Merchandise Budgeting and Planning

How To Make Sense of the Complex Process

As a retailer, planning your stock levels and assortments is one of the most complex and vital functions of your job. My goal is not to make you an expert on this complex function but to provide you with an understanding of the process of merchandise budgeting and planning one step at a time and help you embrace this task with more confidence and better results.

Merchandise Budgeting and Planning Defined
Merchandise budgeting and planning is about planning and profitably managing what your store will carry for the next season. Your goal is to know the “Five Rights of Retail”, which are: The right product; In the right place; At the right time; In the right quantity; At the right price.
A Merchandise Plan concerns itself with product (inventory and assortment), place (where to display it or if you have multiple stores, what stores to distribute the product to), time (the delivery time required to have it when the customer wants to buy), in the right quantity (good merchandise plans identify the proper amount that the store needs to have to make its sales plan: no more and no less than required) and at the right price (the merchandise plan assists you in setting a price that will sell the article and return a fair profit to your store or company). This list is over 80 years old and has been the standard of success in the retail business for all this time. Retailers have also added “with the right service” to this list because no matter how good your product is, unless you have the right people with the right training to effectively sell it to customers, it won’t sell.
For most retailers the value of the retail inventory is greater than any other investment the retailer has. Once you manage to plan the right merchandise for your store, the next crucial step is its profitable management, which involves constant monitoring of performance and actions to maximize the sales.

What does Merchandise Management Entail?
The planning process encompasses more than just forecasting and planning sales and inventory. The additional tasks that you will need to fulfill to ensure profitable sales are: Market Analysis, Store Positioning Analysis, Promotions Planning, Sales And Stock Planning, Sourcing, Shoeline Building, Assortment Planning, In Season Stock Analysis And Actions, Season End Stock Analysis. This article will focus on the first three.

Market Analysis
Good merchandise budgeting and planning begins with a look at the market, which consists of your customers and your competition. The questions that you will need to answer about your customers are:
Who are they? Identify and clearly define their profile, including age group, occupation, sex, ethnicity, profession, income level, leisure-time interests, where they live, fashion and utility needs and wants. This will guide you in your buying and merchandising decisions.
What are their buying criteria? Is it price, utility, quality, durability, fashion or impulse?
What products are they looking for? A good analysis on your customer’s preferences and lifestyle will help you determine what products you should carry that cater to their specific needs.
The questions that you need to answer about your competition are:
Who are they? Make a list of your competitors.
How to they attract customers? Is it price? Convenience? Assortment? Quality? Promotions? Ambience? Service? Windows?
What are their strengths and weaknesses? When analyzing your competitors, make a list of all the strengths and the weaknesses as it relates to their product selection and pricing strategy, but also service and ambience.

Store Positioning Analysis
What image do you want to project and how do you want to be perceived by your customer? Do you want your store to be known for the lowest prices, the widest assortment, the latest styles, the most technologically advanced styles for professional athletes, the highest level of product knowledge of your staff, etc.? Make sure you don’t try to be everything to everyone. Pick one strategy and excel at it without forgetting the others.

Promotion Planning
You need to develop a promotional or marketing plan that identifies the various events and sale actions necessary to achieve your sales and profit objectives. Your plan must have innovative ideas each season. Create activities that will differentiate you from the competition.

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