1. Planning Merchandising Assortments

8/9/2019 1. Planning Merchandising Assortments

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Session 1

PLANNING

MERCHANDISINGASSORTMENTS

& BUYING SYSTEMS

Krithika G.KAsst. Professor

FMS


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KGK-FMS

Retail Merchandising

Retail Merchandising is the process ofdeveloping, securing, pricing, supporting

and communicating the retailersmerchandise offering.


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KGK-FMS

Merchandise Management.

is the process by which a retailer attempts tooffer the right quantity of merchandise, in theright place, at the right time while meeting thecompanys financial goals.

- Levy & Weitz

...can be termed as the analysis, planning,acquisition, handling and control of themerchandise investments of a retail operation.

- Swapna Pradhan


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KGK-FMSPlanning MerchandiseAssortments

Organize the Buying Process by Categories

Set Merchandise Financial Objectives

Develop an Assortment Plan

Source: Retailing Management; Levy & Weitz, Exhibit 12-1, Pg. 348


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KGK-FMS

Buying Systems

Set Merchandise Financial Objectives

Develop an Assortment Plan

1. Fashion MerchandiseBuying Systems

2. Staple MerchandiseBuying Systems



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KGK-FMS

Assortment Planning

.the process of trading off variety,assortment and backup stock

Assortment Plan

.is the culmination of planning the financial& merchandising objectives for a particularmerchandise category


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Session 1

Organizing the

Buying Process byCategories


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KGK-FMS

Category

Category is an assortment of items thatthe customer sees as reasonablesubstitutes for each other.

Girls apparel, Boys apparel, infantsapparel are categories

Categories have similar characteristics


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Session 1

The BuyingOrganization


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KGK-FMSClassification Scheme and

Organizational ChartChairman Merchandise-Oriented

Partner

Sr. VicePres;

Merch Mgr:Womensready-to-

wear

Sr. VicePres; Merch

Mgr:Mens,chlds,

intimate

apparel

Sr. VicePres; Merch

Mgr:Cosmet.,shoes,

jewelry,access.

Sr. VicePres;Merch

Mgr:Softhome

furn.,kitchen

V.P.

Planning

Div.merch

managerMens suits,

slacks,dress shirts

Div.merch

manager

Menssports-

wear, Polo

Div.merch

manager

Youngmens,boys

apparel

Div.merch

manager

Childrensapparel

Div.merch

manager

Intimateapparel

Div Dir..

Planning

Buyer

Pre-teenaccessories

Buyer

Girls Size7-14

Buyer

GirlsSize 4-6

Buyer

Toddlers

Buyer

Infants

Buyer

Little boys

Mgr.

Planning

Sportswear Dresses Swimwear Outerwear

Girls Levi Jeans, Size 5, stonewashed blue, straight leg

Merchandise Group

Department

Classificatio

n

Category

SKU

Planning Group

Source: Retailing Management; Levy& Weitz, Exhibit 12-2, Pg. 348


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Session 1

Setting MerchandiseFinancial Objectives


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KGK-FMS

Overall: Return on Assets

ROA:

= Net Profit margin X Asset Turnover

= Net Profit X Net Sales

Net Sales Total Assets

= Net Profit / Total Assets


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KGK-FMS

Merchandising FinancialPerformance: GMROI GMROI:

= Gross Margin Percentage X Sales to Stock Ratio*

= Gross Margin X Net SaleNet Sales Av. Inventory#

= Gross Margin / Avg. Inventory

* Sales to Stock Ratio = Net Sales / Avg. Cost ofInventory

# Inventory TO = Sales to Stock Ratio X (100% - GrossMargin %)


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KGK-FMS

Gross Margin & Sales/Stockdifferent for different Products



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KGK-FMS

Not all products have sameGMROI

Product GMROI

Apparel 241

Food 170Furniture 111

Consumer electronics 97

(in a discount store)



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KGK-FMS

Particulars Gross Margin Avg Inventory GMROI

Specialty Food 120000 28000 4.3

CountertopAppliance

80000 40000 2.0

Glassware 200000 130000 1.5

Source: http://www.slideshare.net/shrirangan1986/retail-presentation-783281


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KGK-FMS

Measuring InventoryTurnover Inventory Turnover:

= Net Sales

Avg. Inventory at Retail

= Cost of Goods Sold

Avg. Cost of Inventory at Cost

Avg. Inventory:

= Month1 + Month2 + Month3 + ..

Number of Months


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KGK-FMS

Advantages of RapidInventory TO Increased sales volume

Less risk of obsolesce

Improves salesperson morale

More money for market opportunities

Decreases operating expenses

Increases asset TO

G S


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KGK-FMS

Disadvantages of Overly RapidInv. TO

Lower sales volume

Increased cost of goods sold

Increased operating expenses


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Session 1

Merchandise PlanningProcess,

Tools & Techniques

KGK FMS


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KGK-FMS

Developing the SalesForecast

Specific period of time

Typical questions it should answer:

How much of each product to purchase?

Should we add new products to merchandise

assortment?

What price to charge for the product?

KGK FMS

d l l


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KGK-FMS

Steps to develop SalesForecasts: Review past sales

Analyse change in economic conditions

Analyse changes in sales potential

Analyse changes in market strategies of retail

organisation & competition

Creating the sales forecast

KGK FMS

S f f


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KGK-FMS

Sources of Data forForecasting Previous Sales Volume

Published Data (CSO, NSSO others

Customer Information

The Want Book Interviews Focus Groups Competition Vendors & Resident Buying Offices

KGK FMS


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KGK-FMSCycle

Lower PricesLower PricesWide RangePenetration or SkimmingPRICE

LimitedCompetitivePersuasiveInformativePROMOTION

Fewer RetailersMore RetailersMore RetailersLimited or extensiveDISTRIBUTIONINTENSITY

Less varietyGreater varietySome varietyOne Basic

OfferingVARIETY

Low-income

laggards

Mass MarketMiddle-incomeadapters

High-income

InnovatorsTARGET MARKET

DECLINEMATURITYGROWTHINTRODUCTIONSTRATEGY VARIABLE

T

otalR

etail

S

ales

Introduction Growth

Maturity Declin

e

OligopolyCompetition

Oligopoly-

CompetitionMonopoly-Oligopoly

SUPPLIER

STRUCTURESource:RetailManagem

en

t;Berm

an&Evans;EighthEdi t

ion;Pearso

n

EducationA

sia;Fig.14.6;p

p.465

KGK-FMS


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KGK-FMS

Variations on the Category LifeCycle

Illustration (Sales / Time)

YesNoYesNoSales vary dramaticallyfrom one season to thenext

YesYesNoNoSales of a specific styleover many seasons

YesYesYesNoSales over many seasons

SEASONALSTAPLEFASHIONFAD

SALES

SALES

SALES

SALES

TIMETIMETIME TIME

Source: Retailing Management; Levy & Weitz, Fourth Edition; Exhibit 12-6, Pg. 363

KGK-FMS


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KGK FMS

Determining the Merchandise

Requirements

Plan at two Levels:

1. Create Merchandise Budget

2. Develop the Assortment Plan

2 Methods of Deve. a Merchandise Plan:

1. Top-down Planning

2. Bottom-up Planning


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Session 1

Assortment Plan

Details the merchandise that will be sold in

each product/merchandise category complete mix of products available to theconsumer

KGK-FMS


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KGK FMS

Stage 4:Assortment Planning.

MerchandiseHierarchy

Company

Department

Merch. Classification

Merch. Category

Merch. Sub Category

Style Price Point

SKU

involves determining thequantities of each productthat will be purchased to

fit into the overallMerchandise Plan .

KGK-FMS

Th A t t Pl i


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KGK FMS

The Assortment PlanningProcess

Staple / Basic Merchandise

Fashion Merchandise

Fad

Style

Variety

Assortment

Product Availability

Assortment Planning

Merchandise Line:

A group of products that are closely related because they are intendedfor the same end use, are sold to the same customer group or fall withina given price range.

Key Merchandising Terms

KGK-FMS

Th A t t Pl i


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G S

The Assortment PlanningProcess Trade-offs b/w Variety, Assortment & Product

Availability

Determining Variety & Assortment

Profitability of Merchandising Mix Corporate Philosophy towards Assortment Store Layout / Layout of Website Complementary Merchandise

Determining Product Availability Cycle/Base Stock, Backup/Safety/Buffer Stock, Lead time

etc

Internet Assortment Planning Issues

KGK-FMS


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Retail Assortment Strategies1. Wide & deep

Many categories & large assortment in each category

2. Wide & shallow

Many categories & limited assortment in each category

3. Narrow & deep

Few categories & large assortment in each

4. Narrow & shallow

Few categories & limited assortment n each

Source:RetailManagem

ent;Berm

an&Evans;Eighth

Edi t

ion;PearsonEducat

ionAsia;pp.4

69

KGK-FMS


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Retail Assortment Strategies

1. Wide and Deep

Advantages

- Broad market- Full selection of items

- High level of customer traffic- Customer loyalty- One-stop shopping- No disappointedcustomers

Disadvantages

- High inventory investment- General image- Many items with low

turnover- Some obsolete merchandise

2. Wide and Shallow

Advantages

- Broad market- High level of customer traffic

- Emphasis on conveniencecustomer- Less costly than wide and deep- One-step shopping

Disadvantages

- Low variety within product line- Some disappointed customers- Weak image- Many items with low turnover- Reduced customer loyalty

Source: Retail Management; Berman & Evans; Eighth Edition; Pearson Education Asia; pp.469

KGK-FMS


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Retail Assortment Strategies

3. Narrow & Deep

Advantages

- Specialist image- Good customer choice incategory(ies)- Specialized personnel- Customer loyalty- No disappointed customers- Less costly than wide and deep

Disadvantages

- Too much emphasis on onecategory- No one-stop shopping- More susceptible to trends/cycles- Greater effort needed toenlarge the size of the trading area

4. Narrow & shallow

Advantages

- Aimed at conveniencecustomers

- Least costly- High turnover items

Disadvantages

- Little width and depth- No one-stop shopping

- Some disappointed customer- Weak image- Limited customer loyalty- Small trading area

Source: Retail Management; Berman & Evans; Eighth Edition; Pearson Education Asia; pp.469

Documents

1. Planning Merchandising Assortments