When it comes to merchandise financial planning, retailers are moving away from traditional, manual, and reactive approaches that often result in an overflow of inventory or lack of stocks across seasons, hurting both profitability and customer satisfaction. With the ability to simplify, localize and optimize the merchandise financial planning process, companies are making their strategic planning process more efficient, accurate, and sustainable with AI and ML.
The global Artificial Intelligence retail market is projected to grow to USD 51.94 billion by 2029, exhibiting a CAGR of 5.2%. AI/ML solutions are making waves to eliminate challenges in retail financial planning. Today, the benefits of AI-forecasted and sales-driven financial planning allows retail executives to make smarter and swifter decisions to boost their profits and remain competitive in the industry.
Merchandise financial planning software’s utilization enables retailers to reshape their customer-focused financial planning to drive inventory profitability. It can adjust at various levels of product hierarchy and time (weeks, months, quarters, and a year) to dramatically improve growth by anticipating demands and inventory needs based on its financial planning goals.
To have an ideal merchandising financial plan and manage OTB budgets efficiently requires 5 important things and gaining maximum control in financial roadmaps:
- Planning Smarter with AI-Driven Forecasting
The traditional planning process utilizes LY or LLY numbers as a benchmark to make plans with targets based on their LY sales. However, COVID disrupted this behavior. As a result, 2020 is drastically different from 2019, and due to pent up demand, 2021 varies from previous years to have a good comparison. Hence, the traditional method of planning based on past sales has yet to work.
AI-based merchandise financial planning software forecasts consider past abnormalities, but also anticipates future events and suggest a realistic projection for the planner to achieve. For example, a fashion retailer’s sales in 2021 were $128mn. Due to the latest trends in fashion and changing macroeconomic and global market conditions, the AI model predicts the forecasted sales to hit $165mn. If the merchandiser follows the traditional method of planning based on LY and presumes they have set a target of 10% above LY, they would only plan for ~$141mn, losing an opportunity of $24mn business. Conversely, where AI forecasts the sales to be lower due to various factors, if the planners secured inventory based on LY numbers, they would struggle to clear off the inventory by incurring losses. With AI-driven software, planners get the best of both worlds using LY, LLY, OP, etc., and AI-based forecasts to provide a competitive advantage.
- Pre-Season and In-Season Planning
Pre-season planning enables planners to plan for a minimum of 12 months to 18 or 24 months. It helps planners during retail financial planning for their sales, gross margins, and acceptable inventory levels to ensure profits are high and controllable costs are low without losing sales. The planners decide the budget to buy the inventory (Open To Buy) and place the orders accordingly. In-season is closer to reality. It helps the planners to get the actualized numbers from sales and plan for the rest of the season to meet season targets. To increase sales, in-season planning may involve adjusting the gross margin levels or markdowns, including but not limited to POS markdowns or permanent markdowns. There are tens of metrics that a planner will focus on while creating a plan. Having the ability to choose what metric to edit and what related metrics gets updated based on the formula will provide control to the planner to focus on key metrics.
- Planning Flexibility across Channels, Regions & Product Hierarchy
Planners address multiple variables across planning while adjusting to constants like timelines and key metrics. These variables, such as product hierarchy (category, department, etc.), channels (B&M, ECom, Wholesale, etc.), and region (store cluster, geographic, etc.), vary from organization to organization. It depends on several factors, such as the size of the retail organization, the structure of the planning department, and roles and responsibilities across the team, and more. Organizations aspire to be flexible enough to employ retail merchandising planning software for whatever dimension they desire without altering their organizational structure.
- Bird’s Eye View AKA Master Plan
Planners make individual plans. They are confined to their area of responsibility, usually one or two departments, some channels and a few regions. It’s an arduous process for the leadership to make decisions at the organizational level, consolidating all these individual plans. The AI-based merchandise planning solution provides a master plan that consolidates all the plans made by individual planners to provide a total organizational-level view for the leadership to look at aggregated plan numbers and make appropriate decisions. In addition to looking at the actual data for all channels and departments, they can dive further into a specific plan for a channel or department.
- Scenario Planning and Version Control
Hustling through tens of key metrics and being able to arrive at a sweet spot to satisfy all is a considerable challenge. Planners often quiz ‘what if’ I adjust a particular metric, and how does it affect my sales? Scenario plans in retail merchandise financial planning software provide the flexibility to run various simulations before arriving at a final number in the working plan. Planners can also take a snapshot of the Original Plan (OP) before approving the operational plan. These snapshots will serve as versions to refer to previous plans and understand the journey of the planned numbers.
How can Impact Analytics help?
The right tools can remove the struggles to meet top-down targets with bottom-up financial forecasts, inventory needs, and profitability. Retailers must have the right, AI-driven merchandise financial planning software solution to achieve such precise goals.
Impact Analytics’ PlanSmart benefited our clients with a 60% increase in planner productivity, a 10% increase in gross margin, and many more. PlanSmart is designed to adapt to the organization’s retail financial planning requirements. Using PlanSmart, planners can plan for whatever hierarchy they want to the granularity they wish for. If you are considering a merchandise planning solution for similar and measurable results, Impact Analytics can provide the perfect solution.