Merchandise Planning in the Fashion industry

The Indian fashion industry is unique in the format that it exists in due to the singular most fact that most of the businesses are run by the designers themselves or by their relatives. Some of them in the recent times have hired professional CEO's and taken initiatives to instill a culture of professionalism but none have so far focused on merchandise planning as a tool let alone use it as an art or science.

The conventional way of planning has been to term an inspiration, manufacture a collection, send it to a store (for which the collection could have been specifically made) and/or sell what is left (after sales) in another store or keep it in the stock. This has been the modus operandi for many years and at the end of few years or so when the designer looks at what is left in the stock he/ she holds a discount sale or a charitable show at some place and hopes to get rid of this stock. The marketing and retail process across this sector too has evolved in a very peculiar but not so suitable manner. Till date the merchandising activity has emanated from the retailers and not so much from the designers, which is also one of the main reasons that there is a large and heterogeneous inventory in the designer wear business.

With the increase in the spirit of enterprise within the design professionals over the last few years, the number of designers with their own brands and businesses have increased exponentially and while the market too has increased; this vertical and horizontal growth within the sector without the requisite expertise of managing a brand has left many of the businesses with enough dead-stock and non-productive inventory.

Across various profiles & scales of designer wear businesses merchandise planning as a tool or function is very critical. This is as important for couture as it is for prt. While the intensity of brainstorming is higher in the case of couture the follow up on prt is equally if not more tasking, as the volumes being higher would imply more space utilization within the inventory rooms.

Concept

The fundamental issues in merchandise planning covers three simple activities:

   a. The need to collate timely data/ information with accuracy.

   b. The capability to forecast using traditional as well as contemporary methods.

   c. The need to classify your product based on category, price and value add along with budgets for the same.

For the mainstream retail and brand management firms these systems are quite advanced, automated and more proactive. The concept of merchandise management evolved from the reactive mode to that of being proactive when support systems and information collation became automated and timely data was available to execute decisions faster. With the evolution of information technology, entry of larger number of brands, consumer driven requirement for change and variety, the concept of merchandise planning became a full fledged science and currently every retailer or brand relies on this heavily to ensure that not only are their large gains not offset by inventory, but that every other function be it designing or manufacturing or logistics is influenced by the capability to forecast and plan one's merchandise methodically.

Planning and analysis:

Broadly merchandise planning can be classified into 2 distinct approaches;

1. Top down

2. Bottom down.

In a top down approac scenario, which was the traditional practice, the merchandise planning was driven by sales targets that were in turn influenced by turnover projections. Based on this the design content, merchandise planning, category management, distribution strategy etc were elaborately defined along with the kind of retail formats required to meet these targets. Many of the larger distributor based apparel brands still follow this approach.

In time the approach changed to a bottom up approach where past performance data was taken into consideration along with identification of new markets, new product categories and new price strategies. Based on this additional investment decisions are made and at every stage inventory management and replenishment are built into the system to ensure targets are met.

In the designer wear business one of the most important things whether it is a new start up or an existing business, is to map one's revenue patterns, current distribution, price points, margins and the value of stock levels before embarking on bringing out any new range. This is all the more important when the merchandise is of high value or despite the price points being low the distribution is elaborate. At any stage a form of merchandise planning re-engineering is beneficial to the establishment.

Technology (whether it's a data mining software, merchandise planning solution, or a software based loyalty programme) in conjunction or separately has increased the accuracy of forecasting and merchandise planning/ inventory management. This not only helps map the target customer behavior and their likes/ dislikes/ preferences but also helps predict trends, understand economic cycles, and helps decide the need for functions such replenishment, category planning and other expansions or cut backs. For a small business even a spreadsheet application (Microsoft excel) can be beneficial till a certain point after which (once distribution & scale increases), a small or medium business software can be used. Most designer wear businesses should look at employing a small time enterprise management software with inbuilt merchandise demand forecast tools.

In merchandise planning analysis plays a very important role in identifying areas of past sales performance data, current issues, trends, popular price points, region wise/store wise sales etc. The designer should spend time with their assistants in analyzing this data before planning for the next range and the exercise should even be store specific / category specific.

Merchandise Classification

The analysis and following decision can become more productive once you classify your merchandise in detail and evolve a mechanism to map each of their movement from the retail stores. For example, assuming that you commenced a menswear and womenswear range and went ahead planning merchandise every season without understanding what is popular then you will be inevitably left with excess merchandise. For this, the merchandise has to be classified as follows:

a. Mix (e.g. mens wear and womens wear)
b. Category (e.g. mens wear)
c. Class (e.g. mens wear classics)
d. Sub Class (e.g. mens wear theme based classics)
e. Groups (e.g. menswear theme based classic trousers)
f. Assortment (e.g. styles, colors and other options etc in the menswear theme based classic trousers)

This exercise will be most fruitful if it is commenced at the beginning and the sales can then be analyzed based on this classification. This will minimize the risk of non-movement of certain categories/ classes and give an opportunity for introspection and help execute some form of design/ merchandise planning re-engineering. Even if the business is fully fledged and with a large base of inventory and stock at various retail points this classification exercise and subsequent categorization of all the merchandise (though an extensive exercise) will bear fruit in the long run and bring about a considerable reduction of inventory, help in better merchandise planning and design forecast.

Outcome

The above exercise opens up a gamut of opportunities for those in the designer wear business to find their groove/ niche and also understand what the preferences of their target market is all about. It also helps you in identifying the following in a distinct manner:

   a. Pricing strategy for your merchandise across categories and classes

   b. Assortment planning (colors, styles and sizes)

   c. Style & Quality related issues

   d. Timeliness including delivery, logistics and replenishment

Once the above is done, one can adopt various strategies to cater to various categories for example, in couture one can have a system of keeping low inventories of value add items like crystals by collaborating with suppliers and a quick response system from cut to sew to fittings. Similarly, in pret one can look at a set of teams for various categories with practices like queuing built in to give flexibility to scheduling dispatches and also executing replenishments.

The exercise of merchandise planning has also other implications, which can ensure the smart and astute growth of the business. Some of the keys ones are:

   a. Demographics- who buys?

   b. Psychographics- why do they buy?

   c. Lifestyle

   d. Life stages

   e. Regional characteristics etc

Conventionally Indian designer wear businesses especially the older ones have never worried about stocks and inventories because bank funding/ over draft facility primarily came from the valuation of stocks, but with the changing norms and practices this will stop soon and leave most businesses in the lurch with mammoth stocks disproportionate to their scale of businesses. Globally, successful designer wear businesses function on the above best practices of merchandise planning and management- in India its important that most designer wear businesses adopt these practices (professional or family managed) as it ensures a leaner and smarter organization with the capability to grow and gain acceptance across International markets.
Article Source: http://www.fdci.org/articles/latest_article.aspx?sno=4