Retail Merchandising 1

Retail Merchandising is the process of developing, securing, pricing ,supporting and communicating the retailer’s merchandise offering.

It means offering the right product at the right time at the right price

with the right appeal!!

Buying Organisation

• Merchandise Group• Department• Classification• Categories• Stock Keeping unit

Types of Buying Systems

Staple MerchandisePredictable DemandHistory of Past SalesRelatively Accurate Forecasts

Fashion MerchandiseUnpredictable DemandLimited Sales HistoryDifficult to Forecast Sales

Other Types

• Fad

• Seasonal

Merchandise Management• Analysis• Planning• Handling• Control

Assortment planning

• It is the process of trading off variety , assortment and backup stock

• Category Management

• Setting objectives for the merchandise plan

TOOLS FOR MERCHANDISE PLAN

• GMROI• Inventory Turnover• Sales Forecasting : Category Life Cycle Types Of Merchandise : Fad Staples Fashion

CPFR

• Collaboration , planning, forecasting, and replenishment

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

Inter-organisational factors

• Retailer size• Retailer type• Retailer Location• Management mentality

Intra-organisational factors

• Type of merchandising• Product positioning• Regulatory constraints• Type of decisions

The process of merchandise planning

1.Developing the sales forecast:• Review past sales• Analyze economic conditions• Analyze the changes in the sales potential and marketing strategies

2.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 planning

3.The Merchandise Control: Open to buy

4.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

Staple Merchandise Buying System

Forecast SKU Sales

Order Merchandise

Monitor Sales and Inventory

Compare Inventory to Basic Stock List

Considerations in Determining How Much to Order

• Basic Stock List• Present Inventory• Merchandise on

Order• Safety stock • Sales Forecast– Rate of Sales of SKU

(Velocity)– Seasonality

Basic Stock List

Indicates the Desired Inventory Level for Each SKU– Amount of Stock Desired

Cost of CarryingInventory

Lost Sale Due to Stockout

Relationship between Inventory Investment and Product Availability

Inve

ntor

y in

vest

men

t Dol

lars

Product Availability (Percent)

600

500

400

300

200

100

0

80 85 90 95 100

Cycle and Buffer Stock

Uni

ts A

vaila

ble

Weeks

150 -

100 -

50 -

0 -

1 2 3 4

Order 96

Cycle Stock

Buffer Stock

Forecasting Demand

Forecasting -- extrapolating the past into future using statistical and mathematical methods

Objectives:– 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 Buy

Limits 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 Periods

Projected 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)

Analyzing Merchandise Management

Merchandise Performance– ABC Analysis– Sell Through Analysis

Vendor Analysis– Multiattribute Method

ABC Analysis Rank Merchandise By Performance Measures

Contribution MarginSales in UnitsGross MarginGMROIUse more than one criteria

ABC Analysis for Dress ShirtsPe

rcen

tage

of S

ales

Dol

lars

10 20 30 40 50 60 70 80 90 100

Percentage of Items

No Sales

1009080706050403020100

C10% B20%

A70%

A B C D5% 10% 65% 20%

Sales

ABC Analysis

Rank - orders merchandise by some performance measure determine which items:– should never be out of stock.– should be allowed to be out of stock

occasionally.– should be deleted from the stock selection.

13-34

Sell Through Analysis Evaluating Merchandise Plan

A sell-through analysis compares actual and planned sales to determine whether more merchandise is needed to satisfy demand or whether price reductions are required.

Ij *i 1

n

P ij = Sum of the expression

Ij = Importance weight assigned to the ith dimension

Pi= Performance evaluation for jth brand alternative on the jth issue

1 = Not important

10 = Very important

Evaluating a Vendor:A Weighted Average Approach

Evaluating a Vendor:A Weighted Average Approach

Performance Evaluation of Individual Brands Across Issues

ImportanceEvaluation Brand A Brand B Brand C Brand D

Issues 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

Ij *i

n

P1

ij

Merchandise Planning

• Top –Down (Corporate Objective)

• Bottom-Up (Stores)