Chapter 7 : Planning Merchandise

Assortments
 Learning Objectives
• Understand concept of Open to buy and its
advantages
• Learn about factors that affect assortment
plans
• Develop the range plans and model stock plan
• Tools used for merchandise planning

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 The Concept of OTB
• OTB is buyer’s buying plan to have the “right”
amount of inventory to support the retailer’s
sales plans.
• It tracks the present inventory level, sales made
and delivery schedule of ordered merchandise.
• OTB maintains a record of how much is actually
spent purchasing merchandise per month and
how much is left to spend.
• Goal is to ensure the correct inventory level.
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 Elements of OTB
Formulae
• Open-to-buy for a month = Planned EOM
inventory – projected EOM inventory
• Projected EOM inventory = actual BOM +
actual monthly additions (new merchandise
received) + on order (to be delivered) – sales
plan (actual sold) – planned monthly
reductions

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 Elements of OTB
• If OTB is positive, buyer has money left in the
budget to purchase merchandise for that
month.
• If it is negative, shows the buyer has
overbought and spent more than the budget.

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 Elements of OTB
Inventory level related concepts are :
• Basic stock list -assortment plan for staple
merchandise which is continuously
maintained in stock as they have stable sales.
It specifies the inventory level, color, brand,
size, package for every staple item.
• Planning stock depth or the quantity that is
on hand in the store to achieve the planned
sales.

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 Elements of OTB
• Never-out list - products whose absence from the
inventory even for a day will lower sales volume
and cause customer to return unhappy. They
should never be out of stock.
• Safety stock - amount of merchandise required
to be on hand to prevent stockouts until the
reorder can be received. It is added to the basic
buying stock to account for variability in demand
and delivery period.
•
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 Elements of OTB
• Operating level stock - inventory required for
safety stock plus buying period under normal
conditions.
• Buying period consists of review period and
the delivery period. The review period is the
time lapse between two consecutive reviews
of a product to determine whether additional
order should be placed.

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 Advantages of OTB
 Helps ensure adequate inventory to support planned sales.
 Able to estimate cash required to be invested in inventory .
 The merchandise buying can be adjusted in response to the
sales and the reductions.
 The planned stock to sales ratio can be maintained.
 An effective OTB will help reduce such markdowns.
 OTB helps maintain the purchases within planned budgets.
 An effective OTB prevents loss of sales due to unavailability
of required stock.
 Keeps a fresh flow of new merchandise coming into the
store through season which keeps the customer interested.

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 Assortment Planning
• Assortment Planning is process of deciding
what to buy and how much quantity to buy.
• Process whereby products are selected and
planned to maximize sales and profit
• Is the set of SKUs that a retailer offers in a
merchandise category
• It breaks down the quantities to be purchased
into specific products, lines, sizes and colors.

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 Need for Assortment Planning
A good merchandise assortment plan :
 Is a useful tool for buying merchandise and as a
document for store management.
 Gives an indication of the width and depth in each
category that is on offer at the retail store.
 Offers a balanced assortment to satisfy customers and
meet the merchandising goals.
 Enhances the company image while following and
executing the merchandise strategy.
 Satisfying customers’ needs is the main focus of
merchandise planning.

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 Types of Assortments
• Wide and deep assortment – A broad spectrum of
goods in large number of styles are offered.
• Wide and shallow assortment -- wide spectrum of
products is in limited numbers per product line.
• Narrow and deep assortment –small number of styles
in high volume. Product range is narrow but with large
variety in each line, depth and specialisation.
• Narrow and shallow –limited number of products lines
with little variety in each line. This format requires low
investment and has high turnover.

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Factors affecting Assortment Plans
Buyer considers various factors that may affect
the assortment plans :
• type of merchandise
• retail strategy
• effect of assortments on GMROI
• complementarities between categories
• effects of assortment on buying behaviour
• physical characteristics of the store.

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 Factors affecting Assortment Plans
Type of merchandise
Basic Product Fashion Product
• Identical product will be • Lifecycle is short with a
delivered over many seasons. single selling season.
• Product rarely changes. • Change frequently thus
• Sales and inventory are need for assortment
managed through planning is even greater.
replenishment system.
• Product mix has to be
• Utilizes the process of
developed.
category management.
• Inventory levels have to be
determined.

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Factors affecting Assortment Plans
Retail strategy
• Variety or number of SKUs to be carried by the
retailer is a strategic decision and impact the
retailer’s brand image.
• Other aspects of retail strategy are the
approach to value and pricing, vendor
programs, promotional philosophy

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Factors affecting Assortment Plans
Effect of assortments on GMROI
• Retailer has to balance the width and depth
with the inventory required.
• Increased investment in inventory reduces
inventory turnover and GMROI

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Factors affecting Assortment Plans
• Complementarities between categories have
to be borne in mind to raise transaction
values.
• Eg; A grocery store selling pasta should stock
pasta sauces also.

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Factors affecting Assortment Plans
• Effects of assortment on buying behaviour -
larger assortments or more SKUs satisfy
consumer’s needs better.
• They provide a more stimulating and fulfilling
experience to shoppers.
• Flip side - consumer purchase decisions
become more complicated and time
consuming.

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Factors affecting Assortment Plans
• Physical characteristics of the store like space
available for each category is a limiting factor.
• Larger stores can have higher number of
categories and variety.
• Amount of shelf space allocated to a
category usually depends on the sales.
• Display fixtures have to be appropriate for the
product category.
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 Range Planning
• A range is the total product offering expressed
in terms of width and depth.
• The aim of range planning is to create a varied
and balanced range of products in each
category.

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 Range Planning
A good range plan should :
• Should limit overbuying as well as under
buying.
• Ensure sufficient quantities of the
merchandise should be available at all stores
in various locations.
• Leads to customer satisfaction with the
variety.
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 Developing Range Plans
Developing a range plan may consist of the
following steps :
• Step 1 – Research and design
• Step 2 –Buyers and merchandisers of the retailer
review the sales data of the past few years.
• Step 3 – The product is developed and the range
is built considering various attributes that will
affect the final sales.
• Step 4 –Product range is evaluated and order
quantities finalised.

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 Developing Model Stock Plan
• Model stock plan is the number of SKUs in the
assortment plan that the buyer wants to offer
in the store.
• It helps buyer determine quantities of specific
items.
• Purpose is to balance assortment factors
relative to demand.

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 Tools for Merchandise Planning
Common tools retailers use for merchandise
planning are :
Basic Excel spreadsheets
Custom developed packages
Merchandise planning software like JDA, Arthur
Planning and Marker Max.
• The tools depend on the type of retail
organisation and level of maturity in terms of
usage of technology.

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