MERCHANDISE PLANNING

1. Merchandise Planning
UNIT-2
(DR.SELVAMOHANA.K)

2. • Merchandise planning-concepts-Implications
• Process-Four stages
• Types & Hierarchy
• Merchandise control
• Assortment Planning
• Technology tools
• Private labels-concept & Evolution

3. Merchandise planning-concepts-Implications
Merchandise planning-Meaning
• Merchandise planning is a data-driven approach to
selecting, buying, presenting and selling merchandise to
maximize return on investment and satisfy consumer
demand.
• Merchandise planning seeks to satisfy consumer
demand by making the right merchandise available at
the right places, times, prices and quantities.
• Merchandise planning is a strategic process in order to
increase profits.
• This includes long-term planning of setting sales goals,
margin goals, and stocks.

4. Merchandise planning can be
1) Store-Based:
• The demand for the store or department, products
wise, category wise, etc.
2) Location-Based:
• Ordering merchandising for the entire
organization and dividing the quantities of
merchandise on the basis of the demand in each
store.
3) Time-Based:
• The annual budget must be prepared for the
requirement of merchandise and then break down
expense on a quarterly, weekly, and daily basis.

5. Process of Merchandise Planning
Step 1 - Define merchandise policy.
Get a bird’s eye view of existing and potential
customers, retail store image, merchandise quality
and customer service levels, marketing approach,
and finally desired sales and profits.
Step 2 – Collect historical information.
Gather data about any carry-forward inventory,
total merchandise purchases and sales figures.
Step 3 – Identify Components of Planning.
• Customers − Loyal customers, their buying
behavior and spending power.
• Departments − What departments are there in the
retail business, their subclasses?

6. • Vendors − Who delivered the right product on
time? Who gave discounts? Vendor’s overall
performance with the business.
• Current Trends − Finding trend information
from sources including trade publications,
merchandise suppliers, competition, other stores
located in foreign lands, and from own
experience.
• Advertising − Pairing buying and advertising
activities together, idea about last successful
promotions, budget allocation for Ads.
Step 4 – Create a long-term plan. Analyze
historical information, predict forecast of sales,
and create a long-term plan, say for six months.

7. Implications of merchandising planning
• Merchandising planning is planning about the
products, range, price, and assortments.
Followings are the implications of
merchandising planning.
1.Marketing
2.Finance
3.Store operations
4.Warehousong and logistics

8. 1) Marketing:
• Retailers have to invest in marketing measures
such as advertising sales promotions, etc. to
ensure the quick sale of merchandise in the
store.
2) Finance:
• A large part of finance is invested in buying
merchandise for the store.
• Therefore, it is important to plan price, range,
products, etc. to make sure adequate profits on
investment.

9. 3) Store operations:
• Each department in the store should be
informed about the various merchandise
bought, and they should start thinking about
various strategies to sell out the stock in the
store.
• With the help of effective merchandising
planning, products can be labeled with the
correct price, offers, and showcase to increase
the sales of products.

10. 4) Warehousing and logistics:
• Warehousing and logistics is responsible for
taking account of goods, receiving ordered
goods, dispatching them, and informing each
department about the goods bought.
• Merchandising planning is helpful in
warehousing and makes it easy as it gives
information about the quantities of goods
remaining in the store.

11. Concepts of Merchandise Planning
1) Forecast of Sales
• It is important to make a forecast of sales for
the entire organization, department, and on the
basis of categories of products.
• Addition of new products and the elimination
of non-performing products should be
considered.
• The forecast can be done on the basis of data
obtained from present scenarios, past records,
and impacts of trend variations,

12. 2) Merchandise Budget
• Estimation should be made at the managerial level of
the organization to determine the level of merchandise
requirements for each store and department.
• Effective planning ensures that the estimated return on
investment will be achieved.
• The plan must ensure that each department and store is
getting merchandise as per the requirement of each
store.
• Along with this, it should also make sure that there is
adequate turn-over on merchandise and if required,
• what strategies like markdown, discounts, offers, etc.
should be given to get rid of stock.

13. 3) Merchandise control
• It is important for a retailer to balance between the
purchase of goods and their sales.
• Over or under-stocking of merchandise should be
avoided. Daily and weekly reports should be prepared
to know about the sale rate of merchandise.
• Order for New merchandise should be placed before the
stock reaches a danger level.
• Each organization has its own policies to maintain the
stock level.
• Control over the merchandise can be obtained by
monitoring the movement of stock from inventory to
store and store to the department.

14. 4) Assortment Planning
• The meaning of assortment is the arrangement of
products on the basis of their categories.
• It means the presentation of all range of products
under department, categories, or section. For
example, food section, garments section, and
cosmetic sections, etc.
• A retailer should ensure the proper assortment.
• Each section and department must contain related
products.
• Each category should have enough SKU (Stock
Keeping Units), and no shelf, rack, or display
should be empty.

15. Six Levels of Merchandise Hierarchy
• Merchandise hierarchy is a business tool
designed to allow easy understanding of where
responsibility lies relating to merchandise.
• For example, the hierarchy lets a retailer know
who to contact regarding certain pieces of
merchandise.
• It is also a tool designed to provide a way to
categorize the merchandise and allow for easy
analysis of sales data.

16. 1. Store
• The first level of the merchandise hierarchy is the
store.
• Before merchandise can be sold, either in a
reliance mart location or an online store, the
customer needs to reach that destination.
• This means the store is the most important level
of the merchandise hierarchy.
• Without getting customers to the store location,
sales of the merchandise do not occur.
• Examples of the first level of the merchandise
hierarchy are Walmart, Target, K-Mart or
Amazon.com.

17. 2.Department
• The second level of the merchandise hierarchy
is the department level.
• When the customer arrives at the store,
specific departments contain the merchandise.
• For example, if a customer enters the store and
needs an extension cord, he goes to the
hardware department.
• Once in the hardware department, the
customer proceeds to the next level of the
merchandise hierarchy.

18. 3.Classification
• The third level of the merchandise hierarchy is
the classification of the item.
• So, if a customer in the hardware department
needs an extension cord, she/he goes to the
extension cord area of the department.
• Under the classification of extension cords,
several different kinds await, leading to the
next level of the merchandise hierarchy.

19. 4.Sub-Classification
• Sub-classification is the fourth level of the
merchandise hierarchy.
• When the customer sees the extension cords,
he realizes there are indoor extension cords
and outdoor extension cords.
• If he needs an indoor extension cord, he goes
to the next level of the hierarchy.

20. 5.Styles
• The fifth level of the hierarchy is the style of
the merchandise.
• In this case, the customer sees there are 4-foot
extension cords, 6-foot extension cords and
10-foot extension cords.
• Needing a 6-foot extension cord, she/he moves
to the final level of a six-level merchandise
hierarchy.

21. 6.Pricing
• The last level of the merchandise hierarchy is
the pricing level.
• The customer finds three different 6-foot
extension cords available and makes his
purchase decision based on the price points.
• And finally purchase the product.

22. Hierarchy Level Management
• Another advantage to merchandise hierarchy is
management of different areas of the hierarchy.
• For example, having one manager oversee the
hardware department allows for merchandise to
be ordered when stocks are low.
• In addition, based on the information provided in
the merchandise hierarchy, the manager can
determine which extension cords sell well and
which extension cords remain on the shelves.
• This allows for discounting of the non selling
extension cords in order to stimulate sales.

23. Types of Merchandise
A)Merchandise Types based on goods
1. Convenience goods
2. Impulse goods
3. Shopping products
4. Specialty goods
B)Merchandise Types based on activities
1.Product merchandising
2.Visual merchandising
3.Retail merchandising
4.Omnichannel merchandising
5.Digital merchandising

24. 1.Convenience goods
• There are more in regards to products which
are staples and essential to daily living.
• These products are classified as convenience
goods, items which are widely available and
regularly bought with very little effort.
• As they are often purchased, customers should
not need to go through a rigorous decision-
making process.
• where customers will select an alternative
brand if their choice brand is not available.

25. • As a result, to make maximum profit retailers
need to ensure they sell large volumes of
convenience goods at a fast pace.
• Examples of convenience goods include food,
newspapers, cleaning products, and personal
hygiene products.

26. 2. Impulse goods
• “Two-thirds of the entire economy is impulse
buying.” - Paco Underhill, author of the book,
Why We Buy: The Science of Shopping.
• This is a merchandising strategy implemented
by retailers where they stock impulse goods –
goods which are purchased instantaneously
without significant thought process – to great
effect.

27. • Impulse purchases are never planned – customers
simply see them, pick them up and head to
checkout.
• The most important factors for impulse goods to
sell however lies in display and location.
• If not well displayed or located in unassuming
sections of the store, they will be missed.
• These products are often displayed at till and
check out points to entice customers to quickly
add it to their purchases. They include magazines,
sweets, or complimentary products.

28. 3 Shopping products
• If you’ve ever spent hours researching a particular
product and comparing brands before you
purchase, you are looking at merchandise that is
referred to as shopping products –
• Goods that customers want ample product
information on and have the ability to be
compared to other brands. Because of the
intensive research and multiple comparisons,
these products are often purchased less.
• These products also have psychological and
emotional aspects of purchase such as acceptance,
appreciation or belonging.

29. • For example, many people purchase the
iPhone not just for the utility of the phone but
for the association it has with being a status
symbol.
• Examples of shopping products include
clothing, electronics, and furniture.

30. 4. Speciality goods
• Imagine travelling to another town or local to a
particular store for a particular purchase.
• In this case, the store is known as a speciality store
which carries speciality goods.
• For speciality goods, customers are prepared to do
extensive research, pay much more and travel long
distances if necessary.
• These products also have a much higher cost attached
to them, causing customers to be much more selective.
• Speciality products do not need to be conveniently
located either. Examples may include luxury cars, and
service experts.

31. B)Merchandise Types based on activities
1.Product Merchandising:
• This consists of all promotional activities
related to boosting the sales of a product.
• The definition of product merchandising will
remain the same, whether you are selling
something online or in-store.
• in-store promotional activities such as product
display and online activities such as website
design are examples of product merchandising.

32. Visual Merchandising:
• A visual merchandising can be defined as all
activities used to display the product to highlight
its features.
• The activities used in visual merchandising can be
created by making the use of space available,
lighting in the store, and using different
designing.
• Ad by Value impression
• This can be used for selling products both online
as well as in physical store.
• In digital space, vibrant colors, web design, etc.
used for visual merchandising.

33. Retail Merchandising:
• Retail merchandising strictly refers to selling
merchandise in a physical store.
• Retailing merchandising includes all marketing
and promotional activities which are somehow
used to sell products to consumers in brick
and mortar store.

34. 4 Omni channel merchandising:
• Omni channel merchandising or omni channel
retailing refers to creating unified customers
experience at all the platform where a retailer
sells his products and can reach his customers.
• For example, if a retailer sells products through a
physical store, e-commerce website, and the app,
then he would try to provide seamless customer
experience to his customers.
• There has been tremendous growth in the omni
channel retailing because of the emergence of the
internet.

35. 5 Digital merchandising:
• Digital merchandising is a term used at the place
of retail merchandising for selling products at
digital platforms.
• This includes all types of activities used to
promote products on the internet.
• It is also referred to as online merchandising or e-
commerce.
• It includes all activities like website promotions,
digital products display, email marketing, social
media marketing, digital marketing, etc.
• Digital merchandising is getting importance as
more and more retailers are taking their business
online to reach a wider audience.

37. Merchandise control
Meaning
It is the process of collecting and evaluating data
on all aspects of each retail merchandise category,
including sales, costs, shrinkage(allocation for
wastage/Theft), profits, and turnover.
• Control is achieved through the maintenance of
an inventory book where all data are evaluated
• This merchandise control has been done through
product assortment and technology based
analysis

38. 1.Product Assortment Strategy
• An assortment strategy in retailing involves the number
and type of products that stores display for purchase by
consumers. Also called a "product assortment strategy,"
• it is a strategic tool that retailers use to manage and
increase sales.
• The strategy is comprised of two major components:
1.The depth of products offered, or how many variations
of a particular product a store carries
2.The width of the product variety, or how many different
types of products a store carries

39. Features of product assortment strategy
• An assortment strategy is not one-size-fits-all;
it needs to be customized to respond to a
business's parameters. It’s features are as
follows.
1. A Challenge for Small Stores
2. A Brick-and-Mortar Term
3. Adjusting for Demographics
4. A Strategic Selling Tool

40. 1.Challenge for Small Stores
• Retailers face a trade-off when determining an
assortment strategy.
• Choosing both a wide variety and a deep
assortment of products simultaneously requires
a large amount of space, and is typically
reserved for big box retailers.
• Stores with smaller spaces may choose to
specialize in a certain type of product and offer
customers a variety of colors and styles; other
stores may offer a deep assortment of products.

41. 2.A Brick-and-Mortar Term
• Originally, assortment strategy referred only to
brick-and-mortar stores because the strategy's
components of depth and breadth had a lot to
do with physical space and the visual and
tactile interaction between consumer and
product.
• Recently though, all sales venues—brick-and-
mortar, click and mortar, and e-tailing—have
used varieties of the strategy to gain
competitive advantage.

42. 3.Adjusting for Demographics
• By grouping together items that they believe
would appeal to certain types of customers,
retailers may fine-tune their assortment
strategies to target consumers' demographic
profiles.
• If a retailer wants to attract customers who are
new parents, for example, it might fill the
shelves with infant apparel from trendy brands,
along with toys, bedding and so on.

43. 4.A Strategic Selling Tool
• A strategically arranged product assortment
can up sell customers on supplemental items
as they search for the thing that brought them
to the store.
• Grouping related items together strategically,
whether or not they are necessities, is a
common way to stimulate impulse buying

44. 2.Technological analysis usedin Merchandise Management
ABC Analysis
• It is a process of inventory classification in which the total
inventory is classified into three categories −
• A – Extremely Important Items − Very crucial inventory
control on order scheduling, safety, prompt inspection,
consumption pattern, stock balance, refill demands.
• B – Moderately Important Items − Average attention is
paid to them.
• C – Less important Items − Inventory control is
completely stress free.
• This approach of segregation gives importance to each item
in the inventory. This way, a company can decide its
investment policy in particular items.

45. Sell-Through Analysis
• In this method, the actual sales and forecast
sales are compared and the difference is
analyzed to determine whether to apply
markdown or to place a fresh request for
additional merchandise to satisfy current
demand.
• This method is very helpful in evaluating
fashion merchandise performance.

46. Multi-Attribute Method
• This method is based on the concept that the
customers consider a retailer or a product as a
set of features and attributes.
• It is used to analyze various alternatives
available with regard to vendors and select the
best one, which satisfies the store
requirements.

47. Private labels- meaning
Private label brands (or own brand labels) are products sold
by a retailer with its own packing, but manufactured by a
third party.
Benefits of private label brands
• Less costs wasted on marketing.
• Supermarket can reduce costs through buying in bulk.
• Lower prices for the consumer.
• Private label brands are often made by same manufacturers
as better known brands, therefore quality can be just as
good.
• Third party manufacturers do get big contracts for selling
direct to supermarkets. This gives guaranteed revenues and
sales.

48. Potential problems of private label brands
• Reduced competition-Supermarkets are in a position to
promote their own private label brands and push out other
competitors.
• The growing dominance of private label brands could make
it difficult for new smaller firms to enter the market.
• Supermarkets can end up with monopsony power over
manufacturers. Because they have market power in selling,
they can squeeze the margins of manufacturers to gain
bigger profit margins.
• Less innovation. It is argued that private label brands don’t
innovate or create new products – they are essentially
copying successful products that have gone before.

49. Definition of Monopsony
• A monopsony occurs when a firm has market
power in employing factors of production (e.g.
labour).
• A monopsony means there is one buyer and
many sellers.
• It often refers to a monopsony employer – who
has market power in hiring workers.
• This is a similar concept to monopoly where
there is one seller and many buyers.

50. • In fact, Amazon itself has two private label
product lines:
• Pinzon—products for bedding and bath
• Amazon Basics—products for work and home
• Nike, for example, is a private label company.
They buy bulk from a manufacturer, switch up
a few things, put their name on it and sell it.

52. Features of Private labels
• Customization
• The exclusivity of products
• Cost and ROI
• Products

53. 1. Customization.
• Talking about white label products, in this
case, all the items have been already produced
before you make a deal with the manufacturer.
So, the only thing you may customize is the
packing.
• As for private label products, where retailers
are able to customize goods, it is also possible
to sell items which look different to buyers
(even if the manufacturer sells a variation of
same product to another retailer).

54. 2. The exclusivity of products.
• Retailers who deal with private label
products can send all the specifications of
goods to their producers, which means that
other retailers will not be able to sell similar
items.
• White label products are not unique and
exclusive as the producers offer the same
goods to different sellers, but not to only one
retailer.

55. 3. Cost and ROI
• Selling white label products, it need to advertise them
a lot, because of the big amount of competitors.
• If retailer complete all the marketing strategies
correctly, such a business can increase income in
several times.
• Trading private label products, we need to pay much
for private trademarks as we get all the necessary info
from product research, product development, and up to
marketing.
• But ROI here is expected to be rather high, as retailer
will be a seller of unique and exclusive items.

56. 4. Products.
• Private label products are considered to be
mostly physical items such as clothing, for
example. These goods are produced by
manufacturers and resold under retailers.
• White label products nowadays considered to
be something non-physical like services or
software which are distributed to retailers who
resell them as their own.

57. The evolution of private labels at retail
Where did it start?
Private Label Products are not new to the retail
scene. The great Atlantic & Pacific Tea
Company (A&P) was partially built upon its
freshly ground (in-store) 8 O’Clock Coffee in
the early 1900’s.

58. Why did it start?
There are three fundamental reasons for the
development and growth of store brands
1. The shift of power from national brand
marketers to national retailers.
In the U.S., Walmart (in fact, following the Sears
model) forever altered the landscape by
leveraging massive buying power through a single
point of purchasing.
The same phenomenon occurred even earlier in
Europe leading the drive for national, rather than
local, dominance.

59. 2. The ready availability of high quality, low priced
private label production capacity.
As global logistics came to the fore, this added
inexpensive and high quality capacity for everything
from food to automobiles.
3. The third key driver for the growth of private label
is the historical perspective of key retailers that a
strong “house brand” that consumers could only
purchase at their store would drive loyalty.
Intention of retailer that, if they market its own full line of
quality, great value products, it would attract customers
to shop there and build greater loyalty than to other
retail chains.

60. Where Is private labeling Now?
• Leading retailers of nearly all but the smallest
sizes are investing more of their time and
marketing dollars in the development of
“private label” brands.
• The goal of this increased focus is both a
growth (loyalty building) and survival tactic
(owning an equity or line of products that
differentiates them from larger competitors).

61. 1. Eliminated the use of the term “private label.”
2.No more doing it on the cheap.
3.Develop a holistic brand marketing and
merchandising strategy. (Many national brands
sell 25 percent or more of their products to just
one or two retailers)
4.Think Internet and distribution. If you have
created a brand with strong individual equities, it
may have a larger profit opportunity outside the
walls of your stores. Brands are sold in more
channels, particularly on Internet sites.
Walmart.com, Amazon.com, E-Bay .