11 merchandise mgmt - student

7/30/2019 11 Merchandise Mgmt - Student

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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


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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 stores

Discounters


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Objectives ofMerchandise Planning

To meet corporate objectives

To define managements responsibilities

To establish timing guidelines for merchandise

To forecast budgetary needs for merchandise

Objective of good merchandise planning: improvedcustomer service, leading to more loyalty and repeatbusiness, which eventually leads to more new businessand greater profits. The retailer wants to

- get the right product

- to the right stores

- at the right time

- to satisfy customers


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Merchandising Organization

Assistant Buyer

Associate Buyer

Buyer

Divisional Merchandising Manager(DMM)

General Merchandising Manager(GMM)


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Merchandising Organization

Girls Levi jeans, sz 5,stone washed blue,

straight leg

SKU

Chairman

Sr. vice presmerch mgr

Womens ready-to-wear


Mens, childs,intimate apparel


Cosmet, shoes,jewelry, access.


Soft homefurn., kitchen

Div. merchmanager

Mens suits,slacks, dress

shirts

Div. merchmanager

Mens sports-wear, Polo

Div. merchmanager

Young mens,boys apparel

Div. merchmanager

Childrensapparel

Div. merchmanager

Intimateapparel

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 Group

Department

Classification

Category

V.P.Planning

Div Dir.

Planning

Mgr.Planning

Planning

Group


7/24Merchandise Management 11.7

Developing a Successful Mdse PlanWhat Makes Retail Shoppers Tick

Merchandise

Plan

Innovativeness

Brands

Timing

Forecasts

Allocation

Assortments



Staple Merchandise

Assortment Merchandise

Product Lines etc.

Model Stock Plan

Fashion Merchandise

Seasonal Merchandise

Fad Merchandise

What Makes Shoppers Tick

Forecasts

Fashion Trends

Retailers Image

Competition

Customer Segments

Investment Costs

Profitability

Risk

Innovativeness

Vertical

A designer trendwhich will change as itfilters down to othermkts

HorizontalA trend accepted by a

wide no. of people onits introduction

Fashion Trends

Assortment Assortment Types

Manufacturer (National)

Private Label (Dealer)

Brands

Product Quality

Width

Depth

Considerations:Sales & ProfitSpace RequirementsInventory TurnoverCannibalization

Width

Depth

Wide Narrow

Deep

Shallow



Assortment Width & Depth

Width

Depth

Wide Narrow

Deep

Shallow

Aimed at Convenience CustomersLeast CostlyHigh Turnover of Items

BUT

Broad MarketHigh Customer TrafficEmphasis on Conven. Shoppers

Less 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



General Merchandising

Forecasting

Innovativeness

Assortment

Allocation

Category Management

Software Availablefor All of These



Implementing Mdse Plans

1. GatheringInformation

about customerdemand

2. Selecting &Interacting withVendors

3. 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 Mdise Plans: What to Stock, How Much, When, Where in Store



Basic Mdse Mgmt Issues

Knowing howmuch

to buy in dollars

The merchandisebudget in dollars

Open to buy

The assortmentplan

Unit control systems

Knowing what tobuyin units and

dollars

Discounts andterms of sale

Retailing/Vendorrelationships

Knowing how tomake the buy



Mechanics of Merchandise Management:Dollars View

Stock Balance

Assortment Planning

Variety

$ PlanningTurnover

PurchasePlan

ReductionPlan

StockPlan

SalesPlan

Initial MarkupPlan Retail$ Control

Cost

OTB Dollars Units

2

3

4

5

6

7

8 9 10 11

1213

14

15

Width. Which products, & the number ofmerchandise categories in a store or department.

This is the Buyers decision.

Depth or support. The numberof SKUs within a category, & theinventory depth. Most often theinvty control analysts decision



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

5

6

7

8 9 10 11

1213

14

15

Width. Which products, & the number ofmerchandise categories in a store or department.

This is the Buyers decision.

Depth or support. The numberof SKUs within a category, & theinventory depth. Most often theinvty control analysts decision

Dollars Units



Typical Sales Variations of Levis

Fall sales --- typically 40 percent of annual salesSpring/Summer --- typically 15 percent of annual sales

Winter sales --- typically 30 percent of annual sales.


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Distributing Seasonal Sales Plans

% of Business Seasons 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


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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


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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


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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 corporatemanagement

It can control G,S,&A &therefore net profit

It can control total

investment & thereforetotal assets


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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 Margin

Avg Inventory=

Gross MarginAvg Inventory=


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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

Inventory

Turnover

Gross Profit

Margin

Gross Margin

Avg Inventory


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Discounts & Terms of Sale

Terms of Sale: Conditions under which retailers must make payment

to vendors.

Trade discounts: A price reduction granted to retailers or wholesalersfor performing services.

Quantity discounts: Discounts from the invoice offered to retailerswho purchase a specific quantity.

Cumulative quantity discount: The values of all orders in a period are addedtogether for the calculation of quantity discounts.

Invoice: A bill sent by suppliers calling for payment.

Seasonal discounts: Discounts retailers earn by ordering or takingdelivery of merchandise before the normal selling period is done.

Terms of Payment: Conditions under which retailers must makepayment to vendors.

Cash discounts: Deductions in price given by suppliers for promptpayment of invoice.


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Payment Requirements

Shipping termsF.O.B. (Free on board): Merchandise is placed on board a truck, railroad car or airplanewith 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 goodsincluding 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 timeof delivery.

Advanced dating Vendors offer retailers more time in which to paytheir bill in order to entice them to purchase their goods.

Extra dating: One type of advanced dating which lengthens the time that retailers haveto take advantage of cash discounts.

EOM (End of month) dating: Under EOM dating, the ordinary period does not begin untilthe 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 notbegin until the date that goods are received in the store.

Anticipation discount: Discounts given by some vendors as an inventive for earlypayment in the form of a percentage rate per year.


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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 themonths 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 (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 besupported by $30K invty

11 merchandise mgmt - student

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