authors
Ahana Das Sharma
Senior Product Marketing Manager
9 read min
TL;DR
Merchandise planning is the process retailers use to decide what to stock, how much to buy, where to place it, and when to mark it down. Done well, it keeps inventory lean, margins healthy, and shelves stocked with products customers actually want. Done poorly, it costs real money. IHL Group puts the combined cost of stockouts and overstocks at $1.7 trillion annually across global retail. Get the plan wrong and you are giving away margin. Get it right and inventory becomes a competitive advantage.
The $1.7 Trillion Problem Retailers Keep Ignoring
Every retailer knows the feeling. A product flies off the shelves faster than anyone predicted. Or sits in the stockroom for months, quietly destroying margin. Both situations feel like bad luck. Usually they are not.
IHL Group's 2024 inventory distortion study puts a number on the damage: $1.2 trillion lost to stockouts, $554 billion tied up in excess inventory. A combined $1.7 trillion, every year. The root cause is not bad suppliers or unpredictable customers. IHL found that 72% of stockouts trace back to manageable planning failures.
This is the problem merchandise planning exists to solve.
What Is Merchandise Planning?
Merchandise planning is the process of determining what products to stock, in what quantities, at what prices, and in which locations for a defined selling period. It connects the commercial strategy of a retail business to the physical reality of inventory, buying budgets, and customer demand.
A merchandise plan translates financial targets like revenue, margin, and sell-through rate into specific product decisions. It answers three questions: What will customers want? How much should we have? How do we manage the stock we have?
Merchandise planning spans the full product lifecycle, from pre-season buying to in-season replenishment to end-of-season markdowns. It sits at the intersection of finance, buying, and supply chain. When it breaks down, the consequences show up everywhere.
Pre-season, teams focus on creating the plan. They leverage historical sales, market research analysis, macroeconomic trends (inflation, etc.), and other factors to set sales and margin targets, inventory spend, and other relevant indicators for the retailers.
Because they will serve different purposes, multiple plans are established. Traditional MFP consists of the following plans:
- Strategic Plan (or Finance Plan)
The annual operating plan and strategic plan are created for the entire year. It provides a high-level view of the sales and margin targets for each Business Unit, by Channel and Market, for an entire Season.
- Top-Down Plan
The top-down plan dissects the Strategic Plan to a lower level of granularity for each dimension. It usually goes down to the Division or Department level and covers the entire year at the season or even month level. The metrics calculated are also more detailed (sales and margin, inventory, and receipts).
- Bottom-Up Plan
Planners and category or product managers also leverage a bottom-up plan. The granularity is the lowest level of the product hierarchy, above the SKU itself. From a horizon perspective, it details the information at the weekly level and includes metrics such as markdowns, weeks of supplies, and other indicators such as inventory productivity.
- Store Plan
The retail store forecasting and store plan is slightly decorrelated from the bottom-up plan and the top-down. Indeed, it is usually reconciled against the strategic plan directly.
In-season, the teams leverage the plans to understand the business performance by measuring the actual results against the individual plan, and make decisions or adjustments as necessary. As the season starts, the pre-season plans become the in-season plan, usually referred to as open-to-buy (OTB) or Weekly Sales, Stock, and Intake report (WSSI).
The OTB ingests the actual sales data from the different channels, the latest forecast, shipment and receipt details. The data is compared against the original plan and the current forecast, and the relevant business indicators are re-calculated, providing information on the remaining inventory budget or the delta to achieve the sales target. It is also used to understand product or stores performance.
How the Merchandise Planning Process Works
Most retailers organize merchandise planning around a seasonal or annual cycle with three distinct phases.
Pre-season planning is where the financial and product architecture gets built. Planners review prior-season performance, analyze trends, and set targets for sales, margin, inventory investment, and open-to-buy (OTB), the budget available for new purchases. Assortment choices are finalized here: which categories, which products, which price points. The pre-season plan is the anchor for every buying decision that follows.
In-season management is where reality meets the plan. Sales come in, patterns emerge, and the plan must respond. Planners track weekly performance against targets using a tool called the WSSI (Weekly Sales, Stock, and Intake, also known as OTB in season). If a category is running ahead of plan, they chase it with additional intake. If it is running behind, they act on markdowns or promotional support before surplus inventory becomes a crisis. In-season agility is where merchandise planning separates good retailers from great ones.Post-season review closes the loop. What sold? What did not? Where did margin leak? Which channels or locations over- or under-performed? The answers feed directly into the next pre-season plan. Without a rigorous post-season review, planning mistakes repeat.
The Core Tools: MFP, OTB, and WSSI
Three tools form the backbone of merchandise planning.
Merchandise Financial Planning (MFP) sets the financial framework for the season. It translates revenue and margin targets into category-level budgets, defining how much inventory investment each part of the range should receive. MFP is the financial guardrail against which all buying decisions are measured.
Open-to-Buy (OTB) is the live buying budget. It tracks what has been committed, what has been received, and how much remains available to spend. OTB keeps purchasing aligned with the financial plan and prevents over-buying, one of the most common sources of margin erosion in retail.
WSSI (Weekly Sales, Stock, and Intake) is the in-season control tool. As described by First Friday, it connects past performance, current stock position, and future intake commitments in a single view. It gives merchandisers and buyers a real-time picture of whether the season is on track, with enough lead time to act when it is not.
These three tools work together. MFP sets the season's financial architecture. OTB keeps buying within budget. WSSI monitors execution week by week.
Why Merchandise Planning Matters
The financial stakes are straightforward. Stockouts cost sales. Overstocks cost margin. Both damage customer loyalty.
According to NRF's 2025 inventory report, 57% of retailers say low stock is a moderate-to-severe problem, even as the risk of overstocking on slower-moving lines grows simultaneously. The two pressures exist at the same time, and managing them requires precision.
Sell-through rate illustrates the gap between good and poor planning. The industry average sits between 60% and 70%, according to retail analytics benchmarks. Zara, widely cited as a merchandise planning benchmark, consistently achieves sell-through rates above 85%. That 15-to-25-point gap translates directly to margin: less inventory sold at full price means more sold at a discount, or written off entirely.
Returns compound the problem. NRF estimates that US retailers faced $890 billion in merchandise returns in 2025, roughly 17% of annual sales. Effective merchandise planning reduces that volume by building accuracy into buying decisions before inventory is ever committed.
The Biggest Challenges in Merchandise Planning
Demand volatility. Consumer behavior has become harder to predict. Trends move faster, channels multiply, and seasonal patterns that held for decades have started to shift. A plan built on last year's data can be wrong before the season even starts.
Data fragmentation. Most retailers operate across multiple channels: stores, e-commerce, wholesale, marketplace. Inventory data, sales data, and customer data often live in separate systems that do not communicate in real time. Planners end up working from incomplete pictures, which drives both overbuying and missed restocking opportunities.
Speed of decision-making. In-season corrections require fast action. Recognizing that a category is underperforming three weeks into the season is only useful if the business can respond: shifting promotional spend, pulling forward markdowns, or accelerating intake on stronger-performing lines. Traditional planning tools, built around weekly or monthly reporting cycles, are too slow for the pace at which retail now moves.
Cross-functional misalignment. Merchandise planning spans buying, finance, marketing, and supply chain. When those teams are not working from a single shared plan, decisions conflict. Finance approves a budget, buying overcommits, marketing runs a promotion no one coordinated, and supply chain cannot deliver on time. The plan that looked coherent in August falls apart by October.
How Technology Is Transforming Merchandise Planning
Research from Invent.ai found that 100% of retailers surveyed are planning to investigate or invest in AI-enabled merchandise planning solutions over the next 12 months. This reflects broad recognition that traditional tools, including spreadsheets, legacy MFP systems, and disconnected reporting, are no longer adequate.
Modern merchandise planning platforms use machine learning to improve demand forecasting accuracy, run scenario analysis on buying decisions, and automate in-season reorder decisions. Predictive analytics tools can reduce stockout rates by up to 25%, replacing the reactive firefighting of traditional planning with a more proactive model.
The shift is not just about better software. It requires integrating data from across the business, including sales, inventory, supply chain, and customer behavior, into a single planning environment. When planners can see the full picture in real time, they make faster, better decisions. When they cannot, they plan blind.
Merchandise Planning with o9 Solutions
o9's Digital Brain platform connects merchandise financial planning, assortment planning, and in-season management in a single integrated environment. Instead of managing MFP targets in one system, OTB in another, and WSSI in a spreadsheet, retailers can run the entire planning cycle from a unified data model.
The platform's scenario planning capabilities let merchandising teams test buying decisions before committing. What happens to margin if a key category underperforms by 10%? How does a promotional shift affect end-of-season stock position? These questions get answered in the plan, not after the fact.
For retailers managing merchandise planning across multiple channels and geographies, o9 provides the cross-functional visibility that makes the difference between a plan that holds and one that unravels under pressure.
Future-proof your Merchandise Financial Planning
Rethinking Assortment Planning in Apparel & Footwear: From Static Lineups to Adaptive, AI-Driven Decisions
About the authors
Ahana Das Sharma
Senior Product Marketing Manager
Ahana Das Sharma is a Senior Product Manager and Marketer for Retail Merchandise Planning at o9 Solutions, with over a decade of experience in B2B SaaS for retail. With a career spanning fashion merchandising, buying, and supply chain SaaS, she brings a unique blend of design thinking and retail expertise to her work. Ahana holds a Master’s degree from Domus Academy, Milan, and is based in Bangalore and enjoys pottery, spending time with her daughter, walking her dog, and practicing yoga in her free time.
