Retail Merchandise Budgeting
Consistently having the right quantities of the right product in the right place at the right price and at the right time is a cornerstone of effective retail merchandising. This means that all the activities involved in purchasing and moving retail goods from inventory to customers are components in a retail merchandise plan. Just as with every other aspect of a retail operation, merchandising operates within a budget.
A comprehensive retail merchandise budget can be divided into two distinct categories. The first is a budget for purchasing merchandise and the second is for merchandising activities. The purchasing budget allocates amounts not only for the purchase of retail goods but also for costs associated with bringing merchandise from the supplier to the inventory warehouse and sales floor. This includes shipping, wages for inventory or warehouse personnel, and costs associated with getting retail merchandise ready for the sales floor.
Annual retail merchandise purchasing budgets are based on strategic business goals as well as the results of consumer research and demand forecast planning. The process involves analyzing past sales data, including seasonal demand variations, trends in consumer preferences and predictions about future buying habits. Sales projections are then developed, the overall budget is set and allocations are made for individual items. With certain items, such as seasonal merchandise, budget allocations include both a static amount and a contingency for purchasing additional inventory if it becomes necessary.
A merchandising budget relates to marketing activities designed to move retail merchandise from the warehouse into customers' hands. Merchandising activities typically include merchandise display techniques, product sampling and in-store demonstrations. Pricing strategies, special offers such as discounts and coupons, and shelf talkers -- printed cards attached to a store shelves that serve to call attention to a specific item -- can all be part of a retail merchandising budget. While budget allocations within a merchandising budget may be flexible, the merchandising budget itself is, in many small businesses, most often firmly set.
Merchandising budget plans specify how much money the business can spend -- or in some cases afford to lose -- to achieve sales, profit margin, inventory turnover and gross margin return-on-investment objectives. Budget allocations are often based on quantitative metrics such as profit margin and inventory turnover goals. While the overall budget and budget allocations might be set annually, sales fluctuations, changes in the economic environment and other unexpected events often require more flexibility. For this reason, merchandising plan budget allocations are often reviewed monthly and, when necessary, modified to help the business achieve sales objectives.