Merchandise Planning

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Overview

Merchandise planning bridges the gap between strategic business goals and operational buying decisions. Our solutions help retailers and consumer goods companies develop merchandise financial plans that optimize sales, margin, inventory investment, and cash flow while aligning with demand forecasts and assortment strategies.

Effective merchandise planning balances top-down financial targets with bottom-up product-level plans, creating actionable buying roadmaps that drive profitable growth and efficient working capital management.

Core Components

Merchandise Financial Planning (MFP)

Top-down financial framework that sets targets:

• Sales Planning: Revenue targets by category, channel, and period
• Margin Planning: Initial markup, maintained markup, and gross margin targets
• Inventory Planning: Open-to-buy, stock-to-sales ratios, and turn targets
• Receipt Planning: Purchase timing and flow optimization
• Markdown Planning: Clearance strategy and margin protection

Assortment Planning

Product-level decisions within financial constraints:

• SKU selection and depth by location
• Good-better-best pricing architecture
• Brand and style mix optimization
• Color, size, and attribute planning
• New vs. carryover product balance

Open-to-Buy (OTB)

Dynamic purchasing authority management:

• Planned vs. actual sales reconciliation
• Receipt tracking and commitment management
• On-order and in-transit inventory visibility
• Buying capacity calculation
• Exception alerts and rebalancing

Pre-Season Planning

Strategic planning before seasonal commitment:

• Historical performance analysis
• Trend analysis and market intelligence
• Capacity and supplier capability assessment
• Financial target setting and approval
• Buy plan development and line review

Planning Methodologies

Top-Down Planning

Starting from financial targets and cascading down:

• Corporate sales and margin goals
• Division and category target allocation
• Store/channel distribution
• Time phasing (weekly/monthly)
• Product hierarchy breakdown

Bottom-Up Planning

Building from product-level forecasts:

• SKU-level demand forecasting
• Aggregation up the hierarchy
• Capacity and constraint consideration
• Comparison to top-down targets
• Gap identification and resolution

Reconciliation Process

Aligning top-down and bottom-up views:

• Variance analysis and root cause identification
• Iterative adjustment and negotiation
• Trade-off analysis (sales vs. margin vs. inventory)
• Scenario modeling and what-if analysis
• Final plan commitment and approval

Advanced Capabilities

Hindsight Analysis

Learning from past performance:

• Sell-through rate analysis
• Markdown effectiveness evaluation
• Stock adequacy assessment
• Missed opportunity quantification
• Success pattern identification

Option Planning

Managing seasonal buying uncertainty:

• Initial commitment vs. in-season option split
• Option exercise timing optimization
• Risk mitigation through flexibility
• Supplier capability and lead time management
• Cost of option vs. value of flexibility

Size and Pack Optimization

Getting the right size mix:

• Historical size selling patterns
• Size curve development by category and store
• Pack optimization for case pack constraints
• Minimize size stock-outs and markdowns
• Dynamic adjustment based on early sales

Allocation Planning

Store-level merchandise distribution:

• Store clustering and grading
• Initial allocation quantity determination
• Replenishment vs. pack and hold strategies
• Markdown timing and cross-store balancing
• Store-level inventory targets

Key Metrics & KPIs

Financial Metrics

• GMROI: Gross Margin Return on Investment
• IMU: Initial Markup percentage
• MMU: Maintained Markup after markdowns
• Sales per Square Foot: Space productivity
• Sell-Through Rate: Percentage of inventory sold

Inventory Metrics

• Stock-to-Sales Ratio: Weeks of supply on hand
• Inventory Turns: How many times inventory is sold per year
• Days of Supply: How long current inventory will last
• In-Stock Rate: Product availability percentage
• Aged Inventory: Percentage over target age

Planning Accuracy

• Plan vs. actual variance (sales, margin, receipts)
• Forecast accuracy at different horizons
• OTB consumption rate
• Markdown rate vs. plan
• Lost sales estimation

Business Benefits

Implementation Approach

Planning Process Design

Creating the merchandise planning framework:

• Planning calendar development
• Roles and responsibilities definition
• Approval workflow design
• Exception management protocols
• Cross-functional collaboration mechanisms

System & Tool Selection

Technology enablement for planning:

• Merchandise planning system evaluation and selection
• Integration with demand forecasting, assortment, and allocation systems
• ERP and financial system connectivity
• Reporting and dashboard development
• Mobile and workflow tools

Data Foundation

Building robust data infrastructure:

• Historical sales and inventory data cleansing
• Product hierarchy and attribute standardization
• Store/location master data management
• Financial data integration
• External data sources (weather, economic indicators)

Change Management

Driving adoption and capability building:

• Buyer and planner training programs
• Process documentation and playbooks
• Pilot season execution
• Performance monitoring and coaching
• Continuous improvement culture

Industry Applications

• Fashion Apparel: Seasonal merchandise planning with style, color, and size complexity
• Department Stores: Multi-category planning with diverse product lifecycles
• Specialty Retail: Focused category planning with deep assortments
• Mass Merchants: High-volume planning with private label mix
• Home Goods: Seasonal and event-driven merchandise planning
• Consumer Electronics: Fast-moving categories with rapid obsolescence

Best Practices

• Start planning early—pre-season planning is critical
• Use hindsight analysis systematically to improve future plans
• Balance art (merchant intuition) and science (data analytics)
• Plan at the right level of detail—not too high, not too granular
• Monitor OTB weekly and adjust dynamically
• Integrate merchandise planning with demand forecasting
• Foster collaboration between merchants, planners, and operations
• Measure and reward based on GMROI and sell-through, not just sales

Get Started

Elevate your merchandise planning capabilities to drive profitability and inventory efficiency. Contact us to discuss how our solutions can transform your planning process.

Email: info@l3v.solutions