Too many merchants still plan their budgets and Open To Buy once a season, if not once a year. Surely, planning is a chore, an expense, and there are so many other, more important things to take care of… Besides, the buyers often don’t follow the plan – so what’s the point of trying hard?
My old chess teacher used to say “if you play without a plan, you will always lose to a player with any plan”. Here is why this applies to retail in spades:
- Consumer and Brand volatility. The shopper is fickle. A brand that’s hot today, could be a real dog by the end of the season. A category could catch fire because of weather, superior vendor lineup or simply more successful buying. No trend line assumption survives a few months of trending – you will either have guessed too high, or too low. And you will end up with either not enough stock, or too much stock to deal with.
- Economic volatility. This is obviously in play right now. MANY of our discounter and basic goods retailer clients are suffering from decreased transaction size and shrinking shopper baskets. I have noticed decreases of as much as 10-15% in comp sales, as the value consumer simply doesn’t have enough spendable cash in their pocket. Will this trend continue? God forbid! What comes down MUST come up, or else… When will this turn? How closely are you watching your sales forecasts and resulting OTB?
- How nimble are you? For a lot of merchants, sales forecasting is the foundation of all future projection. Do you forecast your sales monthly or weekly? Quarterly or once a season? That’s actually NOT the important question at hand. It’s how often do you REFORECAST, that helps you stay on course with volatile trends and unexpected trading patterns. Most retailers try to reforecast monthly and review their OTB at least that often. Most of YOUR competitors do it.
- Short lifecycle products. Seasonal categories like hunting gear, swimsuits or winter coats can have a sales curve that’s as little as 2-3 months. How do you deal with that curve if you plan once a season? Catalogue companies have designed a practical answer. They create a predicted demand curve (sales plan) by week, and monitor actual performance vs plan in the first one or two weeks after a catalog drop. The total sales forecast is then adjusted up or down depending on the early actuals vs plan.
- Vendor and supply chain volatility. Did you get shortshipped? Is there a massive past due OnOrder that you may be hoping will arrive in time (or sometimes hoping you don’t need it to begin with)? Are you taking in those vendor receipts even though your sales are not meeting expectations? That’s one good way to end up clearing excess stock at the end of the season… To be fair, how would you notice that impending overhang of inventory – without timely reforecasting?
- Better tools lead to better outcomes. Many of our customer have adopted math-based long range sales forecasting. The math is fairly straightforward and the computer does the number crunching. The outcome is nice – you can get sales reforecasted (or even seeded for future manual planning) out as far as the end of Next Year – quickly. Being able to reforecast sales quickly gives you a leg up in adjusting buyer guardrails (aka Open To Buy) in time for them to react to all that predictably unpredictable volatility.
Implementing timely OTB guidance based on frequent reforecasting isn’t just good practice – it’s a competitive necessity. Retailers who master this see significant improvements in financial performance and customer satisfaction.
What do you think? I have been doing Merchandise Planning for so long, it’s hard to get an alternative perspective, and I’d love some input here.