When it comes to business planning, the end goal is to improve your business and increase your return on investment. For retail businesses specifically, merchandise planning is yet another crucial process to plan out, as there are many opportunities to lose money if you don’t have a solid foundation. While managing merchandise can look different for different retailers, knowing the basics and evaluating where your business stands are essential. 

What Is Merchandise Planning in Retail? 

Merchandise planning is a process and an approach to aligning your inventory with consumer demand. Business owners need to be intentional about their product selections, orders, and presentation. There are many moving parts to create a solid foundation for each season. To maximize your profits, you will want to: 

  • Have merchandise on hand that is in demand and desirable.
  • Have merchandise that will sell quickly and not sit on shelves for months. 
  • Manage your inventory well and thoroughly. 
  • Pay attention to past sales trends, current sales trends, and projected sales trends. 
  • Have the right number of products on hand. 
  • Price your products at the right price. 

Why Is It Important? 

Before jumping into how to set up your merchandise plan correctly, it’s important to know what is at stake. While making a good profit and decreasing the amount of money wasted on products are key reasons to set processes in place, they’re not the only reasons. 

Merchandise planning can affect the overall customer experience. If a customer walks into your retail location and doesn’t find what they’re looking for, you risk losing that customer to another competitor. Money aside, as a business, it is just as important to make sure you meet your customers’ needs, and having quality and sufficient inventory is part of that. 

Why It Can Be So Difficult

A big part of merchandise planning does involve crunching some numbers and basing sales predictions on trends. However, it’s important to remember that predictions are not guaranteed, and it can be tough to anticipate market and economic changes accurately. 

Beyond the numbers, you have to know your products and consumers well enough to find the perfect product at the right time. Strategizing your inventory is the ultimate balancing game. There’s no one-size-fits-all roadmap. Retail planning can vary greatly across different sized retailers, making it hard to know what goals you should have compared to other business owners.

The Process: How to Do It Right

Now that you know what merchandising planning in retail is, it’s time to start planning. As discussed, the small details of merchandise planning can look different for everyone. At a base level, though, the approach can be divided into four critical steps: 

1. Forecasting 

This is where your predictions for your upcoming season will come into play. You will need to start with demand forecasting, which is where you will look at sales history and trends to predict upcoming demand for different products you sell. Gather the following information to get started: 

  • Previous seasons’ sales numbers
  • Previous seasons’ business revenue
  • Previous seasons’ revenue for each product 

Once you have all the relevant data, first evaluate what did and didn’t work well in the past. If you launched a new product that hasn’t been selling well, it’s time to stop investing further in it.

On the same note, consider if your inventory needs new products. Then, once you have done some reflecting on your business’s merchandise, start comparing your numbers to general market surveys and consumer predictions to see where your merchandise stands in relation to those predictions. This is where consulting a supply chain expert can be helpful. 

After demand forecasting, it’s time to forecast your sales. Estimate the bare minimum number of products you will need in your inventory to keep up with the predicted demand. Also, evaluate pricing at this stage and consider what worked well in the past. 

2. Decide On a Budget and Order Merchandise

Now that you have some forecasting for your business, it’s time to make the tough decisions and decide what investments you want to make. Whether you want to order the bare minimum of products or prepare for a potential increase in demand, you will need to form a budget and put your plan into action.

3. Assortment Planning 

Presentation of merchandise is just as crucial a step as deciding what merchandise to order. Presentation is what will help consumers find your products and help them sell. Assortment planning is how products are arranged based on categories, which play a big role in the presentation. 

Products should be properly organized and separated into appropriate and optimized categories. A clothing boutique may organize their clothing into categories like shirts and blouses, dresses, dresses, etc. Subcategories may include colors, sizing, and pricing. You want to sort things for easy browsing further.

4. Maintain Merchandise and Make Adjustments 

Now that you’ve laid out a plan, it’s essential to keep an eye on your inventory throughout the year and make adjustments. The number one goal is to not run out of anything, so always be sure to order more products before you get too close to going out of stock. Everyone has different policies for when to order more stock, so there is no set-in-stone method. Your business will do great as long as you know your merchandise and monitor it routinely through daily, weekly, and monthly reports. 


Maximize Your Merchandise Planning with Algo

Are you looking for help maximizing your return on investment with professional merchandise planning? Look no further. Contact Algo today and get started with a free demo!

About the author

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Combining human centered AI with deep domain expertise, Algo’s analytics enriched supply chain intelligence platform helps suppliers and retailers plan, collaborate, simulate and execute a more efficient supply chain.

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