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:

  1. Define Your Target Customer – Identify your target customers based on factors such as age, gender, lifestyle, interests, and spending habits.
  2. 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:

  1. 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.
  2. 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. 
  3. 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. 
  4. 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. 
  5. 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.

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