Merchandise mgmt
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Transcript of Merchandise mgmt
Merchandise Management 11.1
Key Issues
Stores as products Merchandise planning decisions Developing a successful merchandise plan What makes shoppers tick Assortment, depth issues Mechanics of merchandise management Inventory-level planning
Merchandise Management 11.2
Are Stores “Products”?
Stores as products new product development product positioning target marketing product life cycle
Note the kinds of products
that characterize ...Upscale department storesDiscounters
Merchandise Management 11.3
Two Aspects toMerchandise Mgmt
Merchandise Selection Decisions
Merchandise Planning Decisions
Merchandise Management 11.4
Objectives ofMerchandise Planning
To meet corporate objectivesTo meet corporate objectives To define management’s responsibilitiesTo define management’s responsibilities To establish timing guidelines for merchandiseTo establish timing guidelines for merchandise To forecast budgetary needs for merchandiseTo forecast budgetary needs for merchandise
Objective of good merchandise planning: improved customer Objective of good merchandise planning: improved customer service, leading to more loyalty and repeat business, which service, leading to more loyalty and repeat business, which eventually leads to more new business and greater profits. The eventually leads to more new business and greater profits. The retailer wants to …retailer wants to …
- get the right product- get the right product
- to the right stores- to the right stores
- at the right time- at the right time
- to satisfy customers- to satisfy customers
Merchandise Management 11.5
Merchandising Organization
Assistant Buyer Associate Buyer Buyer Divisional Merchandising Manager
(DMM) General Merchandising Manager
(GMM)
Merchandise Management 11.6
Merchandising Organization
Girls Levi jeans, sz 5, stone washed blue,
straight leg
SKUSKU
Chairman
Sr. vice pres merch mgr
Women’s ready-to-wear
Sr. vice pres merch mgr
Men’s, child’s, intimate apparel
Sr. vice pres merch mgr
Cosmet, shoes, jewelry, access.
Sr. vice pres merch mgr
Soft homefurn., kitchen
Div. merch manager
Men’s suits, slacks, dress
shirts
Div. merch manager
Men’s sports-wear, Polo
Div. merch manager
Young men’s, boys’ apparel
Div. merch manager
Children’s apparel
Div. merch manager
Intimate apparel
Buyer
Preteen
accessories
Buyer
Girls’
Size 7-14
Buyer
Girls’
Size 4-6
Buyer
Toddlers’
Buyer
Infants’
Buyer
Little boys’
Sportswear Dresses Swimwear Outerwear
Merchandise GroupMerchandise Group
DepartmentDepartment
ClassificationClassification
CategoryCategory
V.P.Planning
Div Dir.Planning
Mgr.Planning
Planning Planning GroupGroup
Merchandise Management 11.7
Developing a Successful Mdse PlanWhat Makes Retail Shoppers Tick
MerchandiseMerchandisePlanPlan
Innovativeness
Brands
Timing
Forecasts
Allocation
Assortments
Merchandise Management 11.8
Staple MerchandiseAssortment Merchandise
Product Lines etc.Model Stock Plan
Fashion MerchandiseSeasonal MerchandiseFad Merchandise
What Makes Shoppers TickForecasts
Fashion Trends
Retailer’s Image
Competition
Customer Segments
Investment Costs
Profitability
Risk
Innovativeness
VerticalA “designer” trend which will change as it filters down to other mkts
HorizontalA trend accepted by a wide no. of people on its introduction
Fashion Trends
Assortment Assortment Types
Manufacturer (National)
Private Label (Dealer)
Brands
Product Quality
Width
Depth
Considerations:Sales & ProfitSpace RequirementsInventory TurnoverCannibalization
Width
Dep
th
Wide Narrow
Dee
pS
hallo
w
Merchandise Management 11.9
Assortment Width & Depth
WidthD
epth
Wide NarrowD
eep
Sha
llow
Aimed at Convenience CustomersLeast CostlyHigh Turnover of ItemsBUT
Broad MarketHigh Customer TrafficEmphasis on Conven. ShoppersLess Costly Than Wide and DeepOne-Stop ShoppingBUT
Special ImageGood Selection in Category(ies)Specialized PersonnelCustomer LoyaltyNo Disappointed CustomersLower Cost than Wide and DeepBUT
Broad MarketHigh Level of Customer TrafficCustomer LoyaltyOne-Stop ShoppingNo Disappointed CustomersBUT
Merchandise Management 11.10
General Merchandising Forecasting Innovativeness Assortment Allocation Category Management
Software Availablefor All of These
Merchandise Management 11.11
Implementing Mdse Plans
1. GatheringInformation
about customerdemand
2. Selecting &Interacting with
Vendors3. Evaluation ofMdse & Vendor
4. Negotiationof Price& Terms
5. ConcludingPurchases
6. Receiving &Stocking
Merchandise
8. Reevaluationof Mdse &
Vendor7. Reordering
Establish a Formal or Informal Buying Organization
Make M’dise Plans: What to Stock, How Much, When, Where in Store
Merchandise Management 11.12
Basic Mdse Mgmt Issues
Knowing how much
to buy in dollars
The merchandisebudget in dollars
Open to buy
The assortmentplan
Unit control systems
Knowing what to buy
in units and dollars
Discounts andterms of sale
Retailing/Vendorrelationships
Knowing how to make the buy
Merchandise Management 11.13
Mechanics of Merchandise Management:“Dollars” View
Stock Balance
Assortment PlanningAssortment Planning
VarietyVariety
$ Planning$ PlanningTurnoverTurnover
PurchasePurchasePlanPlan
ReductionReductionPlanPlan
StockStockPlanPlan
SalesSalesPlanPlan
Initial MarkupInitial MarkupPlanPlan RetailRetail
$ Control$ Control
CostCost
OTBOTB• DollarsDollars• UnitsUnits
22
33
44
5566
77
88 99 1010 1111
12121313
1414
1515
Width. Which products, & the number ofmerchandise categories in a store or department.This is the Buyer’s decision.
Depth or support. The numberof SKUs within a category, & theinventory depth. Most often theinvt’y control analyst’s decision
Merchandise Management 11.14
Mechanics of Merchandise Management:“Units” View
Stock Balance
Assortment Planning
Variety
$ PlanningTurnover
PurchasePlan
ReductionPlan
StockPlan
SalesPlan
Initial MarkupPlan Retail
$ Control
Cost
OTB
2
3
4
56
7
8 9 10 11
1213
14
15
Width. Which products, & the number ofmerchandise categories in a store or department.This is the Buyer’s decision.
Depth or support. The numberof SKUs within a category, & theinventory depth. Most often theinvt’y control analyst’s decision
• Dollars• Units
Merchandise Management 11.15
Typical Sales Variations of Levi’s
Fall sales --- typically 40 percent of annual salesSpring/Summer --- typically 15 percent of annual sales
Winter sales --- typically 30 percent of annual sales.
Merchandise Management 11.16
Distributing Seasonal Sales Plans
% of BusinessSeason’s PlannedMonth in 6 mos. Sales Forecast Sales
February 10% $52,000 $5,200March 10% 5,200April 25% 13,000May 15% 7,800June 30% 15,600July 10% 5,200
TOTAL 100% $52,000 $52,000
Merchandise Management 11.17
Reduction Planning
Planned Planned Amount ofMonth Sales Reduction* Reduction
February $5,200 30% $1,248March 5,200 -- --April 13,000 -- --May 7,800 -- --June 15,600 30% 1,248July 5,200 40% 1,664
TOTAL $52,000 100% $4,160
* Percent of season total
Merchandise Management 11.18
Recall the Strategic Profit Model
Return onInvestment
= x
Net ProfitNet Worth
AssetTurnover
Net SalesTotal Assets
LeverageRatio
Total AssetsNet Worth
Net ProfitMargin
Net ProfitNet Sales
x
The FinancialObjective
The Financial Program(The SPM)
Rate of Return on Assets
Merchandise Management 11.19
ROA vs GMROI
xAsset
Turnover
Net Sales .Avg. Total Assets
Net ProfitMargin
Net Profit DollarsNet Sales
Rate of Return on Assets
xInventoryTurnover
Gross ProfitMargin
Net Sales . Avg. Inventory
Gross Profit DollarsNet Sales
Gross Margin Returnon Inventory Investment
The ROA measure is used by corporate management It can control G,S,&A &
therefore net profit It can control total
investment & therefore total assets
Merchandise Management 11.20
So … GMROI:
GMROI = Gross Margin $ (@ Retail or Cost) Average Invty $ (@ Retail or Cost)
xInventoryTurnover
Gross ProfitMargin
Net Sales . Avg. Inventory
Gross Margin DollarsNet Sales
Gross Margin Returnon Inventory Investment
xGMROI = Gross MarginAvg Inventory
=
Gross MarginAvg Inventory
=
Merchandise Management 11.21
GMROI Examples
GMROI = Gross Marg $ X Net Sales =
Gross Margin .
Net Sales Average inventory Average Inventory
Milk GMROI = $2,000 X $150,000 =
$ 2,000
$150,000 1,000 1,000
= 1.33% X 150 = 200%
Caviar GMROI = $150,000 X $300,000 =
$300,000
$300,000 75,000 150,000
= 50% X 4 = 200%
Milk Caviar
Gross Margin $ 2,000 $150,000
Sales 150,000 300,000
Average Inventory 1,000 75,000
InventoryTurnover
Gross ProfitMargin
Gross MarginAvg Inventory
Merchandise Management 11.22
Discounts & Terms of Sale
Terms of Sale:Terms of Sale: Conditions under which retailers must make payment Conditions under which retailers must make payment to vendors.to vendors.
Trade discounts:Trade discounts: A price reduction granted to retailers or wholesalers A price reduction granted to retailers or wholesalers for performing services.for performing services.
Quantity discounts:Quantity discounts: Discounts from the invoice offered to retailers Discounts from the invoice offered to retailers who purchase a specific quantity. who purchase a specific quantity. Cumulative quantity discount: The values of all orders in a period are Cumulative quantity discount: The values of all orders in a period are added together for the calculation of quantity discounts.added together for the calculation of quantity discounts.
Invoice: A bill sent by suppliers calling for payment.Invoice: A bill sent by suppliers calling for payment.
Seasonal discounts:Seasonal discounts: Discounts retailers earn by ordering or taking Discounts retailers earn by ordering or taking delivery of merchandise before the normal selling period is done.delivery of merchandise before the normal selling period is done.
Terms of Payment:Terms of Payment: Conditions under which retailers must make Conditions under which retailers must make payment to vendors.payment to vendors.
Cash discounts:Cash discounts: Deductions in price given by suppliers for prompt Deductions in price given by suppliers for prompt payment of invoice.payment of invoice.
Merchandise Management 11.23
Payment Requirements
Shipping terms
F.O.B. (Free on board): Merchandise is placed on board a truck, railroad car or airplane with title to goods passing from seller to buyer at the F.O.B. point.
F.A.S. (Free alongside ship): At a named port the seller quotes a price for the goods including charges for delivery and loading alongside a vessel.
C.I.F. (Cost, insurance, and freight): The seller quotes the price including transportation, insurance, and miscellaneous expenses.
C.O.D. (Cash on delivery): The seller requires that the buyer pay for the goods at time of delivery.
Advanced dating Vendors offer retailers more time in which to pay their bill in order to entice them to purchase their goods.
Extra dating: One type of advanced dating which lengthens the time that retailers have to take advantage of cash discounts.
EOM (End of month) dating: Under EOM dating, the ordinary period does not begin until the end of the month of the date shown on the invoice.
ROG (Receipt of goods)dating: Under ROG dating, the terms of the discount do not begin until the date that goods are received in the store.
Anticipation discount: Discounts given by some vendors as an inventive for early payment in the form of a percentage rate per year.
Merchandise Management 11.24
Inventory Level Planning Methods Basic stock method:
The retailer buys an amount equal to planned sales plus a “basic stock” E.g., BOM invty = planned sales + basic stock
Percentage variation method: Recommended when stock turnover is > 6 times per yr. Actual stock on hand in any month is allowed to vary by only half of the
month’s variation from avg. estimated monthly sales E.g., if we expect a month to have a sales increase of 14% over the avg.
month, invty for that month is increased by only 7% E.g., if avg invty = $100k, sales = $70K/mo. & planned sales = $80K,
then BOM invty = $100K x ½(1 + $80K/$70K) = $107K
Weeks’ supply method: Assumes stock is carried in proportion to sales -- stock on hand equals
several weeks’ sales E.g., BOM invty = avg weekly sales x # weeks
Stock-to-sales ratio method: Assumes the retailer wants to keep a specified ratio of mdse to sales. E.g., a ratio of 3 means that an expected $10K month must be
supported by $30K invty