Why Depth is the first place to trim the fat

As noted, "trimming the assortment" is a mandatory response to the current economic outlook. Even if you don't grasp it as a strategy, you're going to be doing it as a necessity. Retail open-to-buy is a function of sales, inventory, and markdowns. Period. Inventory has to be planned at or around it's most limiting levels (turns and sell throughs for entire categories will be planned at rates usually achieved only for high performing SKU's). Sales must be planned conservatively (missing sales estimates in a comp decrease environment just doesn't fly culturally within retail....very different from missing on the upside during growth periods). Markdowns will be curtailed because drops in gross margin volume have to be made up by basis point improvements in the gross margin percentage. All of which means, mathematically, that there are significantly fewer open-to-buy dollars than ever before. Never, in our recent past, have all three dynamics been required for competent merchandise and financial planning. So....you really will be trimming your assortment, if only because you are most certainly going to be buying less.

Depth, inherently, is desirable to give the consumer choices. Sometimes, these choices are required because of brand strength on the supplier side. Inflexible brand loyalties require retailers to carry more depth than they would like. If they don't the loyalists to those brands will go elsewhere to find them, even if the merchandise offered from an alternative brand offers essentially the same value delivery. Sometimes depth is required to demonstrate a competitive advantage and establish the retailer as a destination source, without respect to the consumer's actual behavior. Big box category killers have long taken as gospel that a critical mass of depth exists to provide that competitive advantage needed over mass merchants. Sometimes depth seems to be required because of perceived diversity in the products offered by various suppliers. If sufficient variation exists in feature-bundling, it's easy to believe that depth is required in order to effectively serve the market.

In a recessionary environment, depth is not only unnecessary, it's fatal. However you segment your demand, it is sufficient to offer limited choices within each segment. The key, as noted an earlier blog, is the ability to offer choices which adequately address the real needs of each demand segment. If you've done your job as merchants correctly, you don't need a large number of choices in a given price point/dominant/subcategory....you need the right set of alternatives. Invested in too much, depth will result is a significant truncation in the breadth of the assortment. And the breadth of the assortment is the element which broadens the potential demand base. A crucial fact in recessions is that there are fewer dollars being chased for each and every demand segment. Depth will not change this. It may create a destination purchase position for that one demand segment.....but if that demand segment is shrinking, the share increase needed to justify the depth is almost never delivered.

If this sounds too esoteric, look at it this way. When fewer dollars exist to support consumer spending, each consumer is going to seek, in her own way, to maximize how those dollars are spent. Segmenting demands enables the retailer to offer each segment a specific and compelling value proposition made real by a specific product. Choices offered around that product serve only to validate the consumer's choice. And this is a murderously expensive marketing decision. Slow turning inventory justified by it's ability to make a key item that much more desirable is the stuff of years past. Not now. Each dollar in your assortment HAS TO WORK FOR YOU....and not be justified "strategically".