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Managing merchandise
This document discusses key aspects of merchandise management for retailers. It begins by defining merchandise management as the process of offering the right products, in the right quantities, in the right locations, at the right times to meet financial goals. It then covers topics like buying organizations, merchandise categories, category management, inventory turnover, sales forecasting, assortment planning, and vendor evaluation. The overall goal of merchandise management is to maximize sales and profits through effectively planning product assortments and inventory levels.
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Managing merchandise
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- 2. 12-2 Merchandise Management Process bywhich a retailer offers the correct quantity of the right merchandise in the right place at the right time and meets the company’s financial goals. ■ Sense market trends ■ Analyze sales data ■ Make appropriate adjustments in prices and inventory levels c) image100/PunchStock
- 3. 12-3 Merchandise Management ■ Dollarsto invest in inventory ■ Invest in “hot” merchandise ■ Save a little for opportunities (open to buy) ■ Monitor portfolio of merchandise (stocks) ■ Sell losers (markdowns)
- 4. 12-4 Buying Organization Merchandise Group Department Classification Category SKU Eachmerchandise group is managed by a general merchandise manager (GMM), senior VP Departments are managed by a divisional merchandise manager (DMM), A group of items targeting the same customer type, such as girls’ sizes 4-6 Each buyer manages several merchandise categories (e.g., sportswear, dresses, swimwear, outerwear categories for girls’ sizes 4-6 The smallest unit available for inventory control Size, color, style
- 5. 12-5 The Buying Organization MerchandiseGroup…………Men’s wear Department………….……….Young Men’s wear Classification………….……..Pants Category……………………..Jeans Sock Keeping Unit (SKU)…..Levi, 501, size 26 waist, 32 inseam RyanMcVay/GettyImages
- 6. 12-6 Merchandise Category – ThePlanning Unit A merchandise category is an assortment of items that customers see as substitutes for each other. Vendors might assign products to different categories based on differences in product attributes Retailers might assign two products to the same category based upon common consumers and buying behavior
- 7. 12-7 Category Management Breakfast cerealcategory vs. Kellogg Corn Flakes Men’s knitted shirts vs. Polo shirts Diary product category vs. Carnation milk products ■ 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
- 8. 12-8 Category Captain Selected vendorresponsible for managing a category Vendors frequently have more information and analytical skills about the category in which they compete than retailers ■ Helps retailer understand consumer behavior ■ Creates assortments that satisfy the customer ■ Improves profitability of category Problems ■ Vendor category captain may have different goals than retailer
- 9. 12-9 Evaluating Merchandise Management Performance- GMROI Merchandise managers have control over ■ The merchandise they buy ■ The price at which the merchandise is sold ■ The cost of the merchandise Merchandise managers do not have control over ■ Operating expenses ■ Human resources ■ Real estate ■ Supply chain management ■ Information systems SO HOW ARE MERCHANTS EVALUATED?
- 10. 12-10 GMROI Productivity Measures Inventory Gross Margin InputOutput A measurement of how many gross margin dollars are earned on every dollar of inventory investment made by the buyer
- 11. 12-11 Advantages of RapidTurnover ■ Increased sales volume ■ Less risk of obsolescence and markdowns ■ Improved salesperson morale ■ More resources to take advantage of new buying opportunities
- 12. 12-12 Approaches for ImprovingInventory Turnover ■ Reduce number of categories ■ Reduce number of SKUs within a category ■ Reduce number of items in a SKU BUT if a customer can’t find their size or color or brand, patronage and sales decrease! another approach…
- 13. 12-13 …another approach To improveinventory turnover ■ Buy merchandise more often ■ Buy in smaller quantities which should reduce average inventory without reducing sales BUT by buying smaller quantities ■ Buyers can’t take advantage of quantity discounts so ■ Gross margin decreases ■ Operating expenses increase ■ Buyers need to spend more time placing orders and monitoring deliveries
- 14. 12-14 Types of MerchandiseManagement Planning Processes Two distinct types of merchandise management systems for managing ■ Staple (Basic) Merchandise Categories Continuous demand over an extended time period Limited number of new product introductions Hosiery, basic casual apparel Easy to forecast demand Continuous replenishment ■ Fashion Merchandise Categories In demand for a relatively short period of time Continuous introductions of new products, making existing products obsolete Athletic shoes, laptop computers, women’s apparel
- 15. 12-15 Merchandise Management Process 1.Forecasting sales 2. Developing an assortment plan 3. Determining the appropriate inventory level
- 16. 12-16 Developing a SalesForecast ■ 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)
- 17. 12-17 The Category ProductLife Cycle Knowing where a category is in its life cycle is important in developing a sales forecast and merchandising strategy
- 18. 12-18 Variations in theCategory Life Cycle
- 19. 12-19 Forecasting Staple Merchandise Basedon extrapolating historical sales because sales are constant from year to year
- 20. 12-20 Factors Affecting SalesProjections Controllable ■ Promotions ■ Store Locations ■ Merchandise Placement ■ Cannibalization Uncontrollable ■ Seasonality ■ Weather ■ Competitive Activity ■ Product Availability ■ Economic Conditions
- 21. 12-21 Forecasting Fashion Merchandise Categories Retailersdevelop fashion forecasts by relying on: ■ Previous sales data ■ Personal awareness ■ Fashion and trend services ■ Vendors ■ Traditional market research
- 22. 12-22 Personal Awareness How dofashion buyers know the trends? ■ Internet chat rooms ■ Look in closets ■ Go to the movies ■ Go to rock concerts ■ Go to nightclubs Ryan McVay/Getty Images SCAN Shop the retail stores, Web sites and catalogs of competitors as a customer would Converse with consumers, sales clerks, and neighbors Act like your customer Notice
- 23. 12-23 Developing Assortment Planning Assortmentplan is a list of the SKUs that a retailer will offer in a merchandise category and reflects the variety and assortment that the retailer plans to offer in a merchandise category Variety (breadth) is the number of different merchandising categories within a store or department Assortment (depth) is the number of SKUs within a category. Product availability defines the percentage of demand for a particular SKU that is satisfied.
- 24. 12-24 Determining Variety andAssortment Buyers consider ■ Retail strategy The number of SKUs to offer in a merchandise category is a strategic decision ■ GMROI of the merchandise mix ■ Trade-off between too much versus too little assortment Increasing sales by offering more breadth and depth can potentially reduce inventory turnover and GMROI by stocking more SKUs ■ Physical characteristics of the store ■ Complementary Merchandise PhotoLink/GettyImages
- 25. 12-25 Assortment Plan forGirls’ Jeans
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- 27. 13-27 Multiattribute Method forEvaluating 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 vendor’s performance on those issues. C Squared Studios/Getty Images
- 28. 13-28 Multiattribute Method forEvaluating Vendors
- 29. 13-29 Home Depot’s VendorEvaluation Home Depot take vendor evaluations seriously. Home Depot’s vendor analysis scorecard gives everyone a quick view of how the vendor is doing. Green is good, but red isn’t.