Merchandise mgmt

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Merchandise mgmt

  1. 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 planningMerchandise Management 11.1
  2. 2. 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  DiscountersMerchandise Management 11.2
  3. 3. Two Aspects to Merchandise Mgmt  Merchandise Selection Decisions  Merchandise Planning DecisionsMerchandise Management 11.3
  4. 4. Objectives of Merchandise Planning  To meet corporate objectives  To define management’s responsibilities  To establish timing guidelines for merchandise  To forecast budgetary needs for merchandise Objective of good merchandise planning: improved customer service, leading to more loyalty and repeat business, which eventually leads to more new business and greater profits. The retailer wants to … - get the right product - to the right stores - at the right time - to satisfy customersMerchandise Management 11.4
  5. 5. Merchandising Organization  Assistant Buyer  Associate Buyer  Buyer  Divisional Merchandising Manager (DMM)  General Merchandising Manager (GMM)Merchandise Management 11.5
  6. 6. Merchandising Organization Chairman Planning Merchandise Group Group Sr. vice pres Sr. vice pres Sr. vice pres Sr. vice pres merch mgr merch mgr merch mgr merch mgr V.P. Women’s ready- Men’s, child’s, Cosmet, shoes, Planning to-wear intimate apparel jewelry, access. Soft home furn., kitchen Department Div. merch Div. merch Div. merch Div. merch Div. merch manager manager manager manager manager Div Dir. Men’s suits, Planning slacks, dress Men’s sports- Young men’s, Children’s Intimate shirts wear, Polo boys’ apparel apparel apparel Classification Buyer Buyer Buyer Buyer Buyer Buyer Mgr. Preteen Girls’ Girls’ Toddlers’ Infants’ Little boys’ Planning accessories Size 7-14 Size 4-6 Category Sportswear Dresses Swimwear Outerwear SKU Girls Levi jeans, sz 5, stone washed blue, straight legMerchandise Management 11.6
  7. 7. Developing a Successful Mdse Plan What Makes Retail Shoppers Tick Innovativeness Forecasts Assortments Merchandise Plan Allocation Brands TimingMerchandise Management 11.7
  8. 8. What Makes Shoppers Tick Forecasts Innovativeness Fashion Trends Staple Merchandise Fashion Trends Vertical Assortment Merchandise Retailer’s Image A “designer” trend which will change as it Product Lines etc. Competition filters down to other Model Stock Plan Customer Segments mkts Fashion Merchandise Investment Costs Horizontal Seasonal Merchandise Profitability A trend accepted by a wide no. of people on Fad Merchandise Risk its introduction Assortment Assortment Types Brands Product Quality Width Manufacturer (National) Width Wide Narrow Private Label (Dealer) Depth Shallow Deep Considerations: Depth Sales & Profit Space Requirements Inventory Turnover CannibalizationMerchandise Management 11.8
  9. 9. Assortment Width & Depth Wide Width Narrow Broad Market Special Image High Level of Customer Traffic Good Selection in Category(ies) Customer Loyalty Specialized Personnel One-Stop Shopping Customer Loyalty No Disappointed Customers No Disappointed Customers Deep BUT Lower Cost than Wide and Deep BUT Depth Broad Market Aimed at Convenience Customers High Customer Traffic Least Costly Emphasis on Conven. Shoppers High Turnover of Items Shallow Less Costly Than Wide and Deep BUT One-Stop Shopping BUTMerchandise Management 11.9
  10. 10. Software Available for All of These  General Merchandising  Forecasting  Innovativeness  Assortment  Allocation  Category ManagementMerchandise Management 11.10
  11. 11. Implementing Mdse Plans Establish a Formal or Informal Buying Organization Make M’dise Plans: What to Stock, How Much, When, Where in Store 1. Gathering 2. Selecting & 4. Negotiation Information Interacting with 3. Evaluation of of Price about customer Vendors Mdse & Vendor & Terms demand 8. Reevaluation 6. Receiving & of Mdse & 7. Reordering Stocking 5. Concluding Vendor Merchandise PurchasesMerchandise Management 11.11
  12. 12. Basic Mdse Mgmt Issues Knowing how Knowing what to much buy Knowing how to to buy in dollars in units and make the buy dollars The merchandise The assortment Retailing/Vendor budget in dollars plan relationships Open to buy Unit control systems Discounts and terms of saleMerchandise Management 11.12
  13. 13. Mechanics of Merchandise Management: “Dollars” View Width. Which products, & the number of 2 Variety merchandise categories in a store or department. This is the Buyer’s decision. Stock Balance Depth or support. The number 3 Assortment Planning of SKUs within a category, & the inventory depth. Most often the 4 invt’y control analyst’s decision 5 6 Turnover $ Planning 7 8 9 10 11 Sales Stock Reduction Purchase Plan Plan Plan Plan 12 13 Initial Markup Plan Retail 14 $ Control Cost 15 • Dollars OTB • UnitsMerchandise Management 11.13
  14. 14. Mechanics of Merchandise Management: “Units” View Width. Which products, & the number of 2 Variety merchandise categories in a store or department. This is the Buyer’s decision. Stock Balance Depth or support. The number 3 Assortment Planning of SKUs within a category, & the inventory depth. Most often the 4 invt’y control analyst’s decision 5 6 Turnover $ Planning 7 8 9 10 11 Sales Stock Reduction Purchase Plan Plan Plan Plan 12 13 Initial Markup Plan Retail 14 $ Control Cost 15 • Dollars OTB • UnitsMerchandise Management 11.14
  15. 15. Typical Sales Variations of Levi’s Fall sales --- typically 40 percent of annual sales Spring/Summer --- typically 15 percent of annual sales Winter sales --- typically 30 percent of annual sales.Merchandise Management 11.15
  16. 16. Distributing Seasonal Sales Plans % of Business Season’s Planned Month in 6 mos. Sales Forecast Sales February 10% $52,000 $5,200 March 10% 5,200 April 25% 13,000 May 15% 7,800 June 30% 15,600 July 10% 5,200 TOTAL 100% $52,000 $52,000Merchandise Management 11.16
  17. 17. Reduction Planning Planned Planned Amount of Month Sales Reduction* Reduction February $5,200 30% $1,248 March 5,200 -- -- April 13,000 -- -- May 7,800 -- -- June 15,600 30% 1,248 July 5,200 40% 1,664 TOTAL $52,000 100% $4,160 * Percent of season totalMerchandise Management 11.17
  18. 18. Recall the Strategic Profit Model Rate of Return on Assets Return on Net Profit Asset Leverage = x Turnover x Investment Margin Ratio Net Profit Net Profit Net Sales Total Assets Net Worth Net Sales Total Assets Net Worth The Financial The Financial Program Objective (The SPM)Merchandise Management 11.18
  19. 19. ROA vs GMROI  The ROA measure is used by corporate Rate of Return on Assets management Net Profit Asset  It can control G,S,&A & Margin x Turnover therefore net profit  It can control total Net Profit Dollars Net Sales . investment & therefore Net Sales Avg. Total Assets total assets Gross Margin Return on Inventory Investment Gross Profit Inventory Margin x Turnover Gross Profit Dollars Net Sales . Net Sales Avg. InventoryMerchandise Management 11.19
  20. 20. So … GMROI: GMROI = Gross Margin $ (@ Retail or Cost) Average Invty $ (@ Retail or Cost) Gross Margin Return on Inventory Investment Gross Profit Inventory Gross Margin Margin x Turnover = Avg Inventory GMROI = Gross Margin Dollars x Net Sales . = Gross Margin Net Sales Avg. Inventory Avg InventoryMerchandise Management 11.20
  21. 21. GMROI Examples Milk Caviar Gross Margin $ 2,000 $150,000 Sales 150,000 300,000 Average Inventory 1,000 75,000 Gross Profit Inventory Gross Margin Margin Turnover Avg Inventory 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 75,000 150,000Merchandise Management 11.21 = 50% X 4 = 200%
  22. 22. 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 wholesalers for performing services. Quantity discounts: Discounts from the invoice offered to retailers who purchase a specific quantity. Cumulative quantity discount: The values of all orders in a period are added together for the calculation of quantity discounts. Invoice: A bill sent by suppliers calling for payment. Seasonal discounts: Discounts retailers earn by ordering or taking delivery of merchandise before the normal selling period is done. Terms of Payment: Conditions under which retailers must make payment to vendors. Cash discounts: Deductions in price given by suppliers for prompt payment of invoice.Merchandise Management 11.22
  23. 23. Payment Requirements Shipping terms F.O.B. (Free on board): Merchandise is placed on board a truck, railroad car or airplane with 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 goods including 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 time of delivery. Advanced dating Vendors offer retailers more time in which to pay their bill in order to entice them to purchase their goods. Extra dating: One type of advanced dating which lengthens the time that retailers have to take advantage of cash discounts. EOM (End of month) dating: Under EOM dating, the ordinary period does not begin until the 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 not begin until the date that goods are received in the store. Anticipation discount: Discounts given by some vendors as an inventive for early payment in the form of a percentage rate per year.Merchandise Management 11.23
  24. 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 the month’s 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 ½(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 be supported by $30K invtyMerchandise Management 11.24

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