What is merchandise planning?
At its core, merchandise planning turns financial goals into buying decisions. It sets what to stock, how much to invest, and when to reorder or mark down across a selling season.
Cash and shelf space are limited, so every buy is a bet. Buy too much and you tie up cash and take markdowns; buy too little and you lose the sale.
The stakes are large. IHL Group reports that inventory distortion, the cost of out-of-stocks and overstocks, drains $1.73 trillion from retailers each year. That equals 6.5% of global retail sales.
Key characteristics
A merchandise plan brings a few connected activities together:
- Financial targets first: the plan sets revenue, margin, and inventory turnover goals before any buying happens.
- Demand-driven: buys rest on demand forecasting methods that use sales history, seasonality, and trends.
- Assortment and depth: it decides which products to carry and how deep to stock them, by category, store, or channel.
- Balancing act: good planning holds enough stock to sell without overbuying. In 2024, stockouts and overstocks cost retailers $1.2 trillion and $554 billion.
- Monitored and adjusted: teams track sales against the plan and revise buys and markdowns through the season.
Example
Picture a craft cold-brew roaster planning its summer lineup. It sets an open-to-buy budget, the amount it can spend on inventory for the season. Then it forecasts demand by flavor using last summer’s sales and current trends.
From there it builds a buy plan: how many units of each product to order, and when. If cold brew outsells expectations, the plan guides a mid-season reorder; if a flavor lags, it triggers an early markdown. The right retail inventory management software keeps that plan tied to live stock and sales data.
Related terms
- Inventory optimization: setting stock levels that avoid both shortage and excess.
- Safety stock: buffer inventory that guards against demand spikes and supply delays.
- Reorder points: the stock level that signals it is time to buy more.
FAQ
What is the difference between merchandise planning and assortment planning? It is the broader plan for sales, margin, and inventory investment. Assortment planning is the piece within it that decides the specific mix of products to carry.
Who is responsible for merchandise planning? Merchandise planners and buyers usually own it, working from sales, finance, and inventory data.
How do returns affect merchandise planning? Returns feed back into demand and stock numbers, so plans have to account for them. US retailers expect merchandise returns to hit $849.9 billion in 2025, 15.8% of annual sales, according to the National Retail Federation and Happy Returns.