Session 11 Merchandise Management

Merchandise Management

Session: 11

Prof: Yasmin

Retail Merchandising is the process of developing, securing, pricing,

supporting and communicating the retailer’s merchandise offering.

It means offering the right product at the right

time at the right price with the right appeal!!

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Stages in Merchandising

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Category Management

• Category management is a concept in which the range of products purchased by a business organization or sold by a retailer is broken down into discrete groups of similar or related products; these groups are known as product categories (examples of grocery categories might be: tinned fish, washing detergent, toothpastes).

Category Management

• It is a systematic, disciplined approach to managing a product category as a strategic business unit

• Each category is run as a "mini business" (business unit) in its own right, with its own set of turnover and/or profitability targets and strategies

Category Management

• A ‘category’ is a distinct, manageable group of products or services that consumers perceive to be inter-related and\or substitutable

• The aim of category management are to:– Satisfy the consumer– Grow the category

Category Management

• Category is an assortment of items which the consumer may perceive as substitute for each other

• The merchandise is priced and promoted to appeal to a similar target market and the price promotion are timed for the same period

Category Management

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Category Management

• Category management looks at answering a series of questions.

• Issues that need to be addressed include – What items should be carried, in what quantities, at what prices, in which stores, where in the store, how much shelf space should be allocated, what level of advertising is required and so on

Category Management Process• Category definition

• Role of category

• Category assessment

• Category scorecard (GMROI)

• Category strategies– Demand-chain strategy– Supply-chain strategy

• Category tactics

• Implementation

Role of Category

• Routine categories: products used by the customers on a regular basis

• Convenience categories: more conveniently purchased by customers from their neighborhood retail outlets

• Seasonal Categories: products that are bought occasionally

• Destinations Categories: are used by the retailers to position themselves as the preferred stores of customers through their superior service and better value offering

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Setting Objective for the Merchandise Plan

1. Defining the target market

2. Establishing performance goal &

3. Deciding on the basis of general trends in the marketplace, which merchandise classification deserves more or less emphasis

Buyers & Merchandise Planner’s Approach

• Study their categories past performance

• Look at trends in the market

• Based on market trends, try to project the assortments for merchandise categories for the coming seasons

The considerations for Merchandise Plans

Marketing Consideration

Store format, environment, retail proposition, trends in fashion, potential buyer base.

Merchandise strategy options

Availability of stock based on assortment profile, quality, specific choice, seasonal requirements, estimated cost, promotional agreement

Type of customer base Items, range of purchase, time period (season) average transaction value for various products, frequency of visits and purchases

Financial plans Projections of profitability and sales, stock taking (investment and return), terms of contract and payment, corporate objectives and pricing strategies

Merchandise assortment search

Merchandise must meet the following criteria: desired range, cost, price-offer, brand policy, be available, delivery, stockholding needs and financial returns

Setting Objective for the Merchandise Plan

• GMROI

• Return on assets= net profit/ net sale * net sales/ total assets= net profit/ total assets

• Gross margin return on inventory investment = gross margin/ average inventory

• Where average inventory is taken at cost

Merchandise in Motion

• Eg. Jeans are delivered to the store through the loading dock in the back, spend sometime in the store on the racks, and then are sold and go out from the front door.

• The faster this process takes place the higher the inventory turnover will be

Advantages of high inventory turnover

• Less risk of obsolescence & markdowns

• Improved sales person morale

• More money for market opportunity

• Decreased operating expenses

• Increased asset turnover

Disadvantages of too high inventory turnover

• Lowered sales volume

• Increased cost of goods sold

• Increased operating expenses

Developing Merchandise Plans

The Traditional Product Life Cycle

Total

Retail

Sales

Time

Introduction

Growth

Maturity

Decline

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Developing Merchandise Plans

Strategy

Variable Introduction

Growth Maturity Decline

Life Cycle Stage

Target High - income Middle-income Mass market Low-income

Market Innovators adaptors and laggardsGood or One basic Some variety Greater

Less

Service offering variety variety

Distribution Limited or More More Fewer

Intensity extensive retailers retailers retailers Price Penetration Wide range Lower prices Lower prices

or skimming

Promotion Informative Persuasive Competitive Limited

Supplier Monopoly Oligopoly Competition Oligopoly

Structure oligopoly competition

Variations on the Category Life Cycle

• Fad: is a merchandise category that generates a lot of sales for a relatively short time often less than a season

• Fashion: fashion is a category that typically lasts several seasons and sales can vary dramatically from one season to the next

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Fad - Merchandising

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Variations on the Category Life Cycle

• Staple Merchandise: items in this category are in demand over an extended period

• Seasonal Merchandise

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Develop sales forecast

• Sources of information for category-level forecasts– Previous sales volume– Published sources customer information

• Want book• Depth interview• Focus group• Shop competition

– Vendors & resident buying officers

Steps In The Retail Merchandising Process

1. Develop the merchandise mix and establish the merchandise budget.

2. Build the logistic system for procuring the merchandise mix.

3. Price the merchandise offering.4. Organize the customer support service and

manage the personal selling effort.5. Create the retailer’s advertising, sales

incentive and publicity programs.

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Assortment Planning Process

• The decision of merchandise assortment depends on the availability of store space & the financial budget of the retailer.

• Establishing a trade-off between variety, assortment & product availability is the most challenging task of a retailer.

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Assortment Planning Process

• Variety

• Assortment

• Product availability

• Assortment planning for service retailers

• Trade offs between variety, assortment and product availability

Assortment Planning

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Assortment Planning Process- Line Planning

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Influencing Factors

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THE COMPONENTS OF THE MERCHANDISE MIX

Merchandise Variety (no. of product lines)

Merchandise Assortment (no. of product items)

Merchandise Support

(no. of product units)

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Planning Merchandise Variety Involves Planning And

Controlling Product Lines

Retailers use MANY factors to evaluate product lines!!

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PLANNING MERCHANDISE ASSORTMENT AND SUPPORTMust organize the merchandise mix as to

the number of different product lines carriedMust decide on:

BrandsSizesColorsMaterialStylesPrice points

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PLANNING MERCHANDISE ASSORTMENT AND SUPPORT

Goal is to ensure that product choice meets targeted consumer needs

Must carefully plan the number of units to have on hand to meet the expected sales for the brand, size, color combinations

Must develop merchandise lists1. Basic Stock List (staple items)2. Model Stock List (fashion items)3. Never Out List (key items and best sellers)

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CONTROLLING MERCHANDISE ASSORTMENT AND SUPPORT

• Involves monitoring and adjusting the types of product lines that are added and dropped from the merchandise mix

• Two widely used methods to control assortment and support:

1. Inventory turnover: rate at which the retailer depletes and replenishes stock

2. Open-to-buy:amount of new merchandise a retailer can buy during a specific time period without exceeding planned purchases for the period

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Merchandise Mix StrategiesDifferent optimal variety and assortment

strategies possible!!• Narrow Variety/Shallow Assortment

Vending machinesNewsstandsDoor-to-door

• Wide Variety/Shallow AssortmentVariety StoresGeneral StoresDiscount Stores

• Narrow Variety/Deep AssortmentSpecialty Stores

• Wide Variety/Deep AssortmentFull-line Department Stores

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Product Mix trends

• Retailers need to develop an innovative product mix strategy, that suits the needs of the unsatisfied customers.

• Two emerging trends are-

1. Shotgun Merchandising

2. Rifle Merchandising

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Shotgun Merchandising

• It involves expansion of the merchandise being offered in the store in order to satisfy the increasing needs of the consumers

• Retailer attempts to increase his market share by catering to different sub markets and trying to fulfill the specific needs of various individual target customers

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Rifle Merchandising

• Aimed at targeting merchandise at a select group of customers

• The store carries a very limited number of product lines, but a large assortment is made available in each product line

• Uses penetration strategy

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Buying

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Buying Process

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Arrangement and Displays

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Effective use of displays

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Space Management

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Factors for space allocation

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