Merchandising: Pros and Cons of Merchandise Planning Methods

Top-down merchandise planning entails a process in which centralized decisions about product assortments are made by corporate-level executives. Meanwhile, bottom-up assortment planning is done by managers of individual channels projecting sales within their respective channels.

You’ll find advantages and disadvantages to each methodology, noted Joel Jackson, a senior consultant at Martec International, an Atlanta-based retail consulting firm. Understanding the pros and cons of each variation can help you decide which plan is best for your multichannel business, he said during the session”Best Practices in Merchandise and Assortment Planning” at the National Retail Federation Annual Conference, being held this week in New York City.

Top-down Merchandise Planning

This methodology tends to work best for companies that have many channels, multiple product categories and older technology, said Jackson. Advantages include the following:

* The plan is driven by company-wide goals, not the goals of individual channel managers.

* Executives can factor into the plan global trends in product sales.

* To produce such a plan generally requires less time than a bottom-up plan, which needs more people’s input.

Disadvantages:

* The plan is built with less focus on small-level issues. For example, if you have several stores, it doesn’t take into account variations in customers’ preferences from one geographic location to another.

* You may suffer from a lack of buy-in from channel managers. “They may have been told a sales number to hit and may not agree that it’s even doable,” said Jackson.”So, actually executing a top-down approach may be problematic.”

Bottom-up Merchandise Planning

This type of assortment planning works best for companies that have common sales profiles across channels, a limited range of products, and new or refitted channels with little or no sales history, said Jackson. Advantages include the following:

* Channel managers can use their in-depth”local” knowledge about sales and customers’ preferences within individual channels. For example, a retail store manager may know that road construction near her store will mean her sales for a projected six-month period inevitably will decrease. Meanwhile, your catalog manager knows that postage costs are set to increase next year, taking a bite out of his margins.

* Staffers may feel more motivated and involved in the planning process if they have a hand in creating it.

Disadvantages:

* Such plans are notoriously overly optimistic or pessimistic, said Jackson. “Store managers tend to be more optimistic in their assortment planning,” he noted. “On the other hand, managers on a bonus program who also are doing bottom-up planning for their individual channels tend to be more pessimistic, hedging their bets, if you will.”

* Such planning at the channel level may distract managers already stretched thin.

* You may see wild variations in planning standards among your channel managers.

* National and regional trends may not be factored into bottom-up merchandise trends.

“The best results come from a combination of top-down and bottom-up planning in which you aggregate your various channels together,” said Jackson.

To reach Martec International, call (770) 392-9664, or visit the Web site: www.martec-international.com.