From Vinodh Sanjana palanethra

Merchandise Management
Refers to:

the process by which retailer attempts to offer the right quantity of the right merchandise in the right place at the right time and meet the companys financial goals. Activities involved in acquiring particular goods and/or services and making them available at the places, times, and prices and in the quantity that enable a retailer to reach its goals.

Organising buying process by categories

MERCHANDISE BUDGET MANAGEMENT

MERCHANDISE BUDGET MANAGEMENT

Financial management tool used to plan and control

the total amount (in dollars) of inventory carried in stock at any time inventory during a specified period

Determines how much a retailer should invest in

Remember: Merchandise Budget controls dollars;

Merchandise Mix controls product units

MERCHANDISE BUDGET MANAGEMENT

1. 2.

We will consider:
Calculating monthly sales index to project next years sales. Using Basic Stock Model to calculate BOM stock Using Stock/Sales Ratio Method to calculate BOM stock Calculating planned monthly purchases and open-tobuy

3.
4.

Merchandise budget A financial plan that indicates how much to invest in product inventories

Steps in Preparing Plan

Forecast Six Month Sales for Category Breakdown Total Sales Forecast into Forecast for each

Month Plan Reductions for Each Month Determine Beginning of the Month (BOM) Stock to Sales Ratio Calculate BOM Inventory Calculate EOM Inventory Calculate Monthly Additions to Stock

ASSORTMENT PLANNING PROCESS

PLANNING MERCHANDISE ASSORTMENT AND SUPPORT

Must organize the merchandise mix as to the

number of different product lines carried Must decide on:

Brands Sizes Colors

Material
Styles Price points

PLANNING MERCHANDISE ASSORTMENT AND SUPPORT

Goal is to ensure that product choice meets targeted consumer needs Must carefully plan the number of units to have on hand to meet the expected sales for the brand, size, color combinations Must develop merchandise lists
1. 2. 3.

Basic Stock List (staple items) Model Stock List (fashion items) Never Out List (key items and best sellers)

CONTROLLING MERCHANDISE ASSORTMENT AND SUPPORT

1.

Involves monitoring and adjusting the types of product lines that are added and dropped from the merchandise mix Two widely used methods to control assortment and support:
2.

Inventory turnover: rate at which the retailer depletes and replenishes stock Open-to-buy: amount of new merchandise a retailer can buy during a specific time period without exceeding planned purchases for the period

Merchandise Mix Strategies

Different optimal variety and assortment strategies possible!!
Narrow Variety/Shallow Assortment
Vending machines Newsstands Door-to-door

Wide Variety/Shallow Assortment

Variety Stores General Stores Discount Stores

Narrow Variety/Deep Assortment

Specialty Stores

Wide Variety/Deep Assortment

Full-line Department Stores

Methods of Merchandise Planning

Gross margin Return on Inventory (GMROI)

Merchandise Planning Method

Inventory Turnover

Basic Stock Method Percentage Variation Method Weeks supply Method

Stock to Sales Method

Methods of Merchandise Planning

Gross margin Return on Inventory (GMROI)

GMROI

= Gross Margin Percent x sales to stock ratio = (gross margin/net sales )x (net sales/average inventory at cost) = gross margin/average inventory at cost

6/30/2013

Methods of Merchandise Planning

Inventory Turnover Inventory turnover = Net Sales/Average inventory at retail

Inventory turnover = Cost of goods sold/Average inventory at cost

Average inventory = Month1 + Month2 + Month 3 +/Number of months

Methods of Merchandise Planning

Basic Stock Method Average monthly sales for the season = Total planned sales for the season/Number of months in the season Average stock for the season = Total planned sales for the season/Estimated inventory turnover rate for the season Basic stock = Average stock for the season Average monthly sales for the season Beginning-of-Month (BOM) = Basic stock + Planned monthly sales

Methods of Merchandise Planning Percentage variation method (PVM)

The (PVM) can be calculated as follows: BOM stock =Average stock for season X [1 + (Planned sales for the month/Average monthly sales)]

Methods of Merchandise Planning

Weeks supply method (WSM): Number of weeks to be stocked = Number of weeks in the period/Stock turnover rate for the period Average weekly sales = Estimated period/Number of weeks in the period total sales for the

BOM stock = Average weekly sales X Number of weeks to be stocked

Methods of Merchandise Planning

Stock-to-sales method (SSM)

Average BOM stock-to-sales ratio for the season = Number of months in the season/Desired inventory turnover rate

Allocating Merchandise to Stores

Allocating Merchandise to Stores

Allocating merchandise to stores involves three decisions:
how much merchandise to allocate to each store what type of merchandise to allocate

when to allocate the merchandise to different stores

Inventory Allocation Based on Sales Volume and Stock-to-Sales Ratios

Smaller stores require a proportionally higher inventory allocation than larger stores because the depth of the assortment or the level of product availability is too small, customers will perceive it as being inferior.

Analyzing Merchandise Management Performance

Analyzing Merchandise Management Performance

Three types of analyses related to the monitoring and adjustment step are:
Sell through analysis
ABC analysis of assortments

Multiattribute analysis of vendors

Sell Through Analysis Evaluating Merchandise Plan

A sell-through analysis compares actual and planned sales to determine whether more merchandise is needed to satisfy demand or whether price reductions are required.

ABC Analysis
An ABC analysis identifies the performance of individual SKUs in the assortment plan. Rank - orders merchandise by some performance measure determine which items:
should never be out of stock should be allowed to be out of stock occasionally should be deleted from the stock selection.

A items: 5% of SKUs, represent 70% of sales B items: 10% of SKUs, represent 20% of sales C items: 65% of SKUs, represent 10% of sales D items: 20% of SKUs, represent 10% of sales

ABC Analysis Rank Merchandise By Performance Measures

Contribution Margin

Sales Dollars
Sales in Units Gross Margin

GMROI
Use more than one criteria

Multiattribute Method for Evaluating Vendors

The multiattribute method for evaluating vendors uses a weighted average score for each vendor. The score is based on the importance of various issues and the vendors performance on those issues.

Multiattribute Method for Evaluating Vendors

Evaluating Vendors
A buyer can evaluate vendors by using the following five steps: 1. Develop a list of issues to consider in the evaluation (column 1) 2. Importance weights for each issue in column 1 are determined by the buyer/planner in conjunction with the GMM (column 2) 3. Make judgments about each individual brands performance on each issue (the remaining columns) 4. Develop an overall score by multiplying the importance of each issue by the performance of each brand or its vendor 5. Determine a vendors overall rating, add the products for each brand for all issues

OPEN TO BUY

Open-to-Buy System
The OTB system is used after the merchandise is purchased Monitors Merchandise Flow Determines How Much Was Spent and How Much is Left to Spend

PhotoLink/Getty Images

PhotoLink/Getty Images 13-34

Merchandise Planning Systems

keeps a record of how much is spent purchasing

merchandise and how much is actually left to spend Buyers must keep track of sales and inventory Buyers plan purchases with delivery dates so as to meet EOM stock targets OTB for the current period = EOM planned inventory Projected EOM inventory Projected EOM = Actual BOM inventory + monthly additions + on-order sales plan (merchandise sold) monthly reductions plan

BRANDING STRATEGY

Retailer itself appears as a brand. Customers are more loyal to the retailers. Decisions towards the balance b\w manufacturer brands and own brands. They are highly sophisticated.

TYPES OF BRANDS
MANUFACTURERS BRANDS
PRIVATE LABEL BRANDS

SOURCES OF MERCHANDISE
RAW RESOURCE PRODUCERS
MANUFACTURERS AND PRIMARY PRODUCERS GOVERNMENT AND SEMI GOVERNMENT

WHOLESALERS
AGENTS OTHER RETAILERS INTERNATIONAL SOURCING

FACTORS INFLUENCING INTERNATIONAL SOURCING

FOREIGN CURRENCY FLUCTUATION
TARIFFS TRANSPORTATION COST