Merchandise buying is a critical function in retail that directly influences sales, customer satisfaction, and overall business profitability.
Developing a strategy starts with understanding and predicting consumer demand, behaviour, and so on.
However, predicting demand and analysing local trends is tough without understanding demographics. Even retail giants like H&M faced this, with $4.3 billion in unsold inventory.
But now with the advent of AI & custom ML models, predicting demand at the store and product SKU levels is made possible and efficient.
In this article, we’ll cover the fundamentals of merchandise buying and how to plan a better strategy.
What is merchandise buying: Definition and purpose
Merchandise buying is a process of selecting and procuring products that a retailer will sell to consumers.
It involves selecting, purchasing, and managing the right mix of products to ensure a retail store meets customer demand while optimising inventory levels.
Deep understanding of customer preferences and seasonal demand shifts, local market trends are the pillars when it comes to merchandise buying.
Without a proper merchandise buying strategy, a retail store risks facing inventory imbalances, leading to financial losses and customer dissatisfaction.
Who is responsible for merchandise buying and how decisions are made?
The responsibility for merchandise buying varies based on the size and structure of a retail business.
In small retail businesses, the owner often takes on the role of the merchandise buyer, making purchasing decisions based on personal experience and customer interactions. They rely heavily on intuition and historical sales data to select products.
Even in larger retail chains traditional merchandise buyers may depend on past sales data and supplier relationships rather than objective, data-driven insights.
Analysing multiple data such as sales, market trends, upcoming trends, etc manually will leave you with multiple assumptions and gaps which could work for or against you.
For example, making decisions based on anecdotal evidence can lead to overstocking slow-moving items or missing out on high-demand products.
So, the traditional methods are not always ideal. This is where location intelligence makes a difference.
What to do instead:
Instead of relying on intuition or historical trends alone, retail businesses can now utilise advanced analytics to forecast demand at a hyperlocal level.
By integrating existing store data with external data, you can uncover the demand potential a particular product has at the store & product level.
This ensures that the right products are stocked in the right locations at the right time.
Below are the best practices you could do to strategise merch buying better.
Best practices in merchandise buying with data backed decisions
Understanding target customers
As we mentioned earlier understanding your target customers’ needs, preferences, and purchasing behaviors are the pillars.
Consumer demand varies across locations, demographics, and seasonal trends, making it essential for you to analyse market dynamics before making merch purchasing decisions.
Leveraging location intelligence is particularly beneficial in identifying customer preferences at a granular level across multiple target locations at once.
Store-level and product SKU-level merchandise buying
A comprehensive merchandise buying strategy must consider both store-level and SKU-level demand forecasting.
Store-level analysis ensures that each outlet carries an optimised product mix based on local consumer preferences, while SKU-level forecasting helps refine purchasing decisions for individual products. This approach reduces excess stock and improves profitability.
With our solution, you can analyse multiple factors such as local market trends, purchasing behaviour, affluence level, upcoming trends, etc to forecast demand at the store and product SKU levels across the country.
| Book a 15-minute discovery call with us to plan your merchandise strategy the right way!
Staying on top of upcoming trends
This is especially crucial for fashion brands as consumer behaviour changes rapidly and you might overstock or understock a product.
In the below picture, we can see that the “oversized” clothing trend was at its peak between Jan ’23 – and Jan’24. Using our predictive models we have concluded that we could potentially witness up to 50% drop in this trend in 2025.
So, to ensure you stay relevant to your product offerings, understanding local market trends and upcoming trends is crucial.
| Related: We helped a major eyewear brand place their premium products at specific set of stores resulting in 45% more sales
Budgeting and financial planning
Merchandise buying requires strategic financial planning to balance product investments with projected sales.
Retailers must allocate budgets wisely to ensure they do not overinvest in slow-moving products while ensuring enough stock for high-demand items. Also, proper budgeting helps in negotiating better deals with suppliers, improving profit margins, and maintaining a healthy cash flow.
Supplier relationships and negotiation skills
Building strong relationships with suppliers is a must for long-term successful merchandise-buying practices.
If you, a retailer, cultivate long-term partnerships with suppliers, you could benefit from better pricing, priority inventory access, and flexible payment terms.
On top of this, effective negotiation skills are also crucial in securing favourable deals, including discounts, extended credit periods, and other unique favours you might need for each store.
Aligning merchandise buying with business goals
Merchandise buying should align with broader business objectives, including revenue growth, market expansion, and customer experience enhancement.
A data-backed, customer-centric approach will ensure long-term retail success in this dynamic market.
The Process of Merchandise Buying
Once you identified demand across stores, and locations, below are the typical key processes involved in merch buying.
Vendor selection and negotiations
Choosing the right suppliers is essential for maintaining product quality and pricing competitiveness. This is as important as identifying demand.
You should evaluate the shortlisted vendors based on their reliability, pricing structures, and ability to meet supply demands. As we said, strong negotiation strategies can help secure cost-effective deals while maintaining product availability.
You could also attend retail focused events to build and grow your network to potentially gather the best vendor contacts as well.
Pricing and margin planning
Determining the right pricing strategy is a crucial aspect of merchandise buying. You must balance competitive pricing with profit margin optimisation.
Below are some tips to set the pricing right:
- Define pricing tiers based on cost, competitor benchmarking, and perceived value.
- Plan for seasonal pricing adjustments, discounts, and promotional offers.
- Monitor margin performance – to ensure profitability across different product categories, across stores.
Purchase Order Management
After finalising vendors and pricing, the next step is managing purchase orders efficiently.
Proper documentation and tracking prevent supply chain disruptions. Establish a clear process for placing and tracking purchase orders and set dynamic reorder points (based on demand) to avoid stockouts and overstocking.
Performance Tracking & Adjustments
Merchandise buying is an ongoing process that requires constant evaluation and adjustments to stay aligned with market trends.
So, track sales performance to identify fast-moving and slow-moving products. By doing so, you can adjust future buying decisions based on data insights and customer feedback.
You should also assess your vendor’s performance based on delivery timelines and product quality. If issues come up, sort them out or switch vendors if needed.
Conclusion
Merchandise buying is a critical pillar of retail success.
A well-executed, tailored merch buying strategy, backed by objective data ensures sustained success and gives you a competitive edge across all your stores!
Book 15 minute discovery call with us to know more.