Why do retailers spend so much time building the perfect merchandise financial plan?
I understand the importance of a finance plan. Teams need direction and parameters. Teams need justification on order placing and reserving factory space. I understand that a multi-million-dollar discrepancy at the company level may be the result of every planner being a fraction off vs. their financial guidance at the lower levels.
However, the time, energy, and hours spent by planners, merchants/buyers, and product development to make the plan perfect is immeasurable. After all, isn’t the goal of a successful retailer to give the customer what they want, when they want it? And isn’t today’s customer changing their mind on what they want quicker than ever? Quick trend changes are driven by this customer and retailers MUST be flexible to survive.
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My experience is working with and for retailers. As cliché as it sounds, retail is a small world. My network and conversations with retail planning teams expand over many companies, product types, and business processes.
For most that I have discussed planning with, the company finance team drives the corporate plan to the merchandise planning team. 4-5 months later the merchandising team has the plan perfect, all the way down to the item level!! Lock it today!! It is a perfect work of art!!
Oh wait, now the ultimate player in this game, the customer, have changed their mind on what they want. The beautiful plan is scrapped, and the true art is now managing the forecast.
A quick plan change is difficult. There is nothing quick about it. However, a forecast adjustment can be made very quickly.
Why can’t the merchandise team drive the forecast upstream and the finance team can tie their corporate plan to the forecast? This would give investors REAL accuracy of how the customer is reacting to our product and the accuracy of our financial stability. This is a huge mindset change, but isn’t it time for a change?
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In their own way, this is exactly what all players in the supply chain do, except the retailer. Raw material suppliers, factories, manufacturers, warehouses, and wholesalers all work off a projected demand forecast and use a rolling demand forecast over 18-24 months to realize their financial metrics. There is still a process to tie the finance plan to the demand forecast, but I have seen much better team collaboration working the direction of, demand forecast (merchandising team) up to finance vs. finance plan down to the merchandising team. Like I said, after all, isn’t the goal to make the customer happy? And who is closer to the customer? Merchant and planning teams, or finance?
Food for thought to all you retail merchandise financial planning teams out there… 2020 has been a year of change and adaptability. Maybe this is the year to rethink the way planning is done in traditional retail companies.
I understand these thoughts do not hold true to every retailer. Some product lines are steadier with less volatility (until COVID-19 hit and the world was turned upside down). I bet this blog does hold true to most retailers who sell apparel, footwear, jewelry, furniture, home fashions, and sporting goods just to name a few.
I have worked on both the retail planning side and the wholesale demand forecasting side of the table. Demand forecasting is so much more efficient and fruitful versus the retail MFP processes. In future blogs, I will continue to discuss how and why I believe retailers should start rethinking their “planning” process.
