Is Retail Financial Planning different from Merchandise Planning?

At daVinci Retail, retailers often ask us about the difference between retail financial planning and merchandise planning. A seasoned footwear expert at Walmart once told me, “They are as different as chalk and cheese.”

Retail financial planning tools track assets, liabilities, sales, and profitability at various levels, from the company down to individual stores. They also monitor corporate expenses, including wages, rent, and overhead, against high-level financial plans. These tools sometimes provide insights at the product hierarchy level, leading to confusion with merchandise planning.

Despite overlapping data, retail financial planning and merchandise planning differ in two key aspects: time and business strategy. Time differences are straightforward, while strategy differences are more contextual.

Time Differences

Every company follows a financial calendar, reporting monthly results consistently. Most companies use a Julian calendar, with financial periods spanning January to December. The first month of the financial year often aligns with the company’s founding month, though many start on January 1.

In contrast, apparel and fashion retailers adhere to the National Retail Federation (NRF) fiscal calendar. This calendar consists of 52 weeks (occasionally 53), divided into quarters using a 4-5-4 week pattern. The fiscal year typically begins in February to align with regular-price selling after post-holiday clearance.

Importance for Merchandising & Planning Teams

Although the fiscal calendar seems complex, it ensures buying teams can plan in-store product rollouts, visual setups, promotions, and clearance markdowns. Brick-and-mortar stores adjust inventory placement and pricing based on fiscal weeks, making this structure crucial for effective merchandise planning.

Forcing merchandising teams to follow a financial calendar hinders efficiency and creates confusion. Fiscal week performance plays a crucial role in measuring success and comparing historical data. Retailers must align their merchandise planning tools with fiscal weeks to optimize decision-making.

See also: What is Merchandise Planning?

Challenges for Financial Reporting

On the other hand, NRF’s fiscal calendar poses difficulties for finance teams. Since fiscal years have varying start dates and flexible week structures, financial teams struggle to report quarterly and annual results, especially in publicly traded companies.

Retailers can integrate merchandise planning data into financial planning tools, but discrepancies arise. Sales and markdown data transfer smoothly, but metrics like opening inventory, closing inventory, and gross margin values may not align due to fiscal week variations. At daVinci Retail, we recommend extracting these metrics from a centralized data warehouse for accuracy.

Learn more: Fundamentals of Merchandise Planning

Business Strategy and Retail Planning

When setting financial targets for the upcoming year, finance teams, led by the CFO, provide crucial guidance. They define comp-store sales goals, new store forecasts, and expansion plans. However, merchandise planning teams translate these high-level directives into actionable strategies.

Finance teams lack access to granular data, making it difficult to anticipate real-world inventory challenges. For example, finance might assume that starting a season with 100,000 women’s crew neck sweaters, valued at $5 million, guarantees strong sales based on last year’s performance. However, merchandise planners know that last year’s inventory consisted of fresh styles, while this year’s stock includes carried-over items requiring deep markdowns.

Finance may see strong knit dress sales and assume growth potential. However, merchandise planners understand that last year’s success stemmed from a vendor markdown opportunity, not a continuing trend. As a result, they may shift focus to woven dresses instead.

Functional Knowledge in Merchandise Planning

Merchandise planning teams analyze regular, promotional, and markdown sales based on current inventory levels. They track planned markdowns and inventory aging, which financial teams condense into a single sales figure. Merchandise planners also account for international pricing variations and currency exchange rates, factors beyond financial planning tools’ scope.

Cross-Functional Synergy

Finance teams may adjust mid-season guidance, requiring merchandise planners to revise their forecasts and open-to-buy plans. Retailers must maintain multiple versions of these plans to track performance and adapt to changing market conditions.

Companies operating across Omni-channels (e-commerce, brick-and-mortar, pop-ups) and currencies need a specialized merchandise planning tool. Relying solely on financial planning tools limits profitability and leaves money on the table. Retailers must leverage robust retail merchandise planning solutions to optimize their assortments, pricing, and inventory strategies.