THE CONCEPT OF MERCHANDISE

PLANNING

Merchandise planning The Product

Mix
can be defined as the
planning and control of
the merchandise
The Range
inventory of the retail

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Method of and
firm, in a manner, Sourcing Assortment
Mix
which balances THE
MERCHANDIS
between the E STRATEGY

expectations of the
target customers and
the strategy of the firm
Quality The Price

Factors Affected by the Merchandise Strategy

 Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
THE CONCEPT OF MERCHANDISE

The Process of Merchandise Management

PLANNING
THE IMPLICATIONS OF MERCHANDISE
PLANNING

 Finance

 Marketing

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

 Warehousing and
Logistics

 Store Operations

The Implications of Merchandise Planning

 THE BUYING CYCLE
Determine
Product
Requirement

Monitor
Response Take
Select Suppliers
Corrective
Action

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Allocate the Vendor
Product Negotiations

Follow up Product Pricing

TYPES OF MERCHANDISE

 Staple/Basic Merchandise
 Fashion Merchandise
 Seasonal Merchandise

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

 Fad Merchandise
 Style
 Variety of Merchandise
TYPES OF MERCHANDISE

 Width of Assortment
 Depth of Assortment
 Consistency

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

 A merchandise line consists of a group of
products that are closely related
 Model Stock Plan
 THE PROCESS OF MERCHANDISE
PLANNING

Stage I: Developing the Sales Forecast

 Reviewing past sales

 Analysing the changes in the economic
conditions

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

 Analysing the changes in the sales
potential
 Analysing the changes in the
marketing strategies of the retail
organisation and the competition
 Creating the sales forecast

The Dimensions of Planning of Merchandise

 THE PROCESS OF MERCHANDISE
PLANNING

Stage I: Developing the Sales Forecast

Forecasting for Fashion Products
 Fashion Scan
 Consumer Analysis
 Cultural Factors Environment Scan

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 The Competition
 Colour Forecasting
 Textile Development
 The Style
 THE PROCESS OF MERCHANDISE
PLANNING

Stage II: Determining the Merchandise Requirements

 Planning in merchandising is at two levels:
 The creation of the Merchandise Budget
 The Assortment Plan

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

 The Merchandise Budget usually comprises of five parts:
 The sales plan
 The stock support plan
 The planned reductions
 The planned purchase levels
 The gross margins
 THE PROCESS OF MERCHANDISE
PLANNING

Stage II: Determining the Merchandise Requirements

 The Six-Month Merchandise Plan
 The merchandise budget should be prepared in advance of the
selling season
 The language of the budget should be easy to understand

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 The merchandise budget must be planned for a relatively short
period of time
 The budget should be flexible
 THE PROCESS OF MERCHANDISE
PLANNING

Stage II: Determining the Merchandise Requirements

 The Six-Month Merchandise Plan
 Key Components of the Six-Month Merchandise Plan
 Planned Sales
 Planned Purchases

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 Planned Reductions
 Planned Markdowns
 Employee Discounts
 Shrinkage
 Planned Markup
 Gross Margin
 THE PROCESS OF MERCHANDISE
PLANNING

Stage II: Determining the Merchandise Requirements

 The Six-Month Merchandise Plan
 Key Components of the Six-Month Merchandise Plan
 B.O.M. and E.O.M. Planned Inventory Levels
 Stock-to-Sales Method

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 The Basic Stock Method
 The Percentage Variation Method
 Creating the Six-Month Merchandise Plan
 Step 1: Calculate the monthly sales as a percentage of the total sales
 Step 2: Calculate the total projected sales next year, with a 10% increase
in sales
 Step 3: Calculate the monthly reductions from the total reductions
estimated
 Step 4: Calculate the Beginning of the Month Stock (BOM) requirement
and the End of the Month Stock requirement
 Step 5: Calculate the Monthly Additions to Stock
 THE PROCESS OF MERCHANDISE
PLANNING

Stage III: Merchandise Control – The Open to Buy

 When used effectively, open to buy ensures that the buyer:
 Limits overbuying and under buying
 Prevents loss of sales due to unavailability of the required stock

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

 Maintain purchases within the budgeted limits
 Reduce markdowns, which may arise due to excess buying

 Calculating the Open-to-Buy

Open-to-Buy = Planned EOM Stock – Projected EOM Stock
 THE PROCESS OF MERCHANDISE
PLANNING

Stage IV: Assortment Planning

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Merchandise hierarchy for
consumer durables

Merchandise Assortment Plan

 THE PROCESS OF MERCHANDISE
PLANNING

Stage IV: Assortment Planning

 The Range Plan
 The number of items/options available to the customer should be
sufficient at all times and should be such that it helps the customer
make a choice

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 The range planning process should ensure that overbuying and under
buying is limited
 Sufficient quantities of the product are available
 A decision on styles may be made on the basis of past historical data
taking into account the colour, styles, design and the prices
 The lower limit of range width is often described as the “aesthetic
minimum”
 THE PROCESS OF MERCHANDISE
PLANNING
Stage IV: Assortment
Planning
 The Model Stock Plan
 Step 1: The first thing that
the retailer needs to do is
to identify the factors that

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

affect the customer’s
buying decision and the
number of levels under
each attribute
 Step 2: Identify the
number of levels under
each attribute
 Step 3: The third step is to
allocate the total units to
the respective item
categories The Model Stock Plan
 TECHNOLOGY TOOLS AND
MERCHANDISE PLANNING

 Several factors make comprehensive planning difficult

for retailers:
 Relevant data is hard to access quickly
 Incorporation of projected demand into planning efforts

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

 The tools used may range from simple excel sheets, to
specialised software’s like Retail Pro and JDA
 The process starts by taking into account the
forecasted sales for the season and the budgets
available for the procurement of the merchandise
 Determining the assortment plan, the range plan and
the model stock plan then follows this