Merchandise Category Hierarchy: WHY (Business View)

Merchandise Categories classify Products, but in SAP Retail that’s a small part of the story.

Merchandise Category Hierarchy is relevant both for SAP S/4HANA Retail for Merchandise Management and SAP S/4HANA for Fashion and Vertical Business. SAP Retail is used in this document as a shortcut to mean both applications.

As context, let’s first differentiate between the two main product hierarchies that you’ll find in SAP Retail:

Merchandise Category Hierarchy vs Article Hierarchy.

While each serves a purpose, Merchandise Category is mandatory. Article Hierarchy is typically implemented only if required by specific business processes (e.g. assortment and planning).

MCH: What It Is

Distinct objects make up the Merchandise Category Hierarchy.

MCH Levels and MC.

A Merchandise Category Hierarchy is comprised of Merchandise Category Hierarchy (MCH) levels and Merchandise Categories (MC), each of which is assigned to a parent.  Merchandise Categories are the lowest level nodes of the Merchandise Category Hierarchy. In common conversation, the words “Merchandise Category Hierarchy” are often used imprecisely to refer to all of the above.

Merchandise Category Hierarchy levels are different than Merchandise Categories, with different concerns. For example, Merchandise Categories are technically mandatory, but not so for Merchandise Category Hierarchy levels. Merchandise Categories are mandatory because a Retail Material (Article Master) can’t exist without being assigned to a Merchandise Category.

In theory, you may freely define the number of levels of the Merchandise Category Hierarchy for your company.  In practice, seven or less levels are practical, and very large retailers with diverse product lines commonly implement 5 or fewer levels.

What levels and values (nodes) might make up your Merchandise Category Hierarchy?  What values (again, nodes) might make up your list of Merchandise Categories, and why? 

The main purpose of the Merchandise Category Hierarchy is to provide hierarchical reporting in SAP Business Intelligence (BI) and SAP Business Warehouse (BW). It answers the question: How do I want to roll up and drill down through Article Master-relevant data (e.g. procurement, sales)? Naturally, standard BW extractors fetch Merchandise Category Hierarchy and Merchandise Category data for this purpose.

MC: What It Is

The question of Merchandise Category is more consequential, and requires more thought.

In the first place, and to be disregarded at your peril, many SAP Retail business processes assume that Merchandise Category provides a specific business context. From a system perspective, Merchandise Category means something. That should be your perspective too.

Here’s an example branch of a Merchandise Category Hierarchy:

Example branch of MCH and MC.

Merchandise Categories are used to group Articles by their nature. The Merchandise Category answers the question: What is this thing?  Similar “things” belong in the same Merchandise Category, and two or more Merchandise Categories should differentiate between two substantively different “things.”

The need for differentiation prompts another question: How many Articles should be assigned to a single Merchandise Category? There isn’t a technical limit or technical answer for this question. The goal is to maintain the level of granularity that serves your business purposes. A Merchandise Category with one Article may not serve much purpose, but usually neither does a Merchandise Category with thousands of Articles.

If a Merchandise Category accumulates too many Articles, standard functionality exists to reclassify (reassign) Articles from one Merchandise Category to another.  Over time, but infrequently, it’s common to split Merchandise Categories — or otherwise change the structure of the Merchandise Category Hierarchy — and reassign Articles. Master data changes over time to align with the business and business process realities that Merchandise Categories serve.

Global Standards

Even if your company has an existing product hierarchy and classification, implementing SAP Retail is a good time to validate its fit for purpose.

Where to start? I always prefer to either adopt or learn from global standards. If it’s not practical to adopt, at least use an available standard as a reference for creating something better — for specific reasons — for your business case.

GS1 ( are in the business of product categorization and setting global standards, and can serve as a useful reference. The GS1 scheme includes a naming convention wherein a “Brick” is the equivalent of an SAP Merchandise Category.  Here’s a small example:

GS1 example branch of MCH and MC.

What makes an item in Food Thermometers different than an item in Kitchen Scales and different still from an item in Food Volume Measuring Equipment? How are all sufficiently similar to be grouped under Food Measuring Equipment?   The essential difference is “what it is” or “what it does” or “what purpose it serves”.  When we say that “like articles” usually belong in the same MC, we’re thinking about articles that have the same nature, or “what it is”.

Because its assignment in an Merchandise Category describes the nature of an Article, you can see why Merchandise Category Hierarchy and Merchandise Category are considered to be “relatively static.” You might add a new line of business, requiring corresponding additions to the Merchandise Category Hierarchy.  But it’s seldom the case, unless to correct an error, that an item would be reclassified, for example, from Kitchen Scales to Food Volume Measuring Equipment.

MC: What It’s Not

Having defined from a business and system perspective what a Merchandise Category Hierarchy is, let’s consider what a Merchandise Category Hierarchy is not.

Merchandise Category Hierarchy should not incorporate any attributes that express your organization structure. Including levels or Merchandise Categories that represent buying organization, or responsibility, is a common misstep.

Merchandise Category Hierarchy should not incorporate any attributes that express business process or status. For example, designation that an article is new, being discontinued, or being promoted.

All of these are clear (and commonly found) examples that fall outside of the “nature” of the Article. Incorporating such attributes will cause excessive reclassification activity and will likely prompt further abuse of Merchandise Category Hierarchy.

Lastly, Merchandise Categories in SAP Retail are not Material Groups, as found in SAP outside of SAP Retail. This can be a confusing distinction because most SAP Retail screens use the standard terminology of “Material Group” and some SAP Retail screens use the label “Merchandise Category.”

Material Groups in standard SAP are customizing. Merchandise Categories in SAP Retail are maintained purely as master data, using standard transaction codes. There’s no customizing activity.

More than Classification

Beyond reading The Essence of SAP Retail Master Data, which identifies Merchandise Categories as the focal point for creating master data, it’s important to consider business processes.

What are some of the many SAP Retail business processes that expect Merchandise Category to provide specific business context?

  • Reference Articles
    • Assigned to Merchandise Category.
    • Critical for minimizing data creation effort.
  • Assortment and Listing
    • Merchandise Categories are assigned to Site Masters.
    • Merchandise Categories are assigned to General Assortments.
    • Merchandise Categories can be considered in execution of Listing.
  • General
    • Reporting.
    • Standard extractor for BW.
    • Standard content for BW.
    • Selection Criteria.
  • Pricing
    • Retail Pricing Conditions maintained by Merchandise Category.
    • Planned markup.
  • Promotion
    • Selection of Articles by Merchandise Category.
  • Purchasing
    • Purchase orders created with no Article number (text-only PO) use Merchandise Categories for G/L account determination.
    • G/L account determination for non-valuated articles.

In summary, there’s much more than classification and reporting to consider when crafting your Merchandise Category Hierarchy. Like all master data, it exists to serve business processes, which you’d do well to consider broadly.