Key measure of the retailer’s success is selling as much merchandise as possible at the highest profit margin. Retailers can no longer depend on random sourcing / buying in the hope that they will sell them all. There are two major areas of profit leakage in retail. Firstly - lost sales resulting from lack of stock, and secondly - forced margin reductions (markdown) due to excessive stock. There are processes and solutions in order to reduce and eliminate excess inventory and maximise profit. That is "Merchandise Planning". Merchandise Planning is "A systematic approach by the retailer, aimed at maximising return on investment, through sales & inventory planning, in order to increase profitability”. Main goal of Merchandise planning is to maximize the use of assets, and resources a company owns. In the long run, effective merchandise planning can save time, help streamline business processes and objectives, and optimize and mobilize inventory to get it off the shelves into the hands of the consumers for the right price.

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By :
Ravikeerthi Rao
MERCHANDISE PLANNING

2. Merchandising
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What is merchandising?
• In retail, merchandising is the link between sales and
marketing on the front end and supply chain at the back end.

3. Merchandising
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• All activities of merchandising are integral to retailer’s success
since :
• holding inventory, and
• selling it to end customers - are primary functions of retailers.

4. Merchandising
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• Key measure of the retailer’s success is :
- selling as much merchandise as possible at the highest profit margin.

5. Merchandising
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• Retailers can no longer depend on random sourcing / buying in
the hope that they will sell them all.
• Earlier the focus was :
• the right product,
• in the right place,
• at the right time.

6. Merchandising
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• In today’s hypercompetitive Omni channel world, it’s :
• the right product,
• in the right place,
• at the right time,
• at the right price,
• in the right quantity,
putting greater pressure on retailers to have the right processes
in place to satisfy today’s demanding customers.

7. Common Problems
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• The common problems faced by a Retailer are :
• Late to market
• High Stock Holdings
• Wrong Product on Racks
• Timing of Markdowns
• Inadequate Stock Allocation Methodology
• Range Planning not identifying Key Trends
• Inadequate Margin Management
• Lack of detailed Management Reporting
• No Life cycle Management Strategy
• No Pre-Season Strategic Plan

8. Common Problems
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There are two major areas of profit leakage in retail.
• Firstly - lost sales resulting from lack of stock, and
• Secondly - forced margin reductions (markdown) due to excessive
stock.

9. Merchandise Planning
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• A typical retail clothing business will lose about 15% of its turnover in
markdown and perhaps 10% due to lost sales.
• If we assume a turnover of INR 100Lakhs (1 Cr), then we are looking at a
loss of INR 25 Lakhs here.
• Reducing each of these figures by 1%, adds INR 2Lakh to the profit.
• What is equally important it that this profit increase can be delivered in a
sustained way.

10. Merchandise Planning
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• There are processes and solutions in order to reduce and
eliminate excess inventory and maximise profit. That is
"Merchandise Planning".
• Merchandise Planning is "A systematic approach by the retailer,
aimed at:
• maximising return on investment, through sales & inventory
planning, in order to increase profitability”.

11. Why a Merchandise Plan is Important?
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Merchandise plans help stores avoid the two pitfalls retailers fear
most:
• greeting customers with sparsely stocked shelves, and
• greeting them with gluts of unpopular, out-of-style, marked-down
merchandise.

12. Merchandise Planning
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• A merchandise plan can refer to something as large as the
entire inventory of a chain of stores for a season, or
• as small as how many articles of clothing should be placed
on a single display fixture.

13. Merchandise Planning And Buying
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Important tasks with the merchandise planning and buying process
are :
• Selection of merchandise to sell (carry),
• establishment of retail prices,
• ongoing ordering processes,
• management of supplier relationships, and
• in-store promotion

14. Merchandise Planning and Buying
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• Typically, retailers have a centralized buyer or team of buyers
who manages this process for the group.
• There is a difference between Merchandise Planning and
Buying.
• Hence, within a business these two functions should be
separated as much as possible and should report to different
managers.

15. BUYING
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• Buyers are the magic in retail.
• They know that trend changes and to be truly successful - a
business needs to be ahead of the trend.
• Buyers know what is happening in other markets and can
translate that to their own markets.

16. Merchandise Planning
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• On the other hand, Merchandise Planning is about the science
in retail.
• It is a data-driven approach to selecting, buying, presenting &
selling merchandise to maximise the return on investment and
satisfy consumer demand.
• It is highly analytical and relies heavily on data.
• It is about facts.

17. Merchandise Planning
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• Merchandise planners implement structure for the buying process.
• By using past data they plan future demand.
• They control the OTB (Open to Buy) and will manage how much to buy within
specified, agreed, hierarchies.
• They will match the OTB back to budgets and forecasts and adjust for
overselling or underselling (something that many retailers overlook).
• Merchandise Planners also control markdowns and liquidation of obsolete
inventory.

18. Planning Process Overview
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19. Merchandise Planning
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• The first element in the merchandise plan is the Strategic Plan.
• This is normally done at top management level, with perhaps a
five year timescale.
• It is used to set financial targets, review target achievement and
create open-to-buy budgets.
• It is also used to set the critical success factors (or KPIs) for
merchandising in terms of sales, margins & stocks.

20. Merchandise Planning
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• The Merchandise Planner will present key business figures
including :
• the budget,
• target, and
• pricing information, together with
• the features of the Range that will drive it through the season
to senior management.

21. Sales Forecast & Merchandise Plan
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• The sales forecast is the foundation for building the
merchandise plan.
• This encompasses specific trending, turnover and seasonal
factors for each category of Retailer’s merchandise mix.

22. Merchandise Mix
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• The merchandise mix is the width and depth of the variety of
products a retailer carries for a particular category.
• There are various types of merchandise (products) which
retailers can choose to display in-store as part of their
merchandise mix.
• To maximise sales and profits retailers need to choose an
efficient merchandise mix.

23. Range Planning
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• Having generated a category level plan the Retailer then need
to translate it into something that can be bought.
• We may know that we plan to take £100,000 in Ladies v-neck
sweaters and generate a 40% margin on the sales, but we have
to decide how many styles and options we should have to
achieve this result, and within these how many should we buy to
achieve the margin mix.
• This is called Range Planning.

24. Range Planning
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• Some of the styles are probably for window dressing only - they
might need to be there, but you do not need to buy a container
full.

25. Range Planning
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• It is essential that the range plan can be analysed in terms of :
• Fabrics,
• Colours,
• Supplier,
• Fashionableness, etc.
• The key here is flexibility.

26. Merchandise Planning
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• Typically the Buyer will help set the direction of the range, and
• the Planner will fine-tune the range by looking at current sales
and establish what is selling and what is not.

27. Merchandise Planning
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• The merchandise system generally begins with a buying plan.
• While planning, Buyers have to consider how much space is
available in stores for each department and product category.
• They also have to plan for volatility in sales and other effects on
inventory demands / stock requirement.

28. Sales Forecast & Merchandise Plan
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• Using sales forecast we can generate a stock intake plan that
closely matches with the stock requirement.
• This will probably be done at a category level.
• With a sales plan in place, we can then set required inventory
levels, pace of issuing the merchandise purchase orders and
deliveries.

29. Merchandise Planning
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• Buyers negotiate with suppliers :
• to make the best deals,
• to plan for efficient inventory replenishment, and
• managing ordering processes, etc.
ultimately satisfying the needs of end customers.

30. Open-to-Buy
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• The key output from Merchandise Planning is a figure called the
Open to Buy for each planned figure.
Open-to-buy :
• Merchandise budgeted for purchase during a certain time period
that has not yet been ordered.

31. Open-to-Buy
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• Unlike conventional inventory control reports, which look back in
time, “open-to-buy” looks ahead.
• An “Open to Buy” control system uses planned sales forecasts
and stock turn requirements for each merchandise category, like
how much to order, and when to place the order, etc. to
determine the optimum level of stock required.

32. The factors influencing the merchandising process
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Merchandise Planning Cycle

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Merchandise Planning Cycle

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Merchandise Planning Cycle

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Merchandise Planning Cycle

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Merchandise Planning Cycle

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Merchandise Planning Cycle

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Merchandise Planning Cycle

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Merchandise Planning Cycle

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Merchandise Planning Cycle

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Merchandise Planning Cycle

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Merchandise Planning Cycle

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Merchandising Planning - Key Drivers

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Merchandising Planning - Key Drivers

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Merchandising Planning - Key Drivers

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Merchandising Planning - Key Drivers

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Merchandising Planning - Key Drivers

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Merchandising Planning - Key Drivers

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Merchandising Planning - Key Drivers

51. Why is Merchandise Planning so important for Retailers?
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• Keeping stock and buying stock is the biggest cost to the
retailer.
• Effective planning has a crucial impact on a retail business as it
determines their profits.
• If the right stock is not allocated to the right places at the right
time a retailer will not be maximising their potential as this will
ultimately damage sales.

52. How can Merchandise Planning help Overall
Business Strategy?
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• Company strategic plans can be developed, executed, managed and
measured more effectively
• Goals for future sales, markdowns, and profits can be set and managed
• Inventory levels and inventory productivity can be optimized
• Cash flow can be forecasted, measured and managed
• Micromarketing needs, assortment planning and allocation can be targeted
more specifically.

53. Merchandise Planning
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• Implementing a merchandise plan is an evolutionary process,
not an immediately revolutionary break through.
• In the long run, effective merchandise planning can save you
time, help streamline your business processes and objectives,
and optimize and mobilize your inventory to get it off your
shelves and into the hands of your consumers for the right price.

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