THE PLANNING &

CONTROL FUNCTIONS
Planning and control are vital
for successful apparel
companies.
To be consistently successful in functioning
and making developments, execution and
final deliverance on time which is
becoming increasingly complex and time –
critical apparel merchandisers must utilize
powerful planning and control tools.
 Objectives

1.To satisfy the needs and wants of customer

2.To earn profit
 Planning for the profit
Major goals of planning in retail merchandising are:
1. to maintain an inventory to meet the anticipated
customer demand.
2. to time the delivery of purchase so that
merchandise is available for sale for customer demand.
3. to keep purchases in line with the store’s ability to
pay for them.
4. to have funds available for the purchase of new
goods when needed.
 Earning a profit
• Net sales are all of the sales that have been made minus ‘customer
returns and allowances’.

• Cost of goods- sold is the amount the buyer has paid for the
merchandise that the store has held for that same time period.

• Gross margin is the margin of dollars between what the

merchandise cost and what it was sold for.

• Expenses is the amount of money spent to run the business. It

includes salaries, advertising, rent, heat and light.

• Profit-the amount of money that is left over after all of the

merchandise that is offered for sale has been sold and all of the
expenses of running the business have been paid.
 Earning a profit
₹ %
Net sales – cost of 70,000 100
goods sold – 42,000 – 60
40
= gross margin - 28,000
expenses - 24,000 –34.3

= profit 4,000 5.7

‘Net sales – cost of goods sold = gross margin’

‘Gross margin – expenses = profit’
 Use of retail figures
Majority of departments and stores operate under the
accounting system known as retail method of
inventory.

In this system, all transactions affecting the store’s

inventory, such as sales, purchases, markdowns,
transfers, and return-to-vendor, are recorded at their
retail prices.
Advantages of the Retail Inventory Method
1. The ease of making comparisons with figures of the
other stores.
2. A relatively efficient means of determining gross margin
and net profit.
3. The ability to determine cost of merchandise by the
application of a percentage, the cumulative markup
percent(on all goods)
4. The ability to maintain close supervision of all
merchandising functions.
5. The maintenance of a book inventory of all
merchandising on hand. Jasmine S. Dixit
Application of Retail Inventory:

• Comparing merchandising performance:

increase or decrease in sales volume compared
to a comparable period or plan is expressed as
a percentage.
• Determining Markup: Markup is figured as a
percentage of the retail price.
• Computing Profit
• Calculating Markdown percentage
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 PERIOD OF PLAN
The period plan may vary for a month to an year. The usual
planning is of six months.

– The Spring Season- Feb.- July

– The Fall Season- August- January

Seasons Launch Date EOSS date

Spring Summer February From June end -
(SS) August
Autumn Winter August From December-
(AW) February (Mid)
 Planning and Control
Goal of business plan is to minimize capital & maximize profit.
The merchandise plan is one important tool to support this effort.

Referred to as six month merchandising plan.

Establishes standards in order to evaluate performance levels.

Two functions:
Planning: estimate of merchandise needed.
Control: regulate stock levels.

Explaining the techniques used with the plan to make

investment in merchandise that will be most responsive
to customer demand.
Merchandising plan: Budgeting the merchandise activities
(Excludes the units assortments or quantities.)

1. Prediction of demand per month.

2. Estimate of inventory required correspondingly.
3. Maintenance of the inventory levels by control feature.

The Plan:
1. All planning starts with sales.
2. All stock needs are related to sales.
3. Merchandising activities can be evaluated
A Good Plan:
Developed through of those responsible for achievements and
evaluations of merchandising activities. Therefore is team work
involving Top mgmt,
Other levels of mgmt
Buyers
Divisional merchandising managers with good understanding of goals,
responsibilities and interests.

Approach:
1.Mgmt gives all pertinent information to each department
2. Information regarding economic socio conditions, store
applications, marketing strategy and advertising is provided.
3. Preliminary sheets are used for temporary plan and
given to GMM.
4. Final approval.
 Elements of Six Month/ Dollar
plan
• Planned Sales: estimates for each month
and the period
• Planned Stock: estimated inventory need
at the beginning of each month.
• Planned Markdowns: estimated inventory
reduction for each month.
• Planned Purchases: estimated purchase
budget to be spent during a given period.
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Plan may include figures such as:
• Cash discount
• Season stock turnover
• Shortage
• Average Stock
• Markdown
• Percentage of initial markon
• Newspaper Advertising
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• Gross margin Percentage
 Planned Sales
• Forecasting sales for the period and subsequently for the
each month of the period.
• Fill in the base i.e. last year’s figures
• Estimate the increase or decrease for each period of the plan.
• Hence, the combination of two considerations- experience
plus anticipation

The factors of anticipation are:

• The economic climate of the country, the region, and the
trading area.
• Scheduled promotional activity must be studied
• Change in Competitive scenario
• Buyer’s assessment of market strength.
• Gross profit margin is applied per item
according to selling price set
• Sales volume is the number of items sold
in a particular time period (ROS: Rate of
sales)

• Sales turnover= Gross margin X ROS

 Planned Stock
Two guidelines to follow for balancing stock to sales:
• Stock Turnover
• Stock / Sales Ratio

• Stock Turnover: it is a method that is useful in planning

the total size of the inventory. It is a measurement of
efficiency and is usually calculated for six months.
• Refers to the no. of times that an average stock of
merchandise has been turned into sales in any given
period .
Planned Sales (for a period) = Stock Turnover
Planned Average Inventory
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(for the period)
• Average Inventory= 12 BOM + 1 EOM
13

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• Stock/ Sales Ratio: It establishes a ratio at a given time
typically at the beginning of the month. Based usually at
the experience of the department.
• The monthly stock-sales ratio uses the no. of months
that would be required to dispose of a BOM inventory at
the planned rate of sales for the month. It also directly
relates stock requirements to the planned sales.
• Stock-sales ratio = ₹ BOM stock / ₹ Planned Sales
for month

Retail Stock(as of a specific date) = Stock / Sales Ratio

Sales for a given period (a month)
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 Relationship b/w Stock
Turnover & Stock/Sales Ratio
• When selling is at the low volume of the season,
the ratio is increased because it is necessary to
maintain an adequate selection of merchandise
despite lowered selling levels.

• The difference between the two is that, the

stock/sales ratio is a figure at a given time,
whereas the planned stock turnover is an
average figure for a period.

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 Repricing of Merchandise
• Price adjustments are made to either
increase or decrease the original retail
price placed on merchandise.

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 Markdowns
• The most common and most important type of price
adjustment is technically called markdowns.
• Lowering or reduction in the original or previous retail
price on one item or a group of items.
• Markdowns reduce the total value of the stock available
for sales. Hence need to be included in planning.
• Expressed both in Value and as a percentage of planned
sales.
• Percentage data is more significant for comparison of
past and present performance.
• The percentage of markdowns taken also varies with
different lines of merchandise, different months and
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different seasons.
 Purpose of Markdowns
• To stimulate the sale of merchandise to
which customers are not responding
satisfactorily.
• To attract customers to stores by offering
“bargains”.
• To meet competitive prices.
• To provide open-to-buy money to
purchase new merchandise.
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 Planning Markdowns:
Calculation
1. Set the total markdown amount (stated as a percentage of
total seasons sales) for the entire period.
a) Review and analyze past markdown performance for the
same period, for the entire period under consideration.
b) Consider factors that may affect a change in markdowns.
2. Convert the planned markdown percentage of sales to a total
dollar figure for the season.
3. Apportion total dollar planned markdowns by month.

= > MD% = ₹ MD
₹ Net sales

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• Cycle Stock / Base Stock:
– Is inventory that results from the replenishment
process and is required to meet demand when the
retailer can predict demand and replenishment times
(lead times) perfectly, as predicted or planned.
– Before the store is out of stock, next order arrives.

• Backup stock / Buffer stock:

– Also known as a safety stock, as a cushion for the
cycle stock so they won’t run out before the next order
arrives
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PLANNING PURCHASES

Planned purchases means the amount of money

buyer can spend on merchandise during a given
period without exceeding the value of the inventory
planned to be on hand at the end of that period.
In most of the large stores ,purchases are planned
on monthly basis.

The planned purchase includes

Planned EOM stock
+ planned sales
+ planned markdowns = total needs for the month .

Planned purchase = total needs for the month -

BOM stock
 Various key formulas used by the buyer
when planning reductions
Merchandise Shortage = Book Inventory – Physical Inventory

Merchandise Overage = Physical Inventory (Error in count)-

Book Inventory

Employee and special Discounts = Discounts for Month / Net

Sales

Markdown = Original Retail Price – Markdown Price

Markdown Percent = Net Dollar Markdown / Net Sales

SUPPLEMENTAL ELEMENTS RELATING
TO MERCHANDISING PLANNING
Many retail stores , particularly large departmentalized
stores , expand budgeting procedures beyond the four
basic elements .
Important elements are as follows:
•initial markup (IMU)
•gross margins
•cash discounts earned as percentages of purchase
on sales
•rate of stock turnover
•shortage reserves
•operating expenses
 Markup
• It is the amount that is added to the cost price of
merchandise to arrive at a retail price.
• It is the markup percentage that is significant (rather than
the dollar amount) for comparison.
• Markup percentage calculated on cost is higher than
markup % on retail.
– The retail bases is generally acceptable as more
desirable because all expenses and profits are also
figured as a percentage of retail sales.

• Markup % = Value markup

Retail Jasmine S. Dixit
Gross margin:
The measurement of the efficiency of investment in
inventory is referred to as gross margin return per rupee of
inventory, which is commonly known as GMROI

Gross margin represents the amount of money left

from sales income after deducting the total cost of
merchandise sold during that given period. It also
indicates the amount of money available to pay all
operating expenses and taxes with a reasonable profit
left over.

GROSS MARGIN = NET SALES - NET COST OF

MERCHANDISE SOLD

₹ Gross Margin / Net Sales = %Gross Margin

Cash discounts:
Cash discounts are the percentages or premiums
allowed by manufacturers off their invoices if payment
of the invoice is made within a certain specific period of
time. Such discounts are allowed to encourage to the
prompt payments of the invoices. It is an additional
income for a store .

Terms of sale:
The combination of allowable discounts on purchases
and the time allowed for taking such discounts is
referred to as terms of sales.
Stock shortages:

Stock shortages or overages represent the Value

difference between the book inventory ( the value of
inventory on hand as indicated by the stores accounting
records) and the physical inventory ( the value
determined by taking a physical count).

When the book inventory is greater than the physical

inventory there is said to be stock shortage.

When the physical inventory is greater than the book

inventory there is said to be stock overage.
• Open-to-buy: the amount that a buyer may spend for
delivery of goods within a given period.

The Control Feature:

1. The difference between the planned beginning of the
month stock and the actual beginning of the month
stock is caused by a variation from plan of sales,
purchases, and markdowns that occurred in the
previous month.
2. The open-to-buy is a resultant figure.

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 Dollar Merchandise Control
• Open-to-buy (OTB) refers to the dollar amount
that a buyer can currently spend on
merchandise without exceeding the planned
dollar stock. Computations for OTB are as
follows:

• Planned sales for month + Planned reductions

for month + End-of-Month (EOM) planned retail
stock – Beginning-of-Month (BOM) stock =
Planned purchases at retail

• Planned purchases at retail – Commitments at

retail for current delivery = Open-to-Buy (OTB)
 Dollar Merchandise Control:
Common Buying Errors
• Buying merchandise that is either priced too high or
too low for the store’s target market.
• Buying the wrong type of merchandise (i.e., too
many tops and no skirts) or buying merchandise
that is too trendy.
• Having too much or too little basic stock on hand.
• Buying from too many vendors.
• Failing to identify the season’s hot items early
enough in the season.
• Failing to let the vendor assist the buyer by adding
new items and/or new colors to the mix. (All too
often, the original order is merely repeated, resulting
in a limited selection.)
 Terminology
• Stock Quantity (In retail)
• SOH: Stock on Hand
• GIT: Goods In Transit
• WH: Warehouse actuals
• Fresh Buy quantity
• Carry Forward
• Stock Cover

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Thank You!