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CYRUS C.

WILSON
CHARLES D. GREENIDGE

Classification Merchandising:
An Overlooked Opportunity
for Increasing
Merchandising Profitability
EPITOME
The development of sophisticated information
technology in retailing has outpaced the development of sophisticated information systems. Up to
this point most installations of EDP equipment
liave been justified on the basis of cost displacement or savings through increased productivity.
Merclwindising applications have empha.sized elaborate unit control systems.
Profitability problems in retailing are most susceptible to improved dollar-based inventory management systems similar to NRMA's classification
merchandising concept. In this article research results of retailers using an advanced dollar system
are analyzed and conclusions are drawn. In addition, the suitability of advanced dollar systems for
meeting a variety of emerging retailing management problems is thoroughly discussed.

P^

THE USE OF ELECTRONIC DATA PROCESSING

in

business has generally been justified on one or both
of two main grounds. For one thing, EDP has been
used to automate certain highly specialized and already well-defined manual processes and, hence,
has served as a means of reducing expenses and improving productivity. Second, EDP has offered
management a broader information base for decision making and has thus furnished a means of improving overall performance and increasing profitability.
FALL / 1969 / VOL. X I I / N O . 1

The first of these two applications—which is often
called the housekeeping function of EDP—has generally been the best understood and most widely accepted. In fact, since the late 195O's, when the giant
retailers first began installing EDP, most applications have been limited to the automation of manual accounting functions where productivity gains
could be quickly exploited.^
The second application—tlie one which rationalizes EDP as a management decision-making toolhas been until recendy a rather vague and poorly
understood promise held out for some unspecified
point in the future. And yet it is this broader application which promises the greatest rewards, especially in retailing.
EDP as a merchandising management tool. In retailing, the logical area for information system development is merchandising management. Since
merchandise is the main source of revenue, a major
creator of expenses, and a key asset item, the overall profitability of a retail operation is largely a
function of the profitability of inventory investments. This is why students of retailing have long
felt that EDP would yield its greatest payout by
generating information for merchandising management.In harnessing EDP to the merchandising function, retailers at first concentrated on automating
unit control systems. This was where the great
speed and mass data-handling capacities of EDP
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because of this they are well suited to dealing with today's adverse profitability trends in retailing. classification merchandising systems provide profitability information for relatively narrow segments of merchandise investment. which is now known as classification merchandising. It is useful whenever the retail manager must plan and control a large number of merchandise items of low. Indiana University Graduate School of Business and a Faculty Associate of Management Horizons. downtown department managers have usually bought the merchandise for all locations hecause this seemed the best way of keeping buying expenses low and of avoiding duplication of effort in dealing with suppliers.to moderate-unit value. such personalized information feedback was not possible. and inventory investment. Traditionally. Inc. reductions. Most importantly. over 50 per cent of department store sales were in branch stores. and it is especially useful in multidepartment or multistore operations. top management has felt that department managers should spend a lot of time on the selling floor so that they could personally observe customer reaction and sales activity in the department. Retail management information systems are his special interest. At the same time. This knowledge was considered essential for making merchandise-buying decisions. however. Field research findings show that a controlled sample of small men's wear retailers improved their profit performance through a classification merchandising approach to inventory management. several disturbing trends have developed in retailing performance—especially in department stores. we believe that retailers-especially large ones—are overlooking a major opportunity for increasing merchandising profitability. 5 / Discussion of the potential applications of classification merchandising for retailers in general. By 1963. Califomia Management Review .^ The NRMA system. in fact. gross margin. the past decade has seen continued expansion into suburban branch store locations. Some other way was needed to get merchandise movement information into department managers' hands. For one thing. First.* This expansion of branch operations has actually weakened merchandising performance. There are several explanations for this. readings in the current periodical literature and personal interviews show tliat the great majority of retailers. We have chosen the department store industry as an example because it covers the broad spectrum of merchandising experience and because it stands to benefit greatly from classification merchandising. By 1965. with special emphasis on large retailers. But \n\h several branch locations. Charles D. 3 / Description of the classification merchandising concept and evidence indicating the degree of misunderstanding that exists among large retailers. using the department store industry as an example. Department Stores Over the last ten years. a slight increase in gross margin as a percentage of net sales was more tlian offset by declining inventory turnover—with the net result of a decline in overall merchandising profitability. 4 / Profit improvement results from a panel of men's wear specialty stores which used a classification merchandising approach to merchandising management. He has done extensive research in automated merchandising. are not using or do not understand the classification merchandising concept. especially department stores and other large concerns.equipment seemed most useful. Merchandising performance data for 1957-1966 are summarized in Table I. What is the potential of classification merchandising? Our evaluation is organized in five steps: 1 / A brief analysis of merchandising profitability trends. Inc. the National Retail Merchants Association (NRMA) had become interested in the possibilities of dollar-based information systems. Wilson is Assistant Professor of Marketing. But the weakness of this approach is that it dilutes the department manager's knowledge of merchandise movement. In those ten years. Greenidge is Assistant Professor of Marketing at the University of Colorado and a Faculty Associate of Management Horizons. In fact. can be used by a broad range of retailers—from small specialty stores to giant merchandise organizations. and the publication of NRMA's Standard Classifications in 1967 was a big step toward a more systematic way of organizing dollar information on sales. Cyrus C. 54 2 / Discussion of the limitations of unit systems for solving profitability problems.

and assortment requirements.1 36.5 3. are broadening.2 37. or promoted in some way? The hoped-for results of having such unit activity information are (1) better in-stock position and. transferred.6 5. is the increasing need for information. .15 .20 .3 6. and they will not finance expansion and growth. The key element. And explanations cannot be put in the bank.15 .2 36.24 2. National Retail Merchants Association. Thus.4 Per Cent Change 1957-1966 2.2 36. The many promises made for unit systems have not been kept and perhaps never wiU be. Staple merchandise in many instances is developing a "fasliion" component.5%) (7. marked down. Should it be reordered. They cannot be distributed to stockholders as dividends. And they are basically twofold: • They are extremely expensive to operate.4 Net sales to average inventory at cost (Times) 6.4 36.8 3.2 6.7 Gross margin / dollar inventory at cost ($) 2.7 5.18 .TABLE I. .1 36.16 .2% (9. But there are limitations on unit systems.11 2. Rather.17 . .18 . the individual department manager's ability to gather information visually is weakened. merchandise from many separate departments is assembled in a distinct display focused on a particular shopping need.3 6. The reason.17 Inventory turnover (Times) 3. With this approach. and (2) fewer overstocked situations and. Anotlier factor has been the development of the "shop" or "boutique" concept of merchandise presentation. Yet results have been quite limited.9 3. irrespective of the inventory accounting system used.5 6.8 3. Data for 1963-1966 are for departments using the retail method of accounting only.5 36.28 2. The investment required to offer a full assortment in a given line of merchandise has grown persistently large. The implications for the department manager are obvious.3 5.8 3.13 . of course.36 2. New York. they are still only explanations for an unsatisfactory situation.7 5. Even when unit-control systems are brought to full maturity.29 2. retailers need to reverse current trends in merchandising profitability.6 3. hence.T.11 2. Certainly. * Data for 1957-1962 are for all owned departments. 1 ter of attention. However compelling the reasons for the declining profitability in department stores (and in retailing generally). or in sight.) / dollar inventory at cost ($) .4 6.4 3.30 2. unit systems provide information about the number of units of a merchandise item sold and on hand. Han-ard University.8%) (5. Even if he did not have to contend with multilocation merchandising.9 3. is that while unit-control systems can keep merchandise on the shelf.03 2. Graduate School of Business.4 36. hence. even in traditional fashion areas.12 Net profit (A. lower inventories in relation to the sales level supported. And unit-based systems in particular have been tlie cen- FALL / 1969 / VOL. fewer lost sales from being out of stock. the power of EDP to automate information feedback has wide currency as the answer to today's merchandising dilemma. the challenge of better inventory management will not be entirely met. of course. tlie proliferation of items has greatly increased his information needs. they do not provide suflBcient details of the elements determining gross margins. Tliese results are expected to enhance profitability tlirough increased sales and faster inventory turnover. Again.18 .5 3. the current emphasis on unit systems is not entirely unfounded. MERCHANDISING 1957 1958 1959 PERFORJUING D A T A FOR DEPARTMENT Median Performance 1960 1961 1962 1963 1964 1965 1966 Gross margin to sales (%) 36. and there is evidence that sometimes this has been achieved.30 2. This information is thought to be useful in deciding what action a buyer ought to take on a given item of merchandise. Still another factor is the introduction of many new merchandise items. 55 .^ Properly conceived. XII / NO. and Di\ision of Research.5%) (10.9 37. • They do not provide information about the profitability of stock investments made.5%) SouncES: Controllers' Congress.

increased the flowthrough time by ten. but by itself does not show profitability of merchandise investment because it does not attach a dollar value to sales. of measuring merchandise performance. To talk in terms of numbers of inventory breakdowns. there are no economies of scale in unit systems. and additional markons and cancellations. tliis very point has caused confusion among traditional department and specialty stores. These may be broadly classified as follows:" 1 / Sales and returns. This point is well made in all leading textbooks on merchandising. it would still provide only part of the information needed. of space—and those who claim we have had the likes of this for years. it does not really approach the level of analysis anticipated by proponents of classification merchandising. As Edward Waterbury of Woodward & Lothrop recently said: The rapid expansion of our business in terms of the number of stores. there are cost factors in large-scale applications which do not stand out in small-scale experiments.400 merchandise breakdowns below the department level (about 10 per department). the need to record and mark merchandise items by unit. transfers. and each breakdown averages an inventory investment of $5. Ceorgia. 56 4 / Open-to-buy: merchandise plans.^° This same problem was brought out in a study performed by a leading firm of certified public accounts.^ Even if accurate and relatively inexpensive unit data were available. Receiving and marking costs are examples.While this may seem to be a fairly detailed breakdown of inventory investment." Tlie difficulty with this and similar controlled demonstrations is that the full-cost impact of widespread applications is often not taken into account.^ A Definition In a sense. When items were added to the automated unit control program. his experience shows that computer processing times for unit systems grow geometrically as the number of stock-keeping units on the system is increased. there is nothing startlingly new about classification merchandising. 2 / Inventory: opening inventory. The development of classification merchandising basically reflects the demise of the department as the primary responsibility and profit center in department store retailing. Joseph Buchan and Ernest Koenigsberg demonstrated that a unit control system can achieve better inventory balance. Increases in sales as well as turnover should be weighed against the costs of system operation. Typical of tlie stores included in this study is Rich's. There are those that acclaim Classification Merchandising as today's—and tomorrow's—better way of learning customer demand. According to this same manager. and orders placed. cost of merchandise. however.In a highly controlled experiment involving one department in a department store. In fact. 50 department stores were asked if dollar data on sales and stocks were gathered below the department level. Unit information can be very useful in planning and controlling assortments. a large. but it is worth re-emphasizing in view of current industry performance trends and emphasis on unit systems. as opposed to department or classification. reductions. These were the results: • 32 stores indicated that they coflected at least sales below the department level. or average stock investment. of planning sales. Rich's has about 1. as well as volume and the remoteness of the buyer from the ever-growing percentage of the California Management Review .^^ Retailers apparently do not have a clear idea of what is meant by a "classification" or of what the objectives of "classification merchandising" are. of assigning inventory dollars. progressive department store located in Atlanta. • None of tlie stores was developing gross margin data below the department level. The major difference between traditional dollar control and the classification merchandising approach is the level of application. 3 / Markdowns and cancellations. purchases and vendor returns.000. is to miss the point on classification merchandising. Retailers themselves appear to be divided by the new classification system these days. • 12 stores indicated that they developed stock plans and open-to-buy controls below the department level. In fact. In the study quoted above. Data processing costs are also a good example.^. The preparation of dollar classification reports reqtiires exactly tlie same kinds of infoimation that are presently used in the preparation of [traditional] department accounting records. According to the data processing manager of a large department store which is aggressively expanding its unit systems using EDP.

Unit systems provide movement and stock level information in terms of physical pieces of merchandise. unit systems have been specifically oriented toward merchandising operations. Such fluctuations tend to be less chaotic for the entire range of items in a customer end-use category when taken as a whole. This is critically needed on a detailed breakdown basis to deal with the adverse profitability' trends in department stores and in other sectors of retailing. such as a department or dissection. ."" NRMA has developed standard definitions for a four-level breakdown based on increasingly specific merchandise characteristics.business. policing tlie entry of unit receipts. but designed as logical groupings of related merchandise for broad customer end-use. Gategories. margins. Classes. most nearly similar to historical store divisions. and promotional expenditures. Third level: Assortment of items within each secondlevel breakdown.a classification system are generally lower than those of a unit system. etc. Since most large retailers al- 57 . planning and controlline on the basis of an individual item can be very hard because of the relatively \vide fluctuations of item demand around its average value. Merchandise Demand Genters. fine-line dollar systems can even be substituted for unit systems. Second level: Family groupings most nearly similar to historical store departments. Merchandise Groups. Third. This coding system has the capacity for 9 Merchandise Croups. Anticipating tliat "classes are the departments of the immediate future . The problems involve system accuracy—accounting for reductions. Usually unit systems and dollar systems are thought to complement one another. on basis of relationship for customer end-use. extends the level of detail of dollar systems to tlie point where they can also become useful in a merchandising sense. and even capturing unit sales data. what might be the advantages of reallocating development funds and management emphasis from unit systems to fine-line dollar systems? First. price ranges. the fact is that executives using unit data are seldom able to bridge the gap.^' First level: Broad groupings. and 9999 Categories. as often happens when plans FALL / 1969 / V O L . inventory dollars. while dollar systems provide similar information in financial terms. In some cases. accelerated the demand for accurate and timely information at the classification In this sense. reductions. classification merchandising offers many benefits: ^ One is the abihty to measure profitability of narrower and more homogeneous groupings of merchandise. Unit VS. I Merchandising by class also facilitates planning and controlling in the modem context of multiple locations and boutique operations. • Management should be able to pinpoint expansion opportunities and isolate problems or poor performance areas. whether or not it embraces NRMA's definitions. Second. but designed to break down merchandise by types. tlie expenses of establishing and maintainin o. X I I / N O . and investments. . however. Dollar Systems For the individual firm. markups. I Merchandise plans and controls will be more meaningful at a class (or even a category) level because they will be focused on a particular customer end-use. NRMA's immediate purpose in promulgating standard definitions is to facilitate collection and exchange of merchandising results at the class or third level. Buyers also tend to be myopic about a given merchandise item or stock-keeping unit. and as a result they are less able to spot trends across an entire assortment or group of related merchandise items. whereas dollar systems have been used to regulate total investment by major segments of the business. The classification merchandising approach. 999 Classes. This perspective on profltabihty allows management to make better decisions on the allocation of the scarce resources of space. not by size groupings. 1 and conbols are fonnulated for a more conglomerate merchandise grouping. although they serve different purposes. even tliough proponents of unit systems argue that unit information can be built up into dollar figures. The NRMA classification scheme is basically a four-digit coding system where the first level corresponds to the first digit. 99 Merchandise Demand Centers. Purchasing for one class will not be closed ofF because another class is over budget. Fourth level: Groupings on basis of items that are interchangeable or substitutable for specific customer end-use. If this is true. classification merchandising gives dollar information on sales. Furthermore. the merchandise class is becoming the basic building block of merchandising. Traditionally.

00 750.7 8. An example of the inventory management report.5 6.9 10.0 Total Dept.00 1.0 35.00 2.0 40.00 1.970.492.7 3.138.0 32.698.00 67.00 960.0 1.00 2.00 145.6 3.00 114.00 103. good arguments can be developed for classification merchandising.00 94.0 100.4 2.440.00 94.00 62.8 34.0 1.483.00 75.5 18.6 8.00 75.00 132.00 100.00 3.00 — — — 8.00 910.00 285.00 376.00 50.00 130.912.00 194.0 29. frequency.00 California Management .247. the heart of the new information system.508.6 1.00 280. and timeliness of information.00 24.00 2.00 175.00 520.0 3.00 289.00 254.00 2.00 229.7 1. Dramatic changes in inventory management performance were observed.0 .00 232.00 100.00 213.00 1.00 384.00 194.0 1.00 666.00 175. but tliey are meaningless unless they can be backed up with evidence of concrete results.00 565.734. The new expenses of replacing departmental breakdowns with more comprehensive classification breakdowns are rather marginal.918.8 .0 1.00 519.00 150.0 31.00 28.4 2. To date.0 30.9 2.8 2.363. no matter how sophisticated the classification system. Taken together. The inventory management report.403.00 1.0 42.00 1.000 to about $600.00 300.0 8.00 1.1 Review .00 619.6 3.00 1.2 9.7 1.692.00 4. it is unlikely to exceed 10.00 — — 1.00 35.00 960.00 3.7 3. Mark Downs End Inv.422. there are several a priori reasons why improved inventory management perfomiance might not occur.00 90.792. • The basic tendency of small companies is to shy away from planning. More important.00 50.0 36. Information is now being received monthly. The median • Inventories tend to increase initially as a result of taking corrective action on imbalanced stocks.00 450.00 228.00 160. But.850.355.00 3.2 3.000 categories.00 208. Cost End Inv. xnv.00 800.00 1. The median amount of inventory investment per classification decreased from $5.00 302.267. on ^ Hand Additions Cost Retail % Inv.00 48. the evidence consists of isolated success stories.00 714.4 13.00 25.796.00 200.040.00 810.786.8 980.^^ Results and Evaluation Results of improved information.7 4.00 100.353.jump in number of classifications was from 16 to 180.0 2. is shown in Table II.00 16.00 17.5 . all the administrative procedures and information sources for a classification system already exist.00 552. the information is available 3 to 5 days after the end of the month.0 33.5 3.664.1 8. 2.^° • There is no history upon which to base planning for the newly formed classifications.0 1.00 200. such quantitative and quahtative improvements in infomiation would logically point to improved performance.00 785.00 924.5 2.00 2. but then no systematic research into the effect of a classification merchandising program on profitability has been previously reported.8 9.00 500.00 500.6 375. as opposed to anywhere from 20 to 90 days using manual methods.00 519.00 148.00 353. Certainly.00 634. the first-year results of our continuing study of the impact of classification merchandising on a sample of thirty smaller men's wear retailers is presented below.00 10.00 33.5 4.0 28. Several important findings resulted from the analysis of first-year data.9 3.00 — — — — — — — — — — 20.6 3.00 437.00 867.00 200.0 38. whereas less than half of the retailers enjoyed such frequency before.00 60.1 2.00 350.00 141.6 Totals 9.695.0 32.0 39. Retail — 32.00 400.00 725.774.00 99.00 250. 10.00 — 5.00 3.6 2. This report permits the retailer to divide his inventory investment into as many as 799 classifications.1 8. in spite of such strong logic.00 894. To help fill this gap.0 34.000 stockkeeping units doesn't even constitute a good start. whereas for a unit system.5 . ft/1 Q 7. especially during the first year: ready have some form of departmental dollar control. The report represents a quantum jump for all tlie retailers studied in terms of sophistication.00 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 58 2.5 9. Table III summarizes the first-year results of a comparison of observed in- TABLE II.8 3.0 3.00 22.0 31. Finally.0 856.5 7.00 96.00 39.fTI Y\ ijXtXl ^lU 07 /C Mos. AN INVENTORY MANAGEMENT REPORT OF THE TYPE USED BY RETAILERS IN THE PANEL % Sales Sales Total Gross Profit Maint.00 920.1 7.00 9.219.0 32.5 4.

are faced with a merchandising profitability problem. the firstyear results indicate strong improvement in gross margin doUars earned and an equally strong increase. However. panel results showed an unfavorable outcome for the sales-to-inventory ratio. The strong improvement showTi by panel members on the gross margin-tosales ratio tends to support the idea that classification merchandising is an effective way to improve profitability. X I I / N O . whereas our study covers smaller stores with correspondingly lower traffic. FALL / 1969 / V O L . an unfavorable change. ^ Fine-line dollar systems have been proposed but have not received a great deal of support. We might conclude. The predicted values of gross margin dollars earned and inventory investment are based on a least squares regression of each value on sales volume for the period 1961-1965. "The Effect of Improved Information on Profitability in Smaller Retailing Firms". both unpublished Ph. k The department store industry. and Charles D. Therefore. Improved inventory investment information on a fine-Hne basis is likely to result in two kinds of management action: 1 / Increasing inventory on some classes to avoid lost sales from being out of stock on briskly demanded merchandise. Overstocked conditions. and retailing. COMPARISON OF FROM PREDICTED VALUES FOR THE AMOUNT OF CHANGE GROSS MARGIN DOLLARS EARNED AND INVENTORY INVESTMENT. however. 1966 Number of Retailers Gross Margin Inventory Dollars Earned Investment Greater than + 1 standard deviation Between + 1 and —1 standard deviation Less than — 1 standard deviation 5 17 11 11 15 2 SOURCES: Cyrus C. while the comments of our panel retailers and the results of other studies show that the unfavorable change in the sales-to-inventory ratio is a temporary phenomenon.^^ Of course. Transitory increases in inventory investment have been observed in several merchandising information systems. But there are strong indications that the increases in this measure are transitory. The executives of large department and specialty stores seem to misunderstand the classification merchandising concept. For example. generally. 1967. theses. TABLE III. The net result is that inventory will tend to increase immediately after improved information becomes available. and better balance will be achieved only over a period of time. that tlie ultimate result of improved information will be a liigher salcs-to-inventory ratio and. Interpretation of results. their study involved a department in a large department store with brisk customer traffic. it is very hard to say how long the "bulge" will last. as the excess merchandise is sold off. an overall improvement in profitability. 1 Understocked conditions can be quickly corrected by placing orders for additional merchandise. Conclusions The evaluation procedure presented earlier also reflects the argument for greater emphasis on the classification merchandising approach. • Smaller specialty stores using a classification merchandising approach have shown strong improvement for gross margin performance in the first year and can be expected to show overall improvement for merchandising profitability in the future. specifically. hence. The experiences of panel retailers with fine-line dollar systems offer some good insights for large re- 59 . PANEL RETAILERS. in inventory investment. For the panel as a whole. 2/Reducing inventory on some classes which are presently overstocked in relation to demand. "Explaining Management Performance Under Conditions of Improved Information in Smaller Retail Firms". Greenidge. The differences between predicted and actual value for each variable were converted to standard units and partitioned to highlight the degree of change. however. and observed gross margin dollars earned I'ersus predicted gross margin dollars earned. Ohio State University. Wilson.D. I Present emphasis on unit systems for reasons of cost and kind of Infonnation provided is not solving the profitabilit}' problem./entory investment versus predicted inventory investment. Changes of greater than one standard deviation in eitlier direction are considered to be significant. usually will not be corrected immediately but will slowly correct themselves as normal sales reduce the excess stocks. Buchan and Koenigsberg noted that inventory investment 'iDulged" immediately after system installation and did not come back into balance with sales volume until six months later.

there is already a trend toward more tightly structured vendor-retailer relationships—as witnessed by the growing popularity of programmed merchandising. This technique is often used successfully in the hosiery departments of large retail stores where the supplier is actually operating the unit system under the supervision of the department manager. of course. are often criticized as misleading. Tliis is another strong argument for classification merchandising as opposed to unit systems. they focused their attention on that class for further study. From this we conclude that many alternative classification schemes might well be used below the third level. even in smaller retail stores. Other measures would include: gross margin return on space utilized. Several panel retailers did not conform to the general recommendation of classifying on the basis of end-use or detailed merchandise characteristics and employed bases of price-line. This. and we need to educate management to their use. They reviewed the dollar results of each class. Naturally. altliough additional research needs to be done. margin after direct expenses return on inventory and space. Acceptable performance for the department as a whole may simply be an average of very good and very bad for the classifications or categories which are grouped together to form the department. The strategy of most retailers in the panel was to use fine-line dollar information as a trigger mechanism. to want to avoid classifying on any dimension other than merchandise end-use or detailed characteristic. are more realistically and economically a vendor function rather than a retailer function. and return on promotional outlays. Cross margin return on average inventory investment is one example of the type of profitability measure that fine-line dollar information will make more meaningful. too much information can be a limitation to management. The emergence of the classification or category as tlie basic level of merchandise planning and control will also affect management practices. may not be the most fruitful metliod of classification for purposes of merchandise investment management. should ease the dilemma created by the breakdown of the department as a profit center and the growing sepaCalifornia Management Review . or even color. With all these measures we need to develop standards of performance for classes. implicitly. This should enhance the value of open-to-buy controls and encourage the use of several other performance measures which. When they spotted a class with results that seemed unusual. new and old. NRMA seems. Class performance measures. to find the relative effectiveness of alternative methods for various lines of merchandise. or preoccupation with items. is nothing more than the management-byexception principle—but it's noteworthy that the panel retailers felt better able to do this with broader dollar data than witli more detailed unit data.tailers. while necessary for figure exchange. Actually. More attention will be given to return-on-investment measures on a classification basis to measure profitability and productivity and to allocate limited factors. fine-line dollar data allowed several panel retailers to retain financial control of a classification while delegating the actual assortment merchandising to a supplier's representa60 tive. vendor. For example. have played rather minor roles. such as open-tobuy. But dollar data on a classification or categor)' basis should be more directional since it is based on more homogeneous merchandise groupings. For staple merchandise. There has been a "credibility gap" about the usefulness of such information. It may very well be that unit systems. this presupposes more formalized vendor-retailer cooperation in planning model assortments and seasonal merchandising programs. the variety of classification schemes used effectively by the panel retailers suggests that the NRMA standard classifications. The next step might be a complete assortment review of the class tlirough a physical inventory to determine the exact source of trouble. As some of the panel retailers indicated. managers cannot effectively plan and control on an item basis. season. Because of the large numbers of merchandise items. of course. These retailers often had specific examples of how classifying on a basis other than detailed merchandise characteristics had helped them eliminate a price-line or achieve better control over a vendor. The present departmental and subdepartmental breakdowns generally have such a heterogeneous merchandise composition that dollar measures. looking for exceptional deviations from expectations. Part of the reason could be a desire to avoid pushing dollar classification systems too deeply into the traditional province of unit systems—an artificial limitation. until now.

1965. 148 18. 26. Retailing Management (New York: The Ronald Press Gompany." Harvard Business Review. Schott as quoted in Putting Classification Merchandising to Work (New York: NRMA. it seems to be an effective means of reversing adverse profitability trends. 8. E21-E23.. April 1962. p. "Merchandise Glassification. 17. p. For example. 1963)." Harvard Business Review. 12. Authors' conversation with John Bradley." In the future. 75 7." Chain Store Age. p. 1964)." address to the Ninth Annual EDP Gonference for Retailers. Gontrollers' Gongress. Buchan and Koenigsburg. and procedures should be adjusted to give the store operations executive a greater voice in merchandising tliose classifications from which he is supposed to sell. p. there appear to be many potential benefits for large retailers who adopt tlie classification merchandising concept. 23. 16.J. Tlirough such joint merchandising responsibility.: Prentice-Hall". 9. 1967. Yunich. Oct. "Gathering Glassification Data by Manual and Mechanical Systems. The name of the individual and his finn are withheld by request. The operations man would also need to be able to expand or contract the part of his budget which is allocated to a given classification. "Are the Brakes Too Tight to Let the Train Roll?" Retail Control. 1967)." 6. 5. 19. 1966. Ebert. See Roger A. 2." Retail Control. 1967). "Retail Reorganization. p. In summary. 404-405. the store could establish a store operations profit center for each location. pp. Feb. XUUA (July-August 1965). 20. p. Gonti^oller of Rich's. Bingham and David L. chandise Gontrol. 75. 31. Putting Classification Merchandising to Work.ration of buying and selling into separate job responsibilities. Sept. 10. Retail Research Institute. George Baylis. 129-146. could then be held responsible for total classification performance across all locations. N. Feb. p. XLII:6 (Nov. "Practical Planning for Small Business. "Tomorrow's Retail Systems. GarroU E. it appears to be consistent with emerging patterns of change in the retailing industry. Stanley Laing. 18. merchandising will be more and more a joint responsibility. 75. For example. Data in this paragraph are provided by the data processing manager of a leading department store. Wheelock H. Merchandising and Operating Results of Department and Specialty Stores in 1966 (New York: NRMA. p. the store operations executive could treat the buying executive as a "source of supply. Classifications (New York: NRMA. Tlie buying executive. 1966). 13. Scientific Inventory Management (Englewood Gliffs. 11. Most importantly. 1 3. Laing. Buchan and Koenigsburg. pp. Albert 1. and could simultaneously create a classffication profit center oriented toward a specific buying responsibility. Doody.-Dec. Although this system is now widely misunderstood. 61 . 15. National Retail Merchants Association (NRMA). Edward S. William Buiston in Standard Classifications. "Tomorrow's Retail Systems. see William R. Waterbury. Joseph Buchan and Ernest Koenigsberg. Without suggesting an adversary relationship. 2. Standard 1967). Golde. He should be able to work with the buying executive in developing the merchandise program for his location. XII / NO. REFERENCES 1. p. Davidson and Alton F." and he could then be held responsible not only for expenses but also for the profitable use of working capital and space at his location. 1966. R. regardless of selling location. 14. working from his own budget. p. 4. 65. see "EDP's Major Justification: Mer- FALL / 1969 / VOL. 20." ibid.