Retail planning is the process used by retailers to determine the right mix of products, quantities, and timing for inventory across various locations and channels. It involves forecasting demand, setting financial goals, selecting merchandise, and managing inventory to ensure the right products are available to meet customer demand and deliver on their financial goals.
The goals of retail planning are to align inventory levels with expected sales, minimize stockouts and overstock situations, and maximize sales and margins by carefully planning the assortment, pricing, and placement of products. This process helps retailers adapt to market trends, seasonal variations, and consumer preferences, ensuring that the right products are available at the right time and place. Additionally, planning influences PLM and sourcing decisions, driving better outcomes by optimizing the entire product lifecycle and supplier partnerships for more efficient operations.
Retail Planning Glossary – Key Terms:
Types of Plans:
Merchandise Financial Plan (MFP)
MFP is the core component of planning systems that distributes target revenue across the three main dimensions of planning:
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- Merchandise Classification (What)
- Location/Channel (Where)
- Time Period (When)
Traditionally, Financial Planning was done top-down (setting revenue goals and distributing them through the merchandise hierarchy), while Merchandise Planning was bottom-up (considering store performance, store openings/closing, category growth/shrink etc.). The MFP approach allows dynamic alignment of financial and merchandise plans in a more collaborative process.
The MFP incorporates pre-season and in-season planning for Products and Locations. Typically, planners separate the plans for Products (detailed product and channel level) and Locations (high level product and selling location level). The product plan typically tracks sales, inventory (stock), and incoming goods (Intake) to determine when additional orders need to be placed. This process is commonly referred to as “Open To Buy” (OTB) or Weekly Stock, Sales & Inventory (WSSI). The location plan typically includes space metrics to allow density metrics to highlight areas of opportunity within the selling locations.
Range Plan
The Range Plan takes the product and location plans from the MFP to give direction to the “Shape” of the “Range”. The Range Plan does not identify specific items. The Range Plan determines the number of products required in each product group and what level of support is required in each location/channel by assigning grading (A, B, C etc.) to every store/category combination. This takes into consideration additional factors such as demographic characteristics, visual merchandising, physical space, replenishment cycles etc. This is also often called a “grade plan”.
Line Plan
The Line Plan is where specific products are identified that will be part of the Assortment. This planning process involves deciding whether to carry over existing products or introduce new ones. New products are represented as “Placeholder Products”. Placeholder Products include various attributes that describe the requirements of the product but do not yet identify the specific product that will be included in the Assortment.
The Line Plan is informed by the Range Plan, which has already determined how many unique products are needed to support the Range. Additionally, the Line Plan includes expected costs, target sell prices, and indicative unit volumes, and it is used by Product Lifecycle Management (PLM) systems to direct design and sourcing operations.
Assortment Plan
The Assortment Plan builds on the Line Plan to define the final product assortment. This plan is flexible, allowing users to assort individual products and create ad hoc product segmentations to allow the planner to view the assortment across multiple dimensions. This open assortment approach is particularly important to general retail merchandising where the assortment is defined within planning.
Fashion retailers often create fixed collections from the design team where the assortment plan is mostly a refinement of individual product support and distribution. The Assortment Plan refines the volume and timing for each product and ultimately determines the final order quantities. While products are in production, the Assortment Plan may be further adjusted based on fixed order quantities, leading to a final allocation of products when they are received.
Item Plan
The Item Plan is used for core product lines that are replenished over a period of time. It defines the level of support each product will have in each store and tracks inventory, sales, and incoming goods to determine when additional orders need to be placed, in the same way as the MFP. This process is commonly referred to as Item “Open To Buy” (OTB) or Item Weekly Stock, Sales & Inventory (WSSI).
This is also sometimes called a ladder plan.
Now let’s get into some additional terms that are retail planning-related.
Retail Planning Terms:
Allocation
An Allocation is used to distribute inventory, often for specific deliveries, promotions, or to clear out remaining inventory from the distribution center. In some cases, retailers may create an Allocation for a special event that requires additional orders outside of their typical assortment (e.g. in support of a promotional event). Initial allocations are often linked to the allocation of products in the Assortment plan.
Candidate
A candidate style is one that meets the criteria of a placeholder but is not directly linked to it. Retail planning systems should be able to recommend candidate styles so that users can link them to placeholders as options.
Category Management
The process of managing product categories as individual business units, including decisions on assortment, pricing, and placement to maximize sales and profitability.
Channel Management
The strategy of overseeing and optimizing different sales channels (e.g., online, in-store, wholesale) to ensure a seamless customer experience and consistent brand messaging.
Clustering
This involves grouping stores based on similar characteristics like customer demographics or sales performance to tailor product assortments and marketing strategies. This approach helps retailers optimize inventory management and enhance operational efficiency by addressing specific needs of each cluster. It is often leveraged as part of store grading in the Range Planning process.
Customer Choice (CC)
An individual placeholder may define the number of choices that are to be offered to the customer. typically used in apparel to refer to the number of colors when planning at Style level.
Demand Forecasting
The process of predicting future customer demand for products based on historical data, trends, and market analysis.
Design (Concept)
A product begins as a concept or design. Designers create sketches, propose materials and trims, and choose colors that align with a broader concept or theme. Multiple design concepts may be created before one advances to become a style. Designers use placeholders to guide their work, taking into account the demand for the product, including the target cost and unit volume, which informs the design process.
Markdown Optimization
The strategy of determining the best time and level of discount to apply to products to maximize sales while minimizing losses.
Omnichannel Retailing
A retail strategy that integrates various sales channels (e.g., in-store, online, mobile) to provide a seamless and cohesive customer experience.
Open-to-Buy (OTB)
A financial budget that indicates how much money is available for purchasing new inventory during a specific period, helping retailers manage cash flow and inventory levels.
Option
An option is a candidate style that is linked to a placeholder, this may be at the item or item/color level. In the process of managing the Line Plan, it is important to ensure that every placeholder has at least one option. New designs may be initiated to create options for placeholders, and ultimately, one option will be selected to become the style that takes the place of a placeholder.
Placeholder
A Placeholder is a product concept that does not yet have a fully defined style. Typically, a Placeholder includes a defined category, target cost, target margin, target quantity, and sales period (such as a season or delivery drop). Additional attributes may include product type, key material, theme, concept or any other important characteristic.
Planogram
A Planogram is a visual representation of how products are going to be laid out in a store.
Product
In the context of retail planning, a product refers to a unit of inventory and a unit of sale. A product can represent a style with multiple colors or an individual style/color combination. U.S. retailers typically plan products at the style level, where multiple customer choices (colors) exist within the planned product, while retailers in the EMEA and APAC tend to plan at the style/color level, focusing on individual customer choices.
Product (Tech) Specification
The Technical Specification, or Product Spec, provides detailed instructions on how a style should be manufactured. This document includes details on materials, points of measurement, construction techniques, standards, and more, ensuring that the product is consistently produced to meet the desired quality.
Replenishment
This is the process of restocking products to maintain optimal inventory levels, preventing both overstock and stockouts. Typically fully automated.
Space Planning
This process definition again varies by retailer, ranging from space metrics in the location plan to planograms (visual representations on the layout of a store), determining how products are displayed to attract customers and enhance their shopping experience.
Style
A style is the finalized form of a design concept. Once a design is adopted, it is referred to as a style and is given a style number. Depending on the business, various terminologies such as item, product, style, line, or article may be used interchangeably.
If you’re thirsty for more, check out our Comprehensive PLM Glossary!
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