• MERCHANDISING• Merchandising means the 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.

• Merchandising should reflect – Target market desires– Retailer’s institutional type– Market-place positioning– Supplier capabilities– Costs– Competitors– Product trends

• MICRO MERCHANDISING• Retailer adjusts shelf-space allocations to

respond to customer and other differences among local markets

• Retailers carry complementary goods and services to encourage shoppers to buy more

• CROSS MERCHANDISING• Retailers carry complementary goods and

services to encourage shoppers to buy more

• Merchandising functions–All buying and selling functions• Assortments• Advertising pricing• Point-of-sale displays• Employee utilization• Personal selling approaches

• CONSIDERATIONS IN DEVISING MERCHANDISE PLANS :

• A. Forecasts• B. Innovativeness• C. Allocation• D. Timing• E. Brands

• MERCHANDISING FORECASTS• Forecasts are projections of expected retail sales for

given periods– Components:• Overall company projections• Product category projections• Item-by-item projections• Store-by-store projections (if a chain)

• Types of merchandise :• Staple merchandise• Assortment merchandise• Fashion merchandise• Seasonal merchandise• Fad merchandise

• 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.

• 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 is provided to project specific items

• 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

• FACTOR• RELEVANCE for PLANNING• Target market(s)• Evaluate whether the target market is conservative or innovative• Goods/ service growth potential• Consider each new offering on the basis of rapidity of initial sales,

maximum sales potential per time period, and length of sales life• Fashion trends• Understand vertical and horizontal fashion trends, if appropriate• Retailer image• Carry goods/ services that reinforce the firm’s image

• FACTOR• RELEVANCE for PLANNING• Target market(s)• Match merchandise quality to the wishes of the desired target market(s)• Competition• Sell similar quality or different quality• Retailer’s image• Relate merchandise quality directly to the perception that customers

have of retailer• Store location• Consider the impact of location on the retailer’s image and the number

of competitors, which, in turn, relate to quality

• FACTOR• RELEVANCE for PLANNING• Profitability• Recognize that high quality goods generally bring greater profit per unit than

lesser-quality goods; turnover may cause total profits to be greater for the latter

• Manufacturer versus private brands• Understand that, for many, manufacturer brands connote higher quality than

private brands• Customer services offered• Know that high-quality goods require personal selling, alterations, delivery,

and so on • Personnel• Employ skilled, knowledgeable personnel for high-quality merchandise

• FACTOR• RELEVANCE for PLANNING• Perceived goods/ service benefits• Analyze consumers. Lesser quality goods attract customers

who desire functional product benefits; High-quality goods attract customers who desire extended product benefits

• Constrained decision making• Face reality. Franchises or chain store managers have

limited or no control over products; Independent retailers that buy from a few large wholesalers are limited to the range of quality offered by those wholesalers

• 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.

• 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

• 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

• STAPLE MERCHANDISE PLANNING• Buyer Determines:– Basic Stock or Assortment Plan– Level of Backup Inventory

• System : – Monitors Inventory levels– Automatically reorders when inventory gets below

a specified level

• INVENTORY LEVELS

• Cycle (base) stock: inventory that goes up and down due to the replenishment process

• Backup (buffer, safety) stock : Inventory needed to avoid stockout

• Order Point• the point at which inventory available should not go

below or else we will run out of stock before the next order arrives

• Order QuantityWhen inventory reaches the order point, the

buyer needs to order enough units so the cycle stock isn’t depleted and sales dip into backup stock before the next order arrives.

Order Quantity = Order Point – Quantity Available

• TECHNIQUES TO PLAN INVENTORY LEVELS ARE :

• 1. Basic stock method• 2.Percentage variation method• 3. Week’s supply method• 4. Stock to sales method

• Merchandise Budget Plan• Plan for the financial aspects of a merchandise

category• Specifies how much money can be spent each

month to achieve the sales, margin, inventory turnover, and GMROI objectives

• Not a complete buying plan--doesn’t indicate what specific SKUs to buy or in what quantities

• Steps In Developing A Merchandise Budget Plan

• Set margin and inventory turn goals• Seasonal sales forecast for category• Breakdown sales forecast by month• Plan reductions – markdowns, inventory loss• Determine stock needed to support forecasted sales• Determine “open to buy” for each month

When inventory reaches the order point, the buyer needs to order enough units so the cycle stock isn’t depleted and sales dip into backup stock before the next order arrives.

Order Quantity = Order Point – Quantity Available

• TECHNIQUES TO PLAN INVENTORY METHODS• Basic stock method : In this method a retailer

carries more items than he expects to sell over a specified period. There is a cushion if sales are more than anticipated, shipments are delayed, or customers want to select from a variety of items.

• Basic stock = average monthly stock –average monthly sales

• Beginning of the month planned inventory level : Planned monthly sales + basic stock

• Percentage variation method :• This method is recommended if stock turnover

is more than six times a year or relatively stable• Beginning of month planned inventory level= Planned average monthly stock x estimated

average monthly sales

• Weeks’ supply method forecasts average sales weekly. In this method too much merchandise may be stocked in peak periods and too little during slow periods.

• Beginning of month planned inventory level= Average estimated weekly sales x number of

weeks to be stored x number of weeks to be stored

• In the stock to sales method a stock to sales ratio is maintained

• Stock-to-Sales Ratio specifies the amount of inventory (in retail dollars) that should be on hand at the beginning of the month to support the sales forecast and maintain the inventory turnover objective for the category

• Evaluating the Merchandise Budget Plan• Inventory turnover GMROI, sales forecast are used

for both planning and control• After the selling season, the actual performance is

compared with the plan– Why did performance exceed or fall short of the plan?– Was the deviation from the plan due to something

under the buyer’s control?– Did the buyer react quickly to changes in demand by

either purchasing more or having a sale?