MKT320: Retailing - Developing Merchandise Plan
Introduction to Merchandise Planning
A merchandise plan is a strategic blueprint used by retailers to ensure:
- The right products are available.
- At the right time.
- In the right quantities.
- At the right place.
- At the right price.
- To meet consumer demand.
- While maximizing profit and minimizing inventory costs.
Key Objectives:
- Align inventory with customer demand.
- Optimize sales and gross margin.
- Manage inventory turnover effectively.
- Avoid overstock or stockouts.
Examples:
- Carrefour UAE: Uses sophisticated merchandise planning tools to anticipate seasonal spikes in demand, such as during Ramadan, shifting towards food staples, cooking essentials, and gifting products.
- Zara: Famous for its fast fashion merchandise planning model, where new merchandise is planned and updated every two weeks, based on real-time customer feedback.
Steps in the Merchandise Planning Process
1. Sales Forecasting
- Analyze past sales data.
- Account for market trends, seasonality, promotions.
- E.g., Namshi uses historical data and Google trends to forecast demand for specific fashion categories during back-to-school or festive periods.
2. Establishing Merchandise Budgets
- Set financial targets.
- Plan Open-to-Buy (OTB): how much stock is needed, when, and at what cost.
- E.g., Lulu allocates its budget by product category based on past seasonal success and store-level performance.
3. Assortment Planning
- Decide breadth (number of product categories) and depth (variants per category).
- E.g., Max Fashion plans wider assortments for flagship stores versus smaller assortments in community malls.
4. Inventory Turnover Planning
- Calculate expected stock turnover.
- Aim for balance between holding costs and availability.
- E.g., Sun & Sand Sports aims for higher turnover in trending athletic wear and slower turnover in high-ticket equipment like treadmills.
5. Allocation and Replenishment
Decide how to distribute stock across locations and replenish based on real-time sales
Amazon dynamically reallocates stock between its warehouses using AI, based on geolocation demand.
6. Monitoring and Evaluation
- Continuous tracking of KPIs (sales, margins, stock levels).
- Adjust plans based on market responsiveness.
- Retailers use ERP systems and Power BI dashboards for real-time merchandise tracking.
The Retail Buying Process
The buying process is the procedure by which merchandise buyers decide:
- What products to purchase.
- In what quantity.
- From which suppliers.
- And when to place the order.
Key Stages:
- Identifying Customer Needs
- Selecting Suppliers
- Negotiating Terms
- Placing the Order
- Receiving, Inspecting, and Stocking Merchandise
1. Identifying Customer Needs
- Through customer feedback, market research, and sales data
2. Selecting Suppliers
- Evaluate based on reliability, quality, delivery terms, and ethical sourcing
3. Negotiating Terms
- Prices, delivery timelines, discounts, and return policies
4. Placing the Order
- Based on Open-to-Buy budgets and assortment plans
5. Receiving, Inspecting, and Stocking Merchandise
- Ensuring correct quantities and quality.
- Decide whether to move to storage or to the selling floor
Key Factors in Merchandise Planning
| Factor | Description |
|---|---|
| Sales Forecasts | Use historical data, seasonal trends, and market intelligence to predict future demand accurately. |
| Innovativeness | Integrate new and trending products to attract early adopters and differentiate the offering. |
| Product Assortment | Plan the right balance between breadth (range of categories) and depth (variety within each). |
| Brand Selection | Choose between national, private, or exclusive brands based on customer preferences and margins. |
| Timing & Seasonality | Align purchase cycles with holidays, festivals (e.g., Ramadan in UAE), or fashion seasons. |
| Inventory Allocation | Decide how to distribute merchandise across store locations based on local demand and performance. |
Merchandise Planning
- Merchandise planning isn’t just about buying products, it is about buying the right products, at the right time, in the right quantity, and placing them in the right place.
- It requires both data-driven forecasting and customer insight.
- Whether you're looking at global fashion like Zara or grocery giants like Carrefour UAE, every successful retailer is backed by a strong merchandise strategy.