Definition

Merchandise Planning is the process of selecting, managing, and controlling the products that a retail business offers for sale. It involves forecasting demand, planning inventory levels, and determining the optimal product mix to meet customer needs and maximize profitability.

Types

Types of Merchandise Planning:

Top-Down Planning:
Planning starts with overall company goals and then breaks them down into department, category, and item-level plans.

Example: Setting a sales target for the entire store and then allocating it to individual departments.

Bottom-Up Planning:
Planning starts at the item or category level and aggregates up to the overall company plan.

Example: Estimating sales for individual products and then summing these to get the total sales forecast.

Open-to-Buy Planning:
A budgeting system that helps retailers manage their inventory purchases to ensure they have the right amount of stock at the right time.

Example: Tracking the amount of budget available for new inventory purchases based on current stock levels and sales forecasts.

Assortment Planning:
Determining the variety and quantity of products to be carried in each category.

Example: Deciding how many styles, colors, and sizes of a particular clothing item to stock.

Benefits

Benefits of Merchandise Planning:

Optimized Inventory Levels:
Ensures that the right amount of inventory is available to meet customer demand without overstocking.

Example: Reducing excess inventory and minimizing stockouts.

Increased Sales and Profitability:
Helps to maximize sales and profit margins by aligning product offerings with customer preferences.

Example: Stocking high-demand products to increase sales turnover.

Improved Customer Satisfaction:
Ensures that popular products are always available, enhancing the shopping experience.

Example: Maintaining adequate stock of best-selling items.

Better Financial Planning:
Provides a clear view of inventory investment and helps manage cash flow.

Example: Allocating budget effectively across different product categories.