Merchandise Strategy & Plans: What the difference is and why retailers need both to succeed

Merchandise Strategy and Plan: what the difference is and why retailers need both to succeed - article by First Friday

We use the word strategy in multiple contexts in retail, here I’m talking about the transition from Company Strategy to Divisional Strategy to Department Strategy and how those high-level directional views are different from but critical to the Buying and Merchandising Commercial Plan.

Company strategy

Company strategy > Merchandise strategy > Plan

Strategy defines the direction a company intends to take enabling resources to be prioritised to achieve the aim. Becoming number one in the market for turnover is a very simple strategy; it is a clear statement of intent without yet including how. The ‘how’ is the plan.

Without a clear company strategy that’s communicated and understood by the internal organisation, it’s extremely difficult to align people to the goal, to enable ownership, to create a plan, and to deliver results.

Now the above example is too simple: It could have the unintended consequences of making a loss. It needs more depth and more guardrails to be really actionable. And that’s why retailers have several steps within strategy.

So let’s explore why and how they do it…

The need for actionable strategies

Leaders initially think at a company level:

  • Who am I competing with?
  • Who is my customer?
  • What am I good at?
  • Where is the market opportunity to devise the headline strategies?

Illustration for developing an actionable strategy

So they might develop ‘number one market share’ to ‘number one market share by developing trend led product aimed at our younger customer’.

You are not yet at a plan, but you have fleshed out the strategy to be more actionable. And by doing so, it’s begun to make you think about what might need to be in place to achieve it: trend insight, designers, shorter lead-times, market data, demographic data, customer insight, advertising etc.

This, in turn, has the effect of sanity-checking your strategy both from an aim and a cost point of view.



Developing different levels of strategy

The first view of sales and profit is created at this stage and allows you to ask/answer some key questions, such as:

  • What does the strategy really look like it will deliver for us?
  • Is it in line with market expectations of us?
  • Within our ability to invest?
  • Within the capability we have?
  • Does it seem realistic?
  • Have I provided enough detail to give direction without limiting ownership from those closest to the customer?

With those requirements satisfied, the relevant strategies can be rolled out to the Buying & Merchandising (B&M), Planning and Commercial teams ahead of them beginning to think about their next season/half/year.

B&M, Planning and Commercial leaders and teams can then think about the merchandise strategy for their specific product group/region/channel within this context and how they could meet it, enhance it or challenge it. And it is vital that there is a route of challenge.

Challenging the strategy

If, for instance, this company strategy was in a department store, there are likely to be product groups for whom it won’t be the driving force – for Babywear or Home Appliances, for example.

And the company strategy that’s agreed will include like-for-like (LFL) sales expectations, margin expectations, stock investment targets, ethical targets etc. So, teams are focused on balancing all the business requirements but at a high level, at a “principle” level.

The company strategy becomes ‘number one market share by developing trend led product aimed at our younger customer with a 3% LFL growth, 1.5%-point growth in margin, and a week faster than last year’.

Illustration for set a more targeted strategyCapable B&M, Planning and Commercial leaders and teams quickly have a sense of how possible that is, and that’s what we are looking for in the merchandise strategy:

  • Does the company strategy work in our area?
  • Will growing that section of our area give the results required?
  • Can we source that type of product at improved margins?
  • What risks are we taking in our area because of the company strategy?

The fact that we are still at a high level here is key because you don’t want to do vast amounts of detail only to realise that it doesn’t deliver and have to re-do it all. Or worse, be so far into the critical path that you either have to keep going or don’t even know that it won’t deliver.

We should not be getting to a plan until we know our strategy is robust.

The difference between merchandise strategy and plans

The Merchandise Plan takes the strategy lower down the product hierarchy on the journey towards line-level buying.

Whereas Merchandise strategy looked at a big chunk of time (usually 6 or 12 months) the plan goes to a lower granularity of time – often down to a weekly level by a lower level of product hierarchy – in order to drive out phased Open-to-Buy (OTB) and manage stock levels effectively.

The merchandise plan looks at which specific suppliers’ product will come from, and how to manage a mix of lead times, capabilities and reliability. It balances the attributes of that product so that it is a full and exciting range for the customer to buy from.

It balances the risks and opportunities inherent in buying any range and looks beyond this season/half/year by addressing trials and feeding into the sourcing strategy going forward.

How you know your merchandise plan is “right”

I used to work for a seasoned Commercial Director who would always say:

“There are two kinds of plan – wrong and lucky!!”

What he meant was that something would always change. Customers would not respond quite as predicted. In the UK the weather would get you. A supplier wouldn’t deliver. Or there would be a pandemic!

But once you have a well-considered merchandise plan – carefully built, with the drivers understood – as soon as anything changes you know how to react, and you know what actions to take.

The minutia of a merchandise plan rarely lands exactly, but by trading weekly and being aware of what is changing and why, you will still deliver the top-line plan and you will have the basis of your next strategy – both company and departmental.

Retail processes simply aren’t linear. They operate in an ongoing circle with often multiple seasons in work at any one time, and strategies are born from this, not arrived at in a vacuum.

Seasonal planning cycle shows that trading and learning steps overlap with the strategy and planning step of the next season.

Overcoming common challenges

Here at First Friday, we often begin working with a retailer by doing a short piece of Discovery (that typically lasts just a couple of weeks.)

Because we all come from retail backgrounds, we are very quickly able to understand a business by interviewing a selection of people from the different levels of the commercial team – from CEO to Merchandiser to Allocator.

Very often we find that each person gives us a different answer when we ask what the company strategy is.

There can be a number of reasons for this:

  • There is no strategy beyond growing sales/making a profit
  • There is a strategy but it’s not very clear, and not well-defined
  • The strategy exists but hasn’t been communicated
  • The company strategy stage has been skipped and the roll-up of the teams’ strategy is filling the gap
  • Business Calendar is badly used and there’s never any time to think
  • People are focused on the urgent, not the important

We support organisations large and small to improve their strategies and have recently partnered with Strategy in Action to deepen this support and enable organisations to put the appropriate focus and agility on strategy.

A Commercial Operating Model for the full Retail Cycle

Retail is a cycle - steps in the cycle are strategy, plan, buy, move, trade, learn

Post-discovery phase, we make recommendations on next steps, and this very often includes a workshop to agree the operating model for Buying & Merchandising, Planning and Commercial which encompasses the whole retail cycle – including Strategy.

We use a “vanilla” base rather than current practice of the individual retailer, in order to challenge the as is and facilitate the leadership team’s understanding of the benefits of including strategy ahead of diving into planning.

Of course, the team are also encouraged to challenge the model and share what is unique in their business which may require adaptation of the model.

Once the high-level Operating Model is agreed (i.e., the key activities, by function, in sequence for a new half/season/year), the next step is to agree the timings of each step based on lead-times and the reality of information required and available at each stage.

This is the critical element in driving real change and ensuring your strategy is executed effectively.

Think your business would benefit from having our retail consultants review your strategy and plans?

Find out more about how Retail Consultancy services, or get in touch to speak with one of our expert team.

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Victoria Ward

About the author: Victoria Ward

A consultant with over 20 years’ experience, Victoria had a long career in merchandising for blue-chip retailers before joining First Friday where she now supports and guides businesses through transformation programmes, enabling them to deliver sustainable change in her role as a strategic transformation consultant.

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