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What is Merchandising?
IN RETAIL ORGANISATION Merchandising is a specialized management function within the fashion industry. It is the business that moves the world fashion from designers showroom to retail sales floor and into the hands of consumers. It is the internal planning that takes place within a retail organization in order ensure adequate amount of merchandise are on hand to be sold at prices that the consumers are willing to pay to ensure a profitable operation.
Marketing Vs Merchandising
Marketing function Focuses on broadly defining a companys market and characteristics. It pinpoints new opportunities for growth through self analysis and market research and promotes companys image and products.
Merchandising function is more specific concerning itself with the development, execution and delivery of the product line with its close ties with the market it serves. Merchandising is not only able to adjust to market variations rapidly but is capable of actually anticipating and helping to create market changes.
Merchandiser
Merchandiser is a person who get converted inspiration into design , use technology to conceptualize and address the planning , production, promotion and distribution of products in the fashion industry to meet the consumer needs and demands
Right Merchandise
Retailers must fill their shelves with the merchandise that customer wants.
Right Place
The location of the merchandise is of prime importance since it decides the accessibility.
Right Time
Much merchandise is seasonal in nature and must be on hand when it is most needed.
Right Quantity
A profitable balance between volume of sales and amount of inventory is the desired goal.
Right Price
Merchandiser must arrive at a price that is high enough to give the store profit and yet low enough to meet the competition and customers expectations.
Right Promotion
Right balance between the investment and the appeal created for the customers
Behavioral
Market Segmentation
Psychographic
Geographic
Demographic Segmentation
Mainly grouped on the basis of: Population Age Income Sex Occupation Education
Geographic Segmentation
Mainly grouped on the basis of: Cities States Regions Climate plays an important role
Psychographic Segmentation
Grouped on the basis of the lifestyle Social activities Interests leisure pursuits needs and wants
Behavioral Segmentation
Grouped on the basis of opinion on specific products or services Rating of usage of products & services. Help in improving the service/product and make it different from others.
Comfort
Economy of Operation Price
Prestige
Pride of Appearance Distinctiveness
FASHION PURCHASES
SPECIFIC SELECTION FACTORS
Silhouette- Degree to which an item is considered moderate or extreme in form in relation to the currently popular shape or form of such products.
Size- Preciseness of Fit Sensory factors- Touch, Taste, Smell, etc. Ease and cost of care Brand- Identity of manufacturer or distributor of an item
Organizational structure includes the clear understanding of the authority and responsibility for each job to be done.
Organizational system differs with the difference in type of merchandise, size of retail firm, and target customer.
The Specialty Store, Discount Store are also few of the other formats
Finance and control division- credit, account payable, and inventory control.
Operational division- maintenance of facilities, stores and merchandise protection, personnel, customer service and receiving and marking of merchandise.
o Personnel and Branch Store Division may function separately if the store operations are very large.
-BUYING OFFICES -COMPARISON BUREAU -DIVISIONAL MANAGERS -department managers -assistant buyers -sales people -FASHION COORDINATORS -HOME PLANNING BUREAU -MERCHANDISE PLANNING & CONTROL -MERCHANDISE RESEARCH
-ADJUSTMENTS -ARCHITECTS OFFICE -CUSTOMER SERVICE -sales people -service desk -telephone & mail orders -bridal registry -DELIVERY -ELEVATORS -MAIL DIVISION -MAINTENANCE -PACKING & PICK UP -PRINTING -PURCHASING DEPT. -RECEIVING & MARKING -RESTAURANTS -STORE PROTECTION -TRAFFIC DEPT. -WAREHOUSE -WORKROMS
-EMPLOYMENT OFFICE -interviewing -placement -termination -HOUSE ORGAN -PERSONNEL BUDGETS -PERSONNEL TESTING -RECORDS & REVIEWS -budgets & records -job analysis -rating & reviews -TRAINING -induction & system -on the job -WELFARE & HEALTH
-Audit -credit -store planning -maintenance -receiving -transfer of merchandise -employment training -merchandising -sales planning -advertising -displays -special events -liaison with main store
Buyers
Assistant Buyers
Trainees
Design
Finance Marketing/PR
Planning
Based on 2 factors
-How much the store expects to sell? -How much inventory is needed to achieve that sales goal?
The buyer must plans stocks so that the store image is reflected in the merchandise.
Preparation of 6 months buying plan with knowledge of fashion trends, market conditions, economic factors, other records of the past seasons.
Flexibility is the most important factor to be kept in mind. Includes provision for constant adjustment to actual results.
Buying
Adequately stocking the departments price lines and securing the best possible mark ups on all purchases. Supervising the physical inventory or stock counts to verify the accuracy of stock records. Establishing and maintaining effective buying relationships with vendors.
Selling
Communication and promotional activities.
Determining the selling features of the merchandise for promotion purposes and the timing of these promotions.
The buyers role in USA includes the administrative and financial input part also besides core buying responsibility. In USA buying is often a subdivision of the merchandising team, whereas in many companies in UK, Buying is perceived as central role and merchandising as parallel department to buying. Job Details for both these profiles are different with different organizations and are quite overlapping but all fashion buyers are responsible for overseeing the development of range of products aimed at a specific type of customer and price bracket.
BUYING PATTERNS
CENTRAL BUYING
The centralization of all buying activities from a central headquarters with the authority and responsibility for the selection and purchase of merchandise limited to buyers of particular merchandise categories
DISADVANTAGES There is little control over the composition of the merchandise selection. Poor warehouse control may lead to an imbalance in store inventory.
Objectives
1.To satisfy the needs and wants of customer
2.To earn profit
Earning a profit
Net sales are all of the sales that have been made minus customer returns and allowances. Cost of goods sold is the amount the buyer has paid for the merchandise that the store has held for that same time period.
Gross margin is the margin of dollars between what the merchandise cost and what it was sold for.
Expenses is the amount of money spent to run the business. It includes salaries, advertising, rent, heat and light. Profit-the amount of money that is left over after all of the merchandise that is offered for sale has been sold and all of the expenses of running the business have been paid.
Earning a profit
Net sales cost of goods sold
= gross margin expenses
$ 70,000 42,000
28,000 24,000
% 100
60 40 34.3
= profit
4,000
5.7
Net sales cost of goods sold = gross margin Gross margin expenses = profit
PERIOD OF PLAN
The period plan may vary for a month to an year. The usual planning is of six months.
The Spring Season- Feb.- July The Fall Season- August- January
These goals are established by the store management, not by the departmental buyers
The buyers then using the planning form and his knowledge of market conditions, trends, and demand cycles, prepare figures on anticipated sales, stocks, markdowns, and purchases for his department for the upcoming season.
The plan made by the buyer is then reviewed by his divisional merchandise manager.
The merchandise manager then consolidates all the plans made by the buyers of the same division into a divisional plan and submits it to the general merchandise manager. All the plans are reviewed by both, the stores controller and the general manager or president.
when approved, departmental plans are combined into a master plan for the whole store.
(Ability to work with % is helpful tool, it is easier to understand the increase of 4.95% in sales than an increase from $ 24,200 to$ 25,400)
2. PLANNING STOCK
To estimate the amount of stock that will be needed to support the planned monthly sales . In order to support planned sales, a Beginning of Month (BOM) has to be estimated. Considerations influencing the planning of BOM stocks : There must be adequate opening assortment on hand in sufficient quantity to meet anticipated consumer demand until stock replacements for goods sold can be secured.
The planning must be such that the desired seasonal stock turnover may be realized , markdowns minimized, and a steady flow of new, interesting merchandise assured throughout the month.
In planning monthly stock goals stocks should be bought to a peak just prior to the time when sales are expected to reach their peak By peaking stocks before consumer demand reaches its crest the buyer will be able to present maximum assortments in needed styles, sizes and colors when the public is in the mood to buy.
Similarly BOM stock plans should be reduced as a selling season approaches its close or demand decreases. MARKDOWNS can be used as tool of reducing inventory as the season ends.
Stock-sales relationships
Stores are guided by two stock-sales relationships: 1. Monthly stock sales ratio The monthly stock-sales ratio uses the no. of months that would be required to dispose of a BOM inventory at the planned rate of sales for the month.It also directly relates stock requirements to the planned sales. Stock-sales ratio = $ BOM stock / $ Planned Sales for month 2. Rate of stock turnover Refers to the no. of times that an average stock of merchandise has been turned into sales in any given period .
3. PLANNING MARKDOWNS
Markdowns are usually planned as a percentage of each seasons planned sales. They may then be allotted to individual months, according to the buyers estimates of when and to what extent the monthly markdowns are going to be needed to sell the goods. The chief factors to be considered in establishing seasonal markdown goals are:
the past experience of the store or department comparative figures of similar stores amount of the old stock on hand at the beginning of a new season
Markdown % is the amount of dollar markdowns taken during a given period expressed as % of the net sales
4. PLANNING PURCHASES
Planned purchases means the amount of money buyer can spend on merchandise during a given period without exceeding the value of the inventory planned to be on hand at the end of that period. In most of the large stores ,purchases are planned on monthly basis.
The planned purchase includes Planned EOM stock + planned sales + planned markdowns = total needs for the month .
Planned purchase = total needs for the month - BOM stock
Markup:
Markup is the difference between the cost price and the retail price of the merchandise. Retail markup % = $ retail - $ cost / $ retail The dollar difference between the delivered cost of the merchandise and the retail price placed on it when it is first brought into stock is called initial markup. Retail stores plan initial markup percentages to ensure that the income derived from sales will be adequate to cover : all expenses incurred in the operation of the business anticipated reductions in the retail value of the inventory , such as mark downs , stock shortages, and employee discounts a reasonable margin of profit for the store The planned markup should be aimed at achieving the goal figure indicated on the dollar merchandise plan; no less or no higher.
Gross margin:
Gross margin represents the amount of money left from sales income after deducting the total cost of merchandise sold during that given period. It also indicates the amount of money available to pay all operating expenses and taxes with a reasonable profit left over. GROSS MARGIN = NET SALES - NET COST OF MERCHANDISE SOLD $Gross Margin / Net Sales = %Gross Margin
Cash discounts:
Cash discounts are the percentages or premiums allowed by manufacturers off their invoices if payment of the invoice is made within a certain specific period of time. Such discounts are allowed to encourage to the prompt payments of the invoices. It is an additional income for a store . Cash discounts increase gross margin, because they reduce the actual cost of merchandise purchases.
Terms of sale:
The combination of allowable discounts on purchases and the time allowed for taking such discounts is referred to as terms of sales.
Stock shortages:
Stock shortages or overages represent the dollar difference between the book inventory ( the value of inventory on hand as indicated by the stores accounting records) and the physical inventory ( the value determined by taking a physical count ).
When the book inventory is greater than the physical inventory there is said to be stock shortage. When the physical inventory is greater than the book inventory there is said to be stock overage.
Fashion Industry traditionally splits the year into two main seasons, Spring/Summer- February- July Autumn/Winter- August January The competitive and constantly changing fashion business requires a more frequent introduction to merchandise, resulting in most stores introducing new ranges many times in between these two main seasons. The occurrence and the names of sub seasons vary from company to company.
Seasons
Spring Transition Spring Spring promo Summer 1 Summer 2 Summer Sale Autumn Transition Autumn Winter 1 Winter Festive/Holiday
Winter 2 /Christmas
Winter Sale
6 Weeks
2 Weeks
Four distinct and two promotional season within each half of annual retailing Period
PHASES- Various ranges introduced within the season. TRANSITIONALS- Ranges which bridge the gap between one season and the next season.
Undertaken at the beginning of each season and continues with once a month visit
Byers & Designers are involved Starts with the looking at current merchandise in the stores of competitors which sell comparable ranges
Directional Shopping Term used for trips to gain inspiration for design concepts Trips depend upon the buyers product range & travel budget Buyer may visit designer RTW ranges to mass market ranges Makes note on key shapes, details, colors and fabric for ref.
Buyers usually have budget to buy samples which are referred as bought samples
Designers may share responsibility of directional shopping with buyers.
Pre selection
Time after the Range planning stage at the Buyers end can be in form of the Line review/Range review meeting. Garments samples featuring on the Range plan are presented. Participants are the Design, Marketing, Merchandising and QC teams. Range is reviewed vis a vis: Styling, Colors , Price and Delivery Sourcing strategy regarding product and Supplier base.
By virtue of the T&A the various activities involved in the Product development/Production processes and the responsible party is fixed
Critical paths for product development, production & delivery (Time & Action Calendar)
Style no. Style Description Supplier & Country of Origin Lab dip/strike off approval Trim approval Fitting Sample approval
Bulk production
Ex factory
Due in warehouse
MERCHANDISE ASSORTMENT
It refers to a collection of varied types of related merchandise that are intended for the same general use. A merchandise assortment is usually grouped together in one selling area of the store. Assortment plan is a compressive and detailed listing of all the merchandise that will carry in stock during a given period, classified by size, type, and price line. A balance assortment is in which types, quantities, and price lines of merchandise in inventory closely match the demand of your target customers.
explanation for the setup classifications where there is no existing system. Examining how the classifications of a fashion department is unique.
PURPOSE OF CLASSIFICATION
CLASSIFICATION is : An assortment of units or items of merchandise which are all reasonably substitutable for each other REGARDLESS of who made the item, the material which it is made, or the part of the store in which it offered for sale.
REASONS FOR SUBDIVIDING MERCHANDISE INTO CLASSIFICATION To precisely define the NATURE and extent of customer demand so that merchandise is readily available to satisfy that demand. It provides with a means of better PLANNING and CONTROL of the merchandising operation.
After one has established broad classifications on the basis of END USE and non substitutability, one continues to set up sub classifications.
For merchandise planning and control purposes, each classification and sub classification is assigned a permanent identification code, usually a number. The code of classification consists of a fixed range of consecutive numbers. each sub classification is assigned a specific range of numbers within the wider range assigned to the broad classification.
All price lines within departments price range are represented in the assortment plan The best selling price lines are appropriately represented with the widest variety of types, colours, materials and sizes. Duplication of merchandise has been minimized, if not prevented.
DOES THE SYSTEM REFLECT THE WAY IN WHICH THE CUSTOMERS BUY MERCHANDISE?
APPAREL SOURCING
Local Manufacturers Importer wholesaler Exporter Foreign selling agents Resident buying Office Import trade fairs
Buying trips abroad to market & Manufacturers Foreign Buying Office Foreign trade fairs
Better quality
Lower cost
Specification buying
Other conditions
Other Problems
Language Barriers Unethical practices (e.g. Child Labor) Political unrest
Domestic sources
Domestic importers
Foreign sources
Liaison Offices Foreign buying offices
Direct Exporters
Domestic Importers/Wholesalers
Stockers of foreign merchandise Prove to be more useful for smaller stores Goods can be bought closer to the time of need Risk involved lies with the importer Costs higher than direct buying Offers less exclusivity No concessions are offered Very small qty. of merchandise can also be purchased. Sells through showrooms or directly from warehouse
Buyer can actually see the merchandise with the styling and uniqueness.
Orders need not be large as many orders are compiled together before sending No guarantee of quality standards, size discrepancies etc.
LIAISON OFFICE
Store owned foreign buying offices Located in major fashion centers & in exporting bases of the world Advise buyers about new trends Accompany buyers on their market visits acting as interpreters and planning market itineraries Because of their broad & strong base in the local market they get the best resources according to the need of the buyer Function as a follow up service to ensure prompt delivery and quality control Each liaison office works as a separate profit centre Types of stores that have such offices are GAP,NIKE
Direct Exporters
The manufacturer- exporter undertakes the entire export process. Increases its profit margin by saving on payments to an intermediary Develops a closer relationship with the overseas buyer. Cost of establishing another market may overweigh the monetary benefits of direct exporting The exporter may be exposed to more direct risks.
Export House
Coordinator of all activities at the manufacturer's end Correspondence with buying Agencies Could be handling many buyers at a time Takes care of PD, sampling, costing, negotiations, delivery schedules, production planning, fabric and trim orders, regular follow up. Sources of information are limited as compared to buying house merchandiser Is directly responsible for the merchandise Ensuring inspections and quality levels.
Buying House
Could be looking after one account/ one division of a buyer but many vendors Product exposure is much more Depends for all information on vendors Are responsible for- PD, sampling, costings, negotiations,delivery schedules, production planning Responsible for vendor selection and development