MERCHANDISE PLANNINGCHAPTER 6

MERCHANDISING DECISIONS

•ENABLES RETAILERS TO MAKE BETTER DECISIONS ABOUT MERCHANDISE NEEDED TO MEET SALES GOALS FOR THEIR BUSINESSES.

•CHALLENGE: PROVIDING THE RIGHT MERCHANDISE AT THE RIGHT PRICES, AT THE RIGHT TIME

THE MERCHANDISE PLAN• A BASIC BUDGETING TOOL THAT ASSISTS THE RETAILER OR BUYER IN MEETING DEPARTMENT OR CLASSIFICATION GOALS.

• PREVIOUS YEAR TO CREATE PLAN FOR CURRENT YEAR

COMPONENTS • PLANNED SALES – DOLLAR FIGURES REFLECT SALES

NEEDED TO MEET GOAL FOR MONTH

• PLANNED STOCK- $ OF MERCHANDISE A STORE NEEDS TO MEET PLANNED SALES GOAL

• PLANNED REDUCTIONS- $ OF ANY DECREASE IN THE SELLING PRICE OF MERCHANDISE ( MARKDOWNS, ADJUSTMENTS, LOSS FROM SHOPLIFTING)

• PLANNED PURCHASES- $ OF NEEDED MERCHANDISE TO MEET PLANNED SALES GOALS.

$= DOLLAR AMOUNTS

MERCHANDISE LIFE CYCLES • REFERS TO CUSTOMER ACCEPTANCE LEVELS AND BUYING LEVELS OF AN ITEM OF MERCHANDISE OR PRODUCT.

• 4 STAGE CYCLE

INTRODUCTION

GROWTH

ACCEPTANCE

DECLINE

http://www.quickmba.com/marketing/product/lifecycle/

CYCLE

MERCHANDISE ASSORTMENT PLANNING TOOLS

•RETAILERS LOOK TO IMPROVE AND REFINE THEIR PURCHASING.

•STUDY SALES AND INVENTORIES TO FIND WAYS TO IMPROVE

TYPES OF MERCHANDISE• STAPLE MERCHANDISE

• SELLS WELL OVER A LONG PERIOD OF TIME • EX: T-SHIRTS SELL SEASON AFTER SEASON; WHITE, BLACK, RED,

NAVY POPULAR COLOR

• FASHION MERCHANDISE • SELLS WELL FOR SEVERAL SEASONS, BUT NOT YEAR AFTER

YEAR• EX: WOMENS PLEATED SKIRT IN STYLE FOR A FEW SEASONS BUT

AFTERWARDS INTEREST IS LOST

• SEASONAL MERCHANDISE • SELLS WELL AT CERTAIN TIMES, OR SEASONS, OF THE YEAR• EX: HOLIDAY; CHRISTMAS, HALLOWEEN

• CONVENIENCE MERCHANDISE • MERCHANDISE BOUGHT WIHTOUT MUCH PLANNING OR

THINKING• EX: DRUGSTORE CUSTOMERS WILL BUY HEADACHIE REMEDIES; GUM

BUYING MERCHANDISE •UNDERSTANDING THE ROLE THAT BUYING PLAYS IS IMPORTANT FOR UNDERSTANDING THE RETAIL BUSINESS.

• BUYING THE RIGHT MERCHANDISE TO SATISFY CUSTOER NEEDS IS ONE OF THE MOST IMPORTANT DECISIONS IN THE RETAIL MIX.

THE BUYER’S JOB • RIGHT AMOUNT OF MERCHANDISE IS CRITICAL • TOO MUCH, SLOW TURN AROUND, IF NOT ON DEMAND • TOO LITTLE, MAY RESULT IN LOSS OF SALE

• WHEN IS THE RIGHT TIME TO BUY?

• LARGE RETAIELRS EMPLOY BUYERS, SMALLER RETAILERS DO IT THEMSELVES

• BUYER REQUIRES ACCURATE KNOWLEDGE OF TARGET-MARKET CUSTOMERS AND IN DEMAND PRODUCT

1. DETERMINING AVAILABLE MONEY

• DETERMINED BY THE MERCHANDISE PLAN

• OPEN-TO-BUY - AMOUNT OF MONEY AVAILABLE TO PURCHASE MERCHANDISE AFTER OTHER PURCHASES HAVE BEEN SUBTRACTED.

• AMOUNT IS FIGURED FOR A MONTH OR SEASON

• PLANNED PURCHASES – (MERCHANDISED RECEIVED + MERCHANDISE ORDERED)= OPEN-TO-BUY

OPEN-TO-BUY• TOM IS RUNNING A BEACH SHOP. IN JUNE, PLANNED PURCHASES TOTAL $3,300. SHE’S ORDERED MERCHANDISE THAT COSTS $1,400 AND RECEIVED A SHIPMENT OF GOGGLES WORTH $300. WHAT IS THE OPEN TO BUY FIGURE?

ANSWER

3,300 – (300+1,400) = 1,600

2. WHAT CUSTOMERS WANT• TARGET-MARKET INFO: DETERMINE MERCHANDISE CUSTOMERS WILL BUY

• SALES RECORDS: BASED ON PAST PURCHASES

• CUSTOMER PREFERENCES: ITEMS LIKED MORE THAN OHTERS; SALES ASSOCIATES CAN LEARN BY TALKING TO CUSTOMERS

• CUSTOMER REQUESTS: ITEMS NOT AVAILABLE CAN BE REQUESTED; SPECIFIC; SPECIAL ORDER

• SHOPPING THE COMPETITION: BUYER WILL SHOP OR VISIT COMPETITOR LOOKING FOR IDEAS, STYLES, SALES, AMBIANCE, ETC.

3. VENDOR SELECTION• A COMPANY FROM WHICH A BUYER PURCHASES MERCHANDISE.

• SHOP VENDOR LOOKING FOR QUALITY, PRICE, AND RELIABILITY

• DETERMINING QUALITY OF MERCHANDISE IS CRITICAL. YOU WANT MIDDLE GROUND; NOT LOWER OR HIGHER

4. NEGOTIATING TERMS AND DISCOUNTS

• BUYER’S OBJECTIVE: TO MAKE PROFIT

• DATING TERMS DEAL WITH THE DATE WHEN THE BILL FOR MERCHANDISE HAS TO BE PAID TO VENDOR.

• 2/10, NET 30

• 2% DISCOUNT OF TOTAL BILL IF PAID WITHIN 10 DAYS OF SHIPMENT, OR PAY FULL BILL WITHIN 30 DAYS

• SHIPPING TERMS REFER TO HOW MERCHANDISE WILL GET FROM THE MANUFACTURER TO THE STORE;

• WHO PAYS FOR THE SHIPPING ( MANUFACTURER OR BUYER);

• AND WHEN OWNERSHIP OF THE MERCHANDISE CHANGES HANDS.

• IMPORTANT: • 1. SHIPPING CAN BE VERY COSTLY, ADD TO COST OF MERCHANDISE IF STORE HAS TO PAY

• 2. OWNER OF MERCHANDISE WHILE IN TRANSIT MUST PAY INSURANCE TO COVER LOSS OR DAMAGE

• 3. OWNER WHILE TRANSIT, MUST FILE ANY CLAIMS FOR LOSS OR DAMAGE

5. TIMING MERCHANDISE DELIVERIES

• BUYER DETERMINES BEST TIME FOR MERCHANDISE TO ARRIVE.

• ARRIVING AFTER THE FACT, WILL RESULT IN LOST OF SALE AND CUSTOMER

TYPES OF BUYING • CENTRALIZED BUYING OCCURS WHEN ALL BUYING FOR THE CHAIN IS COMPLETED FROM ONE LOCATION.

EX. BUYER FOR MACYS SHOE DEPARTMENT WILL PURCHASE ALL THE SHOES FOR ALL STORES FROM ONE LOCATION.

QUANTITY DISCOUNTS ARE OFFEREDFOR LARGE OR BULK PURCHASES.

DECENTRALIZED BUYING MEANS THAT BUYING DECISIONS ARE MADE AT THE LOCAL STORE LEVEL.

PRICING MERCHANDISE

FACTORS AFFECTING SELLING PRICE

• PRICE TOO HIGH, CUSTOMERS WILL NOT BUY • PRICE TOO LOW, CUSTOMERS MAY NOT SEE ANY VALUE IN THE MERCHANDISE

• TO MAKE PROFIT, SELLING PRICE MUST INCLUDE:1. COST OF MERCHANDISE2. EXPENSES OF GETTING MERCHANDISE TO STORE3. SHARE OF RETAILER’S OVERHEAD EXPENSE4. RETURN ON INVESTMENT

• MARKUP IS THE TERM USED TO EXPRESS THE DIFFERENCE BETWEEN THE COST PRICE OF MERCHANDISE/SERVICES AND THE SELLING PRICE OF THE MERCHANDISE.

• TELEVISION • STORE PAYS $500 • CUSTOMER PRICE $1,200 • MARKUP $ 700

3 MAJORS FACTORS AFFECT SELLING PRICE

• 1. COMPETITION• RETAILERS CONSIDER PRICES THEIR COMPETITORS ARE CHARGING FOR THE SAME OR SIMILAR MERCHANDISE/SERVICE.• CHARGING SAME = MEETING THE COMPETITION • RETAILERS RELY ON CUSTOMER LOYALTY AND CONVENENCE

2. SUPPLY AND DEMAND• LAW STATES: • IF THE SUPPLY IS LIMITED, PRICES ARE HIGHER. • IF SUPPLY IS PLENTIFUL, PRICES ARE LOWER. • DEMAND IS THE QUANTITY THAT CUSTOMERS WILL BUY. • SUPPLY IS THE QUANTITY OF MERCHANDISE THAT IS AVAILABLE FOR PURCHASE.• EX. HOLIDAY DECORATIONS • PRICES ARE HIGHER BEFORE HOLIDAY THAN AFTER• SUPPLIES ARE LIMITED, CUSTOMERS WILLING TO PAY HIGHER. • EX. CUSTOMERS WILLING TO PAY MORE FOR PEACHES DURING OFF-SEASON THAN IN.

3. CUSTOMER ACCEPTANCE• WILL CUSTOMER ACCEPT YOUR MERCHANDISE/SERVICE BASED ON PRICE?

• KNOW YOUR TARGET-MARKET WELL ENOUGH TO PREDICT AND JUDGE LEVEL OF ACCEPTANCE

OTHER FACTORS• 1ST CONCERN IS PROFIT

• RETURN ON INVESTMENT IS A PERCENTAGE FIGURE USED TO EXPRESS THE RETURN ( OR PROFIT) ON THE COST OF MERCHANDISE OR SERVICE PLUS THE EXPENSES NECESSARY TO SELL THE MERCHANDISE/SERVICE. • http://www.investopedia.com/terms/r/returnoninvestment.asp

• MARKET SHARE IS ONE RETAILER’S PART OF THE TOTAL SALES OF MERCHANDISE AND SERVICES BY ALL RETAILERS IN THE SELLING AREA.

• TO INCREASE SALES, RETAILER MIGHT LOWER PRICE.

MARKDOWNS• A REDUCTION IN THE ORIGINAL SELLING PRICE. • SALE ITEMS• REASONS: • ATTRACT NEW CUSTOMERS• REDUCE INVENTORY - SELL MERCHANDISE NOT SELLING

AS WELL AS EXPECTED• GENERATE NEW SALES• PART OF DOING BUSINESS• PART OF THE MERCHANDISE PLAN ALLOWING FOR PRICE

REDUCTIONS UNDER PLANNED REDUTIONS.

SELLING MARKDOWN MERCHANDISE

• METHODS TO LIQUIDATE LEFTOVER MERCHANDISE• 1. SELL, OR JOB-OUT TO ANOTHER RETAILER SUCH AS T.J. MAXX• 2. CONSOLIDATE AND SELL TO ANOTHER STORE UNDER SAME OWNERSHIP• 3. USE INTERNET • 4. DONATE AND USE AS TAX DEDUCTION• 5. CARRY OVER INTO NEXT SEASON