Retail Merchandising is the process ofdeveloping, securing, pricing ,supportingand communicating the retailer’smerchandise offering. It means offering the right product at the right time at the right price with the right appeal!!
Merchandise Management• Analysis• Planning• Handling• Control
The process of merchandise planning1.Developing the sales forecast:• Review past sales• Analyze economic conditions• Analyze the changes in the sales potential and marketing strategies2.Determinig the merchandise requirements• The creation of Merchandise Budget:1)The sales plan,2)The stock support plan,3)The planned reductions4)The planned purchase level5)The gross margins• Types of merchandise
The process of merchandise planning3.The Merchandise Control: Open to buy4.Assortment Planning: Determine the quantity of each product. Details of color, size brand, materials
Merchandise Management Issues
PRODUCT PROFIT• The profit margin a product earns is a well established performance measure – Gross margin (mark-up) • The difference between cost and selling price – A mark-down is a price reduction that reduces the gross margin
PROFITABILITY• The profit a product generates depends on: – gross margin – rate of sales• GMROI (Gross margin return on investment) allows a retailer to compare the performance of products with different % profit margins and different sales turnover• GMROI=Gross Margin/Average inventory at cost
Types of Merchandise• Fad• Staples• Fashion
Types of Buying SystemsStaple Merchandise Fashion MerchandisePredictable Demand Unpredictable DemandHistory of Past Sales Limited Sales HistoryRelatively Accurate Forecasts Difficult to Forecast Sales
Staple Merchandise Buying System Monitor CompareForecast Order InventorySKU Sales and Merchandise to BasicSales Inventory Stock List
Considerations in Determining How Much to Order• Basic Stock Plan• Present Inventory• Merchandise on Order• Sales Forecast – Rate of Sales of SKU (Velocity) – Seasonality
Basic Stock ListIndicates the Desired Inventory Level for Each SKU – Amount of Stock Desired Lost Sale Due to StockoutCost of Carrying Inventory
Cycle and Buffer Stock 150 - Order 96 Cycle 100 - StockUnits Available 50 - Buffer 0- Stock 1 2 3 4 Weeks
Forecasting DemandForecasting -- extrapolating the past into future using statistical and mathematical methodsObjectives: – Ignore random fluctuations in demand – But be responsive to real change
Order Point• Order point = the point at which inventory available should not go below or else we will run out of stock before the next order arrives.• Assume Lead time = 0, Order point = 0• Assume Lead time = 3 weeks, review time = 1 week, demand = 100 units per week• Order point = demand (lead time + review time) + buffer stock• Order point = 100 (3+1) = 400
Merchandise Budget Plan• Plan for the financial aspects of a merchandise category• Specifies how much money can be spent each month to achieve the sales, margin, inventory turnover, and GMROI objectives.• Not a complete buying plan--doesn’t indicate what specific SKUs to buy or in what quantities.
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
Open to Buy• Monitors Merchandise Flow• Determines How Much Was Spent and How Much is Left to Spend
Open to BuyLimits overbuying and under buyingPrevent loss of sales due to unavailabilityMaintains purchase within the budgeted limitsReduce markdowns which may arise due to excess buying
Open-to-buy for Past PeriodsProjected EOM stock = actual EOM stockOpen-to-buy = 0There is no point in buying merchandise for a month that is already over.
Open-to-Buy for Current Period (I)• Projected EOM stock =• Actual BOM stock• + Actual monthly additions to stock (what was actually received)• + Actual on order (what is on order for the month)• - Plan monthly sales• - Plan reductions for the month
Open-to-Buy for Current Period (II)• Open-to-buy =• Planned EOM stock (from merchandise budget plan) – Projected EOM stock (based on what is really happening)
ABC Analysis Rank Merchandise By Performance MeasuresContribution MarginSales in UnitsGross MarginGMROIUse more than one criteria
ABC Analysis for Dress Shirts C 100 10% 90 Sales B 20% 80 70 60Percentage of Sales Dollars A 50 70% 40 30 20 10 0 No Sales 10 20 30 40 50 60 70 80 90 100 A B 5% 10% 65% C 20% D Percentage of Items
ABC AnalysisRank - orders merchandise by someperformance measure determine whichitems:– should never be out of stock.– should be allowed to be out of stock occasionally.– should be deleted from the stock selection.
Sell Through Analysis Evaluating Merchandise PlanA sell-through analysis compares actual and planned sales to determinewhether more merchandise is needed to satisfy demand or whether pricereductions are required.13-28
Evaluating a Vendor: A Weighted Average Approach n Ij *P ij = Sum of the expressioni 1 = Importance weight assigned I j to the ith dimension = Performance evaluation for Pi jth brand alternative on the jth issue 1 = Not important 10 = Very important
Evaluating a Vendor: A Weighted Average Approach Performance Evaluation of Individual Brands Across Issues Importance Evaluation Brand A Brand B Brand C Brand DIssues of Issues (I) (Pa) (Pb) (Pc) (Pd) (1) (2) (3) (4) (5) (6)Vendor reputation 9 5 9 4 8Service 8 6 6 4 6Meets delivery dates 6 5 7 4 4Merchandise quality 5 5 4 6 5Markup opportunity 5 5 4 4 5Country of origin 6 5 3 3 8Product fashionability 7 6 6 3 8Selling history 3 5 5 5 5Promotional assistance 4 5 3 4 7Overall evaluation = 290 298 212 341 n I j * P ij i 1