Merchandise Planning

Merchandise Planning
 Analysis of consumer’s needs and wants
 Developing sales forecast
 Past sales records
 Interaction with sales staff to get valuable
insights as to what product is selling
 Trends through Television, Magazines,
Movies, Concerts, Events and Trade
publications
Merchandise Planning
 Develop the merchandise mix and
establish the merchandise budget.
 Price offering
 Build the logistic system for procuring the
merchandise mix
 Organize the customer support service
and manage the personal selling effort
 Advertising, sales incentive and publicity
programs
Process of Merchandise Planning
Process of Merchandise Planning

 Stage I: Developing sales forecast

 Stage II: Determining the merchandise
requirements
 Stage III: Merchandise- Open to buy
 Stage IV: Assortment Planning
Stage I: Developing Sales Forecast

 First step in determining the inventory

needs of the product category
 Forecast may be made by the
merchandiser, based on targets given by
the top management
Why forecasting is done?
Stage I: Developing Sales Forecast

Forecasting is done to determine –

 How much of each product needs to be

purchased?
 Should new products be added to the
merchandise assortment?
 What price should be charged for the
product?
Stage I: Developing Sales Forecast

 Sales forecast - weeks or a season or a

year

 The sales forecast person needs to be

aware of -
1. The changes in tastes and attitudes of
consumers
2. The changes in their spending pattern
PROCESS OF DEVELOPING
SALES FORECASTS
PROCESS OF DEVELOPING SALES
FORECASTS
1. Reviewing past sales
 Helps in establishing a pattern or
trend in sales figures
 Indication of the sales in the current
year for the same
PROCESS OF DEVELOPING SALES
FORECASTS
2. Analyzing the changes in economic
conditions
 Direct link with consumer spending
patterns
 Economic slowdowns, increase in
unemployment levels, etc. all effect
business
PROCESS OF DEVELOPING SALES
FORECASTS
3. Analyzing the changes in the sales
potential
 Relating demographic changes in the
market to that of the store and the
products to be sold
PROCESS OF DEVELOPING SALES
FORECASTS
4. Analyzing the changes in the
marketing strategies of the retail
organization and the competition
 Marketing strategy to be adopted by
the organization and that of the
competition is to be considered
PROCESS OF DEVELOPING SALES
FORECASTS
5. Creating the sales forecast
 Estimation of the projected sales is
applied to various products and
categories
Stage II: Determining the
merchandise requirements
Stage II: Determining the
merchandise requirements
 Is there any line of merchandise to be
introduced ?
 Any new store to be opened?
 An existing store to be renovated?
Stage II: Determining the
merchandise requirements
Planning in merchandising is done at
two levels
1. Top down planning, and
2. Bottom up planning
Stage II: Determining the
merchandise requirements
 Top down planning - operation
management works on the sales plan and
passes it down to the merchandising team
 Bottom up planning - individual
department managers work on the
estimated sales projections
 They are then added to arrive at the total
sales figures
Stage III: Merchandise Control

Controlling the money to buy – The Open to

Buy (OTB)

 Financial plan
 How much to invest in product inventories,
stated in monetary terms
Stage III: Merchandise Control

 Limiting overbuying & under buying

 Preventing loss of sales due to
unavailability of required stock
 Reducing markdowns which may arise due
to excess buying
Stage III: Merchandise Control

The merchandise budget usually comprises :

 Sales plan- how much of each product

needs to be sold department wise division
wise or store wise

 Stock support plan - how much inventory

or stock is needed to achieve those sales
Stage III: Merchandise Control

 Planned reductions - in case the product

does not sell

 Gross margins - overall profitability of the

company
OTB
OTB

 Financial budget for retail merchandisers

 Tool designed to assist retailers manage

and replenish their most significant asset
- inventory investment.
Measuring past trends
 Assume sales will increase or decrease by
the same amount as the preceding year
(10% up or down)

 Moving average method

Key Elements
 Stock Cover
 Stock Turn
Stock Cover
 Also known as Inventory Cover

 in terms of sales periods such as 3

months stock and is decided on the basis
of the product category, Footfalls etc.
Stockturn
 Stockturn – Number of times the average
inventory turns over a year

 Relationship between the sale of goods

and average inventory of goods

 value
Key Elements
 Opening stock – The stock held by the
system at the beginning of the calculation
period.

 Closing stock – The balanced stock held

by the system at the end of a period.

 It could be the stock at the end of a

certain financial period.
Flat and Forward cover
 Merchandise only when then the previous
stock is sold out?
 Lead time
 Re-order cycle
 RDC/DC
 In-transit time
Stock to Sales Ratio and
Stockturn
Stock to Sales Ratio and
Stockturn
 If Yearly Stockturn = 4.6

 Average Stock to Sales ratio for a year =

Months/Yearly Stockturn
= 12/4.6 = 2.6
 Planned BOM stock = Planned sales X
Stock to sales ratio

 = Planned sales X Stockcover

Planned Stock

Month Planned Sales BOM Stock to Planned Retail

Sales Ratio BOM Stocks($)
August 9500 3.0 28500
September 11000 3.1 34100
October 12500 2.8 35000
November 16500 2.4 38400
December 18500 1.8 33300
January 8500 3.0 25500
Calculating OTB

 OTB = Planned Sales + Closing Stock –

Opening Stock

 OTB = Planned Purchases – Purchase

Commitments
Calculating OTB
 OTB at Cost price always

 OTB at Retail ?

 100% - Markup %= % Cost of Goods sold

100 - 45 = 55

Cost of Goods = 55 %
Calculating OTB
 Cost of Goods % X OTB(Retail)= OTB (Cost)

 0.55 X 8250 = 4537.50

 OTB at Cost price= 4537.50
 Planned EOM Stock – Stock you want to
have at the end of month
 Planned Sales
 Planned Reductions – Markdowns,
Employee discounts
 Planned BOM Stocks – Stock from previous
month
 OTB= (Planned Sales + Planned EOM
Stock + Planned Reductions) – (Planned
BOM Stock)
Planned Reductions
Retail Reduction

 Difference between Original Retail

value and Actual final sales value of a
merchandise
Retail Reduction – 3 Factors
 Merchandise Shortages and Overages
 Employee Discounts
 Markdowns
Merchandise Shortage
 Difference between Book inventory and
Physical inventory

 Merchandise Shortage = Book Inventory –

Physical Inventory
Merchandise Shortage
 Opening Inventory - $160,000
 Purchases – $70,000
 Net Sales - $150,000

Book Inventory
Merchandise Shortage
 Book Inventory = (Opening inventory +
Purchases) – Net sales

 Physical Inventory - $70,000

 Merchandise Shortage = Book Inventory –

Physical Inventory
Merchandise Overage
 Difference between Physical inventory and
Book inventory

 Merchandise Overage = Physical inventory

– Book inventory
Employee Discount
 Special Discounts
 Reductions given to store employees
 Charities

 Employee Discount = Discount for a

Month/ Net Sales
Employee Discount
 Net Sales for August - $500,000
 Employee Discount for a Month - $5000

 Employee discount %
Markdowns
Markdowns
 Reduction in price from Original Price

 Markdown(Dollar Markdown or Net

Markdown) = Original Retail Price –
Markdown Price

 Original Retail Price = $5.00

 Markdown Price = $4.00
 Dollar Markdown?
Markdown Percentage
 Ratio of Net Markdown to Original Retail
Price

 Markdown% = Net Markdown/ Original

retail price
Planned Markups
Planned Markup
 Markup = Retail Price – Cost Price

 Markup % = Markup/ Retail Price

 Retail price - $20

 Cost price - $10
Planned Markup
 Initial Markup (Mark-on or Original
markup)

 Initial Markup = Retail Price – Cost Price

 Maintained Markup = Cost Price – Final

Retail price
Maintained Markup
 Exercise
 A pair of sneaker costs $10

 Retail price - $30

 Initial Markup?

 Final retail price - $25

Planning Process
Components of Planning
Process
 Objective
 Policies
 Procedures
Business Objective
 Provides framework for planning
 Goal towards which the management
activities of the business establishment
are directed
Business Policies
 Frame of reference for decision making
consistent with planned objectives
 Necessary guidelines for dealing with
problems and issues
 Laws and regulations
Procedures
 Document written to support a policy
 Set of instructions for completing a task

 SOP - a written document which details all of

the relevant steps and activities in a process
Six Months Plan
Thank You