This document discusses the merchandise buying process used by retailers. It covers collecting information on market needs and vendors, selecting vendors, evaluating merchandise quality, negotiating with vendors, purchasing merchandise, receiving inventory, reordering as needed, and reevaluating processes. The different types of retail formats are also described, including department stores, supermarkets, chain stores, discount houses, direct selling, telemarketing, online retailing, franchising, and specialty stores. Global sourcing and its advantages and disadvantages are briefly discussed.

1. Merchandise buying process
UNIT-3
(DR.SELVAMOHANA.K)

2. • Merchandise buying process-methods/types
• Buying organisation formats and process
• Sources of supply
• Steps in procurement- identifying, contracting
and evaluating, Ordering and vendor relations
• Global sourcing
• Brand strategies-category management
• Features of category management

3. Merchandise buying process-methods/types
• Merchandise buying and holding is a vital part of
implementing merchandise plans. This is a step by step
process and involves following stages:
(i) Collecting information,
(ii) Selecting vendors,
(iii) Evaluating merchandise,
(iv) Negotiation with vendors,
(v) Buying merchandise,
(vi) Receiving and stocking merchandise, Re-ordering,
and
(vii) Re-evaluating,

5. 1. Collecting Information:
• This is a very first step of merchandise buying and handling
process.
• Once the firm’s overall merchandise plans are defined,
exact information about current market needs and potential
vendors is required.
(i) What consumers are looking for,
(ii) Where the vendors are located and what is their goodwill
in the market, and
(iii) What their competitors are offering. After understanding
these aspects, retailer will be in a position to decide what he
wants to buy and from whom.
• For collecting information, a retailer/buyer has several
possible sources defined as internal and external sources.

6. •Vendors (manufacturers and
wholesalers), do their own
projections about the future
sales and market demand,
while finalizing the ‘buying
deal’ with retailers.
•Vendors present these
projections through pie-
charts, bar-diagrams and
various two and/ or three
dimensional charts.

7. 2. Selecting Vendors:
• For selecting vendors, the retailers usually have three
alternatives
i) Company-owned vendors: Large retailers have their
own manufacturing or wholesale operations. They work
only for particular retailers and provide as per their
requirements.
(ii) External, widely used supplier: This type of supplier
is not owned by the retailer but used frequently by the
retailer.
(iii)External, not used supplier: This type of supplier
has not been used by the retailer as he is either a new
entrant or retailer has not purchased anything from him
so far.

8. • Following points must be considered while
selecting the vendors:
(i) Goodwill of the vendor in the market.
(ii) Guarantee and/or warranty offerings.
(iii) Which vendor offers merchandise at the lowest
total cost?
iv) Quality offered by the vendor
(v) Will the vendor provide transport storing and
other facilities?
(vi) Is vendor’s merchandise line conservative or
innovative?
(vii) Is vendor offering credit purchase?

9. 3. Evaluating Merchandise:
• After deciding upon the source of
merchandise, next step is to evaluate the
vendor’s merchandise quality.
• (i) Whether the whole lot be examined, or
• (ii) Purchasing be made only on vendor’s
description

10. • For evaluating merchandise items, retailer has three
choices in hand:
• 1. Inspection
• 2. Sampling and
• 3. Description
 Inspection is a process of examining each item of
merchandise thoroughly before the merchandise
procurement and also after delivery.
 Jewelry (diamond, gold, platinum and other precious
stones) is one of the examples where retailer inspects
all the items of purchase.
 Sampling technique is used when retailer is buying
items on regular basis in large quantity that is
perishable, breakable or costly ones.

11. Description buying is a process of
merchandise purchase where a retailer orders
the merchandise items after going through
supplier’s pictorial catalogue mentioning the
product features, price, size and other relevant
details.

12. 4.Negotiation:
• Once the retailer has evaluated the merchandise
quality and other features, he negotiates with the
vendor for its price and consequent terms and
conditions.
• Both parties listen to each other carefully and ask
questions wherever doubt arises.
• Terms and conditions are then decided and
contract is made involving total amount to be paid
by the retailer, delivery date, delivery conditions
and other legal aspects.
• A retailer while negotiating also talk about the
conditions for the re-order.

13. 5.Buying Merchandise:
• After negotiating the terms and conditions and
agreed upon price, a retailer after placing the size
of the order (quantity and quality of each
merchandise category), pays the initial money as
per the agreement.
• Big retailers usually place the order and pay the
bills online through electronic data interchange
(EDI) and quick response (QR) Inventory
planning,
• small retailers due to limited sources, conclude
purchase manually.

14. 6.Acquiring Merchandise:
• It means after paying for the invoices, retailer
should receive the merchandise and stock it
properly.
• While acquiring the merchandise, retailer
physically receive the items, counts the supplies,
pays the invoices, marks the items, displays the
items and stock in go downs/warehouses to avoid
any pilferage and damage.
• In case of centralized buying, goods are received
by regional office/central warehouse and then
transferred to chain stores as per their
requirements and order received from them.

15. 7. Re-evaluated
• Once a merchandise plan is implemented, it
should be re-evaluated at regular interval of
time by close monitoring of implementation
plan with the objective of satisfying
consumers.
• In case of central buying, distribution
management is the key to store performance.
• Buyers/concerned staff should take care while
shifting merchandise to chain stores or
warehouses.

16. Types /methods of merchandise buying
• The importance of sourcing of merchandise
management has increased due to the shrinking of
world borders and the world becoming a global
village.
• Global travel and the spread of mediums of mass
communication have also made the consumer
more conscious of global trends and products.
• For a retailer, this means that he has to be far
more competitive in his ability to meet consumer
demands.

17. • Typically, Merchandise decisions taken by the
merchandiser as it is the retail model that the
retailer chooses to operate which determines
the merchandise mix. This may comprise of:
1) National / Regional Brands
2) Own label Merchandise popularly known as
the Private label.
3) A combination of both.

18. Buying organisation process
The buying organization structure and process
varies from organization to organization, country
to country and format to format.
(a) Type of merchandise offered
(b) Type of retail format
(c) Areas of business operations
(d) ‘Width’ and ‘breadth’ of merchandise offered
(e) Management policy
(f) Level and number of categories
(g) Competition in the market
(h) Financial Constraints

20. buyingorganisation formats
• Department Stores.
• Super Markets.
• Chain Stores or Multiple Shops.
• Discount Houses.
• Direct Selling.
• Telemarketing.
• Online Retailing.
• Automatic Vending.
• Direct marketing
• Franchising
• Mom & pop stores
• Specialty stores

21. 1.Department stores
• Department stores are large stores which sell
different types of products under one roof in
different departments.
• Each department has an individual specialization
of merchandise.
• Each store is handled separately in accounting,
management, and location.
Various features of Department stores:
• Merchandises are arranged in different
departments in the same store.
• Department stores are integrated stores which
perform operations.

22. • Department stores are designed horizontally in
order to provide different merchandises under
the same roof.

23. 2) Super Markets
• Supermarkets are self-service stores that sell a
wide range of food as well as non-food
products.
• supermarkets have at least four basic
departments such as self-service grocery, dairy
produce, meat, and household department.
• These stores can be either entirely operated by
owners or they are given on lease to others to
operate.

24. Features of supermarkets
• Goods are displayed in bulk.
• Supermarkets are located in nearby housing
areas so that people have easy access.
• These stores offer a wide range of products,
low prices, nationally advertised brands, and
also convenient parking.
• It follows the “cash and carry” policy.
• Minimum customers service is provided in
these stores as these stores work on the basis
of self- service.

25. 3) Chain Stores or Multiple Shops
• Chain store consists of four or more stores sell
the same kind of merchandises and are owned
and managed by a single owner.
• The supplies are stocked in chain stores are
provided by one or more warehouses owned
by the chain store owner.
• The appropriate examples of chain stores are
Wal-Mart, subway etc Chain stores work on
the basis of “Centralized buying with
decentralized selling”.

26. Features of Chain stores
• When one or more shops are run under one name are
called chain stores.
• There is centralized control over all the shops.
• Chain stores are integrated stores.
Advantages of Chain Stores:
• Chain stores offer low selling prices.
• Low advertisement cost as the advertisement is done on
a central basis.
• Chain stores work on a cash basis. Therefore, there are
fewer chances of bad debts and less accounting process
required.
• No need to look for costly and centralized locations.

27. 4) Discount Houses
• Discount house is a type of retail format which
operates at low cost and almost no customer’s
service.
• These stores are large in size, open for public
and advertised heavily.
• They sell a wide range of products of well-
known brands, house wares, appliances,
sporting goods, house furnishing, toy and
automotive services, and clothing, etc.

28. 5) Direct Selling
• Direct selling is when customer and seller have direct
contact with each other away from the store. direct
selling is also referred to as home selling.
• The total volume of direct selling has been growing in
India since the beginning of the 21st century.
• There are a thousand big direct selling companies.
Companies like Creative Memories, Amway, and Excel
Communications are a few popular companies which
make their business through direct selling.

29. Features of direct selling:
• The whole business is controlled centrally.
• There is no building to display products.
• The seller needs to establish a relationship
with the customers to gain their trust.
• Direct selling does not require heavy initial
investments.

30. 6) Telemarketing
• Telemarketing is also known as telephone selling.
• In telemarketing, a salesperson initiates a sale
over the phone to a prospect and close it over the
phone only.
• It consists of cold canvassing from a phone
directory.
• There are various products such as magazine
subscriptions, pest control devices, club
memberships, and credit cards which can be sold
without seeing are usually sold over the phone.

31. 7) Online Retailing
• In online marketing, there are one or more
businesses involved and the buyer is an
ultimate consumer.
• The number of online retail firms are rapidly
increasing such as Pets Mart, Busy.com,
CDNow.com, Amazon.com, etc.

32. 8) Automatic Vending
• A sale is made without the slightest contact
between a seller and a buyer through automatic
vending.
• The idea behind selling through automatic
vending is to provide convenient purchase.
• Most of the selling from automatic vending comes
from “4 Cs”: Coffee, Cold Drinks, Cigarettes, and
candies.
• The vending machines are installed in places like
schools, colleges, workplaces, public facilities,
etc.

33. 9) Direct Marketing
• Direct marketing consists of all Non-store retail
formats except telemarketing, direct selling,
online retailing, and automatic vending.
• Direct marketing is a way of contacting customers
through broadcasting or print media.
• Direct marketing can be of two types such as
general merchandise firms which offers various
types of products and other is specialty firms
which offers one of two lines of products for
example Beauty and books.

34. Format of retailing includes
• Catalog Retaining – Catalogs are mailed to
consumers or made provided to them in retail
stores.
• Direct Mail – Samples products, brochures, and
mail letters are sent to consumers and ask them to
make a purchase through telephone or email.
• Tele-shopping – Various lines of products are
sold on different television channels where people
can learn about the features of the products and
can place orders over the phone instantly.

35. 10) Franchising
• In this retail format, a businessman who owns the
business (known as a franchise) and a company
who offers business (known as franchiser).
• A businessman can use the name of already well-
established business’s name to run their business
under a certain condition set up franchiser.
• Franchising business exists for various products
like automobiles and parts, soft drinks, dry
cleaning, and business services,

36. 11) Mom and Pop stores
• Mom and Pop stores are types of retail format
which is a small, independent, family-owned
business.
• Mom and Pop stores can be different types of
establishments such as bookstores, restaurants,
and automotive repair shops, etc.

37. 12) Specialty Stores
• Specialty stores are small in size and they
generally offer limited products categories but
provides a high level of service.
• The specialty stores can be a drug store, DIY
stores, Category , etc.
• Eg: Decathlon (specialty store meant for
dealing sports goods alone)

38. Sources of supply
• Domestic sources of supply may be located by visiting
central markets, trade shows or expositions.
• Usually, each city has its own central market where a large
number of key suppliers are located.
• A visit to such a location enables the buyer to understand
the trends in the market and to evaluate the new resources
and merchandise offerings.
• Trade shows and expositions are also a good ground for
finding new sources of supply.
• Supplier selection may be the single most important
decision made in purchasing. It consists of the following
phases.
1.survey stage
2.Inquiry stage
3.Evaluation of supplier performance

39. 1.Survey stage
• The purpose of a supplier survey is to explore all possible
sources for a product.
• The buyer experience and personal contacts with various
suppliers provide the most valuable and reliable information
• To select a new supplier inquiry must be made to cover the
following points:
 Full detail of the firm and range of item that they are selling.
 Price list.
 Details of trading terms.
 Samples of products.
 Credibility.
 Full detail of the supplier.
 Goodwill in the market.

40. 2. The Inquiry stage
• Quality, quantity, and price should be compared
and balanced against one another among available
suppliers.
• Geographic location is a major concerned in
evaluating a supplier’s service. Certainly, shorter
delivery distances offer better opportunities for
satisfactory service.
• The selected supplier should be the one who
keeps current with the technological
developments, is capable of providing new and
improved products.

41. • Another factor to consider is that the financial
condition of a supplier is vital for maintaining
a satisfactory business relationship.
• After the survey and inquiry stage of selection,
the buyer should have a few suppliers from
which to choose one or more.

42. 3.Evaluation of supplier performance
• The evaluation of supplier is a continuing
purchasing task.
• Current suppliers need to be monitored to be
sure that they are meeting performance
expectations,
• And new ones need to be screened to
determine if they should be seriously
considered in the future.
• There are three main criteria’s for evaluation:

43. • PRICE PERFORMANCE: Cheapest item is not
necessarily the best to buy. Selection of supplier
depends upon the standard of quality required.
• QUALITY PERFORMANCE: This is the
ability of a supplier to supply constantly desired
quality. consistency in meeting the requirement is
must.
• DELIVERY PERFORMANCE: All the required
goods should be delivered on time and whenever
required by the purchaser.
• Delay in delivery will increase the pressure at
work .

45. Steps in procurement

46. Global Sourcing
• Global sourcing is the practice of sourcing from the global
market for goods and services across geopolitical boundaries.
• Global sourcing aims to exploit global efficiencies in the
delivery of a product or service.
• These efficiencies include low cost skilled labor, low cost raw
material and other economic factors including low trade tariffs.
• Retail buyers and merchandisers are continuously tasked with
sourcing new merchandise and comparing to existing products
to ensure their product lines remain competitive in the
marketplace.
• In the highly competitive and fast-paced retail and brand-
focused environments, global sourcing has become an inherent
strategy to excel in the marketplace.

47. Global Sourcing -Advantages
• Helps in learning how to do business
successfully in a new market,
• Finding and developing alternate supplier
sources to reduce costs and stimulate
competition.
• The opportunity exists to locate scarce skills
and resources not available or unproductive at
home thereby increasing manufacturing
capacity and other technical capabilities.

48. Global Sourcing -Disadvantages
• Monitoring costs go up and there are hidden
costs relating to the effort and time spent
learning about different cultures and time
zones.
• There is exposure to financial, political and
legal risks, often in emerging economies.
• In the service industries there is also a real risk
in losing a grip on our intellectual property.

49. Global sourcing of manufactured goods
• Many variables come into play when sourcing
manufactured goods or component parts from
another country.
• The supply chain is long and fragmented and
the main challenges are long lead times,
• The risk of disruptions in transportation and
the difficulty of ensuring the specified product
quality.

50. Global sourcing by Walmart
• Walmart, the US based international retailer, sums up
global sourcing well “ By realigning our resources,
leveraging our scale, and restructuring our relationship
with suppliers, we can offer even more competitive
pricing on merchandise and provide our customers a
clear and compelling assortment of better quality
products at lower prices."
• Companies that have implemented global sourcing have
leapt ahead of the pack reducing the cost of goods,
• Accelerating the speed to market and improving the
quality on a consistent basis.

53. Brand strategy-category management
Brand strategy- meaning
• It is a long-term plan for the development of a
successful brand in order to achieve specific
goals.
• A well-defined and executed brand strategy
affects all aspects of a business and is directly
connected to consumer needs, emotions, and
competitive environments.

54. • According to Institute of Grocery Distribution,
“Category Management is the strategic
management of various merchandise groups
through trade tie ups and partnerships which
aims to maximize turnover and profit by
satisfying consumer needs and want.”
• According to Nielsen (1992), Category
Management is a process of managing product
categories as separate business units and
customizing them to satisfying consumer
needs.

55. Why Category Management?
• One foremost reason for the introduction of
‘category management’ is that all the items of
merchandise are not equally important for a
retailer from cost revenue generation point of
view.
• need was point to categorized the items in to
different sub groups.

56. Essentials / Prerequisite of Category
Management:
1. Category should be divided and arranged as per
consumers’ ease not because of retailer’s
convenience.
2.CM should be based on differentiation and
uniqueness.
3.CM should drive multiple item purchases at the
same time.
4.It should result in better customers’ relations
rather than relations with suppliers.
5. Category division should be based on the basis of
product , space, time and profitability.

57. Significance/Features of Category Management:
• 1. Increased sales, goodwill and market share
• 2. Proper care and devotion to each item of
merchandise
• 3. Increased sales further lead to increased
turnover
• 4. Maximize shelf efficiencies
• 5. Less inventory shrinkage
• 6. Recognizes procurement opportunities
• 7. Enhances customer knowledge level

58. 8. Improves return on investment (ROI)
9. Decreases chances of out-of-stock positions
10.Enhances return on money invested in
marketing efforts
11. Classifies the performance of brands as doing
well, not doing well, problem brands, etc.
12. Purchasing merchandise exercise becomes
easy and cost effective.