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A Beginner’s Guide to Merchandise Planning

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As the adage goes, planning to fail is failing to plan. Of course, Benjamin Franklin wasn’t thinking of the retail industry when he originally said it, but it’s appropriate nonetheless. And especially so for merchandise planning. After all, if the merchandise you stock doesn’t match up with consumer demand, is it even worth opening up shop?

That is, no doubt, a cynical take on it, but it is also ground in truth. The merchandise you offer in-store must serve a purpose. And it also needs to benefit both you and your customer.

What is merchandise planning?

Merchandise planning is a data-driven approach to selecting, buying, presenting and selling merchandise to maximise your 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.

When it comes to understanding and defining merchandise planning, it’s easy to feel confused. Speak to a dozen different retailers and you’ll get just as many different definitions points out The Planning Factory, which specialises in retail merchandising planning. You’d also only need to read what Robin Gray of Columbus Consulting International writes in an article for Total Retail to find out why.

It can mean different things to different retailers, and there is no one approach that you can take. Of course, that makes sense if you consider each retailer has different goals and strategies. But let’s not get ahead of ourselves. For all the talk about the different approaches and it meaning different things to different retailers, merchandise planning is actually not that complicated.

Shopify explains it well: it’s “a systematic approach to planning, buying, and selling merchandise to maximise your return on investment while simultaneously making merchandise available at the places, times, prices and quantities that the market demands”.

In that, it’s closely linked to assortment planning - one of the steps that makes up category management. By planning and making decisions around the merchandise you stock, you’re able to meet the needs of your customers. More than that, by choosing the right merchandise, you are also able to meet any financial targets you set.

 

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Why is merchandise planning so important? (And what problems does it help stores avoid?)

If anyone ever asks you why a merchandise plan is important for a retailer, you should answer them by asking this simple question: what are the biggest expenses that any retailer faces?

The answer they provide should be proof enough. That’s because among the top few expenses they list - and alongside the more obvious ones like rent and payroll - you’ll find merchandise. That makes sense, though, if you consider all the additional expenses that comes with buying and selling merchandise. Think shipping costs, delivery costs and storing costs to name just a few.

Order the wrong merchandise and you could easily double your costs and spend money that you don’t have.

That said, having a merchandise plan is about more than just avoiding the problem of wasting money.

By not having a thorough and well-developed merchandise plan, you’re left scrambling to meet the needs of your customers. And isn’t that partly the reason why retailers exist - to meet consumer demand? As already mentioned, this is about offering the right product at the right time, right place and right price. The only likely way that that can ever happen is if you plan ahead.

And what if you don’t? Imagine the consequences then if you will. While your shelves might be packed with merchandise, it’ll be the wrong merchandise. That means you stand a good chance at having to offer discounts and markdowns just to get rid of unwanted stock. More than that, you’ll find your customers moving to buy from your competition.

The challenges of planning your merchandise

As much as you might want to believe it, having a plan doesn’t guarantee success. That means that when it comes to planning what merchandise to stock, you’re bound to face a few challenges. How you front up to these challenges will ultimately decide whether you’re successful or not.

1. Finding the balance between right product and right quantity

The first challenge is finding the balance between the right product and the right quantity. Keep in mind the old adage of too much of a good thing (the right product in this case) can be harmful. And don’t forget this becomes that much more complicated when you consider that you need to decide today what merchandise you’re going to stock in a year’s time, let alone next month.

Fortunately, there’s retail data to help you. In fact, you’d be hard pressed to find a successful merchandise planner who doesn’t use past performance data to help plan future demand. That’s because you simply can’t build an effective merchandise plan without it. Just as important is your open to by plan.

That said, while past performance data can help you predict what will happen in the future, it’s not foolproof. Just ask Jason Gmerick. With over 10 years of experience in merchandise planning, he rightly points out that at the end of the day, we’re guessing as to what the future holds.

Suffice to say, merchandise planning can’t rely solely on data. There also needs to be a strong planner who understands the product as much as they know the customer so that they can match the two appropriately.

2. A lack of clearly defined goals

Gmerick also says that a lot of merchandise planning challenges can be attributed to a “lack of clearly defined goals”. That’s because retail planning can vary, depending on both your size and the type of retailer that you are.

For example, the larger the retailer, the easier it is to diversify and focus on different goals. But, while large corporations have the advantage of an abundance of data, this plethora of information can sometimes hinder rather than help.

“All this historical data, while extremely helpful, can cause planners to get lost in the minute details,” he notes. “It’s easy to slice data 10 different ways to get to a desired result; it’s much harder to take that result and replicate it across an entire enterprise.”

With a sales plan in place, though, you’ll stand a much better chance at delivering on your financial goals.

Darren Gilbert

With over 10 years of writing and marketing experience, Darren joined DotActiv in 2017 as a content writer where he was responsible for producing blogs, Ebooks and more. He has since worked himself up to the role of content manager, where he oversees all and any content produced by the company.

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