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McGraw-HillMcGraw-Hill © 2008 The McGraw-Hill Companies, Inc. All rights reserved.© 2008 The McGraw-Hill Companies, Inc. All rights reserved.
Retail BuyingChapter Ten
Core Concepts in Fashion by Laura Portolese DiasCore Concepts in Fashion by Laura Portolese Dias
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Chapter TenRetail Buying
Profit and loss statements – Used to see the big picture in a retail
environment– A profit and loss statement is generally
good for a specific time period, such as one quarter (3 months)
– In any kind of merchandising, the goal for all buyers and designers is to maximize profit
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Chapter TenRetail Buying
Components of a profit and loss statement– Sales– Cost of Merchandise (inventory) Sold– Operating Expenses– A Profit or Loss figure
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Balance sheet– Allows the business to see the assets it
owns– Assets can include the inventory,
buildings and any thing of value the company may own
– The balance sheet also shows the debt of the retailer (what the retailer owes)
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Gross Sales– The total amount of sales without
accounting for actual cost of the good or the overhead involved
Customer Returns and Allowances– Any rebates given to customers– Any defective merchandise
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Net Sales– The total number of sales for the day,
less customer returns and allowances Cost of Inventory – Sometimes called Cost of Goods Sold
(COGS)– The amount the buyer paid for the
merchandise that sold
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Gross Margin– The difference between sales and cost of
inventory– Important because it is an indication of a
retailers ability to turn sales into profit Direct Expenses– Those expenses which can be attributed to the
cost of selling– Salaries, Advertising
Indirect Expenses – Those expenses which are fixed-they don’t
change regardless of the number of sales– Rent, power
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Total Operating Expenses– The cost of inventory sold, direct and
indirect expenses added together Markup– The amount above cost which will be
charged for an item
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Why Markdowns occur– Buying errors
Overbuying quantities Buying of wrong sizes (poor form utility) Poor timing in orders Purchasing of wrong sizes, or too many of one size Stock becomes obsolescent
– Pricing errors Setting the initial price too high Not being competitive for same type of goods
– Selling errors Careless handling, that results in damaged goods Failure to display merchandise properly Un-informed salespeople
– Broken assortments Merchandise has sold, leaving only a few uncoordinated
miscellaneous items
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Chapter TenRetail Buying
Markdown money – an agreement from a vendor to take back (buy
back) or refund money if a particular item does not sell well
Sell Through– The percentage of merchandise which sells at
full price Cash Flow– The amount of money on hand– Effected by the amount a buyer purchases and
how much is sold
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Chapter TenRetail Buying
Turnover– How quickly merchandise in a store sells– Usually calculated on a yearly basis
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Shrinkage– Goods which are missing when inventory is taken– Two types of shrinkage-customer and employee shrink– Shrinkage due to customers can be minimized in the
following ways: Good customer service Awareness of what a customer has in the dressing room Security systems
– Shrinkage due to employees can be minimized by: Offering a generous discount on merchandise Checking person and bags/purses before leaving for lunch
breaks and after a shift Using skills in chapter eight to motivate employees Insuring all cash wrap transactions are correct
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Chapter TenRetail Buying
Open-To-buy– The amount of money a buyer has to
make purchases– Determined by sales forecasts and what
has already been purchased Six-Month Plan– A plan for all purchases which will be
made in two seasons
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Chapter TenRetail Buying
Merchandise classifications– A category assigned to all clothing
Can include junior knits, junior denim, petite career
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The Buying Trip– Review of Profit and Loss statement– Know pricing and markup– Have knowledge on desired turnover
rate– Have an updated open to buy figure– Review Six month merchandising plan– Use merchandise classifications to
insure she has right merchandise mix
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Chapter TenRetail Buying
Negotiation Tips for Buying Trips– Build trust
Vendors will be more likely to negotiate with a buyer if they know an ongoing relationship will occur.
– Listen Understand and evaluate the needs of the other
party.
– Know the settlement range A settlement range is neither at the lower end or
the high end of an acceptable range. It is simply a range that would make the negotiation successful.
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Negotiation tips for Buying Trips– Win-win
Every negotiation should be a win-win situation for both parties.
– “You can catch more flies with honey than with vinegar.” Be kind to the vendor. Most people do not get far by
taking a hard position up front.– Understand the power dynamics
Know the position of power each person comes from. If a buyer really wants to obtain a trendy item from a vendor, he might have less negotiation power than with a less popular item.
