Chapter 1515Implementing Merchandise Plans

RETAIL MANAGEMENT:

A STRATEGICAPPROACH,

9th Edition

BERMANBERMAN EVANS EVANS

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Chapter Objectives

To describe the steps in the implementation of merchandise plans: gathering information, selecting and interacting with merchandise sources, evaluation, negotiation, concluding purchases, receiving and stocking merchandise, reordering, and re-evaluation

To examine the prominent roles of logistics and inventory management in the implementation of merchandise plans

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The Process for Implementing Merchandise Plans

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Gathering Information

After overall merchandising plans are set, more specific information about ongoing target market needs and prospective suppliers is required. A retailer should gather appropriate data before buying or re-buying any merchandise. In gathering data about the marketplace, a retailer has several possible sources.

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Contd.

The most valuable is the consumer. By regularly researching target market demographics, life-styles, and potential shopping plans, a retailer can learn about consumer demand directly. Loyalty programs are especially useful in tracking consumer purchases and interests. Other information sources can be used when direct consumer data are insufficient.

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Contd.

Suppliers(manufacturers and wholesalers) usually do their own sales forecasts and marketing research. Retail sales and display personnel interact with consumers and can pass their observations to management. A want book(want slip) system is a formal way to record consumer requests for un-stocked or out-of-stock merchandise.

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Contd.

Competitors represent another information source. A conservative retailer may not stock an item until competitors do and employ comparison shoppers to study the offerings and prices of competitors.

In addition, government sources indicate unemployment, inflation, and product safety data; independent news sources conduct their own consumer polls and do investigative reporting; and commercial data can be purchased.

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Contd.

To acquire information about specific suppliers and their merchandise, retailers can talk to prospects, attend trade shows, visit merchandise marts, and search the Web.

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Figure 15.2 A

Competition Shopping

Report

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Selecting and Interacting with Merchandise Sources

Company-ownedOutside, regularly used supplierOutside, new supplier

Note: Relationships may become strained with suppliers because their goals differ from those of retailers.

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Outside Sources

of Supply

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A Checklist

of Points

to Review in

Choosing Vendors

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A Collaborative Supplier-Retailer Program

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Evaluation

The merchandise under consideration is evaluated by inspection, sampling, and/or description. The method depends on the product (cost and attributes) and situation (purchase regularity).

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Contd.

Inspection: every single unit is examined (a case of jewelry)

Sampling: with regular purchases of large quantities

Description: standardized, non-breakable, and nonperishable merchandise; ordered in quantity based on a verbal, written, or pictorial description (a stationery store can order paper clips, pads, printer paper)

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Negotiating the Purchase

A new or special order usually results in a negotiated contract, and a retailer and a supplier carefully discuss all aspects of the purchase. A regular order or reorder often involves a uniform contract, since terms are standard or have already been set and the order is handled routinely.

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Contd.

Opportunistic buying: Off price retailers and other deep discounters may require negotiated contracts for most purchases. Especially low prices are negotiated for merchandise whose sales have not lived up to expectations, end-of-season goods, items consumers have returned.

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Contd.

Slotting allowances: (for product placement on store shelves)

Note: Unlike many other retailers, industry leader Wal-Mart does not charge any slotting allowances and often gets new products first from suppliers as a result of this policy.

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Concluding Purchases

At many medium-sized and large firms, computers are used to complete and process orders (based on EDI and QR inventory planning), and each purchase is fed into a computer data blank.

Small retailers often write up and process orders manually, and purchases are added to the inventory in the same way.

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Contd.

Now a days even small retailers may have the capability of placing orders electronically- especially if they are tied to large wholesalers with EDI (electronic data interchange) and QR (quick response) systems.

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Concluding Purchases (several alternatives)

The retailer takes title immediately on purchase

The retailer assumes ownership after titles are loaded onto the mode of transportation

The retailer takes title when a shipment is received

The retailer does not take title until the end of a billing cycle, when the supplier is paid

The retailer accepts merchandise on consignment and does not own the items. The supplier is paid after merchandise is sold

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Receiving and Stocking Merchandise

The retailer is now ready to receive and handle items. This involves receiving and storing, checking and paying invoices, price and inventory marking, setting up displays, figuring on-floor assortments, completing transactions, arranging delivery or pickup, processing returns and damaged goods, monitoring pilferage, and controlling merchandise.

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Receiving and Stocking Merchandise at Category Killer Stores

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The Monarch 1130 Series Labeler

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Bar Tender for Windows

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Reordering Merchandise

Four critical factors:* Order and delivery time* Inventory turnover* Financial outlays* Inventory (holding) versus ordering

costs

Note: QR inventory planning lowers inventory and ordering costs via close retailer-supplier relationships.

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Re-evaluating on a regular basis

Both the overall merchandising procedure and specific goods and services must be reviewed . Conclusions during this stage become part of the information gathering stage for future efforts.

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Logistics

Logistics is the total process of planning, implementing, and coordinating the physical movement of merchandise from manufacturer (wholesaler) to retailer to customer in the most timely, effective, and cost-efficient manner possible

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The Sophisticated Logistics System of Reitmans

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Performance Goals

Relate costs incurred to specific logistics activities

Place and receive orders as easily, accurately, and satisfactorily as possible

Minimize the time between ordering and receiving merchandise

Coordinate shipments from various suppliers Have enough merchandise on hand to satisfy

customer demand, without having so much inventory that heavy markdowns will be necessary

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Performance Goals_2

Place merchandise on the sales floor efficiently

Process customer orders efficiently and in a manner satisfactory to customers

Work collaboratively and communicate regularly with other supply chain members

Handle returns effectively and minimize damaged products

Monitor logistics’ performance Have backup plans in case of breakdowns in

the system

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Supply Chain Management

The supply chain is the logistics aspect of a value delivery chain* Parties involved

• Manufacturers• Wholesalers• Third-party specialists• Retailer

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Order Processing and Fulfillment

Quick Response Inventory Planning (QR)

Floor-ready merchandiseEfficient Consumer Response (ECR)

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Transportation and Warehousing

How often will merchandise be shipped to the retailer?

How will small order quantities be handled? What shipper will be used? What transportation form will be used? Are multiple

forms required? What are the special considerations for perishables

and expensive merchandise? How often will special shipping arrangements be

necessary? How are shipping terms negotiated with suppliers? What delivery options will be available for the

retailer’s customers?

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Claire’s Aggressive Use of Central Warehousing

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Problems Balancing Inventory Levels

The retailer wants to be appealing and never lose a sale by being out of stock; it does not want to be “stuck” with excess merchandise

What fad merchandise and how much should be carried?

Customer demand is never completely predictable

Shelf space allocation should be linked to current revenues

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Sensormatic: The Leader in Store Security Systems

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Ways Retailers Can Deter Employee and Shopper Theft

Employee Theft* Use honesty tests as employee screen-in devices* Lock up trash to prevent merchandise from being

thrown out and then retrieved* Verify through cameras and undercover personnel

whether all sales are rung up* Centrally control all exterior doors to monitor opening/

closing* Divide responsibilities – have one employee record

sales and another make deposits* Give rewards for spotting thefts* Have training programs* Vigorously investigate all known losses and fire

offenders immediately

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Ways Retailers Can Deter Employee and Shopper Theft

Shopper Theft While Store is Open* Use uniformed guards* Set up cameras and mirrors to increase visibility – especially

in low-traffic areas* Use electronic article surveillance for high-value and theft-

prone goods* Develop comprehensive employee training programs* Offer employee bonuses based on an overall reduction in

shortages* Inspect all packages brought into store* Use self-locking showcases for high-value items such as

jewelry* Attach expensive clothing together* Alternate the direction of hangers on clothing near doors* Limit the number of entrances and exits to the store, and the

dollar value and quantity of merchandise displayed near exits* Prosecute all individuals charged with theft

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Ways Retailers Can Deter Employee and Shopper Theft

Employee/ Shopper Theft While Store is Closed* Conduct a thorough building check at night to

make sure no one is left in store* Lock all exits, even fire exits* Utilize ultrasonic/infrared detectors, burglar

alarm traps, or guards with dogs* Place valuables in a safe* Install shatterproof glass and/or iron gates on

windows and doors to prevent break-ins* Make sure exterior lighting is adequate* Periodically test burglar alarms

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Reverse Logistics All merchandise flows from the retailer back through the

supply channel Reverse Logistics Decisions

* Under what conditions are customer returns accepted by the retailer and by the manufacturer?

* What is the customer refund policy? Is there a fee for returning an opened package?

* What party is responsible for shipping a returned product to the manufacturer?

* What customer documentation is needed to prove the date of purchase and the price paid?

* How are customer repairs handled?* To what extent are employees empowered to process

customer returns?

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Ryder: A Solution for

Reducing the Investment in

Inventory

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UPS E-Logistics