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Are retailers’ assortments too big? How much newness is right?

We investigate how size of assortment has grown in apparel retail in the last two years, looking at how increase in new drops have effected discounting and sell through rates.
Are retailers’ assortments too big? How much newness is right? | EDITED
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E-commerce has made it easier than ever to get new products in front of consumers. Updating an online store weekly, or even daily, is far easier than re-merchandising a physical retail space and the demand and ever-changing tastes that social media creates means consumers are hungry for frequent newness. Retailers grow their assortment in attempt to satisfy the demand, touting their broad assortments whilst clamoring for attention in a crowded market space. But have retailers’ assortments got too big? Here we investigate how numbers of products have changed in the last two years, and how it affects retailers’ profits. 

For the purpose of this article, we’ve compared five high street retailers: H&M, Zara, Topshop, New Look and River Island. Zara, despite being the world’s largest apparel retailer, has the smallest number of options* currently online. On the other hand, H&M has the second fewest options of the five, and is the world’s second largest retailer. Not a coincidence, our statistics say a lot.

Next we’ve compared the number of new products arriving each month from Zara, H&M, Topshop, New Look and River Island. Although Zara has the lowest number of options online, they have increased the rate of new drops by 72% in Jan-Mar ’14, compared with Jan-Mar ’12. Zara also has one of the lowest rates of big reductions: only 0.5% of its current offering is reduced by 50% or more. H&M has also increased new the number of new arrivals in the given period by 45%.

Only New Look dropped their rate of newness, down 12% from two years ago. The retailer announced slowed sales growth in the three months to 28 December 2013, which can account for their decreased spend in the first quarter of 2014. Topshop has grown new arrivals by 8.3% and River Island by 8% in the Jan-Mar ’14 period compared to the same period two years ago.

A simple measure of increase or decrease in new arrivals can be further analyzed and understood when price architecture is compared. We’ve noticed similarities in price strategy at retailers who have increased their assortment, as well as those who have dropped it. Over the last two years, Zara, New Look and River Island have all taken emphasis away from the lowest price points of $1-$25, and scaled up on the next two price brackets – $25-50 and $50-75. Building into the mid range here could be a sign of increased consumer confidence when shopping online – moving away from accessories and cheaper items and displaying shopping behaviors more inline with the in store experience.

Balancing between arrivals and discounting

However, increased new product arrivals are not necessarily a sign of strength. Many retailers who raised the number of new products arriving into store have also raised the total number of products they discount. H&M’s 45% increase in new drops is met with a 154% increase in products being discounted in the three-month period. Topshop, who grew their new products by 8.3%, see discounting up by 59.7%. And New Look, with their 12.2% reduction in new product, still sees their discounting grow by 43%.

Yet discounting should not always be looked upon negatively – well planned promotions and measured reductions will help move product at a healthy rate. Topshop’s 59.7% increase in discounting and 8.3% increase in new products arriving into stores over the three month period has resulted in a 142% increase in number of products selling out. H&M’s 45% increase in new products and 154% increase in discounting has only resulted in a 20% lift in sell outs – evidence that the increase in assortment has not been a huge success for them.

Zara and River Island are two retailers who stand out as having good strategy around size and timing of their offering. Zara has raised the number of new products by 72% whilst dropping the number of products on discount by 72% too. The knock on effect of this is a 52% decrease in sell outs. River Island’s strategy also stands out: from Q1 2012 to Q1 2014 they increased their offering by 8% but brought discounting down by 23% and increasing the number of sell outs by 644%! Their model is definitely worth other retailers investigating.

Number of options cannot be used as the sole gauge of whether a retailer has a good assortment. Careful analysis of new drops, rates of discounting and sell out rates say a lot more about the success of a retailer’s product offering than a raw count of its scale.

*Options represent the number of variations (e.g. colors/patterns) at each price point.

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