Developing Effective Merchandise Plans for Retailers

1. Chapter 14 Developing Merchandise Plans Dr. Pointer’s Notes

2. Chapter Objectives • To demonstrate the importance of a sound merchandising philosophy • To study various buying organization formats and the processes they use • To outline the considerations in devising merchandise plans: forecasts, innovativeness, assortment, brands, timing, and allocation • To discuss category management and merchandising software

3. Merchandising Activities involved in acquiring particular goods and/or services and making them available at the places, times, and prices and in the quantity that enable a retailer to reach its goals.

4. Merchandising Philosophy • Sets the guiding principles for all the merchandise decisions that a retailer makes • Should reflect • Target market desires • Retailer’s institutional type • Market-place positioning • Defined value chain • Supplier capabilities • Costs • Competitors • Product trends

5. Scope of Responsibility Two different philosophies • Full array of merchandising functions • Buying and selling • Selection, pricing, display, customer transactions or is the • Focus on buying function only and leave selling to other specialists

6. Micromerchandising To capitalize on opportunities, retailers adjusts shelf-space allocations to respond to customer and other differences among local markets. What is on the shelves in Houston, Tx maybe different from what is on the shelves in other markets

7. Cross-merchandising Another way to capitalize on opportunities is for Retailers to carry complementary goods and services to encourage shoppers to buy more. This is the reason apparel stores stock accessories. Similar to scramble merchandising.

8. Attributes and Functions of Buying Organizations Level of Formality Formal Informal Centralized Decentralized Degree of Centralization Organization Breadth Personnel Resources Functions Performed Staffing General Specialized External/Internal Resident buying office Merchandising Buying Buyer Sales Manager

9. Level of Formality • Formal buying organizations, merchandising buying is distinct retail task and a separate department is set up to do this. Advantage is clarify of responsibilities. Disadvantage could be the cost for the dept. • Informal buying organization, merchandise buying is not a separate function but can be done by different folks. Advantage is low cost and flexibility but disadvantage is less defined tasks and lesser emphasis

10. Degree of Centralization • Multiunit retailers have to options for controlling buying function • Centralized buying where all purchasing is done from one office. Advantage include integrated effort, strict controls, consistent image, closeness to top mgmt, staff support and bigger volume discounts, Disadvantage is inflexibility, time delays, morale and excessive uniformity • Decentralized buying where buying decisions are made locally or regionally

11. Degree of Centralization • Multiunit retailers have to options for controlling buying function • Decentralized buying where buying decisions are made locally or regionally. Advantages are more adaptability to locale needs, quicker reordering and improved morale • Disadvantages are disjointed planning,, inconsistent image and limited control, lower volume discounts and less staff support

12. Organizational Breadth • Generalized approach is where one buyer buys for complete store which is possible with small organizations • Specialist approach is needed for large retailers where it is best to use buyers for each department

13. Personnel Resources • Inside buying organization – is staffed by retailer’s owned people • Outside buying organization – personnel external to the retailer are used to staff the organization usually for a fee • Resident buying office responsible for buying and keeping abreast of trends in the market • Cooperative buying offices – group of unrelated retailers purchase together to get economies that larger chains get.

14. Functions Performed • Merchandising view Merchandise personnel oversees all • All buying and selling functions • Assortments • Advertising pricing • Point-of-sale displays • Employee utilization • Personal selling approaches

15. Functions Performed • Buying view • Buyers manage buying functions • Buying • Advertising • Pricing • In-store personnel manage other functions • Assortments • Point-of-sale displays • Employee utilization • Personal selling approaches

16. Staffing • List of all the positions that need to be filled • Buyers - selects the merchandise that is to be sold and for setting a strategy to market the products • Sales Managers- supervises the on the floor selling and operations activities for specific retail depts

17. Different Career Tracks in Retailing Merchandising Track Store Management Track Divisional Merchandise Manager Store Manager Assistant Store Manager Buyer Associate Buyer Sales Manager Assistant Buyer Assistant Sales Manager

18. Figure 14.5 Considerations in Devising Merchandise Plans Assortment Innovativeness Forecasts Merchandise Plan Brands Allocation Timing

19. Forecasts • Forecasts are projections of expected retail sales for given periods. Serves as the foundation of merchandise planning • Components: • Overall company projections • Product category projections • Item-by-item projections • Store-by-store projections (if a chain)

20. Types of Merchandise • Staple merchandise- all regular products to carried all the time • Assortment merchandise-consist of merchandise from many different depts. • Fashion merchandise-products that may have cyclical sales due to changing tastes and life-styles • Seasonal merchandise- products that sell well over nonconsecutive time periods. • Fad merchandise- high sales generated for short period of time

21. Staple Merchandise • Regular products carried by a retailer • Grocery store staple examples • Milk • Bread • Canned soup • Basic stock lists specify inventory level, color, brand, style, category, size, package, etc.

22. Assortment Merchandise • Apparel, furniture, auto, and other products for which the retailer must carry a variety of products in order to give customers a proper selection • Decisions on Assortment • Product lines, styles, designs, and colors are projected • Model stock plan-used to project the number of different colors/variations of a certain design product

23. Fashion and Seasonal Merchandise • Fashion Merchandise: Products that may have cyclical sales due to changing tastes and life-styles • Seasonal Merchandise: Products that sell well over nonconsecutive time periods

24. Table 14.1a Factors to Bear in Mind When Planning Merchandise Innovativeness

25. Table 14.1b Factors to Bear in Mind When Planning Merchandise Innovativeness

26. Table 14.1c Factors to Bear in Mind When Planning Merchandise Innovativeness

27. Product life Cycle for product • Product life Cycle shows the expected behavior of a good or service over its life. • Introduction- limited target market. One basic version supplied • Growth – as innovators purchase sales increases as others begin to emulate them • Maturity – largest portion of target market is using product with a wide assortment of products. • Declines stage comes about due to shrinking market.

28. Figure 14.7 The Traditional Product Life Cycle Total Retail Sales Maturity Growth Decline Introduction Time

29. Structured Guidelines for Pruning Products • Select items for possible elimination on the basis of declining sales, prices, and profits, appearance of substitutes • Gather and analyze detailed financial and other data about these items • Consider non-deletion strategies such as cutting costs, revising promotion efforts, adjusting prices, and cooperating with other retailers • After making a deletion decision, do not overlook timing, parts and servicing, inventory, and holdover demand

30. Assortment • Assortment is the selection of merchandise a retailer carries. It includes both breadth of product categories and variety within each category • Width of assortment – number of distinct goods/service categories (lines) • Depth- number (variety) within each line

31. Table 14.2a Factors to Consider When Planning Merchandise Quality

32. Table 14.2b Factors to Consider When Planning Merchandise Quality

33. Table 14.2c Factors to Consider When Planning Merchandise Quality

34. Brands- need to select the proper mix of Brands Manufacturer (national) Private (dealer or store) Generic

35. Brands • Manufacturer (national) products are produced and controlled by manufacturer • Private or dealer brands (store brands) – owned by wholesalers or retailers and cost less and are controlled by them • Generic brands – no frills goods stocked by retailers (receive no support, poor shelf locations and are very inexpensive)

36. Are 20 % of USA and Canadian sales Priced 20-30% lower than manufacturers products 80% of consumers buy them Many retailers sales are heavily done in private label products Research shows that consumers feel that private label quality is just as good as branded Premium private brands are now emerging Battle of the brands are in progress Private Label Brands

37. Table 14.3 The Berman/ Evans Private Brand TestMatch the Retailer with the Brand Name

38. Timing and Allocation • Timing is deciding on when certain merchandise is purchased, displayed, and sold • Allocation deals with how the stock is allocated either between stores or once in the store how much is displayed on shelves or in storage area

39. Category Management • Category management refers to how to manage products in categories in order to improve productivity • Products are arranged into strategic business units to generate the highest profits

40. Merchandising Software • General Merchandise Planning Software • Forecasting Software • Innovativeness Software • Assortment Software • Allocation Software • Category Management Software

41. Questions • Make sure that you read this chapter carefully and make additional notes.