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
Source: Retailing Management; Levy & Weitz, Exhibit 12-1, Pg. 348
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
Source: Retailing Management; Levy & Weitz, Exhibit 12-2, Pg. 348
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
Source: Retailing Management; Levy & Weitz, Exhibit 12-3, Pg. 355
KGK-FMS
Not all products have same GMROI…Product GMROI
Apparel 241Food 170Furniture 111Consumer electronics 97
(in a discount store)
Source: Retailing Management; Levy & Weitz, Exhibit 12-2, Pg. 348
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:
Ret
ail M
anag
emen
t; B
erm
an &
Eva
ns ;
Eig
hth
Edi tio
n;
Pear
son
Educa
tion
Asi
a; F
ig.1
4. 6
; 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
rce:
Ret
ail M
anag
emen
t; B
erm
an &
Eva
ns ;
Eig
hth
Edi tio
n;
Pears
o n E
duca
tio n
Asi
a; p
p.4
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