I remember sitting in a makeshift office in the back of our New Jersey fulfillment center in mid-January last year, staring at a warehouse floor that looked more like a game of Tetris gone wrong. We’d just survived a staggering 5.3x return spike during the BFCM rush, and the physical reality of a bottleneck wasn't just a metaphor—it was a literal wall of cardboard blocking our outbound lanes. My merch lead kept asking why we were out of stock on navy hoodies while we had three aisles full of neon green beanies that nobody wanted. It’s a moment every operator dreads. It’s also the moment you realize that your retail assortment plan isn't just a spreadsheet; it’s the heartbeat of your liquidity. If you aren't obsessing over the "width" and "depth" of your product mix, you aren't running a business; you’re just managing an expensive storage unit until the wheels fall off.
Defining the Core: What is Assortment Planning in Retail?
If you're new to the operations seat, you might ask, "what is assortment planning in retail" beyond the industry jargon? At its most fundamental level, it’s the strategic selection of what you’re going to sell, when you’re going to sell it, and how much of it you’re going to buy. It’s the connective tissue between your marketing dreams and your warehouse reality. To define assortment plan logic is to manage the balance between "Assortment Breadth" (how many different types of products you have) and "Assortment Depth" (how many units of each product you carry).
But what is an assortment plan when you’re actually in the weeds? It means choosing the right SKUs so you don't end up with $400,000 in cash rotting on a shelf in a ShipBob warehouse. (In my opinion, if you don't have a clear answer for why every SKU exists in your catalog, you're just paying a "storage tax" on your ego).
Now the logistics math that matters: every SKU added to your retail assortment plan adds complexity to your pick-and-pack operations. More SKUs mean more bin locations, more cycle counts, and more opportunities for a warehouse associate to pick the wrong size. I recall an anecdote from a beauty brand in 2024 that doubled their breadth to "capture more market share." They ended up with 400 SKUs but only enough labor to accurately track 150 of them. Their "Shipment Exception" rate spiked by 12%, and they lost approximately $80,000 in LTV because customers received the wrong shades of foundation.
The Strategy of Selection: What is Assortment Planning in Merchandising?
So, what is assortment planning in merchandising when it comes to long-term growth? It’s a game of pattern recognition. You’re looking for the "Hero SKUs" that drive 80% of your revenue while pruning the "Laggards" that just take up expensive real estate. This is often referred to as merchandise and assortment planning, a holistic approach that ensures your financial goals align with your physical stock.
When people ask what is assortment planning, I always tell them to start with the "Hierarchy." You break your catalog down into Departments, Classes, and Sub-classes. This allows you to see if you’re over-invested in a specific category. For example, do you really need six different shades of black leggings, or could you fulfill that demand with three? (Honestly, the "choice paradox" is real; too much variety often leads to lower conversion rates and higher return rates).
Here’s where ops breaks: many brands use a static plan they fill out once a year. But in 2026, a static assortment strategyis a death sentence. You need to be able to pivot. I recall an honest failure case with a wellness brand that committed to a massive production run of "Turmeric Lattes" because the trend was hot in July. By the time the product hit the shelves in January, the market had moved on to "Mushroom Coffee." They were left with 20,000 units of expiring powder that they eventually had to liquidate at a 70% loss via Optoro.
The Role of Insights: How Category Managers Use Pricing for Assortment
Modern assortment planning requires more than just looking at sales history. You have to understand the market's price elasticity. This is how category managers use pricing insights for assortment planning: by analyzing competitive data to determine if a specific price point is the reason a product isn't moving. If your $120 jacket is being undercut by a $85 competitor with similar quality, no amount of "space planning" will save that SKU.
Using assortment optimisation tools, retailers can simulate how price changes will affect the total volume and the "Halo Effect" on other items. If you drop the price of your core t-shirt, does it lead to more sales of your high-margin jeans?
Now the logistics math that matters: why is assortment planning important for your bottom line? It's about "GMROI" (Gross Margin Return on Investment). Every dollar tied up in a slow-moving sweater is a dollar that isn't working for you. (Parenthetically, I’ve found that the best category managers are the ones who treat their inventory data with the same intensity that a hedge fund manager treats their stock portfolio). But wait, there’s a trap. If your planning doesn't account for your return rates, your data is a lie.
The Reverse Loop: How Closo Solves Returns
This is exactly where the traditional assortment plan conversation usually stops—at the "Sold" column. But in modern DTC, the "Return" column is just as important. Traditionally, a return is a total loss of momentum. You ship the item back to a central hub (using Loop or Happy Returns), wait 14 days for it to be inspected, and eventually put it back in stock.
How Closo solves returns is by turning that "lost" inventory back into a "live" assortment almost immediately. Instead of shipping every return back to a primary DC, Closo routes items to local hubs.
We route eligible returns locally instead of sending everything back to the warehouse — cutting return cost from ~$35 to ~$5 and speeding refunds. By utilizing localized return hubs, we keep the what is assortment question dynamic. You aren't just buying new stock from a factory; you're "harvesting" existing stock from your return loop.
Comparison: Centralized Assortment vs. Localized Routing (Closo)
Why is Assortment Planning Important? The Strategic Cycle
To be successful, your assortment planning in retail must follow a specific cadence. It’s not a "set it and forget it" task. Most operators follow a "Pre-Season" and "In-Season" cycle.
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Financial Planning: How much total cash can we commit to inventory?
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Breadth vs. Depth Analysis: Are we going wide with many styles or deep with a few?
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Store/Node Clustering: Should our LA hub carry the same assortment as our NY hub?
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In-Season Optimization: Moving inventory between nodes based on real-time sales velocity.
Here’s where the logistics math that matters becomes undeniable: if you have the wrong assortment in the wrong place, you pay the "Double Shipping Tax." You ship an item to a customer in LA from your warehouse in Ohio, they return it, and it goes back to Ohio. Then, another customer in LA buys it, and you ship it from Ohio again. (I’m still uncertain why brands are comfortable paying $20 in freight for a $50 item, but I suspect it's because they haven't seen the localized alternative yet).
Common question I see: "How many SKUs is too many for a retail assortment plan?"
Operators always ask me... "Common question I see: We're thinking of launching 50 new colors. Is that too much?" My answer: Look at your "Pick Path" and your "Return Rate."
Every SKU you add increases the chance of a "Wrong Item Sent" error. If your assortment planning shows that your top 10% of SKUs generate 70% of your profit, adding 50 new colors is likely just adding "Assortment Noise." It dilutes your brand and clogs your warehouse. I recall an honest failure case with an apparel brand that had 1,200 SKUs. When they cut that down to 400 core items, their total revenue actually increased because they were never out of stock on their best-sellers. (The lesson: depth usually beats breadth in DTC).
Operators always ask me... "How do I use a retail assortment plan template effectively?"
Here’s something every ops leader asks. They download a retail assortment plan template and fill it with "Ideal" numbers. But your plan needs to be built on "Physical" numbers.
You must include a column for "Return Probability." If you know a specific dress has a 40% return rate (common in formalwear), you don't actually need to buy 1,000 units to fulfill 1,000 orders. You’ll fulfill a significant chunk of those orders from the return loop. If your what is assortment planning logic doesn't include the "Reverse Supply," you’re going to over-order and end up with a liquidity crisis.
This is where tools like Narvar and Loop provide the data you need. They tell you why things are coming back. If an item is being returned because it’s "Too Big," you don't just restock it; you adjust your merchandise and assortment planning for the next buy to favor smaller sizes. For a deeper look at this data loop, check out our brand hub
The Honest Failure: The Refund Delay Impact
I remember a specific case in 2024. A brand had a "perfect" assortment planning strategy. They had the right stock in the right amounts. But they ignored the "Reverse Logistics" leg.
During their peak surge, their 3PL hit a labor bottleneck. Returns weren't being processed for three weeks. Customers—who had paid $150 for boots—were waiting nearly a month for their money. This led to a 400% spike in customer support tickets. The "Refund Delay Impact" actually cost them more in brand reputation and lost future sales than they ever made on the initial orders.
By utilizing decentralized return hubs, you remove this bottleneck. The inspection happens within 48 hours. The refund is triggered. The customer is happy. And more importantly, that assortment is now "Live" in the local hub for the next buyer, rather than sitting in a dark corner of a warehouse in Ohio.
Conclusion: Turning Your Assortment into an Engine
Mastering your retail assortment plan is the difference between a brand that struggles during peak and a brand that thrives. It is the tactical heart of your business. But don't let the "planning" be your only focus. The physical movement of your assortment—especially your returns—is where the real margin is hidden.
While the centralized warehouse model served us well for a decade, the costs of shipping and labor have made it a bottleneck for growth in 2026. By combining the math of modern assortment strategy with the agility of localized, AI-driven routing, you create a supply chain that is virtually unshakeable.
We route eligible returns locally instead of sending everything back to the warehouse — cutting return cost from ~$35 to ~$5 and speeding refunds. Would you like me to run an "Assortment Velocity Audit" on your last 1,000 orders to see how much cash is currently trapped in your centralized return cycle?
FAQ
What is assortment planning in retail?
Assortment planning is the process of selecting the right mix of products (styles, colors, sizes) and determining the correct inventory levels for each to meet customer demand while maximizing profitability and minimizing stockouts.
Why is assortment planning important for DTC brands?
It prevents "SKU Proliferation" and ensures that working capital is tied up in products that actually sell. Without it, brands often face warehouse bottlenecks from slow-moving stock and miss revenue targets from being out of stock on core items.
