Product Assortment Planning: Key Principles, Methods, and Stages for Retail Businesses

Introduction to Assortment Planning

Assortment planning is a core element of any retail company’s commercial strategy. The way a product mix is structured directly impacts profitability, customer loyalty, and overall competitiveness.

This process involves analyzing demand, seasonality, market trends, and the characteristics of each store. Modern retailers are moving away from intuition-based decisions toward a data-driven approach, which allows them to build an optimal assortment structure aligned with target audience needs and business goals.

To automate this process, retailers increasingly rely on assortment management systems that analyze sales, category performance, and demand dynamics. Solutions such as ABM Assortment enable transparent decision-making, reduce human error, and make assortment management more predictable and profitable.

Definition and Types of Product Assortment

A product assortment is the complete set of goods a company offers to customers over a specific period. Effective assortment formation determines how well a business satisfies customer demand and retains its market position.

There are several key types of assortments:

• Wide assortment – includes a large number of product categories;
• Deep assortment – provides multiple variations or models within a single category;
• Complete assortment – covers all product groups offered in a store.

A well-structured product assortment helps balance profitability, turnover, and customer satisfaction.  

Assortment Classification by Category, Width, and Depth

Assortment classification helps organize products and establish a clear management structure.
Main parameters include:

• Categories – product groups by purpose (e.g., food, household chemicals, cosmetics);
• Assortment width – the number of product groups presented in the store;
• Assortment depth – the number of variations within each group.

The wider and deeper the assortment, the more flexible the company is in meeting customer needs — but the more complex inventory control and profitability management become.

Product Assortment in Retail and Wholesale

In retail, assortment formation in a store is based on the analysis of consumer demand, habits, and preferences. It’s important to consider the store format, location, seasonality, and income level of the target audience. The assortment should strike a balance between everyday demand products and new arrivals that attract attention and drive engagement.

In wholesale, the assortment follows different principles. The main goal is to ensure stable supply for partners and maintain an optimal assortment formation process for different market segments. Long-term contracts, logistics conditions, standardization, and assortment flexibility play a key role in meeting customer needs and sustaining reliable operations.

Factors Influencing Assortment Formation

The product assortment structure of an enterprise depends on numerous factors — from market conditions to internal company goals. In practice, it’s essential to consider both external elements (suppliers, competitors, consumer behavior) and internal capabilities (sales area, logistics, warehouse capacity, purchasing policy).

Effective assortment management requires continuous data analysis: which products are in demand, which categories generate the most profit, and which items need to be revised. This ensures that assortment decisions are made systematically rather than intuitively — supporting business efficiency, sustainability, and profitability.

Principles of Product Assortment Formation

The process of assortment formation is based on several key principles that help companies maintain a balance between profitability, demand, and purchasing efficiency.

The Pareto Principle

In retail, the Pareto Principle (80/20) is widely used: 20% of products generate 80% of profit. Analyzing these high-performing items allows businesses to focus on the key categories that drive most of their revenue.

An effective assortment management system should take this balance into account — developing high-margin products while optimizing weaker positions that do not significantly affect results.

Balance Between Assortment Groups

Efficient assortment planning is impossible without maintaining balance between different product groups. It is important to combine basic and premium items, mass-market and seasonal products, new arrivals, and long-term bestsellers.

Understanding the Target Audience

Customer orientation is a key principle of modern assortment management. The assortment should reflect demand patterns and the characteristics of the target audience — including age, income level, lifestyle, and buying behavior.

Understanding these factors helps determine which products should be added to the assortment and which should be excluded. To systematize this process and make data-driven decisions, companies rely on category management, which allows them to base decisions on analytics rather than intuition.

Methods of Assortment Formation

Assortment formation methods define how a company creates, updates, and controls its product portfolio. The chosen approach directly impacts sales stability, product relevance, and purchasing efficiency.

Two Key Approaches to Product Line Formation

 There are two main approaches to product assortment formation: 

• Empirical approach – based on managers’ experience, observations, and expert judgment. It is typically used in small stores with a limited product range. 
• Analytical approach – relies on data such as sales figures, profitability, turnover, and demand elasticity. It is applied in retail chains and large trading companies. 

Modern technologies make it possible to combine both approaches, creating a flexible decision-making model that unites professional expertise with data insights. 

Assortment Analysis Methods (ABC, XYZ, and Others)

To evaluate assortment performance, various analytical methods are used: 

• ABC analysis – identifies products by profitability or turnover level; 
• XYZ analysis – measures demand stability; 
• RFM analysis – evaluates customer purchasing behavior based on recency, frequency, and monetary value. 

These methods help determine which products should be supported and which require review. As part of the assortment planning process, they enable systematic inventory and category management. 

Step-by-Step Development of an Assortment Matrix

The assortment matrix is one of the core tools of effective assortment management. It involves analyzing sales, segmenting categories, setting priorities, and monitoring the execution of assortment strategy.

To simplify this process, companies increasingly use automated solutions, such as the Assortment Matrix module in ABM Assortment. It helps build a clear logic for distributing products across stores and clusters, increasing transparency and management accuracy.

Specifics of Assortment Formation in Different Retail Formats

The assortment formation process varies depending on the business format. Approaches that work well for a supermarket are not always suitable for wholesale operations. It is therefore essential to consider the company’s goals, sales volumes, customer structure, and logistics specifics.

Retail: Key Features and Marketing Tools

In retail, the assortment must be strongly customer-oriented. Variety, accessibility, and visual presentation of products are all crucial. Assortment planning in a store involves demand analysis, category management, and regular updates to the shelf layout. 

Marketing tools — promotions, cross-selling, merchandising, and visual display — help stimulate sales and increase customer loyalty. 

Wholesale: Working with Suppliers and Managing Large Batches

In wholesale trade, assortment planning focuses on stability, reliability of supply, and purchasing optimization. The goal is to maintain an optimal number of product groups while minimizing excess inventory.

Assortment management processes include analyzing supplier cooperation terms, monitoring prices, and selecting products based on turnover and profitability. Analytical systems such as ABM Assortment help monitor category shares, profit margins, and stock movements across the entire distribution network.

Assortment Optimization

Even a carefully designed assortment requires continuous optimization. Over time, consumer preferences, prices, and market dynamics change — so regular review is essential to maintain profitability and healthy turnover.

Reducing Outdated Products and Excess Stock

The main goal of optimization is to identify products that lose relevance, occupy warehouse space, and tie up working capital. Sales, turnover, and profitability analysis helps identify such items and decide whether to reduce, replace, or remove them.

Automated solutions such as assortment optimization systems allow retailers to conduct this analysis systematically — without manual spreadsheets and with full consideration of factors such as seasonality, region, and product category.

Analyzing Assortment Performance

Assortment effectiveness can be evaluated through several key metrics: the share of profitable SKUs, turnover rate, and presence of stockouts or overstock.

Using analytics helps not only improve the assortment structure but also increase profit margins. For example, the BI module in ABM Assortment consolidates all data in one interface, enabling real-time tracking of trends, profitability, and sales dynamics.

Examples of Optimization

In retail practice, optimization often involves replacing low-margin products with more popular ones, removing duplicate SKUs, and expanding categories that show consistent growth.

Systems like ABM Assortment automate this process — analyzing category performance, suggesting which SKUs to remove or introduce, and helping maintain an optimal assortment structure that drives sales and profit growth.

Common Challenges in Assortment Formation

Even with a well-defined strategy, companies often face difficulties in managing the assortment. Mistakes at this stage can lead to profit loss, overstocking, or decreased customer satisfaction. Below are the most common challenges retailers encounter.

Uneven Demand

One of the most frequent issues is demand fluctuation. Some products sell out quickly, while others remain unsold for long periods. Without systematic analysis and forecasting, this results in stockouts or excess inventory.

Lack of Responsibility for Assortment

When no specific specialist is responsible for the assortment, decisions tend to be made chaotically. This reduces control and makes the process dependent on individual intuition.

Assigning a dedicated category manager and implementing category management helps structure the process, define responsibilities, and ensure transparency.

Supply Chain Challenges

Delays, disruptions, and logistics errors often make it difficult to maintain a stable assortment — especially in categories like food or everyday consumer goods.

To minimize these risks, companies need a flexible supplier interaction framework and reliable analytics tools such as ABM Assortment to control stock levels and supply stability.

Outdated Assortment

Over time, certain products lose demand. Without regular performance analysis, these items continue to occupy warehouse space and slow down capital turnover.

The solution is regular assortment structure evaluation and automation of low-turnover SKU detection. The “SKU Discontinuation Recommendations” module in ABM Assortment helps businesses identify such products and maintain a relevant assortment mix.

Seasonality and Crisis Factors

Unpredictable market changes, inflation, currency fluctuations, and crises directly affect demand and product availability. To stay adaptive, companies must quickly analyze data and adjust their strategy.

A data-driven assortment formation system powered by analytics and machine learning helps respond to these changes in time — adjusting stock levels, category focus, and business priorities accordingly.

Assortment Automation with ABM Assortment

Manual assortment management can no longer keep up with the growing volume of data, the speed of market changes, and the number of factors influencing demand. That’s why more and more retailers are moving toward automation. ABM Assortment is a solution that combines analytics, planning, and assortment management in a single interface. 

The platform automates all key stages — from sales analysis and priority setting to strategy execution control. The system includes: 

• Dashboard with revenue and profit dynamics, store rankings, and flexible reporting; 
• Assortment Matrix, where managers control product distribution across stores and clusters; 
• Classification and Clustering tools that simplify working with product attributes and nomenclature; 
• Strategy Module based on real sales data and market trends; 
• BI Module for in-depth analytics and performance monitoring. 

The result is a transparent, manageable, and profitable system that reduces human error and speeds up decision-making. Automation helps retail chains and trading companies maintain an optimal assortment, avoid stockouts and overstocks, and increase both turnover and profit. 

If you want to move from intuition-based management to a data-driven approach, you can purchase the ABM Assortment system and integrate it into your business processes.