When it comes to successfully making a return on investment for your retail business, it’s critical to have a solid retail planning strategy. Whether you’re selling toiletries, fashion, or furniture, retail planning is essential to guarantee you not only make a reasonable profit, but avoid running your business into the ground.
Retail planning goes by many names, such as retail management, merchandise planning, or merchandise management. But what is it?
What is retail planning?
Simply put, retail planning involves using a fine-tuned, data-driven strategy to not just meet consumer demand, but also optimize and maximize your ROI, by making sure you have the right products at the right time, price, and amounts. In other words, it’s effective cost management from a merchandise aspect.
Retail planning isn’t something you can do overnight: to develop a truly effective strategy, you’ll need to take several steps to ensure you have reasonable goals and objectives, understand your market and consumer behavior, and continue to optimize your strategy.
Despite retail buying and merchandise marketing being some of the biggest expenses you’ll incur, you can ensure you’re in charge of your retail management and stay ahead of the curve with proper merchandise management.
No clue where to begin? We’ve outlined 7 high-level steps in the retail planning process to ensure you’re off to a good start.
1. Analyze your market
While there are many situations where trusting your gut is a wise step, the retail planning process is definitely not one of them. To make sure that you have a realistic plan of attack, take some time to understand the market space you’re in.
A great way to do this is through the tried-and-true SWOT (strengths, weaknesses, opportunities, and threats) analysis of your competition. A retail SWOT analysis will help you understand the internal and external factors affecting your competition — and, by extension, possibly you — so you can gain actionable insights for your own retail business.
For example, your competition’s strengths could involve their USPs (unique selling propositions), their 24/7 customer service support, or cheaper wholesale prices. Other options could be less tangible, such as their brand recognizability or authenticity, but could be equally important.
When it comes to weaknesses, they could range from a lack of an online presence, fewer payment options, limited selections of items, or anything that could potentially limit the retail business’s competitive advantage.
Opportunities can be both internal or external, such as the opportunity to open a new location or increase market share, or a sudden interest in retail vacancies from the general public. But these can also be more digital or long-term, such as the use of AI in customer service.
Finally, for threats, these could be things like a new competitor opening in the same niche, price wars, or lack of staffing or supply chain issues.
By taking time to analyze your competitors, you won’t be caught off-guard and can implement proper risk management strategies in your retail planning process.
2. Analyze your customers’ behavior
Predicting your customers’ behaviors can be difficult, but if you want to really understand your clients and connect with them, you’ll put in the effort to see how they interact with your retail brand.
By understanding what are the demographics in your market, you can start to provide custom-tailored experiences to attract the right audience. That said, don’t assume that you know who holds the purchasing power of your retail products.
For example, Kraft recently realized that, despite marketing their Mac & Cheese as a kids’ meal, 60% of households buying from their brand didn’t have children, causing a shift in their marketing approach.
To avoid surprises like this, take time to understand your customers’ background, habits, motivations, and even problems they might face during their touch points with your brand. If you empathize with your (potential) customers and put yourself in their shoes, you’ll have a sure-fire method of making sure your merchandise planning strategy is a success.
By using a mix of quantitative and qualitative methods such as online analytics tools, focus groups, feedback forms, and historical data, you’ll be well on your way to a deeper understanding of your customers.
3. Set your objectives
No matter what branch of retail you’re in, setting both short- and long-term goals is absolutely essential. When you’re brainstorming on objectives to set, avoid the common pitfall of coming up with a generic objective such as “increasing sales.” Instead, try to formulate a few SMART goals.
A SMART goal is well-formulated and should be specific, measurable, achievable, relevant, and time-bound, and should be based on the above research steps. By asking yourself questions such as “What do I want to accomplish?” or “How will I know when I’ve accomplished my goal?”, you’ll be able to formulate SMART goals in no time.
What does a good SMART goal look like? An internal objective could be: “Increase the revenue from holiday cards by 50% in both of our locations during November and December.” Meanwhile, an external objective could be: “Increase the number of 4- and 5-star online customer reviews by 30% over the first quarter of 2022.”
4. Outline and implement your strategy
Once you’ve settled on your objectives, it’s time to actually create your retail planning strategy and stock your shelves. This can be the most time-consuming and detailed step, as you’ll need to take various factors into consideration before you actually get your product into your physical retail space.
Make sure to give ample consideration to your retail merchandising which is the assortment of products you offer. How limited or broad do you want your range of products to be? For example, if you sell shoes, you’ll have a relatively narrow mix, but it will be quite focused on that particular niche. Are there seasonal, high-demand items you’ll need over a certain period?
Target does an incredible job with its merchandising mix, particularly when it comes to seasonal periods. During the winter months, Target sets up the Wondershop — a section in its stores that’s dedicated to holiday merch.
Meanwhile, during the summer months, Target’s merchandising efforts are focused on products that people would need for summer activities, such as going the beach. In the display below, we see Target cleverly cross-merchandising kids’ sunscreen and swim diapers, because the team knows that parents are likely looking to purchase these items together.
Once you’ve ironed out your merchandising and assortment planning, think about retail pricing. While there isn’t a one-size-fits-all approach, make sure your pricing is realistic, and perhaps offers options for customers from various socioeconomic statuses. Other factors to take into consideration include the placement of your retail products, your store floor plan, and how you’ll market your products.
Don’t forget to factor marketing and advertising into the equation. While it’s not uncommon to use physical advertising such as billboards, pamphlets, or posters, digital advertising is often an invaluable tool for your retail planning strategy. With $35.86 billion projected to be spent on digital ads by U.S. retailers, it’s clear it’s a booming industry. That said, you’ll need to set aside enough money from your budget to convert customers!
In conclusion, by using the information gleaned from your research, you can make sure that your retail planning strategy is an accurate reflection of what your customers want, exactly when they want it.
5. Analyze your performance
Although you’ve gotten your merchandise planning strategy in full gear, you’re not done yet. We mentioned earlier that retail planning is a data-driven approach; now, as your strategy plays out, you’re collecting data to analyze.
While you should also look back at your results once you reach your goal, there’s no need to wait until then to see if any adjustments can be made. After a few days, start looking at the metrics you wanted to reach and see how much progress you’ve already made.
Vend by Lightspeed can help you tremendously in this regard. Vend’s POS reporting and analytics features allow you to build you own reports and view the performance of your business based on various factors, including sales per category, customer group, staff member, etc.
Be sure to include your staff in this process. Some questions you could ask your team include: Is it on par with your initial expectations? If it isn’t, why not? Were your goals actually not realistic? How are customers reacting to your retail planning? What’s going on with the competition? Keep these questions in mind to see if any changes can — or should — be made. By doing this, you can control your merchandise, so you won’t face unexpected shortages or have too many products that you can’t get rid of.
Once you’ve reached your target, or the season is over, make sure to get the broader picture. For example, you could look at what went on with your marketing, or how external opportunities or threats played a role in your strategy. Through this, you’ll be able to contextualize the situation and have a clearer view of what happened.
Once you’ve analyzed the data from your previous season, you’ll be able to use your learnings and insights for next season’s merchandise retail planning, as the performance of the last season should play a crucial role in your upcoming retail plan.
As you set out on your retail planning journey, it’s important to remember that no one gets it right the first time, and that there will always be factors out of your control which could negatively impact your sales.
That said, merchandise planning remains an important step for any retailer who wants to maximize their ROI and reach their customers through their merchandise as effectively as possible. Through a combination of researching, planning, and fine-tuning, you’ll be well on your way to effectively managing your inventory and keeping your retail business as profitable as possible.
About Francesca Nicasio
Francesca Nicasio is Vend’s Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She’s also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter, or Google+.