Merchandise Planning (for retail)

"Planning for Success"

In the large retail store, we find a dizzying array of goods to clothe our bodies, decorate our homes and entertain our families. All of this merchandise comes in a variety of sizes, colours, makes and models. Bringing it all together requires the successful coordination of numerous individuals and divisions, including buyers, warehouse employees, financial staff, store operations, etc.

The merchandise planning process allows the retail buyer to forecast with some degree of accuracy what to purchase and when to have it delivered. This will greatly assist the company in attaining its sales and gross margin goals. Buyers must rely heavily on historical sales data, coupled with personal experience and their own intuition about market trends.

"A Successful Retail Strategy is to be better than your competitor in any of three key areas i.e. price, service , product. At the same time, you must also remain competitive in the other two."

Step 1: Define your merchandise policy

Every retail organisation must have a vision in order to provide it's buyers with some insight into the following business components:

• Demographics of current and potential customers
• Store's image
• Merchandise quality levels
• Price point policy
• Marketing approach
• Customer service levels
• Desired profit margins 

 This will allow you to develop a clear merchandise policy that outlines buying goals and objectives. Communicating this policy will not only provide direction, but should also drive all decision making throughout the merchandise planning process.

Step 2: Gather historical information

In building your six month plan, the objective is to prepare a month-by-month total money-purchasing schedule for the company.  Then, repeat this process for the next level of detail (i.e. the departmental level).  Depending on the sophistication of company information systems, each department can then be broken down into smaller segment "classes", for which a similar sales plan is prepared. 

The first step in preparing these plans is to pull the sales information for the same period last year. Not only should we gather actual sales numbers, but also statistics on returns, markdowns and any inventory carry -over.  Unless your store is computerised, detail of this nature will not always be available.  However, even a manual analysis of total merchandise purchases will provide you with an acceptable level of data, which is far better than having no information at all. 

Step 3: Perform qualitative analysis

Most professionals agree that the buying process is 90% analytical and 10% intuitive.  In other words, you must do your homework to achieve any level of success.  As the most critical aspect of a successful operation, buying/ merchandise management is what retail is all about. 

“Qualitative Analysis” refers to “identifying the proper components in a mixture”.  In this case, the mixture is the merchandise plan and the components that affect this plan are as follows:

1. Customer profile analysis - understanding who are our primary & secondary customers, what are their attitudes and buying behaviour, what do they want etc.
2. Department analysis - to plan at the "class" level, you need sales and inventory data at the "class"level.
3. Key department trends - the professional buyer is always looking for trends in his market. This information is available from a number of sources like trade publications, merchandise suppliers, competitors, other stores and your own past experience.
4. Vendor analysis - analysing the performance of the major vendors
5. Advertising review - a promotional calendar outlining the event dates, media buys and budget should be developed and taken into consideration
6. Visual presentation analysis - i.e. any special fixtures required, where should the product be displayed, what type of signage is necessary for effective visual merchandising display.

The primary objective of merchandise planning is profit improvement.  As the buyers’ plan for each department unfolds, you can get a better handle on potential profitability.  You then have the opportunity to fine-tune these plans, allowing investment money to be redistributed among departments in order to achieve company goals and objectives.