MERCHANDISE
MANAGEMENT
Strategic Management Tasks
Performed in a Retail Firm
Merchandise Management Tasks
Performed in a Retail Firm
Store Management Tasks
Performed in a Retail Firm
Recruit Motivate
Prevent Shrinkage Maintain Facilities
Sell Merchandise Train Employees
Provide Services Take Inventory
Plan Schedules Hire Personnel
Evaluate Performance Display Merchandise
Administrative Management Tasks
Performed in a Retail Firm
Promote the Firm, its Merchandise and
its Services
Manage Human Resources
Distribute Merchandise
Establish Financial Control
Assignment of Responsibility for Tasks
• Strategic – Top Management, Board of
Directors
• Merchandise Management – Merchandise
Division
• Store Management – Stores Division
• Administrative – Corporate Specialists
Merchandising framework
Consumer
s
Distributio Retail
Warehouses
n Centres Stores
Consumer
Suppliers s
STORE
MERCHANDIS
Suppliers BUYERS MANAGEMEN Consumer
ERS
T s
Suppliers
Retail Objective Consumer
~ Positioning s
IN DETAIL IT MEANS -
• ANALYSIS
• PLANNING
• ACQUISITION
• HANDLING/STOCK MANAGEMENT
• CONTROL
• SAID TO BE THE CORE OF RETAIL
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IN DETAIL IT MEANS -
• ANALYSIS – identification of customers and their needs
• PLANNING – as merchandise is purchased 6-12 months before
• ACQUISITION – bought from wholesalers/vendors
• HANDLING/STOCK MANAGEMENT – where is it needed and in
proper shape
• CONTROL – of large money inventory to ensure financial return
• SAID TO BE THE CORE OF RETAIL
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Product Line & Product Mix
• Product Mix
Product Product Product
Line 1 Line 2 Line 3
LAMPS TABLES CHAIRS
•Table •Kitchen •Dining Room
•Ceiling •Dining Room •Living Room
•Track •End •Bedroom
•Desk •Coffee •Outdoor
•Outdoor •Desk
•Conference
•Computer
Selected
Acme Furniture Co.
Products
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Merchandise strategy
THE HEART OF MERCHANDISING IS
BALANCING VARIETY, ASSORTMENT AND
DEPTH
• EXAMPLE – ADD A NEW DEPARTMENT
(VARIETY) IN THE SAME SPACE –
REDUCE ASSORTMENT OR DEPTH –
LEADS TO REDUCED CUSTOMER
SATISFACTION AND REDUCED SALES
• EVERY MERCHANDISE DECISION HAS
THREE DIMENSIONS
Functions Performed
• Merchandising includes various steps in the buying and
selling of goods and services, such as forecasting,
assortment planning, advertising, pricing, visual
merchandising, point-of-sale displays, the deployment of
personnel, and personal selling approaches etc.
• Buying includes the sourcing, buying of products, quality
control, and pricing
• Functions must also reflect the level of formality, the
degree of centralization, and personnel resources
Merchandise Heirarchy
Company TESCO India
Division Non Food Grocery
Department Health & Beauty
Category Personal Care BabyCare Beauty
Sub Category Hair Care Skin Care Oral Care
Product Group Shampoo Conditioner &
Colorants
Oil & Gels
Product SubGroup Anti-dandruff Regular Herbal
Product XXXXXXXX XXXXXXXX XXXXX
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MERCHANDISE PLANNING PROCESS
• FORECASTING SALES
• DEVELOP AN ASSORTMENT PLAN
• DETERMINE APPROPRIATE INVENTORY LEVELS
• DEVELOPING A CONTROL SYSTEM FOR MANAGING INVENTORY
• ALLOCATE MERCHANDISE TO STORES
• BUY MERCHANDISE
• MONITOR AND EVALUATE PERFORMANCE
EXAMPLE
• SALES FORECAST AND MONTHLY FORECAST
Handy Hardware Store,
A Simple Sales Forecast Using
Product Control Units
Product Control Units Actual Sales Projected Growth/ Sales Forecast
2009 ($) Decline (%) 2010 ($)
Lawn movers/ snow blowers 200,000 +10.0 220,000
Paint and supplies 128,000 + 3.0 131,840
Hardware supplies 108,000 +8.0 116,640
Plumbing supplies 88,000 -4.0 84,480
Power tools 88,000 +6.0 93,280
Garden supplies/ chemicals 68,000 +4.0 70,720
Housewares 48,000 -6.0 45,120
Electrical supplies 40,000 +4.0 41,600
Ladders 36,000 +6.0 38,160
Hand tools 36,000 +9.0 39,240
Total year 840,000 +4.9 881,080
Handy Hardware Store, 2009 Sales by Month
Month Monthly Actual Sales ($) Sales Index
January 46,800 67
February 40,864 58
March 48,000 69
April 65,600 94
May 112,196 160
June 103,800 148
July 104,560 149
August 62,800 90
September 46,904 67
October 46,800 67
November 66,884 96
December 94,792 135
Total yearly sales 840,000
Average monthly sales 70,000
Average monthly index 100
Handy Hardware Store, 2010 Sales Forecast by Month
Month Actual Sales Monthly Sales Index Monthly Sales Forecast 2010
2009($)
January 46,800 67 73,423 * .67 = 49,193
February 40,864 58 73,423 * .58 = 42,585
March 48,000 69 73,423 * .69 = 50,662
April 6,600 94 73,423 * .94 = 69,018
May 112,196 160 73,423 * 1.60 = 117,477
June 103,800 148 73,423 * 1.48 = 108,666
July 104,560 149 73,423 * 1.49 = 109,400
August 62,800 90 73,423 * .90 = 66,081
September 46,904 67 73,423 * .67 = 49,193
October 46,800 67 73,423 * .67 = 49,193
November 66,884 96 73,423 * .96 = 70,486
December 94,792 135 73,423 * 1.35 = 99,121
Total Sales 840,000 Total sales forecast 881,080
Average monthly sales 70,000 Average monthly forecast 73,423
• Impact on Sales and Profit
• Space Requirements
• Inventory Turnover
• Cannibalization
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Assortment Plan for Girls’ Jeans
Styles T R A D I T I O N A L
Price levels $20 $20 $35 $35 $45 $45
Fabric Reg denim Stone- Reg denim Stone- Reg denim Stone-
composition washed washed washed
Colors Light blue Light blue Light blue Light blue Light blue Light blue
B O O T C U T
Price levels $25 $25 $40 $40
Fabric Reg denim Stone- Reg denim Stone-
composition washed washed
Colors Light blue Light blue Light blue Light blue
Indigo Indigo Indigo Indigo
Black Black Black Black
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Size Distribution for Traditional $20
Denim Jeans in Light Blue for a Large Store
SIZE
Length 1 2 4 5 6 8 10 12 14
Short 2 4 7 6 8 5 7 4 2 %
9 17 30 26 34 21 30 17 9 units
Medium 2 4 7 5 8 4 6 3 2 %
9 17 30 21 34 17 26 12 9 units
Long 0 2 2 2 3 2 2 1 0 %
0 9 9 9 12 9 9 4 0 units
Total 100%
429 units
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INVENTORY PLANNING
• Basic stock (at retail) = Average monthly stock at retail – Average monthly sales
• BOM = Planned sales at retail + Basic stock
• The weeks’ supply method forecasts average sales weekly, so beginning inventory
equals several weeks’ expected sales:
Beginning-of-month inventory = Plan sales x Number of weeks to
be stocked
• the stock-to-sales method, a retailer wants to maintain a specified ratio of goods
on hand to sales.
• A ratio of 1.3 means If sales are 69018 – then inventory shd be 89723 at retail .
When to Reorder
• Reorder points are based on three factors.
• Order lead time is the period from the date an order is
placed by a retailer to the date merchandise is ready
for sale.
• Usage rate refers to average sales per day, in units, of
merchandise.
• Safety stock is the extra inventory that protects against
out-of-stock conditions due to unexpected demand and
delays in delivery.
• Reorder point = Usage rate x Lead time + Safety stock
Allocating Merchandise to Stores
Allocating merchandise to stores involves
three decisions:
• how much merchandise to allocate to each store
•ALLOCATION BASED ON SALES VOLUME
• what type of merchandise to allocate
•STORE TRADE AREA GEODEMOGRAPHICS
• when to allocate the merchandise to different stores
•SEASONALITY AND CONSUMER DEMAND LEVELS
Illustration of GMROI
Illustration of GMROI
• EVALUATING MERCHANDISE
GMROI
Combine Gross Margin% X sales to stock ratio
GMROI = Gross Margin x Net Sales
Net Sales Avg Inventory @cost
GMROI = Gross Margin
Avg Inventory (@ cost)
Output (Margin Generated by Sales)
Input (Inventory Investment in Inventory)
CATEGORY
MANAGEMENT
The Category
A category is an assortment of items that the
customer sees as reasonable substitutes for each
other: girls’ apparel, laundry detergents, soup
Category Management refers to the management
of merchandise categories, or lines, rather than
individual products, as a strategic business unit
In merchandise management, we do everything at
the category level
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• Category Management (CM) is a business process
intended to maximize sales of a multi-brand set of
closely related products through the development
and implementation of marketing and execution
plans tailored to meet shopper requirements at
each specific retailer location/point of sale
Grocery industry developed an 8
step category process
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Category Management Framework
DR. ASHIS MISHRA, IIMB 2/20/2019 33
Dairy category
Sub Product Sub-
Division Department Category Category Product Group Group Product
Reduced Fat
Liquid Milk milk 500ml,1ltr
Low Fat milk 500ml,1ltr
Skim Milk 500ml,1ltr
300 ml, 600 ml, 1 L ( Chocolate, Coffee, Banana
Flavored Milk flovors)
Milk
UHT Milk Single Serve Packets, Cartons - 500 ml, 1 L
Dried Milk 500ml,1ltr
Fresh Evaporated Milk 500ml,1ltr
and Sweetened
Diary Diary Condensed Milk 500ml,1ltr
Frozen
Food Packed- Block, Packed - Sliced, Loose(by wt.), 100g,
Cottage cheese 200 g, 500g, 1 kg
Processed Packed - Blocked, Packed Sliced, 100g, 200 g, 500g,
Cheese Cheese Soft Cheese 1 kg
Packed - Blocked, Packed Sliced, 100g, 200 g, 500g,
Hard Cheese 1 kg
Yoghurt
Cream
Butter 34
Category Role - by Product Characteristic
Category Role Type of Product Characteristics
Destination Fresh Veggies/ Fruit Will define our image to the target consumer
Staples – Rice, Wheat, Will determine consumer switch to our stores
Pulses High Penetration amongst target consumer group
Routine FMCG products – Routinely Purchased Products
Toothpaste, Soap etc Consistent performers for the retailer
Occasional/ Food/ Non Food Sold during a specific time period
Seasonal Products – Seasonal/ Seasonal Fruits – Mangoes, Oranges
Special Occasions Festival special: Food/ non food products – Christmas Cakes,
cookies, Sankranti special, Diwali crackers
Yearly special periods - School reopenings, Summer Special (Cold
drinks, Deoderants, talc, Hobby products), Winter Special (Food,
cold/cough related products, Hot chocolate etc.)
Convenience Stationary Impulse Purchase
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Category Management Framework
DR. ASHIS MISHRA, IIMB 2/20/2019 36
Category Management Framework
2/20/2019 37
Category Management Framework
2/20/2019 39
category management process
Category Assortment Pricing Shelf Promotion
Roles Presentation
Destination Complete Leadership: Prime Store High level
Variety Best Value Location activity
Hi Traffic; Hi Cube Hi Freq; Mult
Vehicles
Preferred Complete Competitive ; Average Store Average
Variety Equal to Location level activity
Competitive Competition Hi Traffic; Hi Cube Avg Freq; Mult
in Market Vehicles
Convenience Select Acceptable ; Available Store Low level
Variety within 10-15% Location activity
of Lo Traffic; Lo Cube Selected
Competition Vehicles
Seasonal Time Variety Competitive Good store Seasonal/Ti
Location mely activity
Hi Traffic; Avg Cube Mult Vehicles
Category Management Framework
2/20/2019 41
Selection of category captains
• Market Leadership (No. 1 or 2 position)
• Data
• Market Data (Retail Audit)
• Category Data (Consumer Panel, Usage and Attitudes)
• Shopper Research (Channel and Category)
• People
• Dedicated project/business manager
• Customer marketing staff
• Research staff
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Selection of category captains
• Resource:
• Budgets and people to develop and implement customized
activity in store
• Ability to conduct category reviews on a quarterly basis.
• Attitude
• Integrity
• Confidentiality
• Cooperation
• Category before brand
