Retail planning is a very broad and subjective term, as every company has its own unique model and way of managing business. For example, an eCommerce company's retail plan may look entirely different from a traditional store's method.
However, by understanding the many retail operations, businesses can develop the most effective planning strategies that complement their customers and products.
What is Retail Planning?
Retail planning, also known as merchandise planning, refers to the sourcing, buying, marketing, and selling of goods to maximize the return on investment (ROI) and demand. In order to drive customer demand, businesses need to understand the right place, time, price, and quantities to present merchandise.
By investing time and resources into accurate retail planning, businesses can optimize their profits. Alongside payroll, merchandise is one of the highest expenses that retailers undertake. Therefore, by reducing procurement, shipping, and inventory costs, companies can improve their bottom line.
Businesses that fail to thoroughly plan their merchandising often experience inflated ordering, storage, and marketing expenses. This can significantly impact customer demand, profitability, and the brand's reputation.
5 Strategies to Optimize Retail Operations
Merchandise planning generates sales from marketing and links retailers to the supply chain. However, being that every business is involved in a unique procurement network, there are various ways companies can optimize their retail operations.
1. Balance Store Inventory
Retailers should minimize in-store stock to avoid inventory restraint, which can lead to increased storage costs and outdated products. Items that become obsolete force retailers to implement discounts, decreasing profit margins.
Balancing on-hand inventory is especially important to brick-and-mortar stores that often lose sales to e-commerce companies that offer products at lower prices. This strain on traditional retailers has shaken their relationship with modern suppliers, making it critical to balance inventory.
While keeping on-hand stock levels at a minimum may pose the risk of stockouts across a company's locations, it can improve profitability when regulated accurately. In fact, DSW found that when they consolidated their inventory, they experienced increased quarterly profits.
2. Balance Merchandising Inventory
While there are several external factors that can influence demand, payroll, work environments, and climate are the three primary elements that retailers should consider when merchandise planning.
For example, Dick's Sporting Goods noticed that their average sales for cold-weather gear increase during the winter months, whereas light sports apparel sells during warmer months. This poses a problem during years with unusually warm winters, as products that sit on the shelves until springtime may become outdated. This would not only limit shelve space but profitability as well.
Although some businesses try to counteract a seasonal drop in sales by penetrating a new market, this strategy does not always pay off.
J.C. Penney decided to push appliance sales to make up for the profit loss from the apparel department during slow seasons. They even reduced their apparel inventory to preserve their bottom line. However, in the end, they still experienced a dip in quarterly sales due to the poor performance of the clothing department.
3. Balance Fulfillment Channels
Many businesses are transitioning to various sales channels, taking an omnichannel retail approach to compete with large corporations, including Target and Wal-Mart. These retailers provide several order fulfillment options, from ordering online to in-store pickup.
In-store and curbside pickup requires additional employees to quickly pick products in time for the scheduled pickup. There also must be workers operating the counter and ready to run the order out to the customer's vehicle.
While this option may increase labor expenses, it gives brick-and-mortar stores a chance to compete with online retailers. This way, customers can order and receive their items on the same day rather than waiting on a shipment.
Studies show that 21% of consumers use in-store pickup regularly, while 48% say they use the service occasionally. Therefore, retailers should ensure they maintain healthy stock levels throughout all fulfillment channels.
4. Align with the Supply Chain
Retailers should negotiate inventory prices and contracts with manufacturers to enhance profitability and prevent supply chain disruptions. By establishing stable, symbiotic relationships with several vendors, businesses can ensure they consistently meet fluctuating demand.
Many production companies face threats from both sides, as customer demand is never certain and raw materials, such as palm oil, crude oil, and aluminum, are becoming more expensive. This forces many manufacturers to increase their costs in order to preserve profits, increasing procurement expenses for retailers.
However, by negotiating contracts, retailers can align their inventory needs with the supply chain to maintain sales and profit margins.
5. Implement Integrated Technology
With modern technology, such as management software, businesses can accurately forecast their procurement needs.
Improving business intelligence with inventory management, ordering, and demand forecasting systems ensures that retailers can access accurate real-time stock data. This enables managers to make quick, data-based decisions, improving flexibility and responsiveness.
By integrating management solutions, retailers can assess historical and real-time data to determine the financial impact of each step in their merchandise planning. This high level of functionality enables businesses to improve their ordering, pricing, and procurement strategies to stretch the bottom line.