Assortment Rotation and the Value of Concealment

by Kris Johnson Ferreira and Joel Goh

Overview — Assortment rotation is the retailing practice of changing the assortment of products offered to customers throughout a selling season. It is used by both brick-and-mortar and online retailers as a strategy for gaining competitive advantage. This paper studies assortment rotation in product categories such as apparel, accessories, and toys, where consumers typically make multiple purchases during a season. The authors identify and explain a new reason for retailers to frequently rotate their assortment: Consumers may purchase more products throughout the selling season if a retailer conceals a portion of its full product catalog from consumers by rotating its assortment. Aside from its scholarly contributions, the paper provides practical insights to retailers to guide their assortment rotation strategy decisions.

Author Abstract

Assortment rotation—the retailing practice of changing the assortment of products offered to customers—has recently been used as a competitive advantage for both brick-and-mortar and online retailers. Fast-fashion retailers have differentiated themselves by rotating their assortment multiple times throughout a standard selling season. Interestingly, the entire online flash sales industry was created using this idea as a cornerstone of its business strategy. In this paper we identify and investigate a new reason why frequent assortment rotations can be valuable to a retailer, particularly for products where consumers typically purchase multiple products in a given category during a selling season. Namely, by distributing its seasonal catalog of products over multiple assortments rotated throughout the season—as opposed to selling all products in a single assortment—the retailer effectively conceals a portion of its full product catalog from consumers. This injects uncertainty into the consumer's relative product valuations since she is unable to observe the entire catalog of products that the retailer will sell that season. Rationally acting consumers may respond to this additional uncertainty by purchasing more products, thereby generating additional sales for the retailer. We refer to this phenomenon as the value of concealment. A negative value of concealment is possible and represents the event that rationally acting consumers respond to the additional uncertainty by purchasing fewer products. We develop a consumer choice model and finite-horizon stochastic dynamic program to study when the value of concealment is positive or negative. We show that when consumers are myopic, the value of concealment is always positive. In contrast, we show that when consumers are strategic, the value of concealment is context dependent; we present insights and discuss intuition regarding which product categories likely lead to positive vs. negative values of concealment.