Retail Management

1. Retail Management Module 11: Merchandise Management

2. Merchandise Planning and Management

3. Merchandise Management • Involves understanding and evaluating consumer’s buying habits to effectively source, plan, display, and stock merchandise • Process from beginning (strategy) to end (performance evaluation)

4. Retail Buying Organizations • Merchandise Buying: • Involves sourcing goods from vendors and wholesalers at the best possible cost to achieve maximum profitability • Merchandise Planning: • Goal is to maximize profitability by limiting markdowns and achieving/exceeding sales targets • Merchandise Operations • Thought of as those functions that support merchandise planning and buying

5. Merchandise Buying Systems Staple vs. Fashion Merchandising Systems • Staple: items that are basic and essential • Fashion: difficult to forecast as it is seasonal and has unpredictable demand

6. Merchandise Planning Process

7. Forecasting Sales Numbers • Important for a few vital functions within the organization: human resources, marketing, product management, operations • Merchandise planner helps determine sales plan based on data from previous season and desired sales goals • Must consider external factors as well • Some categories of business aren’t affected by downturn in economy • We can also look at specific retailers that emerge during tough economic times

8. Merchandise Assortment Options • What: process of determining product in each merchandise category • Why: retailers increase sales, productivity, and margin while improving customer satisfaction • How: by identifying store level opportunities as well as how much and in what quantities should be carried • Considerations: • What is merchandise capacity of the stores? • Is there a need for complementary merchandise to service? • Is this merchandise profitable? • What are the corporate objectives and does it align with strategy/goals? • What are the regional needs for the area?

9. Inventory Levels • Meet customer demand: peaks and valleys • Lead time: time from placement of order to arrival • Higher profit: sourcing inventory effect on profitability • Better cash flow: policies that will enable company to achieve sales goals • Forward weeks of supply: having enough inventory on hand • Weeks of supply: look at past trend vs. future sales • Stock-to-sales ratio: divide sales at beginning into inventory • Sell thru percent: ratio of sales to beginning inventory • Turnover: number of times inventory is sold and replaced • Basic stock: establishing baseline level of inventory

10. Merchandise Flow • Most important goal of buyer is to achieve sales plan • Second most important priority is to keep inventory levels on plan • Begin by working with internal product production organization • Next, work with branded suppliers to commit for those purchases in upcoming season • Enter planned selling season: controlling inventory flow is crucial • SCM: where retailer partners with vendors to control product production • Open-to-buy formula: sales, markdowns, EOP

11. Merchandise Allocations • Determining how to distribute merchandise to individual store units for maximum sales/minimal markdowns • Plan purchases from ground up based on ideal store allocation • Strategic, tactical considerations, & math • Allocation influenced by competitive strategy where retailer is attempting to show wide assortments • Commercial software applications were developed

12. Merchandising Decisions • Retailers evaluate their performance to continue success • One major common factor despite differences • Degree of complexity within business • Review of retailer merchandise decisions reflects this, revealing all dimensions of organization • Broken down from product perspective • Group, division, department, vendor, classification, subclass, SKU • Analysis is performed at financial AND unit level

13. Buying Merchandise

14. Brand Selection • Importance of brand to retailer depends on category of retailer and its market niche • Largest categories of retail market & popular brands: • Food (Kroger, Safeway, Publix), (PepsiCo, Coca-Cola) • Electronics (Amazon, Best Buy, Apple), (Apple, HP, Samsung) • Home improvement (Home Depot, Lowe’s), (Craftsman) • Variety/drug (Walgreen, Rite Aid, CVS), (Johnson & Johnson) • Apparel (Macy’s, JCPenney, Nordstrom), (Nike, Levi’s) • Some brands grant exclusive distribution rights • Brands in assortment create credibility for retailer • Brands offer variety of other benefits to retailers • Product design, manufacture, transportation

15. Sourcing Decisions • Process of finding goods or services • Key issues when making sourcing decision: • Company • Cost • Logistics • Government regulations • Sourcing • Sourcing is art and science: larger organizations have staff who focus on providing sourcing services for company • Software applications developed to support sourcing process

16. Negotiations • Factors that show good negotiator • Ability to describe common goals • Emotional control and equal treatment • Good listening and communicating • Thorough knowledge of bargaining • Ability to close negotiation • Follows a procedure: • Plan: gather as much information as possible, setting goals • Discuss: set scene, identify key issues • Propose: clear solution • Bargain: discuss proposal • Agree: reach agreement • Implement: communicate outcome as necessary

17. Building Partner Relationships • Benefits of individual connections • Information, advice, introductions, referrals, etc. • Strong relationships are foundation of effective supply chain • Even if retailer and vendor aren’t in formal arrangement, strong partnership will create benefits • Retailer: ensure they have correct products • Vendors: source of market information • Strong relationships benefit vendors and suppliers

18. Ethical and Social Responsibilities • Idea that businesses should balance profit-making activities with activities that benefit society • Social responsibility takes on different meanings within industries and companies • Starbucks, Ben & Jerry’s have blended social responsibilities • Target donated to communities where stores operate • Fair Trade concept: movement where goods are produced and sourced in sustainable way • “Green” companies enjoy enhanced reputations & receive positive support to customers, leading to increased revenues

19. Quick Review Roles of buyer, planner, and operations differ Crucial methodologies: planning, assortments, inventory levels, merchandise flow, allocations, merchandising Buyers make brand selections and sourcing decisions State of retail industry continues to evolve Key core competency needed to run successful businessPrinciples apply to all retailers