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Merchandising Planning 101: Here's What You Need To Know
DotActiv TeamAug 25, 2022 5:32:20 PM6 min read

Merchandise Planning 101: Here's What You Need To Know

If you fail to plan, you are planning to fail. Often attributed to Benjamin Franklin, we doubt he had the retail industry on his mind when he said it. However, it’s still appropriate. And especially so for your merchandise planning*. After all, if the merchandise your stock doesn't match consumer demand, is it even worth opening up your shop?

Benjamin Franklin Quote On Planning

That is a dramatic and cynical take on it. We'll admit that. But it’s put forward with the best intentions. The merchandise you offer in-store must serve a purpose. It needs to benefit your customers and your business. That can only come from planning everything out.

What Is Merchandise Planning

What is merchandise planning?

When looking to understand merchandise planning, it’s easy to feel confused. Speak to a dozen retailers, and you’ll receive just as many definitions, points out The Planning Factory.

You’re also welcome to read what Robin Gray, principal 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 you can take. Of course, that makes sense if you consider each retailer has distinct goals and strategies. But let’s not get ahead of ourselves. With all the talk about the different approaches and implications for various retailers, merchandise planning isn't complicated.

Merchandise Planning Definition

Merchandise planning seeks to satisfy consumer demand by making the right merchandise available in the right place at the right time and price and in the right quantities.

 

Do you want to always have the right products in-store at the right time to please shoppers and maximise your sales? DotActiv can help! Book a complimentary consultation with a DotActiv expert today and we can show you how.

 

In pointing that out, and if you're familiar with the various category management actions, you'll know that it’s linked to assortment planning. In planning and deciding what merchandise to stock, you can ensure to meet shopper demands. More importantly, in choosing the right products, you can lay the groundwork to meet any financial target you set.

What Problems Does Merchandise Planning Help You Avoid?

What problems does merchandise planning help you avoid?

If anyone ever asks why you need a merchandise plan - yes, it has happened - we have a simple question that you can ask them in return:

On what does the typical retailer spend most of their money?

Their answer should be proof enough. Here are a few top expenses:

    • Rent: This expense can vary depending on your location.
    • Payroll: Again, this expense can vary depending on the number of stores you have.
    • Merchandise: While third on this list, that doesn’t make it any less important than the previous two.

Top Retail Expenses in a Piechart

That makes sense considering all the additional expenses which come with buying and selling merchandise. Think shipping, delivery and storing costs among others. 

So what problems can proper merchandise planning help you avoid?

          It can help you avoid increased expenses

The first issue when not planning your merchandise is the increased costs that come with it. Now, this isn't necessarily only direct costs, but also indirect.

For example, by not understanding what products your customers want to buy - not looking at your retail data - you could end up ordering the wrong products, easily doubling your costs and spending money you don't have.

          It can help you avoid overstocking

Ordering the wrong merchandise doesn’t only affect your costs, but also what products you can stock. How? Because you’ll struggle to sell these items, it means they’ll take up space, be that on the shelf or in your backroom.

 

Do you need help forecasting your inventory so that you always meet demand? DotActiv can help! Book a complimentary consultation with a DotActiv expert today and we can show you how.

 

The more space these items take, the less you have for items that will sell and make you money.

          It can help you to meet consumer demand consistently

By now, you might realise that each problem leads to the next one we list. It's the same with this third issue. You’ll struggle to meet consumer demand by stocking too many of the wrong items.

The knock-on effect of that leads to the last problem that we’ve listed. Before we get there, here’s another point to consider, posted as a question:

If you can’t meet demand, how can expect customers to return? The simple answer is you can’t.

          It can help you avoid losing sales

If customers can’t find what they want in your store, the chances are good they’ll think twice about returning. 

Here’s a real-life example to depict that. I regularly need to buy a specific item and I usually get it from my local convenience store across the road. It’s not the only item I buy. However, lately, I’ve realised that they don’t have that specific item or if they do, the quality isn’t great. It’s also happened a few times.

Now, whenever this item is on my shopping list, I remember that my local convenience doesn’t stock it and so I end up going elsewhere, thereby spending my money with their competitor.

What Are The Challenges Of Merchandise Planning?

What are the challenges of effective merchandise planning?

As much as you might want to believe it, having a plan doesn't guarantee success. That means when 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.

Multiple Shoppers Standing In An Aisle Deciding What To Buy

          1. Finding the balance between the right product and quantity

The first challenge is finding the balance between the right product and the right quantity. Kind in mind that the old adage of too much of a good thing (even the right product in this case) can be harmful. 

And don't forget this becomes 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, your retail data that can help you. In reality, you'd be hard-pressed to find a successful merchandise planner who doesn't use 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-buy plan.

          2. Adjusting for online and brick-and-mortar sales

A second challenge is to adjust your merchandise planning according to sales that you’d expect from customer shopping online versus those who shop in-store.

This omnichannel strategy can play a key role in not only increasing your sales but also retaining customers.  

Do you need help managing your inventory across your retail business? DotActiv can help! Book a complimentary consultation with a DotActiv expert today and we can show you how.

 

According to a survey by Aspect Software, and quoted by Francesca Nicasio, businesses that adopt omnichannel strategies achieve 91% greater year-on-year customer retention rates compared to those businesses that don’t. 

Nicasio adds; “Using a centralised inventory management system can help you connect all sales channels and provide the right products at the right time.”

An Effective Merchandising Plan Leads to Satisfied Customers And Money In Your Pocket

Conclusion

As we’ve noted in this piece, a robust merchandise plan can go a long way to helping you ensure you have the right products in your store at the right time and in the right quantities.

It also helps you to ensure you can meet consumer demand while avoiding the following:

  • Unnecessary expenses
  • Overstocking
  • Lost sales

 

Which retailer wouldn’t want to avoid any of these issues? 

Do you need help managing your inventory in-store or choosing the right products to match consumer demand? You can book a complimentary custom exploratory consultation with us here or visit our online store.

*This article was updated on 25 August 2022.

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DotActiv Team

The DotActiv team comprises category management experts lending their retail experience and knowledge to create well-researched and in-depth articles.

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