31468275 1 Planning Merchandising Assortments

Session 1

PLANNING MERCHANDISING ASSORTMENTS

& BUYING SYSTEMS

Krithika G.KAsst. Professor

FMS

KGK-FMS

Retail Merchandising

Retail Merchandising is the process of developing, securing, pricing, supporting and communicating the retailer’s merchandise offering.

KGK-FMS

Merchandise Management ….… is the process by which a retailer attempts to

offer the right quantity of merchandise, in the right place, at the right time while meeting the company’s financial goals.

- Levy & Weitz

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

- Swapna Pradhan

KGK-FMSPlanning Merchandise Assortments

Organize the Buying Process by Categories

Set Merchandise Financial Objectives

Develop an Assortment Plan

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

KGK-FMS

Buying Systems

Set Merchandise Financial Objectives

Develop an Assortment Plan

1. Fashion Merchandise Buying Systems

2. Staple Merchandise Buying Systems


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 particular merchandise category

Session 1

Organizing the Buying Process by

Categories

KGK-FMS

Category Category is an assortment of items that

the customer sees as reasonable substitutes for each other.

Girls’ apparel, Boy’s apparel, infant’s apparel are categories

Categories have similar characteristics

Session 1

The Buying Organization

KGK-FMSStandard Merchandise

Classification Scheme and Organizational Chart

Chairman Merchandise-Oriented Partner

Sr. Vice Pres;

Merch Mgr: Women’s ready-to-

wear

Sr. Vice Pres; Merch Mgr: Men’s,

chld’s, intimate apparel

Sr. Vice Pres; Merch

Mgr: Cosmet., shoes,

jewelry, access.

Sr. Vice Pres; Merch

Mgr: Soft homefurn.,

kitchen

V.P.

Planning

Div. merch

manager Men’s suits,

slacks, dress shirts

Div. merch

manager

Men’s sports-

wear, Polo

Div. merch

manager

Young men’s, boys’

apparel

Div. merch

manager

Children’s apparel

Div. merch

manager

Intimate apparel

Div Dir..

Planning

Buyer

Pre-teen accessories

Buyer

Girls’ Size 7-14

Buyer

Girls’ Size 4-6

Buyer

Toddlers’

Buyer

Infants’

Buyer

Little boys’

Mgr.

Planning

Sportswear Dresses Swimwear Outerwear

Girls Levi Jeans, Size 5, stone washed blue, straight leg

Merchandise Group

Department

Classification

Category

SKU

Planning Group


Session 1

Setting Merchandise Financial Objectives

KGK-FMS

Overall: Return on Assets ROA:

= Net Profit margin X Asset Turnover

= Net Profit X Net SalesNet Sales Total Assets

= Net Profit / Total Assets

KGK-FMS

Merchandising Financial Performance: GMROI GMROI:

= Gross Margin Percentage X Sales to Stock Ratio*

= Gross Margin X Net Sale Net Sales Av. Inventory#

= Gross Margin / Avg. Inventory

• * Sales to Stock Ratio = Net Sales / Avg. Cost of Inventory

• # Inventory TO = Sales to Stock Ratio X (100% - Gross Margin %)

KGK-FMS

Gross Margin & Sales/Stock different for different Products


KGK-FMS

Not all products have same GMROI…Product GMROI

Apparel 241Food 170Furniture 111Consumer electronics 97

(in a discount store)


KGK-FMS

Particulars Gross Margin Avg Inventory GMROI

Specialty Food 120000 28000 4.3

Countertop Appliance

80000 40000 2.0

Glassware 200000 130000 1.5

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

KGK-FMS

Measuring Inventory Turnover Inventory Turnover:

= Net SalesAvg. Inventory at Retail

= Cost of Goods Sold Avg. Cost of Inventory at Cost

Avg. Inventory:

= Month1 + Month2 + Month3 + …..Number of Months

KGK-FMS

Advantages of Rapid Inventory TO Increased sales volume

Less risk of obsolesce

Improves salesperson morale

More money for market opportunities

Decreases operating expenses

Increases asset TO

KGK-FMS

Disadvantages of Overly Rapid Inv. TO Lower sales volume

Increased cost of goods sold

Increased operating expenses

Session 1

Merchandise Planning Process,

Tools & Techniques

KGK-FMS

Developing the Sales Forecast 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

Steps to develop Sales Forecasts: 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

Sources of Data for Forecasting Previous Sales Volume

Published Data (CSO, NSSO others

Customer Information

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

KGK-FMSThe Category Product Life Cycle

Lower PricesLower PricesWide RangePenetration or SkimmingPRICE

LimitedCompetitivePersuasiveInformativePROMOTION

Fewer RetailersMore RetailersMore RetailersLimited or extensiveDISTRIBUTION INTENSITY

Less varietyGreater varietySome varietyOne BasicOffering

VARIETY

Low-incomelaggards

Mass MarketMiddle-income adapters

High-incomeInnovatorsTARGET MARKET

DECLINEMATURITYGROWTHINTRODUCTIONSTRATEGY VARIABLE

Tota

l R

eta

il

Sale

s

Introduction Growth

Maturity Declin

e

OligopolyCompetitionOligopoly-

CompetitionMonopoly-OligopolySUPPLIER

STRUCTURESou

rce:

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; pp.4

65

KGK-FMS

Variations on the Category Life Cycle

Illustration (Sales / Time)

YesNoYesNoSales vary dramatically from one season to the next

YesYes No NoSales of a specific style over many seasons

YesYesYesNoSales over many seasons

SEASONALSTAPLEFASHIONFAD

SA

LES

SA

LES

SA

LES

SA

LES

TIMETIMETIME TIME

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

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

Session 1

Assortment Plan

Details the merchandise that will be sold in each product/merchandise category – complete mix of products available to the consumer

KGK-FMS

Stage 4:Assortment Planning….

Merchandise Hierarchy

Company

Department

Merch. Classification

Merch. Category

Merch. Sub Category

Style Price Point

SKU

…involves determining the quantities of each product that will be purchased to fit into the overall Merchandise Plan .

KGK-FMS

The Assortment Planning Process

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 intended for the same end use, are sold to the same customer group or fall within a given price range.

Key Merchandising Terms

KGK-FMS

The Assortment Planning Process 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

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

Sou

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Ret

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Edi tio

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69

KGK-FMS

Retail Assortment Strategies1. Wide and Deep

Advantages

- Broad market- Full selection of items- High level of customer traffic- Customer loyalty- One-stop shopping- No disappointed customers

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 convenience customer- 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

Retail Assortment Strategies3. Narrow & Deep

Advantages

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

Disadvantages

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

4. Narrow & shallow

Advantages

- Aimed at convenience customers

- 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

31468275 1 Planning Merchandising Assortments