Name: Nguyễn Vũ Tiến

Student ID: IELSIU20074

Class: Friday Afternoon

ASSIGNMENT 2
CHAPTER 13: MERCHANDISE MANAGEMENT

I. Questions:

1. Does your favorite clothing store have a private-label brand strategy? If yes, how does
it build store loyalty? If no, how could a private label brand create loyalty?

My favorite clothing store is SSStutter, whose most of its products are private-label ones.

SSStutter has a membership program for customers to accumulate points through buying and get
a discount policy corresponding to each membership level. Besides, on customers’ birthday, the
store also offers a discount program or gives vouchers to motivate customers to buy clothes.

SSStutter also has many unique, fashionable, and trendy designs with an appropriate quality and
reasonable price compared to other clothing competitors. Especially, targeting at customers
following minimalism, SSStutter clothing is basic, elegant, and suitable for both men and women
to wear on.

(I did it accidentally wrong for Co.op Mart, but I didn’t dare to delete)
Co.op Mart has developed a private-label brand strategy with a broad variety of products tagged
as “Select”. The products vary from food items, fashion, to household items and essentials sold at
a relatively low price compared to other brands.

Co.op Mart normally put their Select products near other brands and offer many discounts on them.
It would make the customers comparing price among multiple items are likely to choose the
private-label items due to their low price and appropriate quality. Besides, most of Select items
are daily necessities (undershirt, salt, tissue, hand wash…), things that customers often prefer to
choose because of their price and convenience.

2. Why have retailers found exclusive store brands to be an appealing branding option?
Choose a department store, a discount store, and a grocery store. What exclusive
private-label brands do they offer? How are they positioned in relation to their
national brand counterparts?

Exclusive store brands are found to be an appealing branding option

- Can offer reasonable-quality and relatively low-price products

- Can monopolize a type of product and become the top-of-mind brand for a specific item
- Can clear the target market since most of products are sold based on customer demand

Department store Aeon - TOPVALU

 Discount store E-mart – No Brand

Grocery store Co.op Mart - Select

A core value of private-label brand is that the store can exclusively own the product can can market
as its own store. Store brands frequently sell at lower prices than national brands but yield higher
profit. Low and middle-class customers typically put greater emphasis on low-cost products.
However, compared to the national brand, store brand’s products have a lower quality and can be
perceived as generic. This limitation, together with the fact that the product is not sold on any other
channel than the brand's own channels, creates a strategic challenge for customer acquisition.

3. What are retailers doing to be more socially responsible in buying merchandise? Why
are they becoming more socially responsible? Do you buy products that you believe
were produced in a socially responsible manner, even if they cost more?

Today, consumers no longer only buy items that are affordable and meet personal needs, but also
items that contain many other values, namely social and environmental. It can be said that
customers nowadays are willing to buy items’ stories to show their support in building a
meaningful community, and so am I.

Besides, in the context of the circular economy, a business that wants to develop long-term needs
to consider sustainability in its business operations. In addition to economic benefits,
environmental and social benefits also need to be valued by businesses and proposed
implementation strategies. This helps promote brand image, builds customer loyalty, and
contributes to a green economic community.

For example, Coca-Cola has set a global goal: to be able to collect and recycle every bottle and
can it sell by 2030. Recently, Coca-Cola Việt Nam has collaborated with The Ocean Cleanup (a
non-profit organization specializing in collecting and recycling plastic waste on the ocean) to
collect waste from Can Tho River. The project has marked many outstanding performances.
Another example is Uniqlo, a Japanese fashion retailer, always provide their customers with paper
package instead of plastic one. With a comfortable design and eco-friendly oriented policy,
customers are attracted and willing to pay for the extra fee.
II. Exercises:
A convenience store is considering about the investment into the list of SKUs as following:

Cummulative Average Gross

Annual Sale Cummulative Gross Sale-to-stock Inventory ABC
SKUs percentage of Inventory at Margin GMROI
($) Annual Sale Margin Ratio Turnover Classification
annual sale cost ($) (%)
1 420000 420000 0.158490566 210000 24 100800 2.0 1.52 0.48
3 190000 610000 0.230188679 19000 14 26600 10.0 8.60 1.40
6 190000 800000 0.301886792 38000 43 81700 5.0 2.85 2.15
7 190000 990000 0.373584906 57000 37 70300 3.3 2.10 1.23
13 180000 1170000 0.441509434 36000 44 79200 5.0 2.80 2.20 A
2 170000 1340000 0.505660377 51000 28 47600 3.3 2.40 0.93
12 170000 1510000 0.569811321 51000 16 27200 3.3 2.80 0.53
15 170000 1680000 0.633962264 17000 11 18700 10.0 8.90 1.10
10 160000 1840000 0.694339623 80000 17 27200 2.0 1.66 0.34
4 150000 1990000 0.750943396 30000 30 45000 5.0 3.50 1.50
9 150000 2140000 0.80754717 30000 50 75000 5.0 2.50 2.50 B
11 150000 2290000 0.864150943 75000 33 49500 2.0 1.34 0.66
5 120000 2410000 0.909433962 24000 44 52800 5.0 2.80 2.20
8 120000 2530000 0.954716981 12000 25 30000 10.0 7.50 2.50 C
14 120000 2650000 1 36000 27 32400 3.3 2.43 0.90
 a. Base on annual sale, applying ABC analysis identifies the performance of individual
SKUs in the assortment plan. The raking scale is used as the studied example.
Determine about what product should never be out of stock.

Products that should never be out of stock are classified as A, specifically 1, 3, 6, 13, 2, 12, 15, 10.

b. What is the GMROI & inventory turnover for each merchandise categories?

The GMROI is calculated as:

GMROI = Gross Margin / Average Inventory

= (Gross Margin %) * Annual Sales / Average Inventory

The Sale-to-stock Ratio is calculated as:

Sale-to-stock Ratio = Annual sales / Average inventory

The Inventory Turnover is calculated as

Based on the table above, we have:

Inventory
SKUs GMROI
Turnover
1 1.52 0.48
3 8.60 1.40
6 2.85 2.15
7 2.10 1.23
13 2.80 2.20
2 2.40 0.93
12 2.80 0.53
15 8.90 1.10
10 1.66 0.34
4 3.50 1.50
9 2.50 2.50
11 1.34 0.66
5 2.80 2.20
8 7.50 2.50
14 2.43 0.90
 c. From question a and b, determine the list of SKUs need to invest. why?

All items in class A are extremely important and must be taken into consideration for investment
rather than others. By ranking the SKUs according to their Inventory Turnover and GMROI, we
have the following table:

Inventory
SKUs GMROI
Turnover
15 8.90 1.10
3 8.60 1.40
6 2.85 2.15
13 2.80 2.20
12 2.80 0.53
2 2.40 0.93
7 2.10 1.23
10 1.66 0.34
1 1.52 0.48

The higher inventory turnover ratio indicates that SKU has the higher sales. On the basis of the
same inventory turnover ratio, the priority of investment depends on which item has the higher
GMROI, implying that each unit of its inventory is generating more profit. The GMROI should be
equal or greater than 1, it means that the revenue earned is higher than 100% cost.

Based on the calculations, we can see that item 15 has the highest inventory turnover and the
following items are 3 – 6 – 13 – 12 – 2 – 7 – 10 – 1. However, SKUs 12 – 2 – 7 – 10 – 1 have a
relatively small either inventory turnover or GMROI. Therefore, it is better to invest in 4 SKUs,
which are 15 – 3 – 6 – 13.