Merchandise Financial Planning: A Strategic Guide to Profitable Decisions

In the past, retailers may have operated on “hunches” and corporate intuition to forecast what needed to be stocked. 

Fortunately, those days are in the past and replacing them are data-driven decisions and technology that are more focused on realized trends rather than instinct and historical averages. 

So why is MFP so important? Retailers have never faced more challenges in their respective marketplaces, including: 

• Supply chain volatility, which creates unpredictable lead times and costs 
• Inflation pressures that squeeze margins while consumers become more price-sensitive 
• Omnichannel complexity that multiplies the variables in inventory allocation 
• Shortened product lifecycles which leave less room for planning errors

Without a strong merchandise financial planning approach, brands risk consequences like: 

• Inventory misalignment leading to markdowns that can erode 2-5% of total revenue
• Siloed decision-making creating conflicting priorities between departments
• Reactive planning creating missed opportunities and slow responses to market changes

Retailers with effective MFP strategies in place, on the other hand, can experience improved inventory turnover and sales, reduced loss due to markdowns and promotions, better agility in the face of consumer changes and streamlined efficiency as teams work off consistent data.

Retailers with optimized approaches to MFP often share similar components. Here’s what they have in common. 

Integrated Sales and Margin Planning

Effective MFP starts with realistic, data-focused targets that start with clear corporate objectives and trickly down to categories and channels.

Integrated planning can come from a review of historical performance, seasonal adjustments, scenario modeling and regular recalibration as current, real-time data becomes available. 

Open-to-buy Management

Open-to-buy, or OTB, is the in-season pulse of merchandise planning. 

It compares actual sales and inventory data against forecasts, enabling planners to adjust buys, reallocate budgets or cancel orders. When built into a robust MFP process, OTB can prevent overstocking, prevents missed sales and supports agile responses to real-time performance.

Multi-directional Frameworks

A strong MFP approach allows for planning that comes from the top, the bottom or the middle.

Top-down planning defines high-level corporate or financial goals and bottom-up plans provide product managers with visibility into inventory management at granular levels. And middle-out planning integrates these two approaches in a way that aligns strategy and execution for each vision. 

Forecasting and Scenario Planning

When it comes to predicting future needs and directions, successful retailers layer in external data like macroeconomic indicators, promotional calendars and market shifts to build flexible scenarios. 

Scenario planning allows teams to model the financial impact of pricing changes, supply chain variables or trend fluctuations, before committing to action. With the right competitive intelligence, brands can make smart pivots that enable them to explore options rather than get stuck in old predictions and tendencies. 

Omnichannel Integration

Just as consumers move quickly between platforms and channels while shopping, so too must modern retailers. Having an omnichannel approach to MFP means recognizing channel-specific demand patterns and cross-channel opportunities.

Integrating various channels, whether online or offline, into a holistic MFP approach can only improve inventory management and forecasting from an all-channel point of view.

The best way to get a sense for the application of merchandise financial planning is to see it in action. Here’s what the MFP planning cycle looks like for many organizations. 

Pre-season Planning

Planning begins with setting top-line revenue, margin and inventory targets for the upcoming season. 

Retailers analyze prior performance, market trends, promotional windows and new product introductions. Budgets are allocated by department, category, region and channel. This phase often includes:

• Sales and gross margin planning
• Category-level sales goals
• Assortment strategy alignment
• Initial open-to-buy budgets

Pre-season planning sets the strategic direction and guardrails for all activity to follow. 

In-season Monitoring

Once a particular season is underway, real-time sales data and feedback are used to make early adjustments and pivots. 

At this point, retailers can compare early sales and inventory data with initial forecasts and may be able to recognize patterns or trends that warrant a further look. This proactive approach to in-season adjustment makes it easier to shift gears and focus on what’s working and minimize what’s not.

What do these adjustments look like in the real world? This could include: 

• Reallocating inventory between channels and locations based on sales patterns 
• Accelerating or delaying planned purchases based on sell-through rates 
• Optimizing markdown strategies to protect margin goals 
• Capitalizing on unexpected opportunities or mitigating upcoming or potential risks

When done effectively, in-season monitoring prevents overstock issues and underperformance while focusing on where traction and momentum are building. 

Post-season Review

After the season, retailers have access to more comprehensive sales and inventory data that can paint a better picture of the season on the whole. Here, teams can assess planned and actual performance, markdown efficiency, sell-through and inventory turns. 

This learning can feed directly into the next season’s plans, closing the feedback loop with stronger forecasts and sharper decisions.

In organizations that truly embrace the power of MFP, the planning cycle can affect nearly every aspect of product lifecycle management, from ideation and design to distribution and end-of-season disposal. That’s how important post-season analysis is.

Even well-intentioned merchandise planning efforts can fall short without the right structure and visibility. Retailers often encounter challenges that compromise financial targets, inventory health or cross-functional alignment. Here are the most common MFP mistakes and how to avoid them.

Relying on Spreadsheets and Other Documents

Manual spreadsheets are slow, error-prone and disconnected. They make collaboration difficult and prevent real-time updates. 

As markets shift rapidly, retailers need live data to adjust plans with speed and precision.

Siloed-off Planning

When merchandising, finance and supply chain teams work with different versions of the truth, plans become misaligned. 

Without centralized planning and shared KPIs, organizations risk overbuying, margin loss and missed demand signals.

Ignoring In-season Trends

Too many retailers lock in their plans and fail to course-correct mid-season. 

In-season data, sales velocity, returns and regional trends should inform open-to-buy decisions and reallocation strategies. Static planning means missed opportunities and compounding losses.

Failure to Integrate Channels

Today’s consumers shop across e-commerce, stores and third-party marketplaces. 

If MFP doesn’t account for these variations, inventory becomes imbalanced and customer experience suffers. Planning must reflect where, when and how customers actually buy.

If brands can avoid these common mistakes, they’re much more likely to reap the benefits of MFP: protected profits and margins, better inventory turnover and a vision that’s aligned with what customers actually want from the marketplace.

By now, it should be clear that spreadsheets, manual processes and siloed teams simply won’t lead to a strong MFP approach. For retailers ready to level-up their inventory processes, Centric Software® has the solution. 

Whether you’re upgrading outdated processes or building from the ground up, here’s how to structure a modern merchandise financial planning framework with Centric that’s built to scale.

• Align goals across teams: Start with company-wide revenue and margin targets and ensure finance, planning, merchandising and supply chain teams are operating from the same playbook.
• Automate data collection: Replace manual spreadsheets with integrated systems that provide live data on sales, inventory and demand across regions and channels.
• Implement open-to-buy feedback loops: Monitor performance against plan continuously and use in-season metrics to reallocate budgets and inventory proactively.
• Enable scenario modeling and forecasting: Test “what-if” scenarios for pricing, promotions or supply chain delays. A flexible system empowers confident, responsive decisions.
• Create a centralized, collaborative environment: One source of truth streamlines planning cycles and improves accountability at every level of the organization.

Centric Planning enables retailers to align merchandise financial planning, assortment optimization and AI-powered forecasting into a single, intuitive platform designed to scale. 

With real-time collaboration, seamless integration with other systems and full-season planning tools, Centric Planning drives efficiency and innovation toward profitable, streamlined inventory management.