Profit improvement through Merchandise planning

The primary objective of merchandise planning is profit improvement. As the buyer plans the buying for each department, a better overview of the profitability is available for the retail organization that it will be able to achieve. As the function of merchandising deals with the actual procurement of products for the retailer, it has implications on other areas of the business.

The entire process of merchandise planning helps the buyer arrive at the quantities of the products that need to be bought. It therefore has the following implications on other departments:


At the end of the merchandise planning process, when the Purchase Order (PO) is raised on a particular supplier; the finance department needs to be informed about it as they are finally the ones who will be making the payments. Finance will also look into the evaluation of the profitability off the merchandise purchased by the buyer.


The marketing department needs to be aware of the products that are being purchased as they may want to create campaigns for advertising the products or for sales promotions.

Warehousing and Logistics:

In many retail organizations, these functions may be handled by one department. When orders are placed for new merchandise this department needs to know as it is the one that will actually receive the products and do the physical verification of the same. The quantities mentioned in the Purchase Order need to be tallied with the accounts department and the quantities actually received. Any discrepancies have to be informed to the accounts department and to the merchandiser who has placed the order. This department also needs to know the dispatch details of various products that are received i.e. it needs to know the quantities, sizes, colors, etc of products to be sent to various stores.

Store Operations:

The information on the merchandise being purchased needs to be communicated to the retail stores. In case the product is a new product, the features also need to be communicated. Information on merchandise to be received in the stores also helps in space planning in the retail store. In case the store has the authority to make purchases at a local level, it would help by ensuring that duplication of products does not happen.

The person who is to take the buying decisions for a retail organization must be aware of the consumer needs and wants. An understanding of the consumer buying process is necessary. Apart form this, clear understanding of what products are actually selling and where, is also necessary. Information on this can be obtained from sales records. An interaction with the sales staff is also needed, as they can offer valuable insights into why a particular product is selling or not selling. External sources of information like surveys conducted, magazines and trade publications and trade associations are other sources of information. The information thus gathered needs to be analyzed. This analysis forms the basis of the sales forecast, which is the first stage in merchandise planning.

The process of Merchandise Planning:

Planning can be multi dimensional. The first dimension to be considered is the time span or the time hierarchy. This could start with the forecast for the year and then go down to the season, quarter, month, week and at times, even at transactional level. The second level of planning would be at the location level, where the plan would first be created for all existing and new stores, then perhaps at the regional level, and then it would move towards clustering of similar stores. This would be a followed by planning for individual stores. Similarly the third dimension of planning would be at the merchandise hierarchy level; starting with the overall department level and then finally, coming down to the Stock Keeping Unit Level. —

  • praphull

    Good Article