Ever received a customer complaint that you don’t have the one product they want in stock? You’re not alone.
A cocktail of shipping delays, pandemic-provoked supply chain issues, and staff shortages have made it challenging for retailers to stock enough products to satisfy customer demand. One study says that stockouts were up 250% in October 2021 compared to pre-pandemic levels. This is concerning –– stockouts cost retailers an estimated $1 trillion every year.
The good news is a well-thought-out and reactive merchandise plan can help you reduce the risk.
Read on to learn what a merchandise plan is, how to build one, and how to make it work for omnichannel retail.
What is merchandise planning?
Merchandise planning is a methodical approach to organizing, buying, and selling merchandise based on market demand.
In practice, it means that if you want to buy a particular product with certain specifications, the merchandiser has them available.
Effective merchandise planning prevents problems like losing customers due to stockouts or having too much stock at the end of the season.
With current supply chain disruptions and inventory shortages impacting the retail industry it’s even more important to have a proper merchandise planning strategy.
When you get your merchandise plan right, you benefit from effective inventory management which is having the right products in stock when customers want to buy them.
How to develop a merchandise plan
Merchandise planners need to evaluate historical data, consumer demand, and profitability while they put together a solid merchandise plan. At the same time, there needs to be room for implementing changes.
Here are the key steps to follow during the retail merchandise planning process.
1. Analyze your past season’s sales
First, you need to assess your performance from the last sales season. It’s up to you to define the season length. If you’re a stationery retailer, you’ll probably define the back-to-school season as a peak season in your calendar. Or if you’re a swimwear retailer then your summer season is likely when you sell the most items. Then you could divide the rest of the year into seasons of three to four months.
Next, the key is to dig into your sales data. While you need to know your yearly sales, it’s even more important to dive into monthly and weekly sales on an item, product category, and store level.
You’ll need this level of sales data for the past few seasons and years. That way you can get a big picture overview of what items sell the most at any given moment in the year.
But always remember to consider the context surrounding your data. As you assess sales highs and lows, consider inside elements like marketing –– how much of your campaigns and spend were focused on marketing specific products? Were these your top sellers?
During the planning process, analyze what went well and what didn’t go to plan. These insights can give you clues on what to expect this year.
As Elio Tremonti, Convictional’s Customer Engagement Manager says, “Last year’s pain is often this year’s gain. For example, in 2021, many stores had to shut but this year they’re open. Last year, online stores experienced a boom in sales, but this year’s pain is that they’re selling less”.
Last year’s pain is often this year’s gain.
Think about how your gain and pain last year along with current economic conditions could impact this year’s assortment planning and profitability.
If you own physical stores, consider how new openings or closures impact your sales. Did certain products sell better in specific locations? Did you notice an uptick in sales when you opened a new store?
It’s also essential to consider external factors like economic conditions or even the weather on your sales data.
2. Create a data-driven plan
Use all of your compiled sales data to create a data-driven merchandise plan for upcoming seasons. Accurate merchandise planning reduces a retailer’s inventory risk.
Get the whole team involved including marketing, sales, and product development. With their knowledge and experience, you can make more accurate forecasts. For example, your marketing team’s plan to launch an Instagram campaign around a new product line may cause a spike in sales. Your sales team can tell you whether previous sales were in line with original predictions or if they actually sold more or less.
Using all historical data, evaluate the average price of each sales item. For example, your average price of a shirt might be $50 while your mid-price could be $90. To hit the same revenue targets, you’d need to sell double the quantity of shirts at an average price than at mid-price.
Keep in mind how many items at each price point you need to sell to meet your targets.
Retailers also need to look forward to the future too. The highest sales are often a result of pre-empting the type of merchandise customers want to buy. Sam Speller, the founder of Kenko Matcha agrees that the key to successful forecasting is to anticipate customer demand and stock the right merchandise that appeals to them.
“We have to be able to understand what consumers want and need, and then create products that will appeal to them. It’s also imperative that we anticipate the needs of the consumer beforehand so that when they need our specific product, it’s already in stock.”
3. Modify your plan during the season
Supply chain disruption is a reality most retailers face. At the end of 2020, 56% of global retailers reported moderate disruption in their supply chains as a result of the COVID-19 pandemic.
Unloading delays at ports and delivery driver shortages are also impacting how and when items are delivered.
Sometimes despite your best efforts, there’s nothing you can do to avoid delays. Products may not arrive in time for the start of the season, or worse they may arrive after the season has ended.
For that reason, it’s important to be reactive and have a backup plan.
Even once you’ve completed a thorough merchandise plan, don’t sit back and leave it be. Things rarely go exactly to plan. The aim is to stay one step ahead of the curve so that you can resolve any minor issues like low inventory levels before they become a big problem.
A recent study suggests that 73% of retailers struggle with demand forecasting. But using an open-to-buy (OTB) financial tool can make it easier to manage inventory levels. It helps you avoid over-ordering and under-buying by ensuring that the product is always available.
OTB systems review your current inventory levels and your planned sales. It then compares this data with your actual sales. The system then adjusts your future purchase orders to ensure you don’t run out of popular items or overstock on others.
Using Convictional’s real-time inventory sync, retailers can see which products are in stock or close to going out of stock for every SKU provided by their suppliers.
Have a backup plan
When shipments don’t arrive or your supplier is out of your bestselling range of products, have a backup plan in place. This could be leaning on another supplier to ship a similar line of products or using a different shipping company.
Before your peak seasons begin, consider which SKUs are most likely to sell out and how you will restock them. Evaluate which suppliers’ had shipping and stocking issues last time and how you can find ways to avoid these issues.
How do merchandise plans change for omnichannel retailers?
Omnichannel retailers have the challenge of creating a merchandise plan for both their ecommerce store and physical shops. Instead of creating one overarching merchandise plan for both channels, you need to think about each retail channel separately.
Knowing the difference in sales volume for online and offline channels will help you evaluate where shoppers are buying and which products sell best on each channel.
If you roll all of your sales into one channel, it’s a lot harder to properly plan how and where you plan to sell certain products. You may end up overbuying and end the season with excess inventory for your physical store or alternatively fail to allocate the right products for your online shop.
Omnichannel merchandise planning best practices
Omnichannel retailers will need to build more complex and detailed merchandise plans than their ecommerce or brick-and-mortar store counterparts. Here are some key best practices to follow as you build your plan.
Split your products across different channels
To offer the best customer experience possible, you need to make it easy for consumers to shop on all of your channels. That means stocking the right number of products on each channel and avoiding stockouts.
Let’s say you’re selling thermos flasks online and in-store. To encourage more people to visit your physical stores, you might offer BOPIS or click and collect on your online store. Once you’ve collected BOPIS orders for some products, your in-store customers might purchase those SKUs before you have a chance to take them off your shelves. This results in an out-of-stock situation for your BOPIS customers.
This would be a frustrating experience for shoppers and might push them to shop with a competitor. One study found that 30% of customers feel stockouts harm their shopping experience. 69% will choose a substitute item after a first stockout, but after experiencing three of them, 70% of consumers will shop with another brand entirely.
Instead of only stocking these thermos flasks online, it’s also essential to maintain some stock in your physical retail store. That way when offline customers visit your store they can also purchase your products.
By splitting stock between your online and offline channels, you’ll have the best chance of offering a top-quality customer experience, as shoppers will be able to purchase your products through their preferred channel.
Splitting your omnichannel merchandise plan into your online and offline channels might look like:
- Stocking in store
- Stocking in warehouse
Splitting inventory between each online and offline channel can help you optimize your retail business’s sales across all channels.
Pre-pandemic, having the best price available was important. Retail discounts were a way to remain relevant and competitive. But in the past couple of years, those retailers with available stock at the right price are the ones who are winning and outflanking the competition.
While promotions are a great way to shift stock, they’re not the best strategy for when you’re already limited on the stock you can sell.
Instead, you need to prioritize maintaining stock instead of going overboard with discounts. There’s no point in going overboard with 40% markdowns if you can’t maintain stock levels to match customer demand.
Update in real time
Merchandise planning and stocking are reactionary. To maintain stock levels without going overboard and overstocking, consider using a mixture of dropshipping and wholesale strategies. For example, you could order 1000 thermos flasks through your wholesale supplier and then run dropshipping at the same time to cover out of stocks, which ties you over until you can stock up from the supplier.
Prepare for upcoming seasons with a merchandise plan
The best merchandise plans are in-depth but leave some room for changes. The more you understand your historical sales data and the accuracy of past predictions, the better your future predictions will be. The key is to review your raw data with context, so you can build a clear picture of what truly impacts your sales.
By creating a well-thought-out merchandise plan, you’ll be more likely to prevent costly overstocking and frustrating stockouts. Looking to onboard wholesalers and dropshippers more easily? Contact our sales team today to get started.