In today’s competitive environment, service-oriented retailers are faced with one important question: How can we deliver good service levels to our customers, while becoming more cost efficient at the same time? Superior levels of service to customers are necessary to differentiate these retailers from the strongly priceoriented chains, such as Aldi, Lidl, ASDA, Wal-Mart, and Colruyt. One key differentiator of service retailers is their assortment. In general, service retailers offer more national brands than discounters, and also a wider variety of products. However, offering more variety in products and brands has two important consequences. First, retailers are confronted with more costs in the supply chain, due to higher inventory, procurement, handling, and warehouse costs. Second, more variety also increases the probability that out-of-stocks (OOS) may occur, which may lead to customer dissatisfaction and (temporary) store disloyalty. As service retailers strive to compete with discounters on service, OOS can severely jeopardize their competitive position in the consumers’ mind.
It is therefore important for retail managers to manage their assortments in a professional manner (see, e.g., Broniarczyk, Hoyer in this book). In managing the assortment they must strive for an optimal assortment, which at the same time creates customer satisfaction by offering the customers’ required products, reduces supply chain costs, and minimizes OOS levels. The minimization of OOS levels is not an easy task for retailers. However, it is very important, as gross margin losses due to OOS are estimated at between $7 and $ 12 billion in the United States (Andersen Consulting 1996). Moreover, the aforementioned dissatisfaction that can result may decrease retailers’ overall satisfaction scores, which are now regarded as important indicators for future retailer profitability.