Week 3 Finish Chapter 4: Merchandise Planning, Buying, Control, and Profitability Chapter 5:...

Week 3

Finish Chapter 4: Merchandise Planning, Buying, Control, and Profitability

Chapter 5: Sourcing

Midterm Review

FM10211 – Retail Operations

FM10211 - Retail Operations 2

Planning• Provides essential information

• Leads to meeting Mazur’s 5 “rights”– Right merchandise– Right time– Right place– Right quantities– Right price


Forecasting

• Predicting what customers want

• Quantities

• Uses as much input as possible– External environmental factors– Internal environmental factors


External environmental factors

• Economy

• Society and culture

• Technology

• Political and legal issues

• Analysis available from a variety of sources

• Trend books, etc.

http://www.promostyl.com/anglais/trendoffice.php


Internal environmental factors

• Store records– Sales– Profits

• Store culture

• Vendors


Merchandise Budget

• Dollar planning– How much money will be spent

• Unit planning– How many of each type of item will be purchased and kept in

inventory

– Includes the mix

– Considers assortment and qualitative aspects

• Both usually include dollar amounts and % of net sales


Inventory Flow

• Start: beginning of month (BOM)

• Stock comes in

• Stock is sold

• Shrinkage

• Returns

• End: end of month (EOM)


Step 1: Plan Retail Sales

• Estimate sales

• Usually use sales history, if available– Increase or decrease, depending on other

factors

• If not available, more research necessary

• Plan sell-through– Percentage of available merchandise that is sold


Step 2: Plan Inventory/Stock

• Based on Sales Plan

• Must have proper stock to meet sales goals

• Calculate Beginning of the Month (BOM) and End of the Month (EOM) inventory levels


Three Stock Planning Methods

• Basic stock– Minimum level of stock at all times

• Stock-to-sales ratio (SSR)– Multiply planned monthly sales by ratio to get BOM

– Ratio comes from Trade Orgs or sales history

• Week’s supply– Stock level set to sales for determined number of weeks

– Directly related to turnover rate


Inventory Turnover

• Also called stock turn

• The number of times stock is sold and replaced within a period of time

• High turns means shorter time in inventory

• Short time in inventory means less inventory costs

• (This is a slightly simplified version)


Inventory Turnover

• Ex. 1: Buy 12 apples, sell one per month– Problems

• Had to invest in 12 apples at once• Money tied up for 12 months• Apples can go bad, other inventory issues

• Ex. 2: Buy 1 apple, sell it, buy another, etc.– Much better!

• Invest in one apple at a time• Money tied up for 1 month• Inventory stays fresh


• If apples cost $1 each, then:

• Ex 1: $12/$12 = 1 turns

• Ex 2: $12/$1 = 12 turns

Inventory Turnover

Turnover =

COGS of all sales in periodFull-stock inventory COGS


Assortment Planning II

• Plans the mixture of merchandise• Basic stock planning

– For basics– Ongoing levels

• Model stock planning– Based on various factors

• Fabric• Price• Style• Etc.


Assortment Terms

• Breadth of merchandise– Number of different product lines, styles, brands carried

– Broad = lots of styles

– Narrow = few styles

• Depth of merchandise– Number of units within a line, style, or brand

– Deep = many colors and sizes

– Shallow = few colors and sizes


Step 3: Plan Reductions• Rare to sell all inventory at original price• Helps clean out inventory to be replaced• Various types

– Markdowns• Promotional or Permanent• Adjust price down

– Markup cancellation• Adjust amount of markup

– Discounts• For employees and/or special customers


Step 4: Plan Markup• In dollars, retail price minus cost

• Percentage of cost added to cost to get price

• Keystone markup– Markup = cost

• Short markup– Less than keystone

• Volume and competition are primary factors in determining markup– E.g. Wal-Mart


Pricing• Much more than just considering expenses• Consider

– Type of merchandise– Competition

• Strategy– Price range– Price points– Promotionally priced vs. regularly priced– Odd priced vs. even priced– Loss Leader?

• Pricing is regulated by Federal Trade Commission (FTC)!

– Target customer– COGS and expenses


Step 5: Plan Purchases

• Now, purchases can be planned• Based on

– BOM– EOM– Planned Sales– Reductions

• Open to Buy (OTB)– Planned purchases minus on-order


Calculations• Sales• +Reductions• +EOM• -BOM• = Planned Purchases

• IE:Sales + Reductions + EOM = BOM + Purchases

Everything out of Month Everything into Month


Six-Month Merchandise Plan

*Cost is after taking out markup(this example uses keystone markup)

Spring Feb Mar Apr May Jun JulFall Aug Sep Oct Nov Dec Jan

Sales 44,800 47,600 36,400 50,400 61,600 39,200 EOM Stock 97,485 86,285 100,285 111,485 89,085 96,552 Reductions 7,448 7,840 8,624 6,664 3,920 4,704 BOM Stock 94,685 97,485 86,285 100,285 111,485 89,085 Purchases

Retail 55,048 44,240 59,024 68,264 43,120 51,371 Cost* 27,524 22,120 29,512 34,132 21,560 25,686

Chapter 5: Sourcing

Determining how and where goods bought


Supply Chain• Resources

– Manufacturers• A/k/a vendors, suppliers, resources

• Middlemen– Wholesalers

• A/k/a distributors• Buy in large quantities, break down, distribute

– Finishers– Drop-shippers– Brokers


Contract Manufacturing

• Independent producers• Perform aspects of manufacturing

– Sewing– Cutting– Finishing

• Can be exclusive– Only work for a particular company– Pros and cons


Lead Time

• Time between order placed and arriving

• The faster the better

• Long lead times may be hard to avoid

• Technology can help– Quick Response– Just-in-time


Domestic vs. International

• Domestic Sources– Faster

– More expensive

– Easier to work with?

• International Sources– Often less expensive

– Longer lead time

– Red tape

– Ethical issues


Manufacturing Cost Comparison

0 2 4 6 8 10 12 14

Landed cost $/unit

Mexico

Honduras

Costa Rica

Indonesia

Hong Kong

U.S.

Canada

Country

Casual 100% Cotton Trousers

Transport & Velocity Overhead Material Labor


Centralized vs. Decentralized

• Centralized– One group/individual buys for entire company

• Decentralized– Buying happens locally– Less common for larger retailers


Buying Offices

• Resident Buying Office (RBO)– Located in particular fashion market– Local representative for retailer– Store-owned or independent

• Independent works for multiple retailers

• Independent can save money


Markets

• Where retailers and manufacturers meet

• Merchandise Marts– Located in major cities

• Trade Shows

• International markets– Largest cities

Week 3 Finish Chapter 4: Merchandise Planning, Buying, Control, and Profitability Chapter 5:...

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