
• models are developed on the basis of the newest trends that the target audience is ready to accept
• as a rule, the trend is demonstrated due to the novelty and / or combination of model parameters: design, color, pattern or print, texture of the material or decorative finish, as well as the shape of the heel or sole
Strategy - we reduce more risky groups
The second option assumes that the company is reducing the most risky positions in less profitable product groups.
Strategy for a shoe company specializing in women's heels
If we continue the example with a company specializing in women's heel shoes, then ballet shoes will be models expanding the main assortment. In this case, the assortment will remain the volume drivers flats in the palette of gray, beige, white and black. Also in the assortment will remain ballet shoes must have in turquoise and coral colors. However, models of ballet shoes with trend fittings or, for example, will not be purchased in yellow. Oxfords with flat soles as a subspecies of the assortment are assigned by the company to the “Additional assortment” group, and that is why I will be purchased exclusively in the volume drivers group in classic colors - brown, fawn and black.
Liquidity is an economic term for the ability of an asset to be quickly sold. Liquid - convertible into money. Typically, inventory is divided into highly liquid, low liquid and illiquid. The easier and faster you can get the full value of an asset, the more liquid it is. For shoes, liquidity will correspond to the speed of its implementation at the initial seasonal price.
The higher the sales rate (the number of sales per day), the lower the stock balances at the end of the season. Thus, liquid inventory will be fully sold. We will sell low-liquid inventory using promotions in the current season or transfer to the next.
And the illiquid, that is, unsold inventory is models with a defect or spoiled during the fitting or sale. Also, "stocks" arising from errors in the formation of the order are referred to the illiquid assortment. The so-called “buying errors” are models that do not correspond to the taste preferences of the buyer. It is optimal to remove such models from the trading floor and not transfer them to the next season, since sales promotion has practically no effect on their sales.
Seasonality - Sales Engine
You can consider the liquidity of shoes in terms of the seasonal factor. The residual liquidity of shoes is often the liquidity of inventory in models that sell well in August and are not needed by the buyer in October. This is a criterion for assessing the liquidity of shoes, which is due to the changing seasonal demand for it due to the climatic features of Russia.
It is to increase the liquidity of inventory during the season that it is important to manage seasonal groups in the assortment of shoes. In connection with a change in the temperature regime in each of the sales seasons (spring-summer, autumn-winter), seasonal groups of shoes are allocated according to 3, each of which is liquid strictly during a certain period of the season when the consumer is interested in buying it. Moreover, at the end of the active sales period, the liquidity of the seasonal group decreases.
For effective work, a schedule of an active sales plan for seasonality groups is compiled (below, Table 2 gives an example of a schedule for an active sales plan for seasonality groups). This helps to clearly see the priorities in each time period of the season. In periods of active sales, sales of these types of assortment predominate. The decrease in indicators in these groups affects the decrease in sales in the shoe store as a whole. It is important to sell the assortment of seasonal groups in the planning period, which is due to seasonal demand. For each of the regions of Russia there are individual periods of seasonality, depending on the climatic characteristics of a particular region.
For the assortment of a seasonal group that has entered the phase of active sales, careful planning of turnover, rationing of inventory, careful (daily) accounting and control, and a constant analysis of deviations from planned indicators are necessary. All types of assortment of the priority group in the specified period must be constantly present in the store in sufficient quantity.
Active measures to manage the target assortment in the active phase of sales help prevent excess balances at the end of the season and optimize gross profit margins in the season. If you stimulate the sales of the shoe group in August and early September due to visual merchandising and special motivation of sellers, this will allow you to more effectively reduce balances at the end of the season than lowering the price of shoes in January by 50%.
The experience of implementing FCG assortment management consulting projects shows that the schedule of priority sales by seasonality groups, as a planning tool, works very efficiently and allows you to:
- prioritize the management of assortment groups during periods of active sales;
- prolong the period of active sales due to timely sales promotion;
- indicate the starting point of non-price advance sales promotion of less liquid models;
- plan a period when you can start price stimulation.
FCG regularly conducts a training program for shoe retail specialists on the topics “Anti-crisis program for optimizing the range of footwear” and “Shoe business. Minimization of balances <in retail trade. "
An example of active sales of seasonality groups in the Central region for Women's shoe store WOMEN STYLE. Season Period - August-December
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