Merchandise Planning
Merchandise Planning
Analysis of consumer’s needs and wants
Developing sales forecast
Past sales records
Interaction with sales staff to get valuable
insights as to what product is selling
Trends through Television, Magazines,
Movies, Concerts, Events and Trade
publications
Merchandise Planning
Develop the merchandise mix and
establish the merchandise budget.
Price offering
Build the logistic system for procuring the
merchandise mix
Organize the customer support service
and manage the personal selling effort
Advertising, sales incentive and publicity
programs
Process of Merchandise Planning
Process of Merchandise Planning
Stage I: Developing sales forecast
Stage II: Determining the merchandise
requirements
Stage III: Merchandise- Open to buy
Stage IV: Assortment Planning
Stage I: Developing Sales Forecast
First step in determining the inventory
needs of the product category
Forecast may be made by the
merchandiser, based on targets given by
the top management
Why forecasting is done?
Stage I: Developing Sales Forecast
Forecasting is done to determine –
How much of each product needs to be
purchased?
Should new products be added to the
merchandise assortment?
What price should be charged for the
product?
Stage I: Developing Sales Forecast
Sales forecast - weeks or a season or a
year
The sales forecast person needs to be
aware of -
1. The changes in tastes and attitudes of
consumers
2. The changes in their spending pattern
PROCESS OF DEVELOPING
SALES FORECASTS
PROCESS OF DEVELOPING SALES
FORECASTS
1. Reviewing past sales
Helps in establishing a pattern or
trend in sales figures
Indication of the sales in the current
year for the same
PROCESS OF DEVELOPING SALES
FORECASTS
2. Analyzing the changes in economic
conditions
Direct link with consumer spending
patterns
Economic slowdowns, increase in
unemployment levels, etc. all effect
business
PROCESS OF DEVELOPING SALES
FORECASTS
3. Analyzing the changes in the sales
potential
Relating demographic changes in the
market to that of the store and the
products to be sold
PROCESS OF DEVELOPING SALES
FORECASTS
4. Analyzing the changes in the
marketing strategies of the retail
organization and the competition
Marketing strategy to be adopted by
the organization and that of the
competition is to be considered
PROCESS OF DEVELOPING SALES
FORECASTS
5. Creating the sales forecast
Estimation of the projected sales is
applied to various products and
categories
Stage II: Determining the
merchandise requirements
Stage II: Determining the
merchandise requirements
Is there any line of merchandise to be
introduced ?
Any new store to be opened?
An existing store to be renovated?
Stage II: Determining the
merchandise requirements
Planning in merchandising is done at
two levels
1. Top down planning, and
2. Bottom up planning
Stage II: Determining the
merchandise requirements
Top down planning - operation
management works on the sales plan and
passes it down to the merchandising team
Bottom up planning - individual
department managers work on the
estimated sales projections
They are then added to arrive at the total
sales figures
Stage III: Merchandise Control
Controlling the money to buy – The Open to
Buy (OTB)
Financial plan
How much to invest in product inventories,
stated in monetary terms
Stage III: Merchandise Control
Limiting overbuying & under buying
Preventing loss of sales due to
unavailability of required stock
Reducing markdowns which may arise due
to excess buying
Stage III: Merchandise Control
The merchandise budget usually comprises :
Sales plan- how much of each product
needs to be sold department wise division
wise or store wise
Stock support plan - how much inventory
or stock is needed to achieve those sales
Stage III: Merchandise Control
Planned reductions - in case the product
does not sell
Gross margins - overall profitability of the
company
OTB
OTB
Financial budget for retail merchandisers
Tool designed to assist retailers manage
and replenish their most significant asset
- inventory investment.
Measuring past trends
Assume sales will increase or decrease by
the same amount as the preceding year
(10% up or down)
Moving average method
Key Elements
Stock Cover
Stock Turn
Stock Cover
Also known as Inventory Cover
in terms of sales periods such as 3
months stock and is decided on the basis
of the product category, Footfalls etc.
Stockturn
Stockturn – Number of times the average
inventory turns over a year
Relationship between the sale of goods
and average inventory of goods
value
Key Elements
Opening stock – The stock held by the
system at the beginning of the calculation
period.
Closing stock – The balanced stock held
by the system at the end of a period.
It could be the stock at the end of a
certain financial period.
Flat and Forward cover
Merchandise only when then the previous
stock is sold out?
Lead time
Re-order cycle
RDC/DC
In-transit time
Stock to Sales Ratio and
Stockturn
Stock to Sales Ratio and
Stockturn
If Yearly Stockturn = 4.6
Average Stock to Sales ratio for a year =
Months/Yearly Stockturn
= 12/4.6 = 2.6
Planned BOM stock = Planned sales X
Stock to sales ratio
= Planned sales X Stockcover
Planned Stock
Month Planned Sales BOM Stock to Planned Retail
Sales Ratio BOM Stocks($)
August 9500 3.0 28500
September 11000 3.1 34100
October 12500 2.8 35000
November 16500 2.4 38400
December 18500 1.8 33300
January 8500 3.0 25500
Calculating OTB
OTB = Planned Sales + Closing Stock –
Opening Stock
OTB = Planned Purchases – Purchase
Commitments
Calculating OTB
OTB at Cost price always
OTB at Retail ?
100% - Markup %= % Cost of Goods sold
100 - 45 = 55
Cost of Goods = 55 %
Calculating OTB
Cost of Goods % X OTB(Retail)= OTB (Cost)
0.55 X 8250 = 4537.50
OTB at Cost price= 4537.50
Planned EOM Stock – Stock you want to
have at the end of month
Planned Sales
Planned Reductions – Markdowns,
Employee discounts
Planned BOM Stocks – Stock from previous
month
OTB= (Planned Sales + Planned EOM
Stock + Planned Reductions) – (Planned
BOM Stock)
Planned Reductions
Retail Reduction
Difference between Original Retail
value and Actual final sales value of a
merchandise
Retail Reduction – 3 Factors
Merchandise Shortages and Overages
Employee Discounts
Markdowns
Merchandise Shortage
Difference between Book inventory and
Physical inventory
Merchandise Shortage = Book Inventory –
Physical Inventory
Merchandise Shortage
Opening Inventory - $160,000
Purchases – $70,000
Net Sales - $150,000
Book Inventory
Merchandise Shortage
Book Inventory = (Opening inventory +
Purchases) – Net sales
Physical Inventory - $70,000
Merchandise Shortage = Book Inventory –
Physical Inventory
Merchandise Overage
Difference between Physical inventory and
Book inventory
Merchandise Overage = Physical inventory
– Book inventory
Employee Discount
Special Discounts
Reductions given to store employees
Charities
Employee Discount = Discount for a
Month/ Net Sales
Employee Discount
Net Sales for August - $500,000
Employee Discount for a Month - $5000
Employee discount %
Markdowns
Markdowns
Reduction in price from Original Price
Markdown(Dollar Markdown or Net
Markdown) = Original Retail Price –
Markdown Price
Original Retail Price = $5.00
Markdown Price = $4.00
Dollar Markdown?
Markdown Percentage
Ratio of Net Markdown to Original Retail
Price
Markdown% = Net Markdown/ Original
retail price
Planned Markups
Planned Markup
Markup = Retail Price – Cost Price
Markup % = Markup/ Retail Price
Retail price - $20
Cost price - $10
Planned Markup
Initial Markup (Mark-on or Original
markup)
Initial Markup = Retail Price – Cost Price
Maintained Markup = Cost Price – Final
Retail price
Maintained Markup
Exercise
A pair of sneaker costs $10
Retail price - $30
Initial Markup?
Final retail price - $25
Planning Process
Components of Planning
Process
Objective
Policies
Procedures
Business Objective
Provides framework for planning
Goal towards which the management
activities of the business establishment
are directed
Business Policies
Frame of reference for decision making
consistent with planned objectives
Necessary guidelines for dealing with
problems and issues
Laws and regulations
Procedures
Document written to support a policy
Set of instructions for completing a task
SOP - a written document which details all of
the relevant steps and activities in a process
Six Months Plan
Thank You
