Both issues lead to problems.
You see the over assortment problem all the time. You used to have 10 winners and 90 contenders ... then you expand the assortment and two years later you have 11 winners and 140 contenders. This is what over assortment looks like.
Financially strapped businesses create a cycle of despair. Last year, they had 5 winners and 70 contenders ... given poor financials, they invest in fewer new items ... a year later, they have 5 winners and 55 contenders ... two years later, they have 3 winners and 45 contenders ... three years later, they are out of business.
If you are a marketer, you measure this stuff, right? It isn't your fault when productivity wanes because of assortment issues. It is your fault if you aren't measuring the dynamic. Help your merchandising team be successful. It's better to invest in the understanding of how customers purchase your merchandise than it is to invest in the understanding of how customers get to your merchandise.