Posted Date: 7/29/2009

The New Merchandise Strategy

By Terry J. Donofrio
Consumer buying habits have changed and retailers are looking for the right strategy to address these changes. Promotions, cross-channel activities, merchandise mix, pricing and localized assortments are just a few areas to consider as retailers rethink their merchandising strategy. Utilizing advanced planning, retailers can execute a new merchandise strategy to meet the changing customer demand and gain a competitive and strategic advantage. 

 Although different approaches are possible, there are some common methods being considered to address the changing customer demand and buying patterns:

• Localized assortments. 
• Revised merchandise mix, quantities, pricing and timing.
• Promotions that enhance the new product mix and pricing.
• Leverage from multi-channel capabilities.
• Tight control on inventory and margin.

Executing the Strategy – Advanced Planning
To address the new merchandise strategy and improve productivity, retailers are reviewing their planning processes, the supporting organization and the system support.  In a time of limited spending, the focus is on getting the most out of existing resources and technology.  The concepts of localized assortments, merchandise mix and pricing all relate to the various advanced planning activities.
 
The advance planning functions and their relationship to the new merchandise strategy are described below:
Merchandise Planning -- developing the merchandise/
financial plans that serve as the on-going budget and provide the sales, inventory, OTB and profitability projections. 

• Store Planning -- developing financial plans by store and/or store cluster.  These plans provide the basis for store tracking to assess the performance of the new merchandise strategy. 
• Store Clustering -- developing store groups based on performance (e.g. sales) and non-performance based criteria (e.g. climate, space, ethnicity). 
• Assortment Planning -- developing assortment definition (depth and breadth), assortment attributes, item quantities by store cluster and item lifecycle plans over time. 
• Space Planning -- developing  space plans that consider both the store layout (visual space) and the assortment quantities based on fixtures and product density (quantitative space). 
• Allocation/Replenishmen -- developing distribution quantities by store cluster and/or store for flow-thru merchandise (allocation); developing store shipment quantities for warehoused merchandise.  Allocation and Replenishment combine to manage the store environment based on the execution of the new merchandise strategy and the resulting assortment.

Summary
As retailers consider a new merchandise strategy to address changing customer demand, advanced planning plays a major role and provides the guidelines and roadmap. In addition, improvements in productivity can be achieved without additional spending or resources. 

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Terry J. Donofrio, President of Retail Systems & Services (RS&S) has served the retail industry as a consultant, trainer, lecturer and systems specialist for over 25 years. Mr. Donofrio is an industry specialist in Advanced Merchandise Planning methods, procedures, systems and training.