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Highlights
In retail, Merchandise Planning is a critical function that directly impacts profitability, inventory health, and customer satisfaction. For professionals involved in Planning, Buying, and Inventory Management, the stakes are high. Every decision — from product selection and purchase timing to pricing adjustments — must be made with accuracy and in a timely manner.
Given the complexity of today’s retail environment, traditional tools and instinct-based decisions are not enough. To succeed, Merchandise Planning must be built on a foundation of accurate, intelligent demand forecasting.
This article outlines four key Merchandise Planning areas where forecasting has the greatest impact:
- Purchasing
- Assortment Planning
- Lifecycle Forecasting
- New Items & Special Buys
The Role of Demand Forecasting in Merchandise Planning
Merchandise Planning is the structured process of determining what products to carry, how much to buy, where to place them, and when they should be available — based on a combination of financial targets, historical performance, and projected customer demand.
At its core, Merchandise Planning aligns strategic goals with real-world execution. It empowers retail organizations to:
- Maximize sales and margin opportunities
- Minimize excess inventory and markdown risk
In other words, Merchandise Planning is a system of decision-making that impacts assortment, purchasing, and budgeting.
1. How Demand Forecasting Enhances the Purchasing Process
The retail Purchasing process is where strategic merchandise plans are put into action. It encompasses the full cycle from open-to-buy (OTB) budgeting to supplier negotiations, purchase order execution, and product delivery. Every decision at this stage directly impacts margins, inventory efficiency, and revenue opportunities.
Accurate demand forecasting is essential to the success of this process. Without a clear understanding of future demand, retailers risk misallocating budgets, overcommitting to underperforming categories, and reacting too late to real-time demand trends. The result is often excess inventory in some areas and missed sales opportunities in others.
Key Demand Forecasting Benefits for the Purchasing Process:
- With more accurate demand projections, retailers can optimize purchase quantities, reducing the risk of lost sales or excess inventory.
- Accurate forecasts also empower stronger supplier negotiations. With a clear, data-backed view of expected demand, buyers can make smarter product selections, engage in more effective pricing discussions, and commit to orders with greater confidence.
- Additionally, forecasting helps improve open-to-buy efficiency by directing investments toward high-performing categories and limiting exposure to low-return segments.
A demand-driven purchasing process creates a stronger link between forecasting, financial planning, and operational execution — turning purchasing into a proactive function rather than a reactive one.
2. How Demand Forecasting Strengthens Assortment Planning
Assortment Planning is a critical component of merchandise strategy, serving as the bridge between customer demand and in-store availability. It is the process of determining the optimal mix of products — core, seasonal, promotion-driven, or location-specific — and defining their distribution across colors and sizes.
For retail organizations operating at scale, assortment planning must go beyond intuition or legacy playbooks. It requires data-backed decision-making that reflects evolving customer preferences, localized behaviors, and sales trends.
When powered by intelligent AI-based demand forecasting, assortment planning shifts from reactive to proactive — enabling teams to make confident, precise decisions around depth, breadth, and timing.
Demand Forecasting Benefits for Assortment Optimization:
- Analyzing demand patterns at a granular level allows teams to tailor assortments to the unique preferences of specific customer segments and locations, ensuring a more targeted and effective product mix.
- Demand forecasting identifies which categories, styles, or SKUs are most likely to perform well, while also flagging those that may dilute profitability or occupy valuable space without delivering strong returns.
- When it comes to emerging products, demand forecasting provides the speed and confidence needed to make timely decisions — allowing teams to respond to trends without sacrificing accuracy.
- By equipping planners and buyers with the insights required to build lean, high-performing assortments, forecasting reduces the reliance on overbuying as a safeguard against uncertainty.
3. How Lifecycle Forecasting Improves End-to-End Planning
In retail, not every product is designed for long-term replenishment. Many items —especially seasonal — have finite lifecycles. Effective Seasonal Forecasting allows retail teams to align planning and inventory management with the natural arc of a product’s performance, from introduction through growth, peak, and eventual decline.
Without this level of visibility, teams often face two familiar challenges: carrying inventory past its peak demand or missing reorder windows due to delayed response to early success. Lifecycle forecasting minimizes both risks by enabling precise, timely decisions based on evolving performance patterns.
Demand Forecasting Benefits Across the Product Lifecycle:
- Enables end-to-end planning by forecasting demand across each stage of a product’s lifecycle, ensuring decisions are aligned from introduction through exit.
- Improves pricing and markdown strategy by projecting when a product will reach saturation or exit the peak phase, enabling controlled margin recovery rather than reactive discounting.
- Guides store-level allocation so inventory can be optimized with minimal impact to overall performance.
4. How Demand Forecasting Reduces Risk in New Item and Special Buy Launches
Introducing New Items or Special Buys is an essential growth lever for retailers, whether launching seasonal collections, testing trend-driven items, expanding into new categories, or supporting private label growth. However, without historical sales data to rely on, forecasting demand for new or unique items presents a distinct challenge.
These launches often carry high risk. Overestimating demand can lead to markdowns and margin erosion, while underestimating can result in missed revenue and frustrated customers. Traditional planning methods offer limited support in this area — but advanced demand forecasting solutions significantly improve visibility and control.
Demand Forecasting Advantages for New Items and Special Buys:
- Establishes reliable starting forecasts by leveraging comparable product attributes and category dynamics — even in the absence of historical data.
- Guides confident investment decisions with early-stage demand projections that reduce guesswork and help avoid over- or under-buying.
- Improves sell-through performance by supporting more accurate placement, better timing, and reduced dependency on markdowns.
Conclusion: A Forecast-First Approach to Merchandise Planning
Merchandise Planning can’t rely on legacy systems, static calendars, and especially instinct alone. Each of the four pillars — Purchasing, Assortment Planning, Seasonal Forecasting, and New Items/Special Buys Forecasting — requires precise insights to remain agile and profitable.
By placing Demand Forecasting at the core of the Merchandise Planning process, retail organizations gain the clarity, confidence, and control needed to make smarter decisions across every stage of the product lifecycle. The result is a more resilient merchandise strategy — one that maximizes sales, minimizes waste, and aligns inventory investment with actual demand.