State-of-the-art literature review on scientific models for Retail Category Management Marina Karampatsa, Evangelos Grigoroudis, Nikolaos Matsatsinis Technical University of Crete School of Production Engineering and Management Decision Support Systems Lab Email: mkarabatsa@isc.tuc.gr ; vangelis@ergasya.tuc.gr ; nikos@ergasya.tuc.gr Abstract Retail Category Management addresses a series of questions and demands decisions for category managers on critical issues such as product assortment and shelf-space planning. Product assortment planning involves listing decisions based on consumer behavior and substitution effects. Shelf space allocation involves facing and replenishment decisions based on space elasticity effects and constraints of limited shelf space and restocking capacity. The complexity of these questions has grown tremendously in recent years due to product proliferation and various consumer choice effects in the retail environment. It is an increasingly difficult task for category managers to find an effective assortment due to consumer preferences instability and the exponential number of possible assortments. This paper presents an updated review on scientific models that deal with assortment and shelf space planning. We show that shelf space allocation models do not clearly and comprehensively address assortment selection, neglect substitution effects between products and ignore the stochastic nature of demand. Assortment planning models on the other hand mostly ignore shelf space constraints and neglect space depend demand. KEYWORDS Retailing, category management, assortment planning, shelf-space planning 1. Introduction In this study, we focus on the literature related to Retail Category Management (RCM) and especially on scientific models that deal with assortment and shelf space planning. RCM addresses a series of questions and demands decisions for category managers on critical issues such as which products to include in an assortment and how to allocate these products to shelves (issues related to assortment and shelf space planning respectively). Several mutually reinforcing trends in retail environment have made these decisions two of the most critical marketing and operational decisions in the industry nowadays. One such trend is product proliferation and the fact that competition for shelf space is at an all time high (Ball, 2004; Hübner, 2011; Murray, Talukdar, &Gosavi, 2010). Since the 1990s, there has been a significant proliferation in new product items in retail stores as both manufacturers and retailers saw it as a strategic way for increasing market shares (Drèze, Hoch, &Purk, 1994). Retailers have also introduced new categories into their stores (e.g. fresh produce, organic products) in order to satisfy diverse consumer needs. This led to an increase of the average number of different items in overall store assortments by 20% between 1970 and 1980, by 75% between 1980 and 1990 (Greenhouse, 2005) and by 30% between 2000 and 2009 (Hübner, 2011). These new products and categories are putting a tremendous demand on the available shelf space which is practically fixed and every day becomes scarcer for existing stores. At the same time, retailers have been experiencing a steady increase in their operational costs as a consequence of carrying the aforementioned large assortments of products and a pressure to improve their operational efficiency because of the increased levels of competition in the industry. Krafft&Mantrala (2010) in their book “Retailing in 21st century” indicate that competiveness of both U.S. retail and global marketplace is escalating. Reyes & Frazier (2007) suggest that while gross margins average about 28% of