Managing Merchandise Assortments

Process by which a retailer offers the right

quantity of the right merchandise in the right
place at the right time and meets the company’s
financial goals.

Sense market trends

Analyze sales data
Make appropriate adjustments
c) image100/PunchStock

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 A merchandise category is an assortment of
items that customers see as substitutes for each
other.

Vendors might assign products to different

categories based on differences in product
attributes

Retailers might assign two products to same

category based on common consumers and
buying behavior
 Category Management

Category management is the process

of managing a retail business with the
objective of maximizing the sales
and profits of a category.

Department stores manage at

category level, but grocery stores
manage merchandise around brands
and vendors

Objective is to maximize the sales The McGraw-Hill Companies, Inc./Andrew

Resek, photographer

and profits of the entire category, not 12

just a particular brand. -4
Selected vendor responsible for managing a category
Vendors frequently have more information and
analytical skills about the category in which they
compete than retailers
Helps retailer understand consumer behavior
Creates assortments that satisfy the customer
Improves profitability of category

Problems
Vendor category captain may have different goals
than retailer 12
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 The vendor category captain
could collude with retailer to
fix prices

It could block brands from

access to shelf space

Category captains need to

temper zeal for control over
retailers
Stockbyte/Punchstock Images

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Merchandise Group…………Men’s wear
Department………….……….Young Men’s wear
Classification........................Pants
Category..............................Jeans
Sock Keeping Unit (SKU)…..Levi, 501, size 26
waist, 32 inseam

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Merchandise managers have control over
The merchandise they buy
The price at which the merchandise is sold
The cost of the merchandise

Merchandise managers do not have control over

Operating expenses
Human resources
Real estate
Supply chain management
Information systems
 A measurement of how many gross margin
dollars are earned on every dollar of inventory
A measurement
investment made by of how many gross
the buyer
margin dollars are earned on every dollar
of inventory investment made by the
buyer.

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Digital Vision / Getty Image
GMROI = Gross Margin Percent x sales to stock ratio

= gross margin x net sales

net sales avg inventory at cost

= gross margin
avg inventory at cost

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Strategic Corporate Level
 Return on Assets= Net Profit
Total Assets

Merchandise Management Level

 GMROI =
Gross
Margin Avg
Inventory
Illustration of GMROI
GMROI for Selected Department in Discount
Stores
◦ Inventory turnover = Net Sales
Average inventory at retail
◦ Inventory turnover = Cost of goods sold
Average inventory at cost

◦ Average inventory = Month1 + Month2 + Month 3

+…
Number of months

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Month Retail Value of Inventory
 EOM January $22,000
 EOM February 33,000
 EOM March 38,000
 Total Inventory
$93,000

 Average inventory = $93,000 ÷ 3 = $31,000

 Increased sales volume
 Less risk of obsolescence and markdowns
 Improved salesperson morale
 More resources to take advantage of
new buying opportunities
Reduce number of categories
Reduce number of SKUs within a category
Reduce number of items in a SKU

BUT if a customer can’t find their size or color or

brand, patronage and sales decrease!

another approach…
To improve inventory turnover
Buy merchandise more often
Buy in smaller quantities which should reduce
average inventory without reducing sales

BUT by buying smaller quantities

 Buyers can’t take advantage of quantity discounts so

 Gross margin decreases
 Operating expenses increase
 Buyers need to spend more time placing orders and
monitoring deliveries 12
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 Systems used by retailers and vendors to work
together to ensure that the right merchandise is
at the right place at the right time.

◦ Benefits both retailers and vendors

◦ Increases fill rate, reduces stock-outs,
increases inventory turns

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