Merchandise Planning is the planning and control of inventories to meet desired sales and product-related objectives. It also includes the planning of the size and assortment of the merchandise inventories, as well as a variety of functions dealing with the purchase, display, pricing, promotion, and sale of merchandise.
The essentials of merchandise planning are:1. Right Type
The type and variety of merchandise offered are major determinants of the business the retailer is in and will have an impact on how the customer perceives the shop. Competition research can define the merchandise policy to be adopted, that is, either specialized (carry a few related product lines) or general (carry a wide range of product lines). Further, the quality of merchandise must relate to the target market which can be identified through a consumer research. The type of merchandise to stock will also depend on how innovative the retailer wants to be, that is, whether the retailer wants to be a trend setter or a trend follower.
2. Right Time
It is important to time the arrival of the merchandise to meet daily or seasonal needs. The timing will depend on an accurate sales forecast which can be determined through a consumption basket analysis of the consumer as well as accounting for seasonality or festivities.
An accurate sales forecast would further ensure order and delivery lead time, maximum & minimum quantity of stock required to be held by the retailer at any point in time.
3. Right Location
If the retailer has more than one outlet, the appropriate merchandise range to be sold at each outlet location must be carefully considered. It may not be necessary to sell all the merchandise ranges in all the shops as the tastes & preferences of the target customers of each shop differ.
4. Right Quantity
Once the type of merchandise is determined, the breadth (the number of distinct product categories) and depth (variety in a product category) of assortment must be developed. The breadth and depth comprise the retailer’s merchandise-mix. To maximize profitability, it is necessary to optimize both depth and breadth.
To avoid overstocking, the amount of merchandise ordered must relate to the demand for it. Other considerations include seasonal factors, stock turn and whether the merchandise is a basic item or a fashion one. It is also important that the retailer identifies and maintains a good stock level of the fast-moving merchandise. Very often, fast-moving merchandise contributes to the major bulk of total sales.
5. Right Price
Traditionally, the price of merchandise is determined by the cost of goods plus a certain amount of profit. However, this is no longer the reasonable approach in today’s competitive market. Besides sales volume, expenses and price adjustments, the pricing decision is also influenced by:
- Target market - mass or exclusive
- Competition - analyzing direct competitor’s pricing strategy
- Company’s objectives - overall strategy the company is adopting
- Suppliers - increase in prices
- Government - changes in tax rates