Pre-season Planning: A key to taking a confident initial season bet
With increasing lead times and shortening selling season span, it is becoming impossible not to focus your energy towards pre-season planning. This gives a retailer the confidence to take a calculated initial bet to achieve his sales and inventory targets while minimizing lost sales and excessive markdowns.
One of the key contributors to taking a confident initial season bet is effective pre-season Merchandize Planning.
While trying to define merchandize planning, the best definition I came across is as follows:
Merchandize Planning is a systematic approach aimed at maximizing return on investment, through planning sales and inventory in order to increase profitability. It does this by maximizing sales potential and minimizing losses from mark – downs and stock – outs.
The resulting plan serves as a strategy for achieving sales and profitability target for the season. Therefore this planning requires a systematic approach. I believe that in Pakistan, the significance of proper merchandize planning is under-appreciated.
The most important Key performance indicators (KPIs) that need to be planned are:
- Gross Margins including Markdowns.
Being able to plan these with a certain level of confidence is the key to enjoying a successful season.
Since the planning is done pre-season, faith in the plan can only be achieved when the plan is thorough. Planning needs to be done along two dimensions:
- Merchandize hierarchy (Product Category, Sub Category, Range…..)
- Location hierarchy (Channel,… Store )
Both top down and bottom up planning can be employed for both plans before coming up with a final plan. The two plans need to be merged and tweaked accordingly in order to come up with a Merchandize Location plan. This plan is by far more realistic than the two plans made in silos as it ensures that both the channel and merchandize plans are in synch with each other. A common tendency in retailers is to setup a merchandize planning function which does not take into account the location’s potential to sell a particular category of merchandize. For large retailers, the complexity of location planning can be handled by using the concept of “Store clustering” where they can group similar stores as per some pre-decided attributes in one cluster and then plan for the cluster rather than each individual store.
This plan becomes a means of controlling the in-season execution, measuring performance and deviations allowing us to take corrective measures or revise the plan. In either case the results become far more predictable than in the absence of such a plan. It puts the retailer in control of how the season shall shape.
While merchandize planning is a very important component of taking a confident initial bet, there are other equally important factors as well such as Assortment planning and Initial season forecasting of articles. In my subsequent blogs, I shall try to explore the rest of the contributors.