Updated: Nov 5
Most people don't like crunching numbers or digging through endless rows of data. However, MERCHANDISE PLANNING is a topic often overlooked by many up-and-coming businesses.
When we say "overlooked", it's not that these retailers don't care about merchandise planning; they likely just do not have the tools and/or people in place know better, or dive deep enough.
Industry giants like Levi's, Old Navy, H&M, and more have MASSIVE teams dedicated to the Merchandising function alone, starting with buyers/planners, and rolling all the way up to the executive level.
It's. 👏 That. 👏 Important. 👏
Credit where credit is due, many retailers ARE looking at their numbers, but they just may not be looking at all the right numbers. It's common for retailers to regularly look at Revenue, Gross Margin, and Inventory Levels to make inventory and buying decisions, but there is SO much more to it than that.
CHATTING WITH AN EXPERIENCED MERCHANDISER
I spoke with Taylor Daniel, VP & Co-Founder of FOMO agency, to help paint the big picture. Taylor has over a decade of retail industry experience and has managed over $30M dollars of merchandise/year for brands like Levi's, Old Navy, and Johnston & Murphy, with a track record of achieving double-digit positive comps within 6-months of taking over an account.
Question: Taylor, thanks for taking a moment to chat through this with me. You seem to spend a lot of time in spreadsheets -- doesn't that get boring?
Answer: Don’t get me wrong, Microsoft Excel isn’t the most exciting business tool out there, but it’s certainly considered “old reliable” in the retail industry. Having spent years working at the HQ’s of some major retail giants, not one of them had a software solution or program that were used to for demand forecasting, assortment planning, and unit buying.
Instead, they had huge teams of merchandisers &/or buyers who were analyzing sales history, forecasting sales, and making purchasing decisions, all within ad-hoc spreadsheets in Excel. We like to call ourselves “data junkies,” we thrive on finding insights “under the covers” (aka: in the sales data) that help inform our decisions for future selling seasons!
I am hoping to pick your brain a bit on what retailers are doing right in their Merchandise Planning process, and what elements they may be missing. We know they usually make decisions based on their Revenue, Gross Margin, and Inventory Levels -- why isn't that good enough?
While these KPI’s can be good indicators of a lot of things, there are so many more data points that must be considered. If you are focusing on revenue, you might rank all of your SKUs by total revenue ($) or unit sales (U) to see what products are driving the largest contribution of your volume. Consider these scenarios:
You have an assortment of “basic” styles that you carry all year, and an assortment of seasonal goods that you purchase to live on your sales floor for a shorter period of time.
You have assorted a new style of hoodie that has a design detail suddenly made popular by a celebrity or influencer. All of a sudden, you sell out of this style.
Let’s say you originally bought 100 units of this item, but you also sell hundreds, or even thousands of other products.
If you’re looking at your sales based on dollar or unit sales, this item might not even show up on your radar, even though the ST% (Sell Through Rate) is 100%, which is certainly worth attention, and possibly even worth a bigger investment in future seasons.
You take pride in your profit margins, so you always ensure that you invest more depth into the items that drive the most profit per unit. However, there are a few other things to consider here. There may be other items in your assortment that are driving a LOT more margin dollars.
It’s important to look at your margins as an percentage, but ALSO as an absolute value.
As you can see, while the GM% on Product A is higher, it’s not the only factor that needs to be considered. The fact that Product B is driving more unit volume, in turn, is driving more total margin dollars, even though its GM% is lower.
Let's say you are really on top of your inventory. You regularly monitor your sales, take your demand forecasting very seriously, you and always know when to re-order something if stocks are getting low. However, consider the following:
Are you carrying products that drive unhealthy margins?
Are there items in your assortment that have a negative trend in the industry you should consider dropping?
Are you constantly re-ordering a product that continues to sell out?
Analyzing your OWN sales and inventory is just not enough. You must consider trends internal to your brand, but also in the larger industry as a whole. Otherwise you’ll be spending precious dollars investing in products that are not helping your business.
Furthermore, while looking at on-hand inventory is great, there are several other inventory indicators that are important to consider. The Rate-of-Sale (ROS) tells you how quickly an item is going to sell out. BOP/EOP inventory help you understand the amount of inventory you’re selling through in a given period of time.
Question: Wow, sounds like there are many scenarios to consider. I wouldn't blame a soul for leaning on those data points, but it’s clear that there’s more to it. What should we be looking at?
Answer: There are so many data points that must be considered during your hindsight phase at the end of each season, and midseason to drive incremental volume. Check out the RETAIL MATH CHEAT SHEET that lists the important KPI's that retailers should be regularly monitoring and strategically targeting.
Question: I imagine some of these data points will be new to many of our readers, and now we're talking about a lot of numbers. I assume these numbers alone are not going to get the job done.
Answer: There are many other KPIs to consider as a business grows more complex and has reliable sales history to look at, however, the above list includes many data-points that are not being considered by small-to-medium retail businesses, so implementing these into your spreadsheets will be a HUGE step in the right direction.
It’s very important to look at your business from multiple angles, sorting your data ascending and descending through the lens of multiple KPIs.
This will give some perspective on what your top and bottom performing products are, as success can be determined by a variety of factors.
It’s also important to note that not all the data you’ll need to consider exists in your own sales history. It is critical to stay abreast of trends going on in the marketplace. All of these factors play a role in the potential success or failure of a product, and will effect your demand forecast.
What are consumers talking about?
What are consumers currently buying?
What are couture designers showcasing for next year?
What colors are trending?
The in-store (or online) levers that you have to pull can also drive increased revenue: Visual Merchandising (VM) and Promotions.
VM techniques are designed to catch the eye of the consumer and draw them across the lease-line. It’s no secret that a customer is considerably more likely to make a purchase if they are IN your store (or on your site).
Promotions can also help drive unit sales of a SKU, style, or department of goods that are otherwise struggling to move. This will help you drive sales without taking deep, permanent markdowns.
Question: Any final words of wisdom for anyone chasing success in retail?
Answer: Merchandise Planning is such a critical component of your business planning. While any “numbers guy” might be able to keep you afloat in the short term, it is critical to have a trained eye that knows how to look at the data, manipulate the information to uncover the necessary insights, and monitor the market/industry to help ensure your assortment is always on-trend, and always poised for growth.
Why else would brands like Levi’s and Old Navy employ not just a few, but HUNDREDS of merchandise planners?
Because their expertise is SO vital to the success of trend-based industries like fashion, beauty, and home decor.
I am constantly amazed at the results Taylor gets from working with these retailers. There is no minimizing the critical need for this function in any and every retail business, so they can benefit from making more informed decisions in regards to their product lineup. When you get Merchandise Planning right, you:
buy the right stuff and the right amount of it
increase your profit margins
increase customer loyalty
know more about your business
turn a passion into a successful business
Don't worry - if you have been chugging along without this function in your business, you are not alone. Sometimes, it's a matter of knowledge; not everyone knows there is a better way.
Worth noting - one salaried Merchandise Planner will cost you around $50,000/year for someone with entry-level experience, and upwards of $120,000 for a merchandiser with 5+ year of experience; not to mention benefits, taxes, and all that other corporate baggage.
The good news: At FOMO agency, we've lowered the barrier-to-entry for the Merchandise Planning function of your business.
The best part - you get someone like Taylor doing it for you!
Happy planning my friends. 👊
About the Author:
Dustin D. Thede has spent over a decade in retail with a foundation on the front lines as a sales leader and has been helping retail businesses adopt new software and pursue custom development projects since 2016.
Today, Dustin focuses his efforts on helping small to medium businesses (SMB’s) make more informed business decisions in the age of Digital Transformation.
“There is a lot of opportunity online and in stores for retailers. The ability to develop creative, data-driven strategies is key to success in an ever-evolving retail world. A plan today is a vision for tomorrow.”
Dustin D. Thede
President | FOMO agency