Marketing Communications

Chapter 8 : Merchandise Assortment Planning

Organizing the Buying Process by Categories

Category management

The Category Management Process
The Buying Organization

Setting Financial Objectives

Gross Margin Return on Inventory Investment (GMROI)

Measuring Inventory Turnover
Calculating Average Inventory

Sales Forecasting

Assortment Planning Process

Need for Trade-off between Variety,
Assortment and Product availability
Assortment Plan

Product Mix Trends

Chapter Summary

Issues such as what merchandise to purchase and in what quantity, are of strategic significance to every retailer, especially for the multi-store retail chains of today. For decisions on these matters, a thorough plan called a merchandise assortment plan, has to be adopted. First, the merchandise is split into categories for the purpose of planning. The categories thus split are managed by purchasers and merchandise planners, as well as vendors.

Retailers have many tools that help them develop a merchandise plan – Gross Margin Return on Inventory Investment (GMROI), inventory turnover and sales forecasting. GMROI is a tool that helps the retailer plan and evaluate the performance of the merchandise. The GMROI for a specific category of merchandise is calculated on the basis of the overall financial objectives of the retailer, which are further assigned to specific categories. The gross margin percentage in combination with the inventory turnover evolves into a useful tool for managing merchandise. The most significant issue for a retailer is determining the inventory turnover and developing inventory turnover goals. Retailers should avoid the extremes in inventory turnover rates – extremely rapid and extremely slow turnover rates. Though rapid inventory turnover is necessary for the financial success of a retailer, any attempt of the retailer to push the level of inventory turnover to the maximum will lead to frequent stock-outs and increased costs.

When forecasting sales, retailers should identify the stage of the lifecycle of the specific category, and should also determine whether the merchandise category offered is a fad, a fashion, a staple or a seasonal item, so as to plan merchandising accordingly. When making sales forecasts for a specific merchandise category, retailers take information from various sources, such as past sales volume, published secondary data and customer surveys. Determining a merchandise strategy is a crucial issue for a retailer. It involves establishing a trade-off among the variety offered, assortment provided and the availability of the products. A thorough analysis of this trade-off helps the retailer answer the most significant question – what kind of store will it be? – a specialty store or a general store.

Thus, an assortment plan tends to be the amalgamation of the GMROI plan, the inventory turnover plan, sales forecasting, and assortment planning. The assortment plan provides the merchandise planner with a view of what the composition of a specific category of merchandise should be.

Retailers adopt marketing strategies like shotgun merchandising and rifle merchandising in order to cope with the dynamics of the market. A retailer adopting shotgun merchandising caters to a variety of market segments by expanding its product lines either by including a product item or product lines. A retailer adopting rifle merchandising caters to a specific market segment with a specific product mix, either by following a market positioning strategy or a multiplex distribution strategy.

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