Merchandise Planning Report: Forecasting, Assortment Strategies, OTB

This report delves into the critical aspects of merchandise planning, starting with sales forecasting as the foundation for inventory management. It outlines the steps involved in forecasting, including analyzing past sales data, market conditions, and product potential. The report then explores two planning approaches: top-down and bottom-up. It proceeds to elaborate on the core components of merchandise planning, such as budgeting and assortment planning, and details various assortment strategies, including wide, deep, scrambled, localized, and mass-market approaches. The significance of assortment strategies in boosting sales and the potential disadvantages of poor assortment planning are also discussed. Furthermore, the report covers Open-to-Buy (OTB) and its advantages in preventing overstocking and optimizing budgets. Finally, it addresses other essential factors in merchandise planning, such as brand USP, geographical considerations, customer profiles, quality perceptions, and the impact of seasons and store space on assortment and visual merchandising. The document provides a comprehensive overview of merchandise planning principles and best practices.

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A sales forecast is the primary step in figuring out the amount of inventory is needed
and at what time. In detail, the estimates should tell you about the number of the
products required to purchase, the selling price of the products, and if it is needed to
add new products to the merchandise assortment.
Forecasting involves the anticipation of how a customer would behave during a sales
season.
Follow these given points to forecast the merchandise requirements
Analyzing Past Sales Data: reviewing the sales data of past seasons of the same
period and comparing them with the current sales trends can be very helpful to
catch the pattern of bias in the customer’s choices.
Analyzing the economic state of the market: Be very sure that you know the
financial condition of the market because recessions can affect the spending
pattern of the consumers.
Reviewing the sales potential of the product: Compare the market demand of the
product and calculate the possibility of that product. (eg masks)
Research the market for new marketing strategies of the competitors: Marketing
strategy is also critical apart from the demand forecast. Find out if there’s a new
way you can market your product, or are people looking for a new product, or do
you need to introduce a new merchandise line in the market.
Accumulating the data and Creating the final merchandise forecast: After carrying
out all the analysis and calculations, then you can compile all the data and
come to a final prediction for each product. And, only then you add more
inventory to your warehouse.
two approaches
In top-down planning, the senior management figures out the demand and sales plan,
and then it is given to the merchandising team. On the other hand, bottom-up planning
is that in which the mid-level department managers estimate the demand. Data derived
from both approaches are then added to get the total demand figures.
after graphs
after you have forecasted demand and you must know how much you need to plan, how
you are going to buy and manage the products so that you can provide the right
product, at the right time and in the right place to your beloved customer.
Now there are steps you need to take to plan your merchandise.
(1) Budgeting - Budgeting is the first stage of merchandise planning because, first, you
need to know how much of your money will be invested or how you can minimize it.

(2) Assortment Plan
its about deciding the number of each product that will be bought to make sure the
demand is met and its done to ensure that the products are allocated in a balanced
way. The details of inventory like color, size, materials, brand, etc. are specified.
Merchandise Hierarchy: Products are classified or arranged in a way that would suit the
consumer’s buying patterns, in which the products likely to be picked first or more in
quantity are grouped, and the products that are less likely to be sold are kept together.
Many times the grouping can go on to creating 5-6 levels.
Types of Assortment Strategies
1. Wide assortment
A wide assortment strategy is used when retailers aim to offer a lot of different product
lines or categories, but with lesser depth in each category.
For example, a grocery store that provides a lot of different products, but only stocks
one or two brands for each type of product, is employing a wide assortment strategy.
2. Deep assortment
A deep assortment strategy aims to provide a large number of options within a particular
product category. It is common for specialty stores that focus on one or a few products
to utilize a deep assortment strategy.
For example, a supplement store is likely to offer many options for buyers of protein
powders – it is using a deep assortment strategy by focusing on fewer product
lines but with high depth and variety within each product line.
3. Scrambled assortment
Retailers using scrambled assortment strategies aim to offer products that are outside
of their core business operations in order to attract more clients from different markets.
For example, a store that is famous for its smoothies starts selling fresh fruit and
packaged food, which allows it to target a wider audience, including people who wish to
make smoothies at home.
4. Localized assortment
A localized assortment strategy allocates the product mix based on the preferences of
the local population and the characteristics of the geographical region. This allows the
retailer to cater to different demands according to geography and thereby increase
sales.
For example, a clothing retailer like Zara does not sell the same clothing inventory in a
store in Mumbai, India, as it does in Vancouver, Canada. This is because the population
in Vancouver requires warmer clothing for snow and the winter season, whereas the
population in India exhibit different clothing preferences and requirements.
5. Mass-market assortment

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Mass-market assortment strategies are used by stores with large physical storage
capabilities, such as Walmart and Amazon. They aim to appeal to the mass-market and
offer as many products and varieties as possible, catering to a much bigger customer
base.
Importance of Assortment Strategies
If used effectively, assortment strategies can boost sales and help the retailer grow its
customer base. because they determine the goods that a customer interacts with,
which leads to a purchase decision. Assortment can vary according to seasons – an ice
cream store may offer different flavors in the summer and different flavors in a monsoon
season. Similarly, a clothing retailer is likely to stock different clothes in spring and in
summer (probably more beachwear) than it does in winter (more jackets). This caters to
the public demand and increases sales.
However, assortment strategies can be disadvantageous if the product mix and
allocation doesn’t appeal to the population visiting the store (or the website, for e-
commerce retailers). For example, offering too much variety within a product line can
frustrate customers because it makes it harder to make a decision. At the same time,
providing too little variety can be disappointing to some customers and can negatively
impact sales revenue.
Therefore, it is important to conduct extensive market research related to a number of
factors, such as the target customer group, location, climate, and other customer-based
preferences, before designing the appropriate assortment strategy and product mix.
open to buy
The advantages of OTB are –
Saves you from overstocking, understocking, and going out of stock
Maintains the budget and limits overspending
Avoids markdowns (a price reduction of an item due to its inability to sell) because
of the pressure to sell the excess inventory
Reduces the loss of opportunity of sales due to out of stock scenarios
Planning for one month, you might want to buy the entire designed stock, but
incorporating OTB will stop you from buying everything because you already have some
on-hand inventory that you might have ordered, but you might not have received it.
last assortment planning other factors
All successful brands have USP – these vary from style, colours, fabrics,
silhouette, price points, themes etc
Retailer has to balance what customer expects from brand whilst
considering overall offer in store

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Buyers must understand which Brands best suited for their store & offer best
items from each brand
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Country, region geographical location - climate affects products demanded
Location store, Type – Branch Store vs Flagship , CBD (central business
districts) vs Suburbs
Customer Profile, social class, disposable income,
ethnicity, locals vs tourists
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General guideline - Customers will not return to brands who have products
of bad quality unless they really limited budget
Quality depends on Price supported by the brand
Some customers can only determine quality based on price (Depends on
Product Category) e.g. Perfume, Jewelry
Quality subjective – depends on customers expectations
Strategy is a Tiered Pricing system for customers who want better
quality (Price Architecture)
Buy less Volume (qty) of expensive brands & buy more Volume (qty) of
lower price brands
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Variety of Product line based on Category and expectations from
the customer & even USP of Brand
Department Stores – Wide Deep Assortment
Specialty – Narrow, Deep Assortment
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Considering Assortment Buyer must be acutely aware of the physical space -
store space
Selling floor, fixtures, fittings that display the goods – physical space
limitation
Each style, colour takes up space
Continuity – consideration of Visual Merchandising & offer makes sense to
the customer
Positively or negatively affect your sales per sq ft
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Season – is another critical consideration
The Season identifies the time of the year the products will be worn
Influences
Fabric selection
Color styles
Weather conditions
Consumer needs
Helps establish delivery dates
A/W most profitable Season