Assortment planning in fashion retailing: methodology,application and analysis |
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| Institution: | 1. The Australian National University and CSIRO Data61, Canberra, Australia;2. Melbourne Business School, The University of Melbourne, Australia;3. Milton Stewart School of Industrial and Systems Engineering, Georgia Institute of Technology, USA;1. Department of Industrial Engineering, Tsinghua University, Beijing, China;2. School of Industrial Engineering, Eindhoven University of Technology, Eindhoven, Netherlands;1. Harold Simmons Chair and Professor of Marketing, Edwin L. Cox School of Business, Southern Methodist University, Dallas, USA;2. Professor of Marketing, School of Economics and Business, University of Almería, Agrifood Campus of International Excellence ceiA3, Almería, Spain;3. Professor of Business Administration, School of Business, University of Granada, Spain and Guest Researcher, EAE Business School, Barcelona, Spain |
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| Abstract: | Assortment planning is the process conducted by the retailer to determine the number and types of products in a line. Key questions that arise in this process include choosing the inventory depth and variety breadth, and the mix between basic and fashion merchandise of the assortment to maximize expected profits. We describe a method for resolving these questions. Using demand forecasts derived from historical sales patterns, we use a nonlinear integer programming model to make the assortment choice. Efficient heuristics are developed to solve this problem. We applied our method at a large catalog retailer specializing in women’s apparel. We compared our method to the existing rules used by this retailer and found that it could choose the assortment in a manner that reduces markdowns due to excessive inventory and lost margins due to stockouts by enough to increase profits by at least 40%. Insights are developed to better understand why products are included in an assortment and the implications of this choice on the realized profit. We extend our model to include shelf space constraints and the effect of assortment choice on product demand. |
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