Is Retail Financial Planning different from Merchandise Planning?

  • Financial vs Merchandise Financial Planning
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At daVinci Retail, we are often asked the question “is there” or “what is” the difference between Retail financial planning (typically performed by the finance department) and merchandise planning (typically performed by merchandise planners normally OTB plan)? My reply (based on a comment from a wizened footwear veteran during my time at Walmart) “is that they are as different as chalk and cheese.”

Retail Financial planning tools are used to track assets and liabilities, sales and profitability at the company, down to the business unit – sometimes even individual retail locations, like store level. Corporate expenses and costs (wages, rent, admin overhead, etc.) are effectively monitored against high-level financial plans. Often such data is even visible at certain levels of the product hierarchy, like division or department, even category; metrics such as inventory, markdowns, and gross margin can be included. It is this access to ‘what looks like’ merchandise planning data that often leads to confusion…

Regardless of the product and/or location data details maintained within your financial planning solution, two key aspects are different, which reinforces the need for unique solutions. One is very straightforward, while the other is more contextual. The straightforward aspect is time; the contextual aspect is business strategy.


All companies maintain some sort of calendar and report their monthly financial results on a consistent pattern from year to year. Typically companies call this time sequences their financial ‘periods’ (period 1 to period 12 constitute the financial year); most leverage the monthly Julian calendar (Jan 1 to Jan 31, Feb 1 to 28 (29), Mar 1 to 31, etc.), which maintains a more than sufficient level of detail. The first month of the financial year typically aligns to the original month the company started, although often companies annually ‘start’ their financial year on Jan 1.

Most apparel / fashion retailers follow the National Retail Federation (“NRF”) standards of a fiscal calendar which defines the year as 52 fiscal ‘weeks’ (every 5 to 7 years a 53rd week is incorporated), with a consistent start day for all weeks (usually starting on Sunday or Monday). These weeks are formed into fiscal months, with each quarter of the year (13 weeks) represented in a pattern of 4-5-4 (4 weeks in the first fiscal month, 5 weeks in the second fiscal month, and 4 weeks in the third fiscal month of each quarter). Typically the fiscal calendar (week 01) annually starts at the beginning of February (NRF historically defined this timeline as the ‘start of regular price selling,’ post-holiday / New Year clearance selling periods).

Utility for Merchandising & Planning teams

While the fiscal calendar may seem complex, the concept and timing are critical within merchandising and planning to ensure the buying teams can effectively analyze such factors as ‘in-store start dates’ for new visual setups and promotions, along with promotional effectiveness. Brick-and-mortar location product shifts (movement of new fresh product to ‘front of store’ selling locations, versus moving aged / promotional inventory further into the store, or onto clearance racks) are aligned within these fiscal weeks, as often are promotional price changes, and events like clearance pricing (even return to vendor processing).

See also: What is Merchandise Planning?

Attempting to shoehorn merchant and planning teams into the financial calendar will greatly hamper their ability to efficiently and effectively perform and monitor both their tasks and results. Besides, it will add confusion within these teams, where fiscal week performance (and leveraging the associated historical data to compare – ‘comp’ – to prior year results) is critical.

Incompatibility to Financial Reporting Needs

Conversely, the detail of the NRF fiscal calendar (with the varying start date of each fiscal year along with the inherent flexibility of the fiscal weeks compared to the Julian calendar months) will greatly challenge the finance teams to easily report, in particular for publicly traded companies, their specific period and annual results.

It should be noted that leveraging the merchandise planning ‘actual results’ data to load key metrics (like sales, markdowns, etc.) into a financial planning solution is most definitely possible, although other metrics like opening and closing inventory levels or gross margin retail values should not be considered to be as accurate (given their fiscal week component differences). At daVinci Retail, we typically suggest the data is better extracted from the company’s data warehouse.

Retail Planning & Business Strategy Planning

There is no question that for most companies, when the upcoming year’s financial targets (in particular those relating to sales) are first being defined, direction from the finance team (typically the CFO) is critical. Whether the guidance encompasses comp-store percentage increases, forecasts for new store growth, or agreement to advance into new business areas within existing locations, approval from the CFO is paramount. These targets are the guideposts for which the merchandise planning team will use to incorporate into their fiscal plans.

This high level, overall guidance, is the only level at which the finance team can provide input. In reality, the net results of the CFO’s guidance (comp-store increases, new stores, new businesses) can only be accurately calculated within the merchandise planning teams. This is because of the extensive set of metrics, differing scenarios, and prior circumstances merchandise planning teams have which finance will have little or no knowledge (not to mention the lack of access to the data) to determine how their plans will ultimately ‘shake out.’

Learn more: Fundamentals of Merchandise Planning

Let’s take inventory, for example, finance might be able to see the retail, cost, and unit values that currently exist, what they lack is a tangible knowledge of the age/composition of that product.


They may see the upcoming season is starting with 100,000 women’s crew neck sweaters, currently valued at $5.0M. They may be able to look at last year’s results and see that with the same season starting values, $1.8M worth of sales were generated within the first month.

They would certainly feel confident the same sales could be generated this year – maybe even more, given the inventory opportunity. What they lack is the knowledge that this year’s $5.0m worth of inventory is carried over from the previous year-end, where last year, the values represented all-new fresh season-opening trendy styles, and that this year – the only sales going to be generated will be extreme markdowns to liquidate the carryover.

Finance can see the prior year’s sales in knit dresses were exceptional – net sales increased from the prior year (although markdowns also did), and that the receipt IMU % was much higher than the previous year. To them, this looks like ‘a given’ to increase this area of business – maybe try to be a bit more cautious with the markdowns, and generate even more margin in the upcoming year.

In truth, knit dresses are in a constant cycle with woven dresses – trends can change from year to year. The only reason the sales increased on this ‘tail end year’ of the knit dress trend was a wise merchant was able to negotiate much lower than expected costs to help clear out a market vendor ‘stuck’ with excess stock. The planner and merchant then leveraged their IMU to drive higher sales with more aggressive promotional prices, to generate a better than initially planned profit. In reality, they plan to drastically decrease knit dresses sales and increase sales in woven dresses for the upcoming year.

Functional Knowledge

The detail behind these business strategies is maintained within the merchandise plan. Merchandise planning teams have to examine factors from planning regular prices versus promotional versus markdown sales, based on the existing inventory levels of each commodity, taking into consideration the planned markdowns to clear aged inventory. These are key components within the merchandise planning application. Yet all the finance team will see in their application is one ‘consolidated’ sales number.

Understanding how planned IMU targets were achieved (or missed) between individual countries, based on the forecast currency exchange values and associated retail selling price by country, is a key component within a merchandise planning tool. The detail of ‘how’ the merchant and planning teams will achieve the overall financial goals is maintained within an application that is much more nuanced (on a weekly basis) that can be maintained within the financial planning metrics.

Cross-Functional Synergy

In fact, based on mid-season guidance from finance, the merchandise plan may need to be radically revised from the original targets to newly created revised plans or Open-to-buy plans. These ‘versions’ of the plans are required to be maintained for reference, not only to understand the go-forward direction but also to understand ‘how’ the initial merchandise plans were trending at the time of new direction.

If your company leverages any one of these strategies: multiple channels of selling (e-com, bricks and mortar, pop-up, etc.), multiple currencies (sales from within more than one home country), sales in either seasonal or regular and promotional price inventory, simply operating your business with a financial planning tool means you are not leveraging all the possibilities to maximize corporate profitability.

You are truly leaving money on the table!

William Booth
William BoothBusiness Solution Architect at daVinci Retail
Bill has over 30 years of experience in merchandise and assortment planning, allocation, supply chain and system implementation experience in retail. Prior to joining daVinci Retail, Bill served in various senior executive roles at retailers including Gloria Jeans and Northern Group. His extensive buying and planning experience extends to Kinney Shoes, Walmart, and Footlocker.

Related Product

daVinci Merchandise Financial Planning

daVinci Retail’s merchandise planning solution enables retailers to build strategic financial plans which guide buy decision-making to deliver sales and margin goals.

Learn more about the product: daVinci Merchandise Financial Planning
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