The Merchandise Budget
The merchandise budget, or dollar merchandising plan, states the sales goals in dollars of a department, and the inventory requirements to meet those goals.
Management budgets are figured in dollars, because dollars are the common factor that makes it possible to relate each department's plans to those of all others in the store, and to those of the store as a whole.
By contrast, the buyers plan in units. They estimate what they expect to sell and what they need by way of inventory in each classification, size, and price line. Then, by simple multiplication (units, times, prices) they arrive at dollar figures.
The typical budget represents the combined thinking of many people. Management sets the storewide objectives. The controller provides information on last year's performance and on the availability of funds for this year's effort. Buyers, with the assistance of their merchandise managers, spell out the plans for their individual departments. Merchandise managers balance the needs and opportunities of each department against those of the others under their supervision, and against the objectives of management.
Even so, there are occasions when actual figures, as the season progresses, differ markedly from those in the plan, or when other unforeseen developments make adjustments of the plan necessary. Plans may not be inflexible but they are essential. Without them, buyers would have no guide, and management would have no way to estimate its income and financial needs from month to month.
Planning Sales
The typical plan covers a six-month period. The usual span is from February 1 to July 31 and from August 1 to January 31. Work on the plan is started well in advance, so that departmental budgets can be approved and ready 60 days before the period to which they apply.
First step in planning is to estimate sales. Management considers:
- past performance, and the trend of the department's sales
- factors within the store that may aid or hinder sales -changes in selling area, additions of branches, plans for more, or less, promotion than last year, for instance
- outside factors that may influence sales - changes in fashion that work for or against the department's prospects, changes in economic or competitive conditions, etc.
The Buyer's Planned Sales
In planning how to reach the sales goals that are set for your department, you use the same planning factors that management uses. Instead of thinking of your department as a whole, however, you apply each planning factor to each classification, price line, or other sub division of your department separately.
Past performance should be examined critically before you use it as a yardstick against which to measure future sales prospects.
Make allowance for any abnormal factors that may have affected last year's figures - unseasonable weather that cut into your sales, a fad that gave your department a sudden rush of business, and so on.
Consider any internal factors that have changed since last year and that may affect sales prospects for any of your classifications.
For example, suppose you are buying intimate apparel and your department has been moved nearer to foundations. The change of location should yield sales benefits to daywear, because of the better opportunity to coordinate with foundations. Loungewear and nightwear may be unaffected. You would then expect larger gains to come from daywear than from the other two sections of your department.
Outside factors now enter your assessment of sales prospects.
Fashion is one of the strongest of these. Pin your hopes on classifications or other segments of the department that are favored by in coming fashions or looks. Recognize that gains will be difficult in fashions that are in the declining stage.
For example, if you are buying neckwear and you know that long mufflers and scarves are incoming, you will plan big gains in sales for them and set more modest goals for squares.
Other factors to consider, as they relate to all or part of the merchandise in your department, include;
- increases or decreases in the number of potential customers in your area
- increases or decreases in local income and willingness to spend
- greater or weaker competition in the area
- market conditions, such as scarcity or overabundance of merchandise, price rises or cuts, etc.
- changes in the way of life of the community -new sports or hobby activities, new patterns of social life, etc., that may affect fashion response.
The budget is concerned not only with total sales for the six-month period it covers, but with each of the six months individually.
In setting monthly sales goals, management considers factors that operate to cause each month to contribute a greater or lesser share of the year s volume than others. Such factors might be:
- seasonal weather patterns, which encourage demand for some goods and inhibit it for others
- seasonal demand patterns, such as the peaks that occur at Back-to-School, Easter, and Christmas
- planned promotions-departmental, divisional, storewide, or community-that increase demand at various periods.
As a buyer, you plan sales for each month in terms of each classification, price line, or other breakdown of your department, searching out factors that may enhance or diminish its individual sales opportunities.
The classic example, of course, is Easter. If it came in March last year, but comes this year in April, most of your classifications will have a hard time matching last year's figures for March, but will sail ahead easily in April.
Another example; If last year was one of optimism and free spending, but this year is one of gloom and budget-watching, you may have to cut back your expectations in higher price lines, and rely more heavily upon moderate to low price lines to pull you through.
Still another: October, normally a good month for selling winter coats in your store, may have been unseasonably warm and rainy, with a newspaper strike making matters worse in the second half of that month. If the outlook is good for this Fall, you may plan for a brisker early business in Winter coats this year.
One more: Last October, decorated sweaters were still popular, after several years of being in fashion. This year, they are yielding to cable, ribbed, or plain knits. When you plan for this October, you will expect very limited sales in the decorated category, and substantial increases in those without beads, spangles, or embroidery.
