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The Fundamentals of Merchandise Financial Planning

3 MIN READ
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Merchandise Financial Planning (MFP) is the process a retailer goes through to map financial targets – whether that’s top line targets, profitability or inventory levels – into detailed merchandise, channel, sales, margin and buying/intake plans.

Turn Your Merchandise Financial Plan into a Modern Financial Blueprint

Historically a merchandise financial plan is about:

  1. Anticipating demand
  2. Ensuring inventory meets that demand
  3. And doing it within the company’s financial framework

However, in today’s retail landscape, developing a merchandise financial plan in spreadsheets can take weeks and sometimes even longer when a minor change needs to be updated and reflected in multiple places. Without access to accurate, up-to-date information teams are exposed to falling into the trap of either having an overflowing inventory and the associated costs of overbuying or running out of bestseller stock. Both of which can amount to merchandise planning that misses financial targets.

Update Sales Target and Set the Margin Target

Teams drowning in data and spreadsheet chaos lack the time and visibility to do the analysis necessary to build merchandise finance plans that accurately reflect where and what to invest in while aligning the merchandising strategies to the sales or financial goals. That is why alignment across teams and data is critical. As a first step seed last year’s sales into this year’s forecast and adjust the new targets. Enable top-down, middle-out, bottom-up planning so there is business alignment at the executive level, with merchandisers and planners able to cascade the agreed targets into plans with a much finer level of detail. 

Accurate Forecasting

There are many companies that manage thousands of SKUs across collections, channels, stores and geographies. These complexities quickly create financial, strategy and time complications for planners, merchandisers and buyers. Especially when adding more products at:  

  • A particular price point 
  • A specific range of time 
  • Or selling through a new channel 

 The varying shelf-lives of products, high refresh rates, short production cycles, economic challenges and supply chain disruptions mean there is a constantly changing, always evolving merchandising loop with many, many moving pieces which makes retail financial planning extremely complex and challenging to get right.  

One of the most compelling aspects of a merchandise financial planning solution is the system’s ability to analyze past figures to verify which strategies have worked historically and what haven’t. The built-in AI technology guides decision-making with suggestions of where to buy, develop and invest to ensure the product assortments are placed in the right place at the right time to maximize business performance. Better understand the customer demand while staying ahead of the competition.  

Scenario-Based Stock Optimization

With too many complexities alongside real-world uncertainties, which is higher than ever before, building a merchandise financial plan using powerful data-insights, predictive models and historical data to generate expected-demand predictions that you can rely on, is crucial.   

Create multiple scenarios in a matter of seconds and plan different versions which consider all the different complexities. Sandbox scenario-based stock and seasonal plans and survey the potential impact of even the slightest change, so teams spend less time sifting through aggregate data and more time interpreting organized, qualitative data when building out the merchandise plan. 

Pre-Season, In-Season and Open-to-Buy Planning

A robust merchandise financial plan developed with the help of a retail planning solution, enables merchandisers to work at very granular levels of analytics to ensure products are allocated correctly to eliminate overproduction, gain optimal levels of stock and accurately replenish stores. 

Even with a solution to guide decision making, it is complicated to predict future demand accurately for the next season, especially on items that are completely new with no historical data to help inform decision-making. This is where an open-to-buy budget comes in, an OTB plan means merchandisers can effectively control inventory through an powerful allocation and replenishment strategy. Buying little and often to stay cashflow positive and not have money tied up into inventory that may not sell. 

The pre-season and in-season targets are intrinsically linked, not only are they important for facilitating businesses to meet customer demand, so that customers are able to buy the products they want, but it also means inventory is more fluid and flexible and stock levels are always at optimal levels.  

Omnichannel Merchandising

Today, customers expect to find the products they want in multiple places – in store, on-line or click and collect. A solid omnichannel merchandising strategy is essential for keeping inventory at ideal levels across locations, store clusters and channels.  

Developing a merchandise strategy enables top-down financial plans and bottom-up channel plans, gaining overview to keep inventory levels within the constraints of the merchandise plan no matter what the product or where it is sold.  

The Benefits of Merchandise Financial Planning for Your Business

To keep ahead of the competition, invest in a planning solution built by the retail and fashion experts where it’s quick and easily to reconcile plans from top-down or bottom-up. Centric Planning is a highly intuitive and powerful solution that enables cross-functional communication.  

Here’s how an accurate merchandise financial plan helps merchandisers and the financial c-level teams.  

  • Cut down on manual tasks: eliminate spreadsheet chaos and save time while delivering better insights. 
  • Forecast accurately: increase sales and reduce markdowns with highly granular forecasts across products, categories and channels. 
  • Map out assortments: cascade sales targets into product ranges and assortments and understand which areas to invest in.  
  • Optimize inventory: quickly and easily calculate volume of inventory that can get purchased at one time and the right amounts to match demand. 

  • Increase margins: reduce waste through improved forecasting, accurately plan assortments that will sell at full price and benefit from increased business growth.  
  • Boost cash flow: accurately forecasting and allocating little and often reduces the costs associated with overbuying and increases cash flow across the business.  
  • Gain flexibility: with more optimal inventory levels, retailers can become more agile and flexible to external factors out of your control.  
  • Increase employee happiness: reduce employee stress related to spreadsheet chaos and working from out-of-date information.