As a retailer, you know that staying ahead of the curve in today’s fast-paced world can be challenging. Between changing consumer demands, increased competition, and evolving technology, it’s harder than ever before to maintain consistent sales and profitability. That’s why additional efforts are required across stages of merchandise planning for success.
However, despite its importance, merchandise planning often falls short due to several common pain points. Many retailers lack access to accurate sales data, struggle with manual spreadsheets, or simply don’t allocate enough resources to the planning process. As a result, they end up with mismatched inventory levels, missed sales opportunities, and reduced customer satisfaction.
7 Stages of Merchandise Planning
Here are some common stages involved in the merchandise planning process:
Sales Analysis
The first step in stages of merchandise planning is sales analysis. This involves reviewing historical sales data to gain insight into customer behavior and market trends. By examining sales by category, subcategory, and individual SKU, you can identify which products are selling well and which ones aren’t. You can also look for seasonality patterns, such as spikes in sales during certain times of the year.
This information is essential for making informed decisions about your product offerings. For example, if you notice that sales of a particular type of clothing are increasing, you may want to expand your selection in that area. On the other hand, if a product isn’t selling well, you may need to consider discontinuing it or finding ways to improve its appeal.
Product Development
Once you’ve analyzed your sales data, the next step is to develop new products or modify existing ones to better meet customer needs and preferences. This may involve working with designers, manufacturers, and suppliers to source materials, create prototypes, and test new designs.
During the product development phase, it’s important to keep your target audience in mind. Consider their demographics, lifestyle, and purchasing habits. What types of products do they typically buy? What features and benefits are most important to them? Answering these questions can help guide your product development efforts.
Assortment Planning
After you’ve developed your product line, the next step is to plan your assortment. This involves deciding which products to carry in your store or online channel, and how many units of each one to order. The goal is to create a balanced mix of products that meets customer demand, maximizes profits, and aligns with your overall business objectives.
When planning your assortment, there are several factors to consider. First, think about your target customer and their preferences. What types of products are they looking for? Which brands do they prefer? Next, consider your competition and how your assortment compares to theirs. Look for gaps in the market where you can differentiate yourself and offer unique products or services.
Another important consideration is inventory capacity. How much space do you have in your store or warehouse? What is your budget for inventory purchases? These factors will influence how many units of each product you can realistically carry.
Lastly, don’t forget about margin targets. Each product has a different cost structure, so it’s important to balance profitability with customer demand. Aim for a healthy mix of high-margin and low-margin items to achieve your financial goals.
Inventory Management
Effective inventory management is essential for maintaining smooth operations and ensuring that products are always available when customers want them. This involves determining how much inventory to purchase and when to reorder.
One approach to inventory management is called Just-in-Time (JIT). With JIT, you only order inventory as needed, based on current demand. This reduces carrying costs and minimizes waste since you’re not holding onto excess inventory. However, it requires careful monitoring of inventory levels and lead times, as any delays could result in stockouts.
Another approach is safety stock management. Safety stock refers to extra inventory kept on hand to protect against unexpected fluctuations in demand. By having additional inventory available, you reduce the risk of stockouts due to unforeseen events like weather changes or supply chain disruptions.
Regardless of the approach you take, it’s important to regularly monitor inventory levels and adjust orders accordingly. This can help prevent overstocking and understocking situations, leading to improved cash flow and higher customer satisfaction.
Pricing Strategy
Setting the right price for your products is another critical aspect of merchandise planning. Price impacts both revenue and margins, so it’s important to strike a balance between competitiveness and profitability.
There are various pricing strategies you can use depending on your goals. One popular method is cost-plus pricing, where you add a fixed percentage markup to the cost of goods sold. Another option is value-based pricing, where you base your prices on the perceived value of your products to customers.
Whichever strategy you choose, be sure to conduct regular price audits to stay competitive with other sellers. Monitor industry trends and consumer sentiment to adjust your pricing as necessary.
Promotional Planning
Promotions can be an effective tool for driving traffic and boosting sales. However, they should be used strategically to avoid eroding profits or devaluing your brand. When planning promotions, consider the following:
- Who is your target audience? Are they price-sensitive or motivated by exclusivity?
- What is the objective of the promotion? Is it to clear out old inventory, attract new customers, or increase loyalty among existing ones?
- What type of promotion will resonate best with your audience? Examples include discounts, free gifts, bundle deals, and limited-time offers.
Remember to measure the success of your promotions using KPIs like conversion rate, average order value, and ROAS (return on ad spend). Use this data to refine future promotional campaigns and optimize results.
Performance Measurement
Finally, it’s important to track and analyze the performance of your merchandise planning efforts. Set KPIs for each stage of the process and regularly evaluate progress towards those goals. Some examples of KPIs include:
- Gross margin return on investment (GMROI): measures the profit generated per dollar invested in inventory.
- Inventory turnover: indicates how quickly inventory is sold and replaced within a given period.
- Markdown rate: shows the percentage of total sales attributable to discounted items.
- Sell-through rate: represents the proportion of units sold versus the number initially ordered.
By monitoring these KPIs, you can identify areas for improvement and fine-tune your merchandise planning processes over time. Regular reviews also provide valuable feedback loops for all stakeholders involved in the merchandising process, enabling continuous learning and optimization.
Conclusion
Merchandise planning plays a pivotal role in the success of retail businesses. From sales analysis to performance measurement, each stage contributes to creating a cohesive & profitable product offering. By implementing robust merchandise planning solutions, retailers can better anticipate customer needs, streamline operations, and ultimately grow their business.
