1.

Buying merchandise
1.1 Related terms

 Merchandise: Merchandise refers to goods that are selling in the market

 Buyer: A buyer is a person who is responsible for the purchase of a merchandise for the
organization. Buyers are responsible for buying the product in the retail chain and distribute
it to the outlets. They negotiate with the vendors regarding what is to be purchased and in
what quantity. Buyers are powerful people who have money at their disposal
 Buying department: It consists of buyers. Buyers in large retail stores specialize in one
product category like clothes, books, beverages, dry food, and others. In small retail stores
one buyer can buy a variety of products. The buying department ensures that items are
available at the right quality at the right place
 Merchandising: It refers to activities involved in acquiring goods and making them available
at the stores/outlets
1.2 Brand decisions

 Manufacturing brands: Retailers sell products of big brands that are manufacturing
companies like HUL, P&G, Colgate, and others. Due to scale of operations of the retailer, it
becomes a distribution channel for the manufacturing companies. These companies reach out
to the retailers for negotiation and business takes place by B2B selling. The powerful retailer
brands negotiate with these big manufacturing brands. Example of such retailers include Big
Bazar
 Licensed brands: Brand licensing refers to the act of leasing a brand name to another
company. Retailers identify the third-party licensed partner of a brand/character, negotiate
with it, and then buys products of that partner. Example: Zara has tied up with Snoopy and it
has negotiated with a character holding company to get the license
 Private brand: The retailer develops a brand to be sold in its retail store. The brand is
registered by the retailer and sold by it. It cannot be launched by any buyer however the
buyer can buy/sell the products of the private brand. The decision-making power is not in the
hands of the buyer, but he can have execution power. Example: Department stores apparel or
Spencer’s biscuits. Spencer’s biscuits can be manufactured by other factory brands/third
party contract. Spencer’s can tie up with good vendors and deliver to warehouses of other
retailing brands. These private brands are not before seen and advertised brands. Private level
brands are available in More and Reliance Retail stores
Retailers go by their own standard rates. They do not go by names and volume is their key
parameter
1.3 Issues in global sourcing

 Transportation costs: Retailers incur transportation costs for transporting goods from the
vendors to the retail store. It should be reduced so that overall operating costs reduce. Some
 of the ways to reduce it are sourcing staple items like rice, dal, pulses from local vendors.
Retailers can identify wholesale bazars and buy from it as they offer products at low cost
It is essential for the retailers to essentially have some local brands in their stores like Aswini
in Hyderabad. These local brands earn the maximum sales as these are preferred by almost
all local customers. Store managers have a leeway to identify the local brands and tell it to
the buyer
 Replacement time: It is the time taken by a retailer to replace disputed products sent by the
vendor. Longer replacement time leads to unavailability of the product. Replacement time for
local vendors is shorter and for national/international vendors it is time consuming and is a
big challenge for the retailer
 Tariffs: Retailers often have to import global items from different countries. Bilateral treaty
between the countries play a significant role in that. Huge importing duties or transit duties
need to be paid by vendors of the foreign country who is trying to reach a retailer in another
country (home country of the retailer). Cheaper tariffs and friendly bilateral treaties facilitate
global retailing
 Currency fluctuations: Currency fluctuations affect import/export of global items. If the
exporting country has a lower currency value than the country that is importing, then the
import duties are high for the exporting country. In order to combat this, many retailers enter
into head jacking with the vendors. In this agreement, irrespective of the fluctuations in the
current value of two countries the retailer and the vendor agree on a fixed rate/little increase
or decrease in the rate according to the fluctuations.
 Quality checks: Quality checking is the responsibility is of the landing country. Quality can
get deteriorated in case of a head jacking deal
 Sweat shops: Sweat shops refers to employing child labor, labor based on gender bias,
making labors do overtime without any extra pat and other illegal activities. It is done by
brands that exploit labors. In countries like Bangladesh and other sub-continental countries
there is huge availability of cheap labor. International apparel brands often exploit these
labors to meet quality and volume of international clients. If these activities come under
exposure it damages the brand. The practice is not ethical and brands like Nike has taken care
to prevent it
Methods to prevent sweat shops:
 Conduct random field visits to company factories
 Companies should have a toll-free contact number in factories so that anyone can report
these practices by anonymous calls. This is whistleblowing
 Ban suppliers who take these practices
 Example: Nike, Reebok, and Adidas
 Country of origin effect: A retailer selling particular product categories should include
brands that are renowned because of their country that has made it famous. Example: If a
retailer is selling wine and if he does not have any brand from France then the brand value of
the retailer dips as France offers some of the best brands of wine. Similarly, watches are
 associated with Switzerland, leather goods are associated with Italy, and Electronic goods are
associated with Japan
1.4 Timing of purchase (Opportunistic)

 Close out: It refers to buying of goods from a vendor when he is desperate to clear his stock.
The retailer then buys the goods at a very low price. It happens when a vendor a vendor has
overproduction or has suffered a cancellation of order from one of his clients; hence, he
needs to clear his stocks. The retailer has to be stern with his timing of approaching the
vendor. Example: At the end of the apparel season, a low-priced retailer can go to a vendor
that has over production of apparel and grab the opportunity of buying these
 Pack away: The supplier may be left over with excess goods at the end of the festive season.
He needs to clear off his stock. A retailer may approach the supplier and buy those goods at
low price. The retailer needs to have a good equation with the supplier to avail this facility
2. Merchandise buying
2.1 Staple merchandise buying system

 Past history: The retailer needs to use past history to get an estimate of average demand for
different SKUs, forecast the demand, and take replenishment decisions accordingly
 Inventory management report: It has to create an inventory management report comprising
basic stock list for each SKU that would comprise quantity in hand, quantity ordered, sales in
last one week, and sales in four weeks
 Product availability: The retailer should calculate it in terms of percentage, stockout, it is
judgmental in nature
 Backup stock: The retailer should maintain stock as cushion for events like the merchandise
getting delayed to arrive or demands exceeding forecasts
 Forecast: Forecast should be done for the current week + next 3-4 weeks
 Order point: Backup stock + [(Demand / Day) * (Lead time + Review time)]
 Order quantity: (Order point – Quantity available)

2.2 Seasonal/Fashion merchandise buying plan

 Inventory management: In a retail store, inventory management starts well in advance of

the actual sales season like Big Billion Sales
 Spending: The money to be spent on procurement of goods, designing of offers, and
planning sales are done on a month-to-month basis keeping the season in mind. The goods
need to come from the warehouse to the retailer accordingly
 Coordinated buying: The retailer needs to spread the budget for the sales season across
coordinated products. Customers buy coordinated products during these offers like buying a
voltage stabilizer with an AC
 Sales distribution: The retailer has to approximately distribute sales percentage across
months in the sales season. It is done based on historical data
 Plan for shrinkage: The retailer has to plan for shrinkage in case demand exceeds inventory.
The retailer needs to have a buffer of goods
 Markdowns: It has to plan for offers like buy 2 and get 1 free
 Discount to employees: It is given so that employees do not indulge in theft of goods
 Vertical fashion trends: The retailer needs to determine how he plans to go about in the
entire fashion season. He has to determine whether he wants to start the season with high
price + low volume fashion and progress towards low price + high volume fashion or vice-
versa. In a fashion sales season if the number of designs drop -> less people buying the goods
-> competition increases -> low volume sales take place -> low profitability takes place. This
is a trickle-down effect. Zara does not need to worry about trickle-down effect as it is a fast
fashion brand and introduces latest designs in spans of 2-3 weeks. Vertical fashion caters to
every demography
The sales starts in a tier-1 city and from there it gets dispersed to tier 2, and 3 cities. The
quantities of products may be different. It can earn more value in the second and third phase
with more volumes decreasing and price increasing. Competition comes in at each phase of
the fashion
 Horizontal fashion trends: The retailer needs to know more fashion seasons -> more
customers coming, rather than depending on a single fashion season. Horizontal fashion
caters to a particular demography. It is limited addition of designs, a set of times, and
catering to a limited set of customers
 BOM, EOM Stock, and Monthly additions to stock: The retailer needs to maintain the
beginning of month stock, end of the month stock, and monthly additions to stock
 Evaluation of planned budget: It should conduct pre and post season comparison. It should
calculate deviations and their causes that can be internal/external and
controllable/uncontrollable. Controllable factors include placing the order to the vendor late
and uncontrollable factor include the present covid-19 pandemic
4. Open-to-buy systems (for all types of merchandise)
It focuses on real time market feed analysis

 The retailer keeps track of merchandise flow in real time, as part of merchandise
management process
 It records how much is spent each month (week) and gives figures of how much more is left
to be spent
 It compares for each SKU
 It considers information not available when the plan was prepared
 It checks for overspending/underspending
 It tracks overbuying/underbuying
 It enables real time adjustments in purchases to adjust for changes in sales and markdowns