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Chapter 9

Merchandise Buying and Handling. Chapter 9. Learning Objectives. Describe the major steps in the merchandise buying and handling process

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Chapter 9

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  1. Merchandise Buying and Handling Chapter 9

  2. Learning Objectives Describe the major steps in the merchandise buying and handling process Explain the differences between the four methods of dollar merchandise planning used to determine the proper inventory stock levels needed to begin a merchandise selling period Explain how retailers use dollar-merchandise control and describe how open-to-buy is used in the retail buying process

  3. Learning Objectives Describe how a retailer determines the makeup of its inventory, including what cross-referencing in the merchandise item file means and how a category-item line review works Describe how a retailer selects proper merchandise sources

  4. Learning Objectives Describe what is involved in the vendor–buyer negotiation process and what vendor contract terms can be negotiated Discuss the various methods of handling the merchandise once it is received in the store so as to control shrinkage, including vendor collusion, and theft

  5. Major Steps in Merchandise Buying and Handling • Merchandise management • Analysis, planning, acquisition, handling, and control of the merchandise investments of a retail operation LO 1

  6. Exhibit 9.1 - Major Steps in the Merchandise Management Process LO 1

  7. Dollar Merchandise Planning • Gross margin return on inventory • Gross margin divided by average inventory at cost • It is the gross margin percent multiplied by net sales divided by average inventory investment LO 2

  8. Dollar Merchandise Planning LO 2

  9. Dollar Merchandise Planning • Calculating BSM • Average monthly sales for the season • Total planned sales for the season/Number of months in the season • Average stock for the season • Total planned sales for the season/Estimated inventory turnover rate for the season • Basic stock • Average stock for the season – Average monthly sales for the season • Beginning-of-month stock at retail • Basic stock + planned monthly sales LO 2

  10. Dollar Merchandise Planning The PVM is calculated as follows: BOM stock = Average stock for season X ½[1 + (Planned sales for the month/Average monthly sales)] LO 2

  11. Dollar Merchandise Planning Calculating WSM Number of weeks to be stocked = Number of weeks in the period/Stock turnover rate for the period Average weekly sales = Estimated total sales for the period/Number of weeks in the period BOM stock = Average weekly sales X Number of weeks to be stocked LO 2

  12. Dollar Merchandise Planning The SSM can be computed as follows: Average BOM stock-to-sales ratio for the season = Number of months in the season/Desired inventory turnover rate LO 2

  13. Dollar Merchandise Control • Open-to-buy (OTB) • Dollar amount that a buyer can spend on merchandise without exceeding the planned dollar stocks LO 3

  14. DollarMerchandise Control • Common buying errors • Buying merchandise that is priced either too high or too low for the store’s target market • Buying the wrong type of merchandise or buying merchandise that is too trendy • Having too much or too little basic stock on hand • Buying from too many vendors • Failing to identify the season’s hot items early • Failing to let the vendor assist the buyer by adding new items or new colors to the existing mix LO 3

  15. Dollar Merchandise Control • Planning stock levels is affected when: • Sales for the previous month were lower or higher than planned • Reductions are higher or lower than planned • Shipments of merchandise are delayed in transit LO 3

  16. Inventory Planning • Converting dollar plan into inventory plan • Optimal merchandise mix • Contrasting factors • Managing the inventory • Using the item file to manage inventory • Conflicts in stock planning • Reviewing inventory performance LO 4

  17. Optimal Merchandise Mix • Merchandise line: Group of products that are closely related because they: • Are intended for the same end use • Are sold to the same customer group • Fall within a given price range LO 4

  18. Optimal Merchandise Mix • Category management • Simultaneous management of: • Price, shelf-space merchandising strategy, promotional efforts, and other elements of the retail mix • Based on the firm’s goals, the changing environment, and consumer behavior LO 4

  19. Exhibit 9.4 - of and Constraints on Optimal Merchandising Mix LO 4

  20. Optimal Merchandise Mix LO 4

  21. Constraining Factors • Dollar-merchandise constraints • Retailers try to overcome the dollar constraint by: • Shifting the expense of carrying inventory back on the vendor • Consignment (pay from scan) • Vendor retains the ownership of the goods • Vendor establishes the selling price which is paid when the goods are sold • Helps reduce risk for seasonal products LO 4

  22. Constraining Factors • Extra dating: Allows the retailer extra or interest-free days before the period of payment begins • Space constraints • It is important to have enough empty space to separate the distinct merchandise lines • Operation guides- Tell how much space should be between each fixture, rack, display, and so forth LO 4

  23. Constraining Factors • Merchandise-turnover constraints • Retailer must know how various merchandise mixes will affect inventory turnover • Market constraints • Affect decisions on variety, breadth, and depth • Have a profound effect on how the consumer perceives the store LO 4

  24. Managing Inventory • Decisions pertaining to: • When to order and reorder inventory • Direct and indirect costs involved in maintaining the inventory • Requires conducting physical audits (wrong 40% of time) • Forecasting the factors that will drive production and distribution costs

  25. Using the Item File to Manage Inventory • Requires the buyer make decisions pertaining to: • How many items to create in the system • Linking new items to existing items, where required • Determining whether the item will be displayed: • Everyday on permanent store fixtures or will be a special buy • Replenishment • Buying or selling inventory • Affects the merchandise budget LO 4

  26. Conflicts in Stock Planning • Maintaining a strong in-stock position on genuinely new items while: • Avoiding new products that fail in the introductory stage • Maintaining an adequate stock of the basic popular items while: • Having sufficient inventory dollars to capitalize on unforeseen opportunities LO 4

  27. Conflicts in Stock Planning • Maintaining high inventory-turnover goals while maintaining high gross-margin goals • Maintaining adequate selection for customers while not confusing them • Maintaining space productivity and utilization while not congesting the store LO 4

  28. Reviewing Inventory Performance Line review - Taking data and summarizing it to understand trends and fashion (80-20 report) To be successful, buyers need to have both creative and quantitative analysis capabilities LO 4

  29. Selection of Merchandising Sources • Following criteria should be considered by the retailer • Selling history and consumers’ perception of the manufacturer’s or wholesaler’s reputation • Reliability of delivery, trade terms, and projected markup • Quality of merchandise and after-sales service • Transportation time and distribution-center processing time • Inventory carrying cost and net cost • Countryoforigin and fashionability LO 4

  30. Selection of Merchandising Sources LO 5

  31. Vendor Negotiations • Negotiation • Finding mutually satisfying solutions when the retailer and vendor have conflicting objectives • Types of discounts that can be negotiated • Trade • Quantity • Promotional • Seasonal • Cash LO 6

  32. Vendor Negotiations • Trade discount (functional discount) • Compensation for performing certain wholesaling or retailing services for the manufacturer • Quantity discount • Price reduction on purchase large quantities of merchandise • Promotional discount • Provided for performing an advertising or promotional service for the manufacturer LO 6

  33. Vendor Negotiations • Seasonal discount • Provided for purchasing and taking delivery of merchandise in the off-season • Cash discount • Offered to the retailer for the prompt payment of bills LO 6

  34. Vendor Negotiations • Quantity discount • Noncumulative quantity discount: Based on a single purchase • Cumulative quantity discount: Based on the total amount purchased over a period of time • Free merchandise: Merchandise is offered in lieu of price concessions LO 6

  35. Vendor Negotiations • Cash discount • Types of future-dating negotiation • End-of-month (EOM) dating • Middle-of-month (MOM) dating • Receipt of goods (ROG) dating • Extra (EX) dating • Anticipation LO 6

  36. Vendor Negotiations LO 6

  37. Delivery Terms LO 6

  38. Packaging • Packaging display method • Changes the cost • Is negotiated as part of the price LO 6

  39. In-Store Merchandise Handling LO 7

  40. In-Store Merchandise Handling • To minimize the threat of hijacking: • Eliminate the retailer’s name from the side of containers carrying the cargo • Install electronic monitoring devices on all shipment vehicles • Screen all internal transportation personnel as well as third-party logistics personnel in each market • Hire security personnel for each shipment LO 7

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