What It Is
Merchandise Planning (Demand and Inventory Management) is the act of observing the actual and planned amounts of Inventory and Sales to create efficiency, in supplying demand.
Planning retail with a set approach will help managers in key positions to better anticipate and understand the market they are engaged in. When Retail Operations efficiently meet their demand, they can obtain the maximum of their return on investment and minimize losses.
A Merchandise Planning Strategy really has 2 goals. The first is Demand Management, where we research and understand the market to better choose what products to offer and for how long.
The next is Inventory Planning, which helps us efficiently meet the local demand of that product with our supply.
The consequences of bad retail planning include:
- Too much supply, not enough demand which will wither profit margin and result in mark downs or spoilage.
- Too little supply, too much demand will mean lost opportunity for sales.
- Inefficient usage of retail space.
- Ignorance of Market Saturation and Product Life Cycle
Two general calculations in the Merchandise Planning Process include Percentage of Sales and Turnover
Percentage of Sales Basic Formula
Monthly sales goals are most often based off predictions around the same period the previous year or months within the same season and their respective sales figures.
It is important to plan buying inventory to better control the investment you are making, and curb risk. You have to maintain an assortment of products to appear varied to customers but also be able to reduce purchasing of a product as the market demands it less. As a Buyer, you need to regulate the inventory investment in relation to how products are selling through.
Turnover Basic Formula
Imagine you are a retailer for Cameras and Accessories, a new camera came out so you preorder 1000 units as you expect this camera’s specifications to bring a high demand.
In the 1st month you sell 400 units, the next 250, the third sees 100 units sold, the 4th has sales of 50 units.
Your Percentage of Turnover for each respective month comes out to
- 40% of your inventory sold through the 1st month
- 25% for your next month
- 10% for 3rd month
- 5% for the 4th month.
- For a total of 80% total turnover over 4 months with 20% inventory left.
If you have an idea of what products you want your store to sell, then you might be ready to work on a merchandise plan. You will basically create a budget that helps direct decisions when procuring inventory, and creating a path around specific levels of sales. Read on to understand the basics of a merchandise plan.
In Retail this plan given to the buyer manager to assist in decision making. This is most common in apparel as it is standard to plan the upcoming season. The tasks for a merchandise plan include integrating with other activities, obtaining a profit, and researching results. We have to control and forecast our buying and selling of merchandise to help create a path towards success.
The Main Metrics we need is
- Planned Inventory
- Planned Sales
- Researched Stock Turnover
When Planning Sales here are some factors we need to be aware of:
- Analyze Past Sales of Same Period
- Current sales trends
- Industry status and trends
- Large Economic Conditions
- Local economy
- Relevant Store factors
- Growth Rates (Actual and Desired)
It is important that you establish a percentage of projected sales, that can be modified later after analyzing sales performance and remain accommodating towards other possible conditions of change.
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Disclaimer: To curb risk this is not a recommendation as to inventory procurement, please conduct your own research and decide your own needs and goals.