5th Edition PPT 12-1

Chapter 12
Planning Merchandise Assortments

McGraw-Hill/Irwin PPT 12-2 Retailing Management, 5/e Levy/Weitz:

Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Merchandise Management
Retail Communication Mix Planning Merchandise Assortments

Buying Systems

Buying Merchandise

Pricing

PPT 12-3

Merchandise Management Issues

PPT 12-4

The Category
A category is an assortment of items that the customer sees as reasonable substitutes for each other: girls apparel, laundry detergents, soup, DVD players. In merchandise management, we do everything at the category level. The category can mean different things to different retailers.

PPT 12-5

Category Management
Category management is the process of managing a retail business with the objective of maximizing the sales and profits of a category.
Objective is to maximize the sales and profits of the entire category, not just a particular brand. Breakfast cereal category vs. Kellogg Corn Flake Mens knitted shirts vs. Polo shirts One person managing the entire category and responsible for its success or failure.
PPT 12-6

Category Captain
Selected vendor responsible for managing assortment of merchandise in a category Vendors frequently have more information and analytical skills about the category in which they compete than retailers Works with category Mgr ---Promotion, pricing, brand & product placement on shelves. Problems
Vendor category captain may have different goals than retailer
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Standard Merchandise Classification Scheme and Organizational Chart

PPT 12-8

The Buying Organization

Merchandise GroupMens wear Department..Young Mens wear Classification...Pants Category..Jeans Stock Keeping Unit (SKU).Levi, 501, size 36 waist, 32 inseam

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Organization of a Regional Department Store: Richs

PPT 12-10

GMROI Productivity Measures

Inventory
Gross Margin

Input

Output

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GMROI Inventory Productivity Measures

Combine Gross Margin % and Inventory Turnover (sort of) Gross Margin% Inventory Turn GMROI = Gross Margin x Net Sales Net Sales Avg Inventory @ cost GMROI = Gross Margin Avg Inventory (@ cost) Output (Margin Generated by Sales) Input (Inventory Investment in Inventory)

PPT 12-12

ROI and GMROI Asset Productivity Measures

Strategic Corporate Level Return on Assets = Net Profit Total Assets Merchandise Management Level GMROI = Gross Margin Avg Inventory @ cost

PPT 12-13

Illustration of GMROI

PPT 12-14

Gross Margin %, Inventory Turnover,& GMROI for Selected Department in Discount Stores

PPT 12-15

Calculating Inventory Turnover

Inventory turnover =
Inventory turnover = Average inventory =
Net Sales

Average inventory at retail Cost of goods sold Average inventory at cost Month1 + Month2 + Month 3 + Number of months

PPT 12-16

Inventory Turnover
Month Retail Value of Inventory

EOM January EOM February EOM March Total Inventory

$22,000 33,000 38,000 $93,000

Average inventory = $93,000 3 = $31,000

PPT 12-17

Inventory Turnover and Sales-to-Stock Ratio

Inventory turnover = Inventory turnover = Net Sales Average inventory at retail Cost of goods sold Average inventory at cost Net Sales Average cost of inventory

Stock-to-Sales Ratio =

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Advantages of Rapid Turnover

Increased sales volume Less risk of obsolescence and markdowns Improved salesperson morale Money for market opportunities Decreased operating expenses Increased asset turnover

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Disadvantages of Rapid Rate of Turnover

Lowered sales volume Increased cost of goods sold Increased buying and ordering time

PPT 12-20

Developing a Sales Forecast

Understanding the nature of the product life cycle Collecting data on sales of product and comparable products Using statistical techniques to project sales Work with vendors to coordinate manufacturing and merchandise delivery with forecasted demand (CPFR)
PPT 12-21

The Category Product Life Cycle

Total Retail Sales

Decline

Growth
Maturity Introduction

Time
Strategy variable Target market Variety Distribution Intensity Price Promotion PPT 12-22

Introduction
High-income Innovators One basic offering Limited or extensive Penetrating or skimming Informative

Growth
Middle-income adapters Some variety More retailers Wide range Persuasive

Maturity
Mass market Greater variety More retailers Lower prices Competitive

Decline
Low-income and laggards Less variety Fewer retailers Lower prices Limited

Variations of the Category Life Cycle

Fad Sales over many seasons No Fashion Yes Staple Yes Seasonal Yes

Sales of a specific style over many seasons

No

No

Yes

Yes

Sales vary dramatically from one season to the next

SALES

No

Yes

No

Yes

SALES

SALES

(Sales against Time)

TIME

TIME

TIME

SALES TIME

Illustration

PPT 12-23

Data Sources for Developing Sales Forecasts

Previous Sales History
Published Sources - Buying Power Index (BPI), Monthly Retail Trade Report, InfoScan, Claritas, general retail trade publications like Stores, WWD and Chain Store Age Customer Information Vendors and Resident Buying Offices

PPT 12-24

Sales for Levi Jeans at Trendsetters Department Store

450 400 350 300 250 200 150 100 50 0
SALES ($000) DOLLARS

Fall sales

Winter sales

Spring & summer sales

YEAR

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Factors Affecting Sales Projections

Controllable Promotions Store Locations Merchandise Placement Cannabalization Uncontrollable Seasonality Weather Competitive Activity Product Availability Economic Conditions

PPT 12-26

Collaboration, Planning, Forecasting, and Replenishment Systems (CPFR)

Systems used by retailers and vendors to work together to insure that the right merchandise is at the right place at the right time.
Benefits both retailers and vendors Increases fill rate, reduces stockouts, increases inventory turns

www.cpfr.org
PPT 12-27

Assortment Planning
Variety is the number of different merchandising categories within a store or department

Assortment is the number of SKUs within a category.

Product availability defines the percentage of demand for a particular SKU that is satisfied.

PPT 12-28

Assortment Plan for Girls Jeans

Styles
Price levels Fabric composition
Colors

T R A D I

T I O N A L
$45 $45 Reg denim Stonewashed
Light blue Light blue

$20 $20 Reg denim Stonewashed

Light blue Light blue

$35 $35 Reg denim Stonewashed

Light blue Light blue

B O O T
Price levels Fabric composition Colors $25 $25 Reg denim Stonewashed Light blue Indigo Black
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C U T

$40 $40 Reg denim Stonewashed Light blue Indigo Black Light blue Indigo Black

Light blue Indigo Black

Size Distribution for Traditional $20 Denim Jeans in Light Blue for a Large Store
SIZE
Length Short
1 2 4 5 6 8 10 12 14

17

30

26

34

21

30

17

units

Medium

2 9

4 17

7 30

5 21

8 34

4 17

6 26

3 12

2 9

% units

Long

0 0

2 9

2 9

2 9

3 12

2 9

2 9

1 4

0 0

% units 100% 429 units

Total
PPT 12-30

Is This Store Heavy on Variety? On Assortment?

PPT 12-31

Determining Variety and Assortment

Profitability of Merchandise Mix Corporate Philosophy Toward Assortment Physical Characteristics of Store Complementary Merchandise

PPT 12-32

Relationship between Inventory Investment and Product Availability

Inventory investment Dollars 600 500 400

300
200 100 0

80

85

90

95

100

Product Availability (Percent)

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Cycle and Backup Stock

150 -

Order 96

Units Available

Cycle Stock

100 Buffer Stock

50 -

01 2 Weeks
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