Merchandise Planning explained
Merchandise planning is one of those terms that gets used a lot in fashion retail - and understood surprisingly rarely, even by people working in the industry. At its simplest, it's the process of making sure you have the right product, in the right quantity, in the right place, at the right time. But that simple description covers a lot of ground.
This post walks through what merchandise planning actually involves - the key steps, why each one matters, and how they connect to one another. It's aimed at founders, designers, and early-stage teams who are starting to think more formally about how they manage product and inventory.
Why it matters
The cost of getting merchandise planning wrong shows up in two ways. The first is excess stock - too much of the wrong product sitting in a warehouse, tying up cash and eventually being sold at a markdown that erodes your margin. The second is missed demand - selling out of your best products too early, leaving money on the table and frustrating customers who can't get what they want.
Good merchandise planning sits between those two failure modes. It doesn't eliminate risk - no plan does - but it significantly reduces the likelihood of either extreme, and it gives you a framework for making faster, better-informed decisions when things don't go to plan.
The eight steps
1. Setting objectives and goals
Everything starts with a clear financial framework: sales targets, margin targets, and inventory turnover goals. These aren't just numbers on a spreadsheet - they're the constraints that everything else gets built around. Without them, every subsequent decision is made in a vacuum, and the plan has no way to hold together commercially.
2. Market research and trend analysis
Before you plan what to buy, you need to understand what's happening in the market - and what your customers are actually telling you. That means analysing past sales data to understand what worked and what didn't, monitoring competitor activity, and spending real time with your store teams and customers to gather qualitative insight that the data alone won't surface.
For e-commerce brands, returns data is particularly valuable here. The reasons customers return products - sizing, fit, quality, product description mismatches - tell you as much about your range as your bestseller list does.
3. Assortment planning
This is where the range takes shape. Assortment planning is about deciding what you'll sell, in how many options, at what price points, and in what balance of core versus seasonal product. The goal is a range that's commercially coherent - broad enough to attract customers, deep enough to satisfy them, and structured in a way that tells a clear product story.
The questions to answer here include: How many SKUs can you actually support at the right depth? What's the right split between carryover, core, and new? Which categories should dominate in which season? How does the range work as a whole - can it be merchandised into outfits and stories, or is it a disconnected collection of individual pieces?
Assortment planning also needs to be done in close collaboration with marketing. The products you're planning and the campaigns the marketing team is planning have to be aligned - a product launch with no marketing support, or a campaign built around a product the buyer hasn't prioritised, is a wasted opportunity at both ends.
4. Financial planning and budgeting
Once the assortment is planned, you need to cost it out. This is where the OTB (open-to-buy) comes in - the budget that tells you how much you can spend on buying product, broken down by category, channel, and delivery window. The OTB is built from your sales forecasts, your margin targets, and your inventory goals, and it's the financial guardrail that keeps the buy within bounds.
Margin management is a critical part of this step. It's not enough to set margin targets at the start of the season - you need to monitor actual margins throughout, and understand how your sales mix, pricing decisions, and markdown activity are affecting profitability in real time.
5. Store grading and ranging
Not every store gets the same product - or should. Store grading is the process of categorising your retail locations based on their sales performance, customer profile, and market potential, then tailoring the product range accordingly. A flagship store in a major city and a smaller regional door are serving different customers and have different capacity constraints. Building that into your planning from the start means you're not just distributing stock evenly and hoping for the best.
6. Inventory management
This covers the mechanics of how stock flows through the business - from initial allocation (getting the right product to the right stores at launch) through to replenishment (keeping bestsellers in stock), transfers (moving slow-moving stock from where it isn't selling to where it might), and eventually clearance (exiting end-of-season or excess stock with the least possible damage to margin).
Inventory management is an ongoing, in-season process. The plan you built before the season will be wrong in some places - the job of inventory management is to respond to what's actually happening and correct course quickly.
7. Pricing and promotional strategy
Pricing is both a pre-season and in-season decision. Before the season, you're setting your RRP architecture - making sure your prices are competitive, reflect the value of your product, and protect your margin targets. During the season, you're managing markdowns and promotions to stimulate demand, clear slow-moving stock, and respond to competitive pressure — ideally without becoming discount-dependent.
The best promotional strategies are planned, not reactive. A pre-agreed markdown calendar, with clear rules about what gets discounted, when, and by how much, gives you far more control than making it up as you go.
8. Reporting and evaluation
The final step is the one that feeds back into the next cycle. Tracking sales performance against your targets - weekly, at minimum - tells you where the plan is working and where it isn't. Key metrics include sell-through rate, gross margin, stock turn, on-shelf availability, and conversion. The point isn't to produce reports for their own sake, but to make decisions faster and with better information than you had the last time around.
How it all connects
The eight steps above aren't a linear checklist - they're a cycle. The data from this season's reporting informs next season's market analysis. The financial framework shapes the assortment. The assortment shapes the inventory plan. And so on.
The brands that do this well treat merchandise planning not as an annual exercise but as a continuous operating rhythm - a set of decisions that get made and remade across the season as new information comes in. The plan is the starting point, not the destination.
If you're an early-stage brand just getting started with this, don't try to do all eight steps perfectly at once. Start with clear financial goals, a disciplined OTB, and a weekly trading review. Build the rest of the process around that foundation as the business grows.
