Understand Merchandise Planning in Retailing

The Merchandise Plan

•A budgeting tool that helps retailer or buyer to meet department goals▫Planned sales▫Planned stock▫Planned Reductions▫Planned purchases

Merchandise and strategies for managing the merchandise mix

• Staple Goods▫ Goods that are constantly in demand

• Convenience Goods▫ Small, inexpensive goods that are purchased frequently

• Fashion Goods▫ Items that constantly change, popular at a certain time

• Seasonal Goods▫ Goods that are popular at certain times of the year

The Buyers Job•Determines amount of money available

for purchases•Determines which merchandise to buy•Determines best vendor to buy from•Negotiates terms and discounts with

vendors•Determines when merchandise will

arrive at store

Buying Activities

•Planning▫Role of buyer: purchase goods for resale.▫Best way to plan is through merchandise

planning.▫Merchandise planning include these four

elements: planned sales, beginning of the month inventory planned purchases planned reductions.

Buying Activities (cont.)

•Researching▫Research determines the best vendor▫Factors to consider when selecting:

Production Capabilities Past Experiences Product and Buying Arrangements Special Services Discounts Payment Arrangements

Determining available money

•Open-to-buy▫Amount of money available to make

purchases• Planned purchases – (merchandise received + Merchandise Ordered) = Open-

To-Buy

Determining What Customers Want•Target Market Information

▫Know what merchandise those customers will buy

•Sales records▫What has done well in the past

•Customer preferences•Customer Requests

▫Want Slip Informs buyer of a specific item that a customer wants

but the retailer does not carry•Shopping the competition

▫Visit competing stores to see what they are carrying

Vendor Selection

•Vendor▫Company form which the buyer purchases

merchandise•Negotiating terms and discounts

▫Dating terms When the bill for the merchandise has to be

paid 2/10 net 30

If the buyer pays in ten days they get a 2% discount the bill must be paid in thirty days

Vendor Selection•Shipping Terms

▫How the merchandise will get to the store and who will pay for the shipping

•FOB ▫Free on board ownership of merchandise in

transit determines if freight charges are free

•Timing Merchandise Deliveries▫Merchandise must arrive at exactly right

time to be sold and make maximum profit

Types of Buying

•Centralized Buying▫Used by large retail chains▫Buying everything from one location

•Quantity discounts▫Offered for large or bulk purchases

•Decentralized Buying▫Buying decisions are made at the local store

level

Using the marketing mix to make buying decisions•Product

▫Determining what to buy and what to sell•Place

▫Where to buy from•Price

▫What the markup will be how much to pay for merchandise

•Promotion▫Which products will sell the most and be easy

to promote

Determining what to buy•Internal sources

▫Store records▫Management▫Sales staff

•External sources▫Customers▫Magazines, trade journals and trade shows▫Vendors▫Trade associations▫competitors

Merchandise Life cycle

• Introduction▫Few sale, limited customers, availiable at few

locations•Growth

▫Customers begin to accept product, sales increase

•Acceptance▫Greatest customer acceptance, highest sales

•Decline▫Customers get tires of product, gets marked

down

Pricing Merchandise

•Factors affecting selling price▫Cost of merchandise▫Expenses of getting it to the store▫Share of retailers overhead expenses▫Return on investment▫Competition▫supply and demand▫Customer acceptance

Receiving Process

Preparing Merchandise

•Unpacking Merchandise▫Removing wrapping…duh

•Ticketing Merchandise▫Putting price on merchandise

•Security Tags▫Self explanatory

•Presentation▫Hung, displayed, stocked

Checking Merchandise•Blind Check Method

▫Most accurate, check every box•Direct Check Method

▫Use the most, check off merchandise on invoice

•Dummy Invoice Method▫Combo of Blind Check and Direct Check▫Records merchandise received, check

against invoice.•Spot Check Method

▫Least amount of time, least accurate

Returns To Vendors•Reasons For Returns

▫Received an item that was not ordered▫Order was canceled after shipment▫Excess of items shipped out▫Late arrival of merchandise▫Unsold merchandise returned for credit

•Procedures For Handling Returns▫Varies from vendor to vendor▫Once returned business will receive credit

memorandum.

Inventory control

• Managing inventory levels to make sure there is enough to meet sales goals with out having too much▫Physical inventory system

Retailers physically count merchandise in stock

▫Perpetual inventory system Keep track of what is bought and

sold on a daily basis using computers and point of sale terminals

Inventory Shrinkage▫Differences between what’s in stock and

what should be in stock.•Causes Of Shrinkage

▫Theft▫Employee errors

•Shrink Prevention▫Educating employees▫Planning▫Security

Other Factors•Return on Investment

▫Figure representing the profit of merchandiseCost-price=difference/expenses=ROI$5-$3.80=$1.20/$4.00=.30 or %30

•Market Share▫One retailers part of all the retailers sales▫Figured for single product, group of

merchandise, or the business as a whole

Markup and Markdown•Markup

▫Difference between cost of merchandise and selling price▫Factors affecting markup

Competition Supply and demand Customer acceptance

•Markdown▫Reduction in original selling price▫Reasons for markdown

Reduce inventory Generate additional sales

Stock turnover

•The number of time the average inventory is sold during a time period, usually a year

▫ Stock turnover in UNITS = number of units sold average number of units of stock on

hand

▫ Stock turnover in DOLLARS = dollar sales of units average dollar value of merchandise

on hand