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The Art and Science of Retail Merchandising

By Kate Eby | September 20, 2017

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Retail merchandising is subtle. When customers walk into the store, they don't consciously think about the sensory experience. Rather, the colors, sounds, smells, temperature, and the way the merchandise feels combine to deliver an experience to the customer psyche that they may not even realize. Retail merchandising is an art and science. Decades of customer research, driven by the overwhelming economic importance and growth of the retail industry, arm retailers with actionable data for effective merchandise strategies and best practices. 

This article provides information for retailers to better understand retail merchandising and the difference between related concepts. Whether you are new to retail, have been a retailer for years and are looking for new inspiration to outperform the competition, or work for an e-commerce giant, there's something here for you. Learn tips and the new visual merchandising concepts from experts and researchers who are using cutting-edge science to study buyer behavior. Explore the impact that retail merchandising has on customer experience as well as the business of merchandising, including criteria for selecting a merchandising solutions provider. Discover the new rules of visual merchandising and how to be successful as a merchandise manager.

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What Is Retail Merchandising?

Retail merchandising refers to the various activities and strategies used to visually optimize retail displays in order to attract customers. These activities include in-store design, selecting specific merchandise to match a target market, and marketing merchandise to customers.

In the retail sector, professionals use the classify things as merchandise to categorize the industry by the types of goods and services offered (e.g., automotive parts, shoes, jewelry, etc.). Merchandising is both an activity and a strategy that contributes to selling goods and services by stimulating interest or otherwise enticing customers to make a purchase (e.g., promotional deals and discounting methods).

The goal of retail merchandising activity is to support a retail strategy that generates revenue for the retailer and value for the customer. The selection of retail merchandise and the type of goods and services a retailer decides to stock are key retail strategies. According to author Michael Levy in Retailing Management , the decision to carry particular merchandise is tactical rather than strategic. Merchandise management, along with store management principles, are the "tactical decisions" that Levy believes help implement retail strategy. For example, Lululemon uses attractive packaging to market its apparel. Lululemon provides customers with reusable bags in a variety of sizes and styles. The bags leave the retail store and serve as a type of moving merchandising strategy for brand awareness. The packaging is so effective and recognizable among the brand’s loyalists that there is a resale market on ebay for the bags. 

The Difference Between Retail Strategy and Merchandising Strategy

Levy believes merchandise management decisions, like Lululemon’s impressive presentation of seasonal athletic apparel worn by local yoga instructors on in-store posters, have short-term - rather than long-term - impact. (Long-term retail strategies are more resource dependent.) A merchandising philosophy that combines Levy's retail strategies (such as store location, systems technology, or customer relationship strategy) with tactical decisions (such as the type of merchandise a retailer carries) contributes to a customer's overall brand loyalty. 

• The target market(s) in which a retailer focuses its resources
• The retail format (products and services, pricing, communications, location) that satisfies the needs of the target market
• How the retailer will build a sustainable (long-term) advantage over competitors
• Merchandising Strategy: Merchandising strategy involves the tactics (or business processes) that contribute to the sale of goods and services to the customer for profit. Tactics within the overall retail strategy include the variety of merchandise available for sale in store or online and how the retailer advertises and displays that merchandise to stimulate interest and create a customer experience. A sound retail strategy involves developing a desirable retail merchandise mix of products that add unique customer value. 

Learn more about retail management strategy in the article How to Survive and Thrive in Retail Management .

The Difference Between Fashion Merchandising and Retail Merchandising

The North American Industry Classification System (NAICS) , which classifies and measures economic activity in the United States, Canada, and Mexico, classifies retail merchandising and fashion merchandising as two separate categories. NAICS organizes the retail trade industry (code 44-45) according to the “similarity in the processes used to produce goods or services.” Retail merchandising refers to business activities and retail management philosophy that cover a wider category of goods and services than fashion merchandising. For example, retail merchandising includes classifications like Clothing Accessories Stores (code 448150) and Shoe Stores (code 448210). The NAICS accepts that “knowledge of fashion trends” is a service that various retailers in the retail merchandising category provide. However, fashion merchandising services also represent a separate economic activity under the Specialized Design Services (code 541490) category.  

While there is some overlap between fashion merchandising and retail merchandising, fashion merchandising also involves a different supply-chain partnership and a unique retail mix. Retailers typically occupy the end of the supply chain involving manufacturers, wholesalers, and other suppliers and agents. Retail merchandising is, therefore, responsible for selling directly to the customer. Fashion merchandising may involve direct, value-added customer activities, but fashion merchandising professionals often sell directly to wholesale suppliers as well. 

Levy defines the retail mix as “the combination of factors used by a retailer to satisfy customer needs and influence their purchase decisions.” According to Levy, the retail mix involves the following factors: 

• The merchandise and services that a retailer offers
• The merchandise price 
• The advertising and promotional activity 
• The design and layout of stores (digital and physical)
• The visual merchandising

Fashion merchandising concerns a different combination of factors (and a narrower category of goods and services) than retail merchandising. For example, the merchandise, services, and store-design methods involved with fashion merchandising activities would not apply to used car dealers. The last component of the retail mix, visual merchandising, is another type of merchandising activity in the retailer’s tool belt.  

What Is Visual Merchandising in a Retail Store?

Visual merchandising guides the planning and activities responsible for how customers see your physical and digital stores, and the goods and services visible within. It helps create value by making the shopper journey memorable and motivates customers to purchase goods.

Visual merchandising includes everything from the store’s exterior to the entryway lighting, all the way through to well-placed furniture, fixtures, and promotional displays.

In today's omnichannel marketplace, e-commerce, retail stores, and mobile channels converge to shape the customer experience. Visual merchandising is responsible for creating the digital or physical environment that appeals to your target customer and aligns with your overall retail value proposition. The creative methods of visual merchandising stimulate customers to make purchases. Retailers can design a customer experience with the layout of store merchandise, the UX design of e-commerce landing pages, and the usability and imagery of a mobile app.

The Science of Visual Merchandising

With visual merchandising, retailers can influence how customers choose and what choices they make based on what those customers see in physical stores and online. Modern neuroscience studies suggest that the impact of messaging via optical stimulation is measurable and real. The field of neuro-marketing studies how customers make purchasing decisions and how retailers can influence customers. In the book Retail Marketing Strategy: Delivering Shopper Delight , author Constant Berkhout discusses how brain research is an appropriate retail marketing tool. For example, he cites a study in which researchers affixed smiley face stickers to merchandise price tags. These emojis gave shoppers the perception that the prices of the items displaying the stickers were lower than the prices of the items without the stickers. Berkhout explains that shoppers are “unconsciously attracted by pleasure and a feeling of reward.” A well-known and simple visual image — in the relatable and popular form of communication (emojis) preferred by highly sought-after millennials and Gen-Zers — had a powerful effect on customer value. 

Image Adapted from Source: Retail Marketing Strategy, Constant Berkhout

Visual Merchandising Tips from Neuro-Marketing Research

In Retail Marketing Strategy , Berkhout offers a summary of practical suggestions. He gleaned this information from his time with neuroscientists who were trying to understand the brain activity that accompanies the ideal shopping experience. He also cites research from The Buying Brain: Secrets for Selling to the Subconscious Mind , by Dr. A.K. Pradeep. Here is a list of the visual merchandising tips that Berkhout adapted from this neuro research. They include observations on how to turn insight into retail solutions:

• Signs Point the Way: Shoppers are scanners. They routinely look for changes in familiar retail environments (or on landing pages) and use visual stimuli closest to their point of entry. Place signs closest to the customer’s entry point, and guide the shopper journey with images rather than text to avoid overstimulation. 
• Display Images: The images retailers use for in-store displays or online stores should have a left-right orientation. (The picture should appear on the left, and the associated text should appear on the right.) The “shopper’s eye,” according to Pradeep, delivers observations more effectively in this way. It takes more effort for scanning shoppers if the text appears on the left, and the image appears on the right. 
• Aisle Attraction: Aisles that end with rounded gondola displays entice customers more often. These round-end caps should help the shopper navigate by providing clues to what they will find on the rest of the aisle. The ideal length of an aisle is approx. 20-22 ft., and, halfway down each aisle, there should be some “visual interruption,” such as special lighting or a floor display, to attract the shopper.  
• Show Off Consumption: Visual displays that show off consumption of goods and services prompt more action. If the display features people, it should always include imagery of smiling, happy customers. For example, if you wish to promote the breakfast items on your menu, it is better to show a person consuming said items rather than the product by itself. If your merchandise is apparel, it’s preferable to show that apparel in action. 
• Material Matters: Shoppers (and their brains) enjoy touching round, soft items. Place such items at eye level, and design merchandise displays with “touch moments” in mind. Also, the material of the shelving and displays matters to the customer’s visual perception of value. Wood gives the impression of “real, authentic, and organic,” but shoppers may perceive a higher price point for items displayed on natural wood shelves.
• Cross-Merchandising Solutions: Retailers should cross-promote solutions with visual merchandising. For example, position batteries next to electronic devices, stage merchandise kits next to core products (for example, socks, shoe laces, and shoe cleaner), and place unrelated (but logical) products on display with profitable merchandise.

The New Rules for Retail Merchandising

Studies cited by Shop: The International Magazine for Retailing and Shop Design indicate that conventional market research “is reaching the limit of its effectiveness.” The magazine cites the research of marketing expert Arndt Traindl (in partnership with the Ludwig Boltzmann Institute for Functional Brain Topography). An investigation of brain activity during a “visual stimulation of goods” demonstrated the potential of neuro-marketing by finding that unconscious thought drives up to 80 percent of customer purchase behavior. The “rational customer” is a myth, and the point of sale itself can directly influence customers — especially if that customer fits the individual motives of the retailer’s target customer group. What does this mean for retail merchandising? A new set of retail merchandising rules must account for the emotional, irrational customer behavior discovered by scientific methods (such as neuro-marketing) and the customer experience demands of a digital era.

• The Rule of Three: Constant Berkhout writes about the challenges of “over-choice.” Behavioral economics and science indicate that too many choices does not work well for the shopper journey. The consequences include cart abandonment and order cancellation or, worse, choosing the competitor's environment that has fewer choices. According to findings cited by Berkhout, shopper happiness increases when retailers reduce choices. Consider three to be the magic retail merchandising number: Explore a category management strategy with three core products that you offer quarterly (every three months) to create demand and keep up with changing customer trends. 
• The Personalization Rule: Research suggests customers want to shop on their own terms. Using statistics from Malcolm Gladwell’s research, Berkhout writes that our contemporary life bombards shoppers with hundreds of daily messages in the form of TV, radio, and digital media ads. He uses the principle of availability to point out that people don’t have the time or capacity to process these messages and only pay attention to personal events that have occurred recently. Personalized service as well as a customer experience that matches the target customer’s lifestyle are more likely to create customer value. Leverage the segmentation capabilities of social media advertising platforms, and experiment with ads personalized for your customers. Make retail merchandise physically accessible to customers. 
• The Experience Rule: Products and services are two thirds of the equation now. An  outstanding customer experience is the final piece of the customer value puzzle. By using innovative in-store technology (and, thus, replicating the high-tech customer experience that makes digital retail channels so compelling), department store Neiman Marcus is combatting the shift of retail sales to digital channels. The company’s iLab project created a “Memory Mirror” for in-store customers trying on clothing. While the shopper spins around, the digital mirror records eight-second video clips, capturing multiple angles and building a library of different options side by side. Shoppers can then share the videos on Facebook or Instagram for feedback on different retail merchandise. The iLab project also rolled out Charge It Spot stations that allow customers to charge their mobile devices while shopping, simultaneously encouraging more time in the store and the digital discovery of retail merchandise. A retail merchandising strategy that successfully embraces the physical and digital customer experience doesn’t necessarily require the resources of a retail giants like Neiman Marcus - small, independent retailers can leverage retail management software that allows customers to reserve products online and pick them up in the store.

What Is a Merchandising Business?

Merchandising businesses provide expertise and resources for retailers of all sizes and industries to successfully plan and execute retail strategies. Retailers without the in-house resources to oversee merchandising budgets and activities rely on third-party solution providers.

According to their website, Umdasch Shopfitting provides international “consulting and value engineering experts” for the “development and planning of retail solutions.” The company calls the architects, graphic artists, interior decorators, designers, and marketing specialists “shop makers.” The shop makers work across four branches of expertise, including lifestyle retail, food retail, premium retail, and digital retail. According to Wikipedia, shopfitting is the “trade of fitting out” retail stores with equipment, fixtures, and fittings.” A shopfitting firm “typically incorporates professional expertise in interior design, the manufacturing of bespoke furniture, signage, fittings (with one’s own or outsourced facilities), and the purchasing of retail equipment.” 

Umdasch Shopfitting is an example of a traditional retail merchandising business operating and evolving in the digital era. The company provides general contracting and design services, and retail equipment specialization (shelving, furniture, lighting accessories, etc.). They also provide project management and digital retail professionals to implement advanced retail strategy and technology. Here’s a list of other prominent retail merchandising businesses and a snapshot of their advertised capabilities:

• ManagementONE: Management One provides international retail experts for merchandise planning and professional retail services, such as traffic and conversion management. The company offers turnarounds for retailers behind on expenses and a retail diagnostics program for financial analysis, industry benchmarking, and compensation review.  
• SPAR Group Retail Merchandising: SPAR Group is a publicly-traded international retail merchandising service provider. The company offers three categories of service: syndicated, project, and dedicated services based on the size of operation and the specific needs of the retailer. Within these categories, SPAR Group provides retailer directed in-store merchandising services dedicated to all manufacturers, new store set and remodel, events and demo management, audits, and assembly services.
• Advanced Retail Merchandising: ARM provides merchandising services, mystery shopper audits, planogram and presentation development, data collection, and market research for retailers located in the southeastern United States (Florida, Tennessee, Alabama, Georgia, and South Carolina). The company uses an activity-based model to support each retailer partner and dedicates a team to the independent projects for tailored customer support and complete budget control.  
• Mi9 Retail: Named after the British military intelligence service (MI9), Mi9 Retail provides software solutions and professional retail services for merchandising, store operations, customer engagement, e-commerce, and business analytics across most retail categories. The company offers ERP integrations and retail management systems software implementation for a variety of proprietary software deployed as cloud-based SaaS or hosted on-premise. 
• Retail Merchandising Services: RMS is a privately held, family-owned company providing in-store visual merchandising and display solutions in the US. RMS employs retail merchandising service representatives, field coordinators, and management in geographic territories. The company lists a range of merchandising services including count updates, item corrections, instant rebate coupons, safety recalls, fixture/signage surveys, and endcap setup and maintenance. 

Choosing a Merchandising Solution

The decision to partner with professional merchandising solutions providers is largely an analysis of in-house merchandising management resources and capabilities. Retail merchandising strategy for small independents is distinctively different compared to omnichannel retailers or large multi-store retailers. Merchandising solutions businesses offer professional services for retailers or all sizes; however, many leverage their large workforce, proprietary technology solutions, and the expertise of various professions (architects, digital marketers, contractors, etc.) to solve complex retail merchandising challenges. Merchandising solution providers specialize in online retail stores and managing digital channels as well. If your IT capabilities or resources are limited, it is important to work with partners familiar with the complexities of online security, cloud-based software deployment and management, digital marketing, and web analytics.     

Joe Holley is the VP New Business Development - Displays/Merchandisers, for Frank Mayer and Associates, Inc . The company designs and manufactures point of purchase displays and kiosks for in-store environments. Holley has more than 20 years of experience in developing custom branded, in-store marketing solutions for retailers. He offers the following qualitative criteria for evaluating merchandising partners:

• Continuity: Holley recommends asking questions about the company’s longest-running retail merchandising client — a question you can pose to the company representatives partnering with you as well. How many clients partner with them on multiple projects? Can they provide real-world examples when a merchandising project was sidetracked and what the company felt was the positive, and negative, outcome? 
• Creativity: “Don’t tell me, show me,” is the adage Holley recommends applying to this criteria. Request physical samples of merchandise displays or a portfolio of digital media and pay attention to the small details. Review the merchandising solutions the company creates for their clients. Does their portfolio back up claims of creative capabilities and customer insights? What is the depth of creative resources on their team and how many designers work on a project on average? Concentrate on the design quality of graphics and use trade shows to scout how the company represents their craftsmanship for their own marketing and customer experience.
• Agility: Holley refers to this criteria in terms of in-house capabilities. “The greater the array of in-house capabilities, the more nimble an in-store merchandising partner can be,” writes Holley. It is important that your merchandising partners are willing to be flexible and modify solutions when challenges arise. Can they achieve the original plan on the agreed upon dates consistently? Ask questions to determine how nimbly the partner works around the challenges of the retail supply chain, involving multiple trade and category managers with a stake in the design and display of their products. 

Retail Supply Chain Merchandising

The retail industry relies on the cooperation of a supply chain made up of manufacturers, wholesale suppliers, distributors, transportation and logistics providers, and merchandising solutions providers. Supply chain merchandising is a partnership between merchandise managers and their network of suppliers, who use shared resources to stock products and displays for customers to access. This merchandising activity is done by the manufacturer, vendor, or wholesaler that provides the products to the retail store and in some scenarios, may include the partners who select the merchandise mix for retailers. Grocery retailers, for example, rely on the in-store merchandising services of their partners for activity such as shelf stocking, inventory management, and promotional display creation. Omnichannel retailers partner with suppliers and third party vendors on e-commerce merchandising activity such as implementing cart abandonment technology on a hosted website or managing dropshipping partners in the supply chain.

What Does It Take to Succeed in Merchandise Management?

Merchandise management is more than making sales. Managers must be skilled in retail management philosophy, planning, strategy, and the associated activities. Specialized roles in the field include specialty buyers, purchasing and vendor managers, sales trainers and consultants, professional service providers, and turnaround managers.

Retail merchandise management responsibilities include the following activities:

• Merchandising Planning: The expenses involved in running a retail business can make or break a retailer because of slim operating margins and strict competition. In fact, proper retail merchandise planning is so critical to profitability that the retail industry supports separate job categories for merchandise planners and the major retail management system software solutions providers design planning tools and technology for users. The planning responsibilities for merchandise managers include sales forecasting, inventory planning, customer trend analysis with vendors, visual merchandising design, and seasonal store layout.   
• Merchandise Budgeting: Managing and selling inventory is not an easy task, and retailers with large amounts of inventory or expensive merchandise rely on the accuracy of their merchandising budgets. The merchandise budgeting process requires projecting demand, projecting sales, determining which costs to attribute (cost of goods sold, marketing expenses, software cost, shipping) and estimating purchases and reduction (inventory theft or damage). The budget may be static or flexible, depending on the business history and retail category, and consists of projected sales, inventory cost, estimated reduction, and estimated purchases. 
• Inventory Planning: Merchandise managers are responsible for maintaining accurate inventory levels according to customer demand and operational capacity. The ultimate goal for retailers is profitability, and there are various methods used to manage a profitable inventory. For example, merchandise managers budget for real-time inventory expenses to identify how much capital is available at any given time. This portion of the merchandise budget is called open to buy (OTB). For more information on common retail formulas related to inventory planning methods, including average inventory, stock-to-sales ratio, sell-through rate, and stock turnover, visit the article How to Survive and Thrive in Retail Management .  
• Retail Assortment Strategies: Assortment strategy is the process of planning for the type and number of products a retailer carries. Merchandise managers plan for how many product variations of a particular product to carry, as well as how many types of products to carry overall. This requires determining trade-offs and savvy analysis of customer trends, operational capacity, and internal capabilities (such as sales staff experience). Merchandise managers may work for retailers known as category killers : A retailer using a deep assortment strategy of a limited number of products to dominate a category and make competition difficult (for example, Staples’ assortment of business supplies and services). A greater percentage of retail sales shifting to digital channels makes category killers less of a threat to smaller retailers leveraging narrow assortment strategies.  

The majority of merchandise managers have a bachelor’s degree (for BA/BS in Business, BS in Fashion Merchandising, and BA/BS in Marketing) or equivalent industry experience. The role is diverse, as merchandise management includes sales forecasting, creating merchandise plans and inventory budgets, evaluating market trends, and working with buyers to manage supply and demand. Merchandise Managers are often involved in the day-to-day activities in a variety of retail environments that include creating displays, stocking shelves, managing inventory, training sales staff, and working with information systems for inventory management and sales reporting. 

Job Hero is a comprehensive online resource for building resumes, cover letters, and career overviews. Here is a sample of highlights from the website’s merchandise management resumes:

• “Managed products through their lifecycle, from creation to disposition, vendor management, meetings, and negotiations, including minimum purchase quantities, rebates, and costs.”
• “Initiated a bridal registry system that increased registries by 33% and sales by $800 thousand and improved customer service in the first year.”
• “Managed team of product coordinators, analysts, event managers, and web merchandisers.”
• “Analyzed sales data in depth to optimize merchandise presentation and selection. Achieved consistent 4-5% comp growth in responsible departments.”
• “Successfully planned and executed substantial merchandise initiatives and relays, including new department rollouts, NOOK, and digital initiatives.”
• “Designed and launched new merchandise website with revenue doubling LY.”
• “Successfully reduced inventory 30% by implementing mark-down strategies and open to buy.”

Image source: Indeed.com

The Importance of Retail Category Management

At the center of retail merchandising management is the desire to understand customers in order to create customer value that leads to profitability. To do so, merchandise managers need to consider how every retail merchandising decision helps the customer. According to Berkhout, this is the core of category management. Professionals originally used the term category management to describe the joint business planning between retailer and supplier, writes Berkhout. Over time, the definition changed to include “the process of managing categories as strategic business units, producing advanced results by focusing on delivering consumer value.” He credits Brian Harris , at the time a University of Southern California Professor of Marketing and Procter & Gamble (P&G) consultant, for creating the term and the business model. The practice completely changed the way P&G and Walmart collaborated after the first-ever category management project between the two retail titans took off in the 1980s. Berkhout writes that the concept rests on four principles:

• Think category rather than brand or product.
• Include supply and demand retail activities as an integral part of your overall process. 
• Deliver customer value.
• Collaborate closely with suppliers.

Holistic, mutually beneficial collaboration between retailers and their supply chain partners is essential to surviving in the retail jungle. Category management is less dependent on customer behavior or motivations, and relies more heavily on strategic planning, understanding and analyzing data, and retail merchandising tactics. Merchandising strategy is what small, independent retailers need to understand in order to respond to the threat of retail giants, deep-assortment discounters, and digital disruption.

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The Ultimate Guide to Merchandising Planning

The aisles of physical stores like your neighborhood grocery store or retail store reveal a carefully orchestrated plan. Each product sits strategically on the shelves, placed to catch the shopper’s eye. Bright sale signs tout limited-time deals, tempting shoppers to drop an extra item or two into their carts. This is the work of the unseen hand of the merchandise planner, whose meticulous planning and data-driven optimization are designed to maximize sales and profits.

Through sophisticated forecasting, brands compete for prime-shelf real estate. Robust analytics inform pricing strategies and promotional calendars. It’s far more complex than just stocking shelves. Retail merchandising is a high-stakes game where inches matter and psychology rules.

Is your grocery store or retail store layout leaving money on the table? With the right merchandising plan, your store could increase sales without adding inventory.

What is Merchandise Planning?

By definition, it’s the strategic approach to managing a business’s inventory to ensure the right products are available to customers at the right time. Essentially, this process involves forecasting sales and consumer demand, planning for season merchandise, general assortment planning, and supply chain management.

It is integral to create a successful balance between supply and demand, preventing any situation that a store risks running out of inventory or sitting on excess stock. The results are an improved customer experience, greater profitability, and improved overall business performance. The goal it to meet consumer demand as efficiently and seamlessly as possible.

Definition and Importance of Merchandising

In detail, merchandising involves making informed predictions about what customers will want to buy, deciding how much stock a business should carry, and strategizing where, how, and when the products should be available. It involves a myriad of elements such as supply chain management, model stock plan, assortment planning, demand forecasting, and fulfillment operations.

Effective merchandising allows a business to meet customers’ needs and manage inventory volume, utilize data effectively, promote products strategically, drive sales of a specific product, all to make the maximum profit. Without robust planning of merchandise, businesses risk losing sales due to out-of-stock items, missing potential profits due to overstocking, and failing to deliver a good customer experience.

Key Objectives of Merchandising Planning

The foremost objective is to ensure that the right quantities of the right products are available at the right place, at the right time, and at the right price. Simply put, it’s all about striking the perfect balance. Other key objectives include increasing efficiency, reducing the cost of sales, improving customer satisfaction, and enhancing profitability.

For instance, a model stock plan can be effectively used to determine the right amount and types of products to stock based on factors such as past sales numbers, market trends, and customer preferences. This balance is critical for maintaining a successful business.

Steps to Merchandising Planning

Success in merchandising relies heavily on a well-executed plan. Some vital steps include market research and analysis, assortment planning, demand forecasting, and strategic sourcing – all of which will be discussed below.

Market Research and Analysis

The merchandising planning process begins with a thorough market analysis. It involves a detailed examination of the market, including competitive analysis, customer behavior, average demand, product availability, prevailing market trends, and even predicting future market trends.

Comprehensive market research is crucial to ensure the retail business stays competitive and meets customer demands in a timely manner.

Assortment Planning

Once you have a clear understanding of the market, it’s time to work out your product assortment. This step involves deciding which products to sell, in what quantities, and when they should be made available to the customers. A well-thought-out plan ensures that the products in your inventory appeal to your customers, boosting sales effectively.

Being effective relies heavily on data. It’s about understanding your customers’ needs, preferences, buying behaviors and matching these aspects with your product availability.

Demand Forecasting

Demand forecasting is another critical aspect of the merchandising planning process. It involves predicting the level of customer demand in the future, leveraging crucial factors such as past sales, average demand, current market trends, and customer preferences. Demand forecasting is crucial in determining how much inventory you need and when. Accurate demand predictions empower businesses to manage inventory efficiently, reduce costs, and maximize profits.

Mastering Merchandise Planning in Retail Business

Factors Influencing Merchandising Planning

In retail, optimizing your merchandise planning process is key to meeting consumer demands, managing inventory levels, and managing the entire supply chain. But multiple factors affect the process. Let’s look at some of these influential factors.

Seasonality and Trends

Seasonality and emerging trends are crucial to merchandising. Monitoring sales data can provide insights into seasonal trends, allowing the retail business to prepare beforehand and adjust their season merchandise levels in the fulfillment center.

Consumer Behavior and Preferences

Consumer behavior and preferences largely guide product assortment. To execute effective merchandise planning, it is important to understand what the customer wants and align your product availability accordingly.

Competitive Analysis

A thorough competitive analysis can steer merchandise planning in the right direction. By understanding competitive strategies, you can develop a unique approach to planning merchandise and set your business apart.

Merchandising Planning Strategies

Category management.

Incorporating category management into your merchandising plan allows you to manage the product categories as separate business units, focusing more effectively on their performance.

Product Grouping and Placement

Product grouping and placement are vital to forecasting sales. Having a strategic store layout can significantly influence customer behavior and increase the odds customers will make a positive purchase decision.

Pricing and Promotions

Formulate a pricing and promotional strategy that aligns with season merchandise, market trends, sales figures, and other key performance metrics to help maintain a healthy inventory and attract more customers.

Inventory Management

Proper inventory management implies keeping track of goods, ensuring there’s enough stock to meet demand. This reduces the chances of overstocking or understocking.

Merchandise Assortment Optimization

Balance your core and trending products when developing your product mix. A focused assortment of products tailored to specific customer segments improves customer satisfaction and boosts revenue.

Understanding Customer Segments

One of the cardinal rules of merchandising planning is understanding your customer segments. Different groups have varying needs and preferences. Tailor your inventory to meet these specific requirements.

Supplier Collaboration

Strengthening your relationship with suppliers can significantly improve your supply chain management and retail operations. Good supplier relationships can lead to better deals, consistent product quality, and on-time deliveries.

Visual Merchandising

Visual merchandising is a powerful tool for retail businesses. It involves visual presentation and product displays that naturally entice the customers toward buying a specific product or products.

Sales Staff Training

Properly trained sales staff can make your merchandise strategy sing. Make sure your sales reps understand your merchandise plan and can pitch the products convincingly to target customers.

Merchandising Planning: Tools, Technologies, and Challenges

Tools and technologies for merchandising planning.

The advancement of technology has drastically transformed merchandise planning in the retail space. From automated data analytics to highly accurate sales forecast tools, a wide range of innovations have helped retailers manage their inventory levels efficiently.

Here we delve into some pivotal tools and technologies utilized in merchandise planning – merchandise planning systems, data analytics and forecasting, and Point-of-Sale systems.

Merchandise Planning Systems

Merchandise planning systems create and maintain a product assortment that ensures the right mix of products is on hand to meet buyer demand. An effective system employs data collected from various channels and helps to optimize the inventory management process, thereby reducing the chances of stockouts or overstock.

A stock plan created using these systems provides a roadmap for managing inventory levels, planning merchandise, facilitating smoother operations, and ensuring efficient resource allocation.

Data Analytics and Forecasting Software

Data analytics tools play a crucial role in merchandise planning. They process vast amounts of data to provide valuable insights regarding customer behavior, buying patterns, seasonal trends, and more. This intelligence aids in making data-driven decisions, improving overall sales, and enhancing the customer experience.

Forecasting software, on the other hand, uses historical data to predict future sales trends, helping retailers plan their inventory and sales strategies in advance. A sound sales forecast directly influences retail management, impacting everything from procurement to logistics.

Point of Sale (POS) Systems

POS Systems are more than just cash registers. They accumulate crucial data at the transaction level, providing real-time input on inventory levels, sales trends, customer preferences, and more. This data is imperative, helping to ensure retailers don’t miss out on sales opportunities due to poor inventory management.

Common Challenges in Merchandising Planning

Despite the various tools and technologies available, challenges persist in merchandising planning and analysis . Retailers often grapple with inventory management, pricing strategies, and constantly evolving consumer preferences.

Inventory Management and Stockouts

An efficient inventory management system forms the backbone of managing supply and demand. However, balancing inventory can be challenging. Overstocks lead to increased holding costs, and stockouts result in lost sales and customer dissatisfaction. Therefore, understanding the optimal level of stock for each product becomes crucial.

Pricing and Discounting Strategies

Setting the right price for products is a key aspect of merchandising planning. With the increasing competition in the retail industry, discounting strategies can often make or break a business. Thus, it’s essential to analyze market trends and competitive pricing by leveraging historical data to build a pricing strategy that doesn’t just optimize raw sales but also accounts for revenue increases.

Adapting to Changing Consumer Preferences

The retail industry is heavily impacted by changing consumer preferences. From sustainability to fast fashion, customer preferences can significantly alter the merchandise planning process. Keeping a pulse on consumer trends will help retailers adapt their strategies quickly and effectively.

Key Performance Indicators (KPIs) in Merchandise Planning

Merchandise planning plays a pivotal role in retail success. It’s the process that decides the ‘what, when, and how much’ in terms of product selection for retail stores. It’s this meticulous process that allows retailers to meet customer demands consistently, maintain optimal inventory, and maximize profits. However, making these important decisions requires a mixture of sales data, a model stock plan, and an assortment plan.

The crucial part of any merchandise planning process lies in the translation of strategic goals into actionable plans. Helping retailers in this translation are Key Performance Indicators or KPIs. One needs to consider these key metrics when planning merchandise to lay the foundation of a successful retail operation. Let’s delve into some of these important KPIs.

Sales and Revenue Analysis

Understanding sales performance is the backbone of merchandise planning. An in-depth sales and revenue analysis assists in formulating a precise sales forecast, which is essential for managing supply against demand. This sales information can be garnered across various channels, such as online sales, in-store sales, hybrid stores, and sales via other fulfillment centers.

Furthermore, a detailed revenue analysis can provide insights into customer preferences and shopping behaviors. This data proves useful in planning product assortment, indicating which specific products are performing well and which are underperforming. Consequently, retailers can make informed decisions, ensuring they carry the right stock that aligns with customer expectations and drives revenue.

Inventory Turnover Rate

Inventory turnover rate is another critical KPI in merchandise planning. This ratio indicates how many times inventory is sold and replaced during a given period. A high inventory turnover rate is usually a good sign that products are selling well. But, on the flip side, it could also mean that there isn’t enough stock to meet customer demand.

Understanding this KPI allows for effective inventory management. It enables retailers to strike the right balance in stocking inventory – not too much, leading to overstocks, or too little, resulting in stockouts. Combining insights from the inventory turnover rate with sales forecast data helps in maintaining optimal inventory, ensuring uninterrupted supply chain operations.

Gross Margin

The gross margin represents the total sales revenue minus the cost of goods sold. It’s a measure of profitability and is crucial to the merchandise planning process. Understanding the gross margin on products gives retailers an idea of the profits they can anticipate.

Through an effective assortment planning strategy, retailers can focus on products with higher gross margins, thus driving profitability. Bear in mind, though, a balanced plan must include a varying range of products, not just high-performing ones. It’s about ensuring that the merchandise mix caters to a wide variety of customer tastes and preferences, all while driving revenue and maintaining a healthy gross margin.

Understandably, the process of merchandise planning can seem overwhelming. However, by focusing on KPIs such as sales data, inventory turnover rate, and gross margin, retailers can decode the intricacies involved. These metrics provide significant insights, guiding the business toward sound decision-making and successful outcomes.

Let T-ROC Global help you satisfy more customers with smarter merchandising planning decisions. Our strategic insights strengthen your store’s bottom line. Want to know how much revenue our merchandising plan could generate for your grocery business or retail stores?  Contact T-ROC  to discuss your growth opportunities today.

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How To Write A Business Plan (2024 Guide)

Updated: Apr 17, 2024, 11:59am

Table of Contents

Brainstorm an executive summary, create a company description, brainstorm your business goals, describe your services or products, conduct market research, create financial plans, bottom line, frequently asked questions.

Every business starts with a vision, which is distilled and communicated through a business plan. In addition to your high-level hopes and dreams, a strong business plan outlines short-term and long-term goals, budget and whatever else you might need to get started. In this guide, we’ll walk you through how to write a business plan that you can stick to and help guide your operations as you get started.

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Drafting the Summary

An executive summary is an extremely important first step in your business. You have to be able to put the basic facts of your business in an elevator pitch-style sentence to grab investors’ attention and keep their interest. This should communicate your business’s name, what the products or services you’re selling are and what marketplace you’re entering.

Ask for Help

When drafting the executive summary, you should have a few different options. Enlist a few thought partners to review your executive summary possibilities to determine which one is best.

After you have the executive summary in place, you can work on the company description, which contains more specific information. In the description, you’ll need to include your business’s registered name , your business address and any key employees involved in the business. 

The business description should also include the structure of your business, such as sole proprietorship , limited liability company (LLC) , partnership or corporation. This is the time to specify how much of an ownership stake everyone has in the company. Finally, include a section that outlines the history of the company and how it has evolved over time.

Wherever you are on the business journey, you return to your goals and assess where you are in meeting your in-progress targets and setting new goals to work toward.

Numbers-based Goals

Goals can cover a variety of sections of your business. Financial and profit goals are a given for when you’re establishing your business, but there are other goals to take into account as well with regard to brand awareness and growth. For example, you might want to hit a certain number of followers across social channels or raise your engagement rates.

Another goal could be to attract new investors or find grants if you’re a nonprofit business. If you’re looking to grow, you’ll want to set revenue targets to make that happen as well.

Intangible Goals

Goals unrelated to traceable numbers are important as well. These can include seeing your business’s advertisement reach the general public or receiving a terrific client review. These goals are important for the direction you take your business and the direction you want it to go in the future.

The business plan should have a section that explains the services or products that you’re offering. This is the part where you can also describe how they fit in the current market or are providing something necessary or entirely new. If you have any patents or trademarks, this is where you can include those too.

If you have any visual aids, they should be included here as well. This would also be a good place to include pricing strategy and explain your materials.

This is the part of the business plan where you can explain your expertise and different approach in greater depth. Show how what you’re offering is vital to the market and fills an important gap.

You can also situate your business in your industry and compare it to other ones and how you have a competitive advantage in the marketplace.

Other than financial goals, you want to have a budget and set your planned weekly, monthly and annual spending. There are several different costs to consider, such as operational costs.

Business Operations Costs

Rent for your business is the first big cost to factor into your budget. If your business is remote, the cost that replaces rent will be the software that maintains your virtual operations.

Marketing and sales costs should be next on your list. Devoting money to making sure people know about your business is as important as making sure it functions.

Other Costs

Although you can’t anticipate disasters, there are likely to be unanticipated costs that come up at some point in your business’s existence. It’s important to factor these possible costs into your financial plans so you’re not caught totally unaware.

Business plans are important for businesses of all sizes so that you can define where your business is and where you want it to go. Growing your business requires a vision, and giving yourself a roadmap in the form of a business plan will set you up for success.

How do I write a simple business plan?

When you’re working on a business plan, make sure you have as much information as possible so that you can simplify it to the most relevant information. A simple business plan still needs all of the parts included in this article, but you can be very clear and direct.

What are some common mistakes in a business plan?

The most common mistakes in a business plan are common writing issues like grammar errors or misspellings. It’s important to be clear in your sentence structure and proofread your business plan before sending it to any investors or partners.

What basic items should be included in a business plan?

When writing out a business plan, you want to make sure that you cover everything related to your concept for the business,  an analysis of the industry―including potential customers and an overview of the market for your goods or services―how you plan to execute your vision for the business, how you plan to grow the business if it becomes successful and all financial data around the business, including current cash on hand, potential investors and budget plans for the next few years.

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Julia is a writer in New York and started covering tech and business during the pandemic. She also covers books and the publishing industry.

Kelly Main is a Marketing Editor and Writer specializing in digital marketing, online advertising and web design and development. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist covering small business marketing content. She is a former Google Tech Entrepreneur and she holds an MSc in International Marketing from Edinburgh Napier University. Additionally, she is a Columnist at Inc. Magazine.

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What is Merchandise Planning? Best Practices & Tools For Scaling Retailers

February 16, 2023

Proper merchandise planning helps online and retail stores meet customer needs, offer smooth shopping experiences, and boost ecommerce and retail sales.

It optimizes how you buy, store, and sell goods, and with the current global supply chain crisis affecting product prices and availability, it’s more important than ever.

The pressure’s on, but we’ll relieve some of that weight by showing you how to plan your merchandise effectively.

In this article, we’ll cover:

• What merchandise planning is
• Online vs physical merchandise planning
• Why merchandise planning is important

Merchandise planning challenges

• How to engage merchandise planning correctly
• Merchandise planning tools

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What is merchandise planning?

Merchandise planning focuses on how you select, purchase, manage, display, and price products .

The aim of merchandise planners is to keep up with customer demand, nurture satisfaction, and achieve the highest gains.

Imagine a shopper wants a particular item that comes in a specific type, and they discover it’s available upon visiting your store—this produces a seamless shopping experience that, in turn, yields positive results for your business.

Merchandise planning answers the questions:

• What items will we stock this season?
• How many units should we order?
• When should we place our orders?
• Where will we store our inventory?
• How many units should be in each location?
• What configurations should we offer for our products?

However, merchandise planning is more complex than it sounds and involves multiple components you must fine-tune to realize success (more on that below).

Online vs physical store merchandise planning

Merchandise planning and its components have notable differences depending on whether you apply them to online or physical stores .

These types of merchandising are similar in core ways but differ when it comes to logistics and implementation.

Below, we’ll walk through the different components of a strong merchandise strategy , as well as the differences between retail and ecommerce strategies.

Inventory management

Inventory management is a core facet of proper merchandise planning.

You need to ensure you have enough units in stock per SKU to balance demand, seasonality, and aging inventory.

Your efforts will revolve around making the right products available at the right time and place while avoiding stocking up excessively .

Some questions to ask yourself are:

• Do we have enough stock to last until our next scheduled repurchase?
• Am I offering a healthy assortment of goods and prices?
• Am I properly monitoring inventory inflow and outflow and reducing availability issues?
• Do I have enough space in my fulfillment center or stores for more items?
• Did I order the right amount of products?

By addressing these concerns, consumers won’t need to look beyond your store for the items they want. It’ll also keep your business operations moving smoothly.

In ecommerce, you monitor what inventory is available in your fulfillment or distribution centers, then track the inflow and outflow of goods from there.

Brick-and-mortar locations, however, have the added responsibility of considering what’s displayed and what’s available in your on-site storage, making retail merchandising a bit more complex.

Fulfillment strategy

A key issue to watch out for is lead time, which is how long it takes for inventory shipments to arrive.

This window can heavily influence your replenishment schedule and dictate whether you can fulfill customer orders .

So, if product X delivery takes Y days, you’ll have to place your order once inventory hits Z levels. Fail to do so, and you’ll run out of goods and be unable to serve shoppers, forcing them to look elsewhere.

Your fulfillment center or brick-and-mortar store’s storage space also factors into this time frame, as they limit how much you can order.

Your setup also determines how you fulfill orders.

With ecommerce, it depends on product availability, which is affected by consumer demand and lead times.

Retail stores have more to worry about, including the transport of inventory from suppliers to distribution hubs and then brick-and-mortar locations.

Companies with both online and offline channels, meanwhile, might fulfill orders through physical retail, which impacts their in-store inventory.

Analytics and forecasting

Gauging your performance through analytics and forecasting demand is also imperative.

Study your sales data and individual product revenue from the previous season, as well as your week-to-week performance.

Your goal is to anticipate consumer behavior, potential sales, and the amount of inventory you’ll need at specific times .

Your data for online and physical channels will also differ since what consumers shop for online may be dissimilar to what sells well offline.

Take, for example, people who prefer to test products like electronics in person.

Visiting a retail store and completing the purchase themselves may be more common in that niche, so your numbers and projections will diverge from what you observe online.

Product display vs optimization

Product display focuses on making products visible and attractive for customers, as well as grouping or categorizing items appropriately to improve accessibility.

Product optimization, however, enhances product listings, so they’re more appealing.

It’s a more common practice online, and with countless options now available to consumers, it’s a key element that helps your brand stand out.

In brick-and-mortar stores, product display requires fixtures, lights, hangers, and other props and equipment .

It also entails creating a layout that produces an intuitive in-store experience.

For ecommerce product display, shoppers heavily rely on high-quality images, videos, and descriptions . Additionally, your catalog must be well organized for easy online browsing.

Invest in intuitive and personalized product pages , collection pages, and other web pages designed to drive conversions. This helps you display your merchandise optimally, push strategic SKUs, and leverage your in-stock items.

How you display products and upsell customers also differs online, including nudging shoppers toward subscriptions and offering product bundles .

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Demand management

You should build your demand management strategy around keeping item levels at optimum counts based on your merchandising strategy .

This can refer to how you bundle and sell different SKUs and units, how visible you make your best-selling products (especially when they’re low on inventory), and how prominently you push items that you want to sell first.

Both online and in retail stores may, for example, bundle popular items with new products to introduce them to your core customers.

A strategy specifically for ecommerce stores could feature setting up your related product suggestions to display items you want to push to make room for other merchandise.

In retail stores, this might look like displaying items that pair well together on the shop floor or having items you want to push near your checkout lines.

Carefully consider how you want to balance demand generation with inventory levels and plan for it in your merchandising strategy.

Accounting for seasonality

Brands have staple products they constantly stock and sell throughout the year.

Seasonal products, meanwhile, are in-demand goods sold during specific periods and incorporated into your inventory before those time frames start.

Think of winter clothing as an example, where sufficient levels need to be maintained throughout the cold months while avoiding stockouts and overstocking.

Account for trendy items that arise from current events or pop culture as well. They sell like wildfire but also fizzle out quickly, so handle them with caution.

Seasonality can look similar for ecommerce and physical stores, where you maintain a healthy amount of items pre-season through the end of the specific time period .

The biggest difference is what trends or goes viral for each portal.

In these instances, you can stock up on related products for online sales and leave your offline channel untouched, or vice versa.

The importance of intelligent merchandise planning

Now that you have an understanding of the key components, let’s take a look at the benefits of a solid merchandising plan.

Spend wisely

Poorly planned merchandising results in wrong purchases that incur extra costs.

If you order items that don’t align with the season or consumer demand, you’re stuck with unsellable inventory , and it’s your responsibility to get rid of it with minimal losses.

Avoid overstocking

Ordering incorrect merchandise also affects your future purchasing capabilities.

Wrong products eat up space in your fulfillment centers and physical stores , making it difficult to order goods you can move regularly.

It also contributes to losses, costing retailers up to $1 trillion yearly .

Keep up with consumer demand

By ordering the right product varieties and quantities, you can easily meet customer demands and streamline your operations .

Stocking up incorrectly hinders those efforts, reduces product availability, and discourages customers from returning to your store.

Maximize sales

Inferior merchandise planning can turn customers away and lead to lost sales . If customers can’t find the item they want through you, they’ll simply look elsewhere.

Leaving with a negative impression of your store will push them to your competitors and eliminate the possibility of return purchases.

Create excellent buyer experiences

Visual merchandising design helps to craft delightful buyer experiences that make it intuitive for shoppers to find what they need, showcase your products in their best light, and ensure available stock—whether online or in-store.

Despite its benefits, merchandise planning presents some challenges that retailers should be aware of as they scale.

Lack of reliable historical data, especially in turbulent years

Historical data can cause issues when you blindly rely on it.

Numbers aren’t everything, and many factors influence them ; economic climates and market trends can impact consumer behaviors, for instance, and affect the sourcing of goods as well.

• Your data throughout the COVID-19 pandemic, for example, likely fluctuated significantly. Your performance may have been awful during its peak but then improved as restrictions were lifted.
• Meanwhile, the global supply chain crisis it brought about also made it more difficult and expensive to acquire goods.

Maintaining the right products and quantities

Finding an ideal variety of items that customers will purchase consistently is difficult, as well as keeping the right amount in stock.

They may sell regularly now, but that could change in the future.

It’s imperative to understand optimal inventory levels for given periods of time and to achieve that end, you’ll have to capitalize on analytics and forecast demand .

Balancing online and offline channels

Physical stores and online channels operate differently because their consumers have unique behaviors .

To manage both, you’ll have to adopt an omnichannel strategy based on your expected sales for each channel and adjust your merchandise plan per channel.

This also helps you retain customers.

In fact, businesses that embrace an omnichannel approach see 90% higher annual customer retention rates than those that don’t.

Differences in merchandising needs for global markets

Markets across the globe also differ from one another, having their own seasons, cultures, demographics, politics, and economics.

Be aware your domestic merchandising plan may not work around the world, so you need to adjust your strategy accordingly, tailoring it to each international market where you sell .

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How to approach merchandise planning for the best results

Having dipped into its upsides and drawbacks, now it’s time to look at how you can approach merchandise planning at three different stages.

Analyze your previous seasons

Before you start merchandise planning, gather the data that’s already at your fingertips.

Looking at the inventory levels and order volumes of past seasons can show you sales trends and what to expect next .

For online stores

Besides reviewing each product’s performance, look for other contributing factors. For example:

• Did you launch any social media campaigns for specific products?
• Were sales from direct website visitors or those who landed through ads or search engines?
• If sales spiked, was inventory sufficient? Or did it run out due to slow shipments?
• Did you overstock anything?
• Have you A/B tested your conversion elements, such as CTA color and featured image?

Typical metrics like profit margins and return on investment (ROI) have significant influence, but accounting for external forces matters as well.

For retail stores

If you have physical stores, ask yourself:

• Were there any significant events—like holiday sales —that boosted a product’s in-store demand?
• Did my store layout or displays heavily affect the purchasing decisions of in-store shoppers?
• Did any less-visible products sell better than those placed in plain sight?
• Were there instances where product availability was compromised?

Grasping these insights helps you identify product behaviors in a brick-and-mortar setting and aids in preparing for the next season.

For hybrid stores

Besides the above factors, those with hybrid setups will have to look at nuances that exist when balancing online and offline channels.

Buy Online, Pick Up In-Store (BOPIS) purchases, for example, can count as an online sale, but they affect your brick-and-mortar inventory.

You’ll have to dig through your data, identify such instances, and determine how often they occur.

Adjust and improve during your current season

You should periodically analyze order volumes, inventory, fulfillment performance, reverse logistics, and other aspects of your merchandise planning to ensure operations are optimized and working smoothly.

Review your products’ individual performance weekly and optimize your online displays.

If what you currently have appears less than optimal—such as certain high-demand goods having long lead times, thus impacting availability and frustrating customers—you need to make some changes to your merchandise planning.

Likewise, you should always be testing your product pages to find a top-converting mix.

Just like retail stores regularly update their window displays, you can continue to tweak and refine your store pages to achieve the best customer experience.

In-store shopping offers opportunities to extract information from your customers.

Let’s say you learn you’re their first choice for specific items that are typically sold out for a while thanks to long lead times.

In that case, you’ll want to place larger orders or find an extra source for that product.

You can gather feedback about your displays and layouts as well. This helps you tweak the in-store customer experience, transforming it into the ideal visit for shoppers.

Actively monitoring both channels is ideal for making alterations mid-season , so try to identify challenges that prevent online and offline channels from meshing properly.

For instance, are offline channels also fulfilling ecommerce orders for specific products, thus draining inventory from your physical stores?

If so, you’ll want to adjust the number of goods you allocate for your brick-and-mortar locations.

Plan for your future seasons

In addition to checking on your merchandise planning performance periodically, you should also plan ahead for future seasons.

Think about which products you want to keep, add, or remove , the fulfillment processes that work well, and what you want to improve or avoid next season.

Identify staple products you can carry over.

You’ll want to keep them in stock, then incorporate the ideal amount of high-demand seasonal products to maintain consistent performance.

Determine any issues that arose during the previous season as well.

For example, if you noticed a low-performing product sitting in your distribution center, create a plan to get rid of it, like discounting the price, and free up space for in-season goods.

Carry over the online conversion elements that worked best.

Build page templates based on your top-performing product pages of the season to iterate in future seasons, driving informed conversion growth.

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Anticipate the next major season and what goods typically move fast or offer the highest yield; these will affect your brick-and-mortar store’s overall makeup.

Let’s say you’re an apparel brand, and summer’s about to transition to fall.

You’ll want to stock fall items in advance and have your future displays and layouts planned and ready to roll out.

Craft a plan that aligns both your online and offline channels.

For instance, do the goods you stock up on and plan to sell through both avenues match the season?

Is inventory being ordered and transferred accordingly (i.e., from suppliers to distribution centers, then to physical stores) while maintaining a level that enables consistent availability?

Merchandise planning software to help you build your strategy

With this deeper grasp of merchandise planning, you’re ready to build your own strategy. Below are some recommended tools to help you start.

The Relex platform lets you plan your end-to-end inventory and product assortment and anticipate demand.

It even automates replenishment and allocation, streamlines your supply chain, and tackles markdown pricing and clearance optimization.

Additionally, those with physical stores will enjoy its planogram, floor planning, and store execution solutions.

Price: Customized according to business needs, must contact provider

Coveo is an AI-powered search platform that helps ecommerce businesses display the right merchandise at the right time to provide a tailored digital experience for customers.

It leverages personalization to deliver relevant product discoveries and recommendations.

As a bonus, it also integrates with various solutions and delivers analytics about consumer behaviors.

Netsuite’s ERP boasts multiple functionalities that aid in merchandise planning:

• Inventory management features identify reorder points, implement demand-based replenishment, and optimize safety stock .
• Demand planning software employs four methods of forecasting for precise results.
• Supply planning allows you to scrutinize demand, pinpoint replenish requirements, and send out restock orders promptly.
• The warehouse management feature offers real-time inventory updates, showing how much room you have for more products.

Toolio provides a platform built specifically for merchandising. It lets you:

• Build financial plans for your merchandise
• Use data and analysis to plan product assortments
• Maintain ideal inventory levels thanks to better visibility and demand planning accuracy
• Seamlessly allocate goods through the automation of transfer orders

Board’s platform seamlessly unifies your merchandise planning efforts through its:

• Assortment planning and category management
• Allocation and replenishment
• Demand forecasting
• Merchandise financial planning

It helps you adopt customer-centric strategies while aligning your merchandising, supply chain, and analytics.

Merchandise planning FAQs

To cap things off, we’ll answer some lingering questions you may still have.

How do I know when to reorder products?

It’s helpful to calculate for your reorder level, which is the point at which inventory must be replenished for smooth business operations .

That threshold minimizes losses and waste by informing you of the right time to order goods and the appropriate amount.

Three factors influence your reorder level:

• Average demand: The amount of a specific item that you sell within a given time frame
• Lead time: How long it takes to receive your inventory shipment
• Safety stock: The quantity of a specific product that’s kept on hand in case of sudden demand spikes or delivery issues; tapped into on a case-by-case basis

First, determine the above, then use the following computation:

Reorder level = average demand x lead time

When using safety stock, it’s:

Average demand x lead time + safety stock

How do I find the right product and variant mix?

Multiple considerations impact the correct product mix, and the best choice might not be what appears most profitable on paper .

Beyond how much you gain per sold item, you’ll want to account for the following:

• Gross profits
• Profit margins
• Whether fulfillment affects customer satisfaction, returns, and retention
• Customer demand for specific items
• How long it takes to produce goods

How can I stay on top of market trends for buying products?

Regularly monitor domestic and international news about your industry . You can also keep yourself up to date by:

• Being active in associations, events, and communities to help you network
• Studying industry and market statistics to identify trends in certain demographics, regions, and the like
• Looking at your direct competitors; since you share similar audiences, what works for them might work for you
• Actively engaging with customers (social platforms like Facebook, Twitter, and Linkedin make this easy and are excellent sources of feedback)

How do I use analytics to inform my purchasing decisions?

First, identify data that points you in the right direction. The following factors, for instance, can play a role in your decision-making:

• The average demand and lead time for specific items
• Your past sales data, broken down into your profits and ROI for each product
• Market trends and customer feedback
• A specific time frame that you want to measure

These can help you gauge how your goods perform seasonally.

Then, organize, analyze, and compare them to historical data to identify nuances that affect your numbers.

Ensure smooth sailing with merchandise planning

Merchandise planning can be tricky to implement at first.

However, once you’ve honed your process, it can result in robust online and offline storefronts, optimized inventory inflow and outflow, and, most importantly, satisfied customers.

Incorporate what we’ve discussed in this article and use the appropriate tools to simplify the process and get in front of market demand.

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Rachel is a remote marketing manager with a background in building scalable content engines. She creates content that wins customers for B2B ecommerce companies like MyFBAPrep, Shogun, and more. In the past, she has scaled organic acquisition efforts for companies like Deliverr and Skubana.

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Clothing & Accessories Retail Business Plans

Bridal gown shop business plan.

Recycled Dreams provides rentals of wedding gowns and formalwear to brides, bridesmaids, attendants, etc.

Clothing E-Commerce Site Business Plan

Liquid Culture will offer creative women’s outdoor clothing, online, that is both functional and beautiful.

Clothing Retail Business Plan

Mahogany Western Wear is a new clothing store that offers quality, name brand western wear in an assortment of sizes and styles to accommodate all varying body styles and shapes.

Custom Quilt Artist Business Plan

Sew Distinct is the venture of custom art-quilter Sally Stitch. Sally designs and creates custom quilts as gifts and art for clients seeking that personal touch.

Specialty Clothing Retail Business Plan

Chicano Stylez is a dazzling clothing and accessories store aimed at the growing Chicano/Hispanic population in Eugene, Oregon.

Family Clothing Business Plan

ReHabiliments is a clothing and apparel company that sells merchandise to an international market consisting of individuals of all ages, from all walks of life.

Lingerie Retail Clothing Store Business Plan

Bra~vo Intimates is a new lingerie and intimate apparel retail store.

Lingerie Shop Business Plan

clair de lune is a start-up lingerie retailer, filling an empty niche market in its community.

Maternity Clothing Business Plan

Malone's Maternity is a start-up retail boutique specializing in upscale maternity fashions and accessories, and clothes for newborns and toddlers.

Women's Boutique Shoe Store Business Plan

One, Two, Step! is a start-up, sole-proprietor, home-business selling women's shoes and accessories.

Womens Clothing Boutique Business Plan

De Kliek Style Studio is an upscale women's clothing boutique.

Women's Shoe Store Business Plan

Passion Soles is an upscale shoe store, offering an unmatched and extensive selection of women's shoes.

Vintage Store Business Plan

541 Vintage is a sustainable and environmentally conscious vintage store focused on providing stylish clothing not found in the fast fashion industry.

Do you have a winning idea for the latest and greatest clothing trends? Give your fashion-forward retail dreams the best chance at success with our clothing and accessories sample business plan. This downloadable plan will give you the tools necessary to start a successful store for online or in-person shopping.

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Operations and Standards

How top retail and hospitality brands execute programs and standards on time, in full, at every site

Merchandise Planning: The Clever Retailer’s Guide for How to Do It Right

Benjamin Franklin wisely said that “failing to plan is planning to fail.” While he wasn’t specifically referring to the retail industry, the adage could not ring more true — especially when it comes to merchandise planning for your retail store. 

If the merchandise you order and so diligently display in your store and on your website doesn’t align with what consumers demand — you’re out of popular items or order the wrong merchandise — you’re essentially planning to fail.

Inventory distortion includes shrinkage, stockouts, and overstock. It costs retailers an estimated $1.77 trillion worldwide. 

But there is good news. You can lower your overall inventory costs by 10 percent by simply reducing stock-outs and overstocks. The key is to order the right items, at the right time, in the right amounts, for the right price. 

Enter retail merchandise planning. 

What is merchandise planning?

On time, in full, at every site execute programs and brand standards . retail merchandise planning is exactly what it sounds like — a way to select, manage, purchase, display, and price merchandise in an efficient way that ensures you have the right products available at the right time. by doing so, you increase your potential for a maximum return on investment (roi). you also cut down on excess inventory, and maintain — and build — goodwill and your reputation with customers who know you’ll have what they want when they want it.  the benefits of retail merchandise planning include:  fewer markdowns of excess/outdated/depreciated stock and increased revenue due to the right products being available  increased inventory turnover and decreased inventory carrying costs in the warehouse due to a reduction in unwanted inventory fewer out-of-stock situations and unsatisfied customers increased roi due to strategically ordering the products that generate the most revenue the components of merchandise planning .

One of the biggest expenses a retailer makes is buying and marketing merchandise. This is why effective inventory management is so critical. The basic components of retail merchandise planning include:

Product  

First and foremost, the basic component of any merchandise mix is the product. You have to make sure you have enough merchandise to fill customer demand. That said, there are several types of products that you can include in your assortment, and you need to plan accordingly. 

For example, there are staple items you carry year round that need to be routinely kept in stock. Then there are seasonal products you need to keep in inventory before the beginning of the season. You also need to maintain them adequately throughout the season to reduce stockouts and any excess product. Finally, there are “fad” items. These are hot ticket items for a shorter period of time. Which means they should be approached with caution from a buying standpoint.

If the merchandiser of clothing boutique is planning the store’s winter merchandising strategy, they would need to figure out the right balance between staple or classic products (like plain sweaters or pants), seasonal inventory (such as outerwear), and fad items (like items influenced by pop culture or current events).

Range 

This refers to the variety of merchandise that you sell. It’s important to invest in a wide range of products with breadth, width, and depth so that customers have adequate options. 

However, one size doesn’t fit all with range. A store that specializes in children’s books, for example would have a narrow but deep merchandising mix. The store’s products would focus on books for kids, but it would offer a deep assortment of those books and would carry everything from classic Dr. Seuss books to ones that contain stickers, pop-up pages, and more. The store may even have hard-to-find children’s books. 

Meanwhile, a big box store like Walmart would have a wide range of products but may lack in depth. Going back to the children’s books example, Walmart may have some popular titles, but if you’re looking for a rare or specific type of book, you’d have to look elsewhere. 

Price  

If you don’t properly price your items, you’re not going to make the sale, and it’s a delicate balance. There’s no one-size-fits-all pricing strategy.

One approach that works for many companies is to create “high, medium, and low” ranges. This way you can appeal to the widest customer base possible, all while focusing on everything from regular sales and consistent profits to markdowns and stock clearance.

Assortment 

This includes the combination of products that you sell and how they are presented. For example, products of a similar category are available at one appropriate place. But toiletries shouldn’t be merchandised along with snack foods.

Make it convenient for customers to locate, select, and buy products due to the available assortment and placement.

The vintage Velour in Oregon, does a great job in presenting its assortment. In the photo below, you’ll see that Velour arranged different clothing pieces based on their category (i.e., T-shirts, jackets, polos). The store also implemented a bit of cross-merchandising by displaying footwear near the clothes. 

View this post on Instagram A post shared by VELOUR (@shopvelour)

Space 

If you’re a brick-and-mortar location, focus on ensuring the products are visible and accessible to the customer. Make best use of your space by showcasing items using different types of fixtures, mannequins, and window displays. 

A good technique here is to place key items at your customers’ eye level. If you’re a kids store, for example, then you’d want to position notable toys or items lower on your shelves. This is where kids can easily reach them. 

Steps involved in retail merchandise planning

While merchandise planning varies greatly based on things like industry and specialty, there are basic steps that are involved no matter the size or niche of the business.

1. Perform a post-season analysis 

The first thing you need is an understanding of how things went during the previous sales season, and you’re going to get that with data. Look at basic things like total sales, but also include a look into specific results like revenue of a particular item or category. 

Next, it’s time to analyze the results by comparing those numbers to the planned numbers from the same year to gain context. Where are things going? What was the marketing? How was the economy? Examining this data means you have not only accurate numbers, but also context around those numbers.

2. Forecast sales

With the data accrued from your post-season analysis, it’s time to move on to forecasting demand, which should include sales for each department, category of products, and the addition of new products/elimination of products that are no longer performing.

When looking at products that are part of your merchandise plan, be sure to review the sales potential, analyze the market demand, and research marketing channels and strategies.

Once you have past and present data and take into consideration the impact of trend/demand variations, you can settle on a final prediction for each product and decide if it’s worth ordering that item for your store (and how much you need to purchase). 

3. Plan and implement the assortment 

Once you know what merchandise to stock, it’s time to get a bit more specific and arrange the products based on their categories. For example, a food section, a wearables section, a cosmetics section, etc. and specifics like sizes, colors, and brands. 

Ensure there’s a proper assortment, that related items are grouped together for easy access for customers, and that there’s adequate SKUs of each category without going overboard in any one section.

4. Control merchandise  

There needs to be a balance between the merchandise that you buy and sales, and that can be achieved by creating daily or weekly sales reports for each item. This helps ensure that items are being reordered before reaching dangerously low stock levels, and that you’re not overbuying so much that you’re forced to offer clearance sales, discounts, or offers that eat into your bottom line.

Retail merchandising challenges and how to overcome them

Let’s be honest here and say that everything can look great on paper, but no retail merchandise plan is perfect. Who could have predicted a global pandemic, for example, and the impact it would have on retail? While that’s certainly a once-in-a-lifetime situation, there are also some other common challenges you might face. Fortunately, being aware means you can proactively work to avoid them.

One of the biggest issues is figuring out how much of a product is enough — or too much. Fortunately, you can rely on data to help you find a good balance. Many retailers also implement an open-to-buy (OTB) system, available through most inventory systems. It takes into account current inventory and planned sales, and then compares that data with data from your actual sales. Adjustments are made before future orders are placed. This ensures you don’t run out of what you need or overstock certain items. 

Speaking of data, it can be tempting to solely rely on historical numbers when planning for the future. However, the numbers aren’t perfect and things happen. So take into account the current economic situation and any trends that are in the marketplace. Incorporate that information with your historical data to get a more accurate picture. 

Finally, there’s adjusting your merchandise planning for both online and brick-and-mortar sales. Customers want the products they want, when they want them, whether that’s online or off. The key to success is to have an omnichannel approach to your planning.

According to one study , “businesses that adopt omnichannel strategies achieve 91 percent greater year-over-year customer retention rates compared to businesses that don’t.”

Using a centralized inventory management system can help you connect all sales channels and provide the right products at the right time. 

Moving forward with merchandise planning

Whether you’re selling online, offline, or both, it’s critical that you implement retail merchandise planning into your operations. By preventing you from under- or overstocking, you’re able to garner the greatest possible revenue from your inventory and add value to your company. Customers know they can get what they need when they shop from your store.

It might be a little bit of work to get started, but it can help you manage your inventory with ease — and pay off big in the end for your bottom line. 

And of course, seeing your plans through requires proper execution. When implementing your merchandising initiatives, make sure they follow your planogram and other guidelines, and they’re implemented on time. 

Use Bindy’s retail audit solutions to evaluate your in-store merchandising . Bindy provides checklists , tasks , photos, and store communication tools to ensure that your programs are executed well. Click here to learn more .

OTHER MERCHANDISING RESOURCES

Refer to the   Merchandising category  for checklists, how-tos and best practices for merchandising.

About the author :

Francesca Nicasio  is retail expert, B2B content strategist, and LinkedIn TopVoice. She writes about trends, tips, and best practices that enable retailers to increase sales and serve customers better. She’s also the author of  Retail Survival of the Fittest , a free eBook to help retailers future-proof their stores.

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How to Write a Business Plan, Step by Step

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What is a business plan?

1. write an executive summary, 2. describe your company, 3. state your business goals, 4. describe your products and services, 5. do your market research, 6. outline your marketing and sales plan, 7. perform a business financial analysis, 8. make financial projections, 9. summarize how your company operates, 10. add any additional information to an appendix, business plan tips and resources.

A business plan outlines your business’s financial goals and explains how you’ll achieve them over the next three to five years. Here’s a step-by-step guide to writing a business plan that will offer a strong, detailed road map for your business.

ZenBusiness

A business plan is a document that explains what your business does, how it makes money and who its customers are. Internally, writing a business plan should help you clarify your vision and organize your operations. Externally, you can share it with potential lenders and investors to show them you’re on the right track.

Business plans are living documents; it’s OK for them to change over time. Startups may update their business plans often as they figure out who their customers are and what products and services fit them best. Mature companies might only revisit their business plan every few years. Regardless of your business’s age, brush up this document before you apply for a business loan .

» Need help writing? Learn about the best business plan software .

This is your elevator pitch. It should include a mission statement, a brief description of the products or services your business offers and a broad summary of your financial growth plans.

Though the executive summary is the first thing your investors will read, it can be easier to write it last. That way, you can highlight information you’ve identified while writing other sections that go into more detail.

» MORE: How to write an executive summary in 6 steps

Next up is your company description. This should contain basic information like:

Your business’s registered name.

Address of your business location .

Names of key people in the business. Make sure to highlight unique skills or technical expertise among members of your team.

Your company description should also define your business structure — such as a sole proprietorship, partnership or corporation — and include the percent ownership that each owner has and the extent of each owner’s involvement in the company.

Lastly, write a little about the history of your company and the nature of your business now. This prepares the reader to learn about your goals in the next section.

» MORE: How to write a company overview for a business plan

The third part of a business plan is an objective statement. This section spells out what you’d like to accomplish, both in the near term and over the coming years.

If you’re looking for a business loan or outside investment, you can use this section to explain how the financing will help your business grow and how you plan to achieve those growth targets. The key is to provide a clear explanation of the opportunity your business presents to the lender.

For example, if your business is launching a second product line, you might explain how the loan will help your company launch that new product and how much you think sales will increase over the next three years as a result.

» MORE: How to write a successful business plan for a loan

In this section, go into detail about the products or services you offer or plan to offer.

You should include the following:

An explanation of how your product or service works.

The pricing model for your product or service.

The typical customers you serve.

Your supply chain and order fulfillment strategy.

You can also discuss current or pending trademarks and patents associated with your product or service.

Lenders and investors will want to know what sets your product apart from your competition. In your market analysis section , explain who your competitors are. Discuss what they do well, and point out what you can do better. If you’re serving a different or underserved market, explain that.

Here, you can address how you plan to persuade customers to buy your products or services, or how you will develop customer loyalty that will lead to repeat business.

Include details about your sales and distribution strategies, including the costs involved in selling each product .

» MORE: R e a d our complete guide to small business marketing

If you’re a startup, you may not have much information on your business financials yet. However, if you’re an existing business, you’ll want to include income or profit-and-loss statements, a balance sheet that lists your assets and debts, and a cash flow statement that shows how cash comes into and goes out of the company.

Accounting software may be able to generate these reports for you. It may also help you calculate metrics such as:

Net profit margin: the percentage of revenue you keep as net income.

Current ratio: the measurement of your liquidity and ability to repay debts.

Accounts receivable turnover ratio: a measurement of how frequently you collect on receivables per year.

This is a great place to include charts and graphs that make it easy for those reading your plan to understand the financial health of your business.

This is a critical part of your business plan if you’re seeking financing or investors. It outlines how your business will generate enough profit to repay the loan or how you will earn a decent return for investors.

Here, you’ll provide your business’s monthly or quarterly sales, expenses and profit estimates over at least a three-year period — with the future numbers assuming you’ve obtained a new loan.

Accuracy is key, so carefully analyze your past financial statements before giving projections. Your goals may be aggressive, but they should also be realistic.

NerdWallet’s picks for setting up your business finances:

The best business checking accounts .

The best business credit cards .

The best accounting software .

Before the end of your business plan, summarize how your business is structured and outline each team’s responsibilities. This will help your readers understand who performs each of the functions you’ve described above — making and selling your products or services — and how much each of those functions cost.

If any of your employees have exceptional skills, you may want to include their resumes to help explain the competitive advantage they give you.

Finally, attach any supporting information or additional materials that you couldn’t fit in elsewhere. That might include:

Licenses and permits.

Equipment leases.

Bank statements.

Details of your personal and business credit history, if you’re seeking financing.

If the appendix is long, you may want to consider adding a table of contents at the beginning of this section.

How much do you need?

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We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

Here are some tips to write a detailed, convincing business plan:

Avoid over-optimism: If you’re applying for a business bank loan or professional investment, someone will be reading your business plan closely. Providing unreasonable sales estimates can hurt your chances of approval.

Proofread: Spelling, punctuation and grammatical errors can jump off the page and turn off lenders and prospective investors. If writing and editing aren't your strong suit, you may want to hire a professional business plan writer, copy editor or proofreader.

Use free resources: SCORE is a nonprofit association that offers a large network of volunteer business mentors and experts who can help you write or edit your business plan. The U.S. Small Business Administration’s Small Business Development Centers , which provide free business consulting and help with business plan development, can also be a resource.

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Merchandising Plan Template

Elements of a successful merchandising plan.

By Bert Shlensky, PhD Part of the Startup Connection Business Library Copyright © 2014 by Bert Shlensky, PhD All Rights Reserved.

Merchandising Plan directions

What is a merchandising plan.

A good merchandising plan is essential to insure smooth and stable growth, especially when a company is young and running on slim inventory reserves. With a merchandising plan you are able to answer many questions that might arise as sales begin to grow and change.

While the merchandising plan is mainly a retail or internet concept, it also should be adapted for service industries. In general it is a plan to have the right inventory, at the right time in the right amount to maximize your sales, profits and returns . Your plan needs to include a variety of information and concepts. And yes it is mainly numbers that are necessary to understand for the success of your business.

Elements of a Good Merchandising Plan

Your Product Listing

The merchandising plan starts with listing each product or SKU (stock keeping unit) that you are selling. This SKU list must be broken down by style, flavor, size, color, width etc.—whatever the variables are for your products, they must be on your list and they must be track-able. There are differences in describing products. A yogurt shop might have 10 flavors, 20 toppings and five sizes and customize the product for each customer. However they really only stock 35 “core ingredients” and then they customize those into thousands of combinations.

In contrast a shoe store may have 20 styles, six colors, six lengths, and four widths which multiply to over 2500 different SKUS. Managing those SKUs when less than about 100 probably represent 80 % of the sales is the challenge in that product category.

The main caution is to remember to review carefully all the options you need to sell. The listing also requires a style number and usually a UPC code. Listing all that information on a chart is critical to developing the plan. Here are just a sample of products and some variations:

In service businesses the list is frequently called a schedule but is equally important. How many people do you need at what hours to perform what tasks?

Determining Your Costs

You also need to detail the parameters of each SKU in terms of cost, wholesale if applicable and retail if applicable. Cost should include everything like freight, fees, distribution costs, etc. If your products are frequently promoted you need to review both the regular price and the average promotional price.

Estimating Your Quantities

Determining the quantity of each product you carry begins with knowing how much you plan to sell in a given period, be it monthly, quarterly or annually. This part of your plan must also be detailed by seasons, peak buying periods (e.g., Holidays) or promotion and sales events. Your quantity plan should be estimated by both units and dollars.

Typical ways to estimate unit and sales numbers are to consider individual estimates by product, history, or percentage estimates of the total. I recommend the later if there is no history because it forces you to understand the totals and the breakdown to individual products and categories.

Planning Your Number of “Turns”

The next number required for your merchandising plan is to determine your inventory requirements based on frequency of demand. These numbers are calculated by estimating your “turns”–the number of times in the period your item sells. For example if you are planning to sell $1 million in a year and have two turns you will need about $500,000 of inventory (with some in reserve). However, if you turn your products four times you will only need $ 250,000 in inventory during any period. There are numerous ways to increase your turn rate, such as stocking more of the high volume items, reducing order times, reducing shipping times and managing seasonality. These efforts may be somewhat offset by minimum purchase requirements, especially when you are starting out and can’t afford to buy at the volume levels of much larger companies.

Designing Your Analytics and Reporting

One of the main reasons for a carefully-designed merchandising plan is to enable you to analyze your performance. Reliable reporting will not only enable you to manage your inventory more efficiently and profitably, but it will allow you to make information clear for partners and suppliers.

The first question you will want to answer with your analysis is whether or not your sales and inventory plans are realistic, profitable and affordable. Unless you are purchasing physical assets such as real estate, your inventory is frequently your largest investment and often represents a majority of your cash flow. There are ways to minimize the negative impact of inventory financing, such as direct shipping of your products from your suppliers to your customers. “Just in time” parts and ingredient management is also a tool to keep your cash outlays in line with sales.

Your analytics will also allow you to determine how profitable each product is for your business. Gross profit calculations may be made by item, by category, by location, and many other variables, each of which may be critical to your success.

Gross profit—or “Gross Margin” is calculated simply by the following equation:

Gross Profit = (Sales – Costs) / Sales

For example, if you sell a pair of shoes at retail for $100 and they cost you $30 to produce, your Gross Profit is equal to ($100 – $30)/$100 or 70%. Each industry has standards for Gross Profits that must be met in order to have enough cash flow to meet payroll, other operating expenses, marketing, and still make a profit.

Return on investment (ROI) refers to your profits in relation to your inventory investment or

Gross Profit /Inventory investment

This is another measure of your profitability and there are industry standards that you may use for comparison.

You also need to plan sales, purchases and inventories over a period. This should be updated on a weekly or monthly basis depending on your “turn rate”. You also need to consider lead times, delivery commitments, minimums, stock outs and returns in these calculations. Ask your vendors when and how you can modify orders, their terms and their capabilities.

Sample Merchandising Plan

A simple merchandising plan is provided on the spreadsheet e. This spreadsheet is “live”, enabling you to test it using your own products and numbers. The spreadsheet is without the long term planning element, which should be separate

In summary the merchandising plan is really the engine that quantifies your products, their financial impact on your entire business and the marketing plans you will need to support sales. On the one hand, being in stock with the right items is critical to success, profits and customer service. On the other hand being in stock with obsolete or slow selling inventory is a frequent cause of excess investment requirements and lower than projected profits.

Managing that balance can be facilitated by planning, working with suppliers, managing lead times, and optimizing retail sales based upon analysis.

Please Download this Excel Spreadsheet as part of this lesson:

Merchandising_Plan_Template .xls

[contentblock id=9 img=html.png]

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Merchandise Planning: An Essential Step to Make Retail Business Profitable

What is Merchandise Planning?

Merchandise planning process refers to selecting, managing, and displaying products in a manner that they bring maximum turnover on a brand name. This is all done by meeting consumer needs and desires. 

The activity seeks to meet consumer demand by making the right merchandise available to customers at the right time, place, price and quantity. 

One of the biggest expenses retailers face is buying merchandise. All the costs of shipping, transporting, delivering, and storing add to a significant amount. Make the wrong purchasing decision, and you may end up doubling your merchandise purchasing costs for a month. Therefore, merchandising planning is important to ensure that expenses do not mount up, and a retailer is able to meet a customer’s needs the right way.

Understanding Merchandise Planning in the Retail Industry

The merchandise planning process is a critical one in the retail industry that involves effectively managing the assortment, inventory, pricing, and allocation of products to maximise profitability and meet customer demand. Retailers use the retail planning process , data-driven analysis and forecasting to determine which products to stock, how much to order, and when to offer discounts or promotions.

An effective merchandising planning process requires collaboration between different departments, such as merchandising, finance, and supply chain management, to ensure that the right products are available at the right time and in the right quantities. By optimising this process, retailers can improve sales, reduce costs, and enhance the customer shopping experience.

How to Develop a Merchandise Plan

The steps in merchandise planning typically involves:

• Define Your Target Customer – Identify your target customers based on factors such as age, gender, lifestyle, interests, and spending habits.
• Seasonal Performance Review – Analyse the previous season’s sales data, customer feedback, and inventory levels to identify successful and unsuccessful products. This information is used to create a strategy for the upcoming season, which includes deciding which products to keep and which to remove to determine its pricing, promotions, and marketing strategies to maximise sales.

Ongoing Performance Optimization – Monitor your merchandise performance regularly and make adjustments as necessary to ensure continued success.

Merchandise Control – The Open To Buy

Merchandise control is a critical aspect of retail management, and the Open to Buy (OTB) system is an effective tool for managing inventory and purchasing. This allows retailers to set budgets, track sales, and adjust purchasing plans based on real-time data. With OTB in retail merchandise planning , retailers can ensure that they have the right products at the right time to meet customer demand and maximize profits.

How to Plan the Merchandise Planning Process?

A clothing industry will focus on the colors, size and design of the product. Whereas, a grocery industry will have to purchase different edible items for customer’s daily needs. 

Therefore, different industries have different merchandising needs and their merchandising planning processes for planning and acquiring merchandise will be different too.

Nevertheless, there are a few fundamental aspects to product merchandise and retail merchandising planning that every industry indulges in. Here is an introduction to those steps.

Analyze and Compare Previous Sales to Forecast Demand

The first ideal step of the process of merchandise planning would be to take out all the sales-related data for the last month or last quarter. That data would help a retailer determine what should be purchased and how much. 

Deciding on Merchandising Needs

After a retailer has forecasted demands and has a rough idea of what they need to buy and how much for this quarter, they should do everything to provide those products at the right time, place and price to the customer. 

This will happen once they decide all the quantities to buy for their retail stores. Once done, they shall decide the budget for all the purchasing. This will help retailers determine all the merchandising financial needs. 

Assortment Planning

Assortment planning usually means planning how much product should be bought to ensure that every customer’s demand is met. Here, at the merchandising process and planning, the details of the inventory, colour, size, material brand, size etc. are important. This helps the retailer determine the number and type of each product to be bought for ensuring that demand is met. 

Read more:- What is Production Planning & Its Types

Components of Merchandise Planning:

• Product: Product is the most important type of merchandise planning process tool. The retailer should buy the right amount of product to fulfill the needs of his customer and not create an unwanted inventory for himself.
• Price: Price is another sensitive factor, especially for a price-sensitive country like India. The retailer should have an idea about the target customers and their range. If the products are outside the price range, the store will not see many sales. The retailer has to price plan well in order to ensure regular sales, stock clearance and adequate profits. 
• Range: Another important factor to consider in product merchandising planning is the range of products offered. A store should always offer ample options to its customers, so they do not have to go anywhere. There should be a range of design, colors, textures, price, range, etc. 
• Assortment:  Grouping products so that customers can easily find them is also important. Placing products of similar significance and category is helpful. A major thought for the merchandising planning process is presenting the merchandise category wise and department wise for customer’s convenience. 
• Space: Every retailer shop should have adequate space for all the products bought. All products should be visible to the customers for buying. All the space available in a retail store should be utilized by hanging fixtures, putting lights, hangers, mannequins, etc.

Read more:- 5 Types of Fixtures in Visual Merchandising

Why Do You Need to Plan Merchandise?

Merchandise planning remains an important aspect of having a retail store. Here are a few reasons why – 

• It can help a retailer stock their warehouse in an efficient manner. This will lead to an increase in inventory-turnover ratio
• It decreases inventory carrying costs. As right merchandise planning will lead to less labour, fewer costs, less loss as most of the inventory will be sold, etc.  
• Brings value addition to the company as the customer rarely ever leaves empty-handed
• Revenues increase as there are fewer markdowns and more sales

Read more:- Retail Promotion: 5 of the Best Ideas for Retail Stores

Why is Merchandise Planning Important?

A proper merchandise plan is crucial for retailers as it helps maximise profitability by stocking the right products in the right quantities at the right time. This ensures that customer demand is met and helps retailers optimise inventory levels, reduce costs and improve efficiency.

By using data and analytics to forecast demand, retailers can reduce the risk of overstocking or understocking, which can lead to lost sales or excess inventory. Effective merchandise planning also helps streamline operations, reduce waste and improve inventory turnover. In today’s fast-paced retail environment, merchandise planning is essential for retailers to remain competitive and meet customer expectations.

Challenges in Merchandise Planning

Merchandise planning poses several challenges for retailers. Achieving a balance between online and offline Retail Channels , avoiding over-reliance on past data, finding optimal inventory levels, and planning for foreign markets are some of the challenges. Maintaining an equilibrium between online and offline retail requires careful consideration of consumer behaviour .

Over-reliance on past data can lead to inaccurate forecasts, while finding the optimal product inventory level is crucial to meeting customer demand without causing excess or shortage. Planning for foreign markets requires research and tailored offerings to cater to local preferences. Successful merchandise planning entails a data-driven approach, market research, and strategic thinking to overcome these challenges.

Cost of Merchandising Planning

retail merchandising planning is sure, not easy. There are many methodical steps to it, and a retailer has to plan things right, otherwise, they may end up with a lot of inventory left in the warehouse. With the right merchandise planner or a retail merchandising company hired by any retailer, merchandising planning will be worth the effort and cost. 

Once you have set the ball rolling the right way, the amount of savings, increase in turnover will eventually make you break even with the cost of merchandise planning. 

PPMS is the right product and merchandising planner company if a retailer is looking for increasing profits and planning things the right way. Through proper planning not only will product fly off from shelves easier, but the customer will also leave more satisfied. 

Merchandising Planning is not a new concept. While many beginners in the business may not realize the need for such an important task, veterans will definitely abstain from dispensing it. Product merchandising planning has been roughly taken up by every important trader in history to ensure that their business is efficient and profitable. 

Contact PPMS and rely on their services to hop onto the bandwagon of retail efficiency and profitability. 

In today’s highly competitive retail landscape, merchandise planning is more important than ever. By taking a strategic approach to inventory management , retailers can stay ahead of the curve and meet the needs of their customers in a rapidly changing market. If you are looking to improve your retail business’s profitability, be sure to prioritise merchandise planning as a key component of your strategy.

Frequently Asked Questions

What is the importance of merchandise planning in retail.

Merchandise planning is crucial in retail as it helps to ensure the right product is available at the right time, in the right quantity, and at the right price. It helps retailers maximise profits, minimise stockouts and markdowns, and improve customer satisfaction by delivering the products they want.

What Are the Factors to be Considered in Merchandising Planning?

A few factors affecting merchandise planning include market trends, customer behaviour, inventory management, pricing, promotions, and product assortment planning process. Other important factors include supply chain logistics, competition, seasonality, and sales forecasting. Effective planning requires a holistic approach that balances these various elements for optimal results. Effective communication and collaboration between the merchandising, marketing and operations teams are also crucial to consider.

What Consideration Should a Retailer Keep in Mind While Merchandising Planning?

When merchandising planning, retailers should consider their target customers' preferences and buying behaviour, the seasonality and trends of their market, their competitors' offerings and prices, their inventory levels and budget, and the logistics of managing their supply chain. They should also monitor their sales data and adjust their plans accordingly.

About the Author: Prerna Gupta

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