6 MERCHANDISE MANAGEMENT

MERCHANDISE MANAGEMENT Definition The planning and implementation of the acquisition, handling and monitoring of merchandise categories for an identified retail organization

Category
A category is an assortment of items that the customer would broadly perceive as being substitutes for each other while reflecting the extent of possible variants for eg. A pair of trousers for jeans

Inventory Turnover
Can also be described as merchandise stock-turn To workout how long inventory is on hand prior to it being sold

Inventory Turnover
Net sales Average inventory at retail store Cost of merchandise sold Average inventory at cost Units sold Average inventory at retail store
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METHODS OF PLANNING AND CALCULATING INVENTORY LEVELS

Basic stock method of planning inventory When it is agreed that there should be a particular level of inventory avle at all times

The level of Beginning of month stock (BOM)

= Planned monthly sales + Basic Stock

Where

(a) Av. Stock for season = Total planned sales for season Estimated inventory turnover

(b) Av. Monthly sales = Total planned sales for season No. of months
And

Basic Stock = (a) + (b)

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Percentage variation method (PVM)

Beginning of month planned inventory level = Planned av. Mthly stock for season X [1+(Estimated mthly sales/ Estimated av. Mthly. Sales)]

Weeks supply method BOM=Av. Weekly sales * no. of weeks to be stocked

Where

Av. Weekly sales=Estimated total sales for the period Stock turnover rate for the period
And

No. of weeks to be stocked = No. of weeks in the period Stock turnover rate for the period
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 Stock-to-sales method
If a retailer wants to maintain a specified ratio of goods on hand to sales Shrinkage is the difference between the amt of merchandise that is reported on inventory stock system and what is avle for sale or on the shelves

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Markdowns are a lowering of the prices of the merchandise so that the reduction (markdown) acts as promotion

Employee discounts are part of planned reductions and offer value to the employee in working at the store

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MERCHANDISER SKILLS AND PROFILE

Developing the first stage of the merchandise plan It requires: understanding the target market groups Agreeing regional and branch sales forecasts collecting information on competitors and any new branch plans Taking into consideration branding and corporate policy Agreeing merchandise budget Liaison and initial discussion with buyer(s)
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CATEGORY MANAGEMENT Definition Category management is related to decisions over group of products that are selected and placed to satisfy useoccasions or patterns. This is based upon strategic retailing principles that attempt to maximize sales and profits and may also include trade partnerships - Gilbert
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Components of Category Management

Strategy: Performance Measurement & Organizational Capabilities; Business Process: Trading Partner Relationships & IT

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Category Management Business Process

Category definition Category role (Destination,Routine,Seasonal,Convenience) Cat. assessment (customer,market,competition,suppliers) Category Performance Measures (sales, profits, mkt
share, inv. t/o, assortment) (traffic, defend, profit, image, excitement)

Category Strategies & Tactics Category Plan Implementation Category review Q - Who is a category captain ? See S.Pradhan.
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Challenges in retail traditional supply chain Product development and sourcing Supplier mgmt Buying Merchandising Distribution Retail operations

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RANGE PLANNING
A retailers stock range can be described in terms of its width and depth, with the extent of each determined by company policy. This is sometimes termed the assortment.

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Ranging policy: assortment versus variety

Product line breadth/ width: Wide choice of generic product classes with few brand choices (variety).(It is also called pdt. range) In other words, the no. of different lines a retailer stocks in a store is often referred to as the variety of the merchandise mix.

eg. Mens wear, women wear, kids wear

The width will relate to the no. of categories that are found in the merchandise line and different generic classes of product or merchandise carried. A wide and narrow stock assortment is normally where there is little choice of brands, styles etc. within an individual range. Stock-turn could be higher for a broad 18 merchandise assortment, but margins will be slim.

 Product line depth: Wide choice with (assortment)

generic

product

class

The depth relates to sizes, styles, colours and prices within a particular generic class of a product. There are specialist shops, such as the niche boutiques, which offer a lot of depth but with a narrow product range.
eg. Various sizes, styles (striped, checks etc.), colours and prices in mens wear

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Assortment profiles and merchandise strategies

Cook and Walters 1991

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Assortment profiles and merchandise strategies

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Assortment profiles and merchandise strategies

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Developing the range planning and merchandise allocation plan

It requires: Understanding the selection process of consumers Deciding upon core and seasonal merchandise Agreeing the range e.g. style, size and colour mix depth and width Taking into consideration the sales-to-stock level targets and calculating the optimum level of stock by utilizing one of the stock inventory planning methods Relating the range plans to individual stores and possible promotional plans Briefing the buyer(s) on agreed source
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Developing the control mechanisms of the merchandise plan

It requires: An understanding of comparative frequency of store visits, based upon the browsing of, or items purchased by, the target market groups Forecasting sales of range items and profitability Monitoring stock levels and availability of new stocks and replenishment levels Assessing value of merchandise through shrinkage, markdowns, employee reductions Liaisoning with the buyer(s) to discuss the performance figures Expanding or reducing merchandise categories, based upon sales performance
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Store grading Can be related to the gross sales forecast Rather than produce a unique plan for each store, it is a common practice to grade the stores The grading is normally done on the basis of floor sales area

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SPACE ALLOCATION
There is a need to know: Are products easy to locate individually and as part of a basket of goods? How long does it take to obtain and purchase a category? Is the range broad enough to provide a satisfactory selection? Are other retailers offering a superior layout of categories?
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 Space allocation will be driven by:

Financial emphasis of yield mgmt techniques Competitive strategy

Space allocation will be constrained by:

Practical operational and Merchandise related factors

New product launch

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 Fixture layout
Space allocation and layout decision making Pangrams proprietary software Shelf layouts Impact of category role on range and space strategies Temporary shifts in space allocation Use of off-shelf displays

In-store layout
Grid layout Free flow layout Can be instrumental in creating the ambience
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MERCHANDISE ASSORTMENT AND SUPPORT

Analysis of merchandise category performance If Demand>projected figures->prospect of missed out Opportunities and disappointed customers > anticipated sales volume of the underperforming category->prospect of markdowns The gross margin is only realized when the stock is turned over or sold
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 All retailers have to execute markdowns Customer perceptions of reduced merchandise are a key consideration and the public profile of the bargain-bin cannot be allowed to compromise image

So the merchandiser has to strike the balance between stimulating stock-turn with pricereductions, and not undermining the perception of added value that the retailer has to preserve in order to command its full price on the reminder of the stock range
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NEGOTIATING THE PURCHASE Centralized buying Decentralized buying Specialist buyers Generalist buyers Negotiated Contract Uniform Contract

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CONCLUSION

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