Merchandise Management

Imagine a situation where you visit a retail store

to buy a product, such as t-shirt. The size that
you need is Medium. In the store, you see various
colours and designs and select one design. If this
design is not available in the size that you need it
in, you may decide to buy another design or may
decide to go to another store to buy. If you
decide on the second course of action, the retail
store loses a sale and a customer.
 What is Merchandising?

If one were to ask a dozen retailers ‘What is merchandising?’

one would get at least a dozen different answers. This is
Because it can be difficult to limit, and therefore to define,
Its scope. Simply stated, it can be termed as the Planning,
Buying and the selling of merchandise.

The function of merchandising is an integral part of retailing and

Is also one of the most challenging functions as
Retailers often says, “goods well bought are half sold”.
 What is Merchandising?

Activities involved in acquiring

goods and/or services & making them available at the
places, times, prices & quantity
that enable a retailer to reach its
goals
American Marketing Association: merchandising may
be defined as “the planning involved in marketing
the right merchandise at the right place at the right time
in the right Quantities at the right price”.

For successful merchandising “Five Rights” must be consider

the Right Product
in the Right Quantity
at the Right Place
at the Right Time
at the Right Price
Merchandise Management can be termed as the
analysis, planning, acquisition, handling and control
of the merchandise investments of a retail operation.

Analysis—retailers must be able to identify their

customers before they can ascertain consumer
desires and their needs to make a good buying
decision

Planning—what merchandise to be sold in the

future must be bought now
Acquisition—can be procured—either from
distributors or manufacturers

Handling—seeing that the merchandise is where

it is needed and in the proper condition to be sold

Control—necessary to control the amount of

money spent on buying

Hence, merchandising is often said to be the core

of retail
 Retail Snapshot
(Carrefour Singapore—Merchandise Manager)

The role is to develop and ensure the right

assortment at the right price to satisfy the
needs of the customers. Reporting to the
Merchandise Director, the Merchandise Manager
will work closely with the national buyers on the
Non-food categories. This includes household
items, furniture, car accessories, gardening, home
appliances and electrical, fashion and accessories.
Contract negotiation with major suppliers,
performance analysis and merchandising
conceptualization are part of the portfolio.
 .

To excel in this role, the person must be well-

versed in the categories and consumer behaviour.
Equipped with a minimum of 5 years professional
buying experience with good track records,
passion for retail, strong desire to compete,
strong determination and sharp business acumen
are key personal attributes the company seeks.

Source: www.carrefuor.com
 Micromerchandising

Retailer adjusts
shelf-space allocations
to respond to customer and
other differences
among local markets
Cross-Merchandising

Retailers carry
complementary
goods & services
to encourage shoppers
to buy more
 Merchandise Planning
Defined as the planning and control of the merchandise
inventory of the retail firm,
in a manner which balances the expectations of the
target customers
and the strategy of the firm
Developing
Determining
The Sales
The Merchandise
Forecast
Requirements

Stages in
Merchandise
Planning

Assortment Merchandise
Planning Control
 STAGE I: DEVELOPING THE SALES
FORECAST

•Forecasting involves predicting what the consumer may do

under a given set of conditions.

•Forecasts are typically developed to answer the following

questions:
 How much of each product will need to be purchased?

 Should new products be added to the merchandise

assortment?

 What price should be charged for the product?

 STAGE I: DEVELOPING THE SALES
FORECAST

 The process of developing sales forecasts involves the

following steps:

Reviewing Past Sales

Analyzing the changes in the Economic Conditions
Analyzing the Changes in the Sales Potential
Analyzing the Changes in the Marketing Strategies
of the Retail Organization and the Competition
Creating the Sales Forecast
 FORECASTING FASHION PRODUCTS
Example: Steps are:
Fashion Scan
Understanding the fashion in present scenario

Consumer Analysis
Understanding the types of customers that the product is
likely to target & their buying Preferences

Cultural Factors
Have a large influence on the emergence and the adoption
of any fashion
 FORECASTING FASHION PRODUCTS

The Competition
Understanding of fashions & trends being set by the
Competitors

Creating a fashion forecast includes various aspects

like:
Color
Textiles
Styles
Consumer segmentation
Sales forecasting & cultural indicators
 STAGE II: DETERMINING THE
MERCHANDISE REQUIREMENTS
After the sales forecasting exercise has been completed,
inventory levels need to be planned.
Planning in merchandising is at two levels:
Merchandise Budget

Assortment Plan
The Merchandise Budget comprises of five parts
1. The sales plan, i.e., how much of each product needs to be
sold; this may be department wise, or store wise
2. The stock support plan, which tells us how much inventory
or stock is needed to achieve those sales
3. The planned reductions, which may need to be made in
case the product does not sell
4. The planned purchase levels, i.e., the quantity of each
product that needs to be procured from the market
5. The gross margins (the difference between sales & cost of
goods sold that the department, or store contributes to the
overall profitability of the company)
 The Six-Month Merchandise Plan

• The merchandise budget should be prepared in advance

of the selling season (keep in mind time taken for
ordering and the time taken for supplier to supply goods)
• The language of the budget should be easy to
understood
• Merchandise budget must be planned for short period of
time (as economy is ever changing)—six months is the
normal norm
• Budget should be flexible enough to make any changes
• Objective of creating this plan is to prepare a month-by-
month purchasing schedule for the retail organisation
 THE SIX-MONTH MERCHANDISE PLAN
Feb March April May June July Total
Last Yr Plan
BOM Stock Revised
Actual
Last Yr Plan
Sales Revised
Actual
Last Yr Plan
Reductions Revised
(Markdowns, Employee Actual

Discounts & Shrinkage

Last Yr Plan
EOM stock Revised
Actual
Last Yr Plan
Retail purchases Revised
Actual
Last Yr Plan
Purchases Cost Revised
Actual
Last Yr Plan
Initial Mark-up Revised
Actual
Last Yr Plan
Gross Margin% Revised
Actual
Last Yr Plan
On order EOM Revised
Actual
The Merchandise Hierarchy
In our example—the type of store is a Supermarket
Within a supermarket the classifications of merchandise would
be:
• Fresh groceries
• Ready to eat—snacks, biscuits, etc.
• Additives/Masalas/Pickles
• Personal hygiene products
• Cooking aids—like ready pastes, etc
• Necessities like dal, sugar, salt, oil, atta etc.
• Soft drinks/juices etc………
 Merchandise Merchandise Merchandise Style
SKU
Company Department Sub Category Price point
Classification Category

Fig: The Merchandise Hierarchy

 Food & Grocery
Retailer

Home & Personal

Care Products

Personal wash Hair Care deodorants Skin Care Oral care cosmetics

Lux
Exotic flower
petals
Package size

Almond oil &

Price point
Milk Cream

Fruits extracts
& honey

Sandal Saffron

lifebuoy

Liril Fig: Merchandise Hierarchy of the Home & Personal Care

Products division of a Food & Grocery retailer
Dove

Hamam
 Variety of Merchandise

• The variety of merchandise mix refers to the number of

different lines that the retailer stocks in the store.

• Example: A department store may provide a collection

in men’s, women’s and children’s wear.
 Width/breadth of Merchandise

• It refers to the number of merchandise brands in the

merchandise line.

• Example: A retailer stocking various brands of men’s

shirts, etc.
 Depth of Merchandise

• It is a comprehensive selection of brands, sizes, colours,

and prices within a particular category of products

• Simply, it is the average number of stock keeping units

within each brand of merchandise line

• Example: if a retailer decides to stock 10 designs of

shirts in five different sizes and four colours, then it
would be the depth of the assortment
Example: A range of women’s wear might be broken down
into the following garment categories: Indian wear, western
blouses, t-shirts, formal trousers and casual bottom wear.

Indian wear- western blouses- t-shirts- formal trousers- casual bottom wear

•Salwar kameez
•Mix-n-match Depth of product line
•Ethnic blouses
•Formal Indian evening wear
 McDonald

Meals Beverages Desserts

Chicken Coffee Soft cone

McNuggets
Tea
Mc veggie
Coke
Mc chicken
Children
Maharajah Mac
Filet-o-fish
Fries
 STAGE III: MERCHANDISE CONTROL—The
Open to Buy

Open to buy ensures that the buyer—

•Limits overbuying and under buying
•Prevents loss of sales due to unavailability of the required stock
•Maintains purchases within the budgeted limits
•Reduces markdowns which may arise due to excess buying

When planning for any given month, the buyer will not be able
to purchase the amount equal to the planned stocks for that
month. This is because there may be some inventory already on
hand or on order but not yet delivered.
 STAGE IV: ASSORTMENT PLANNING

•Assortment refers to ‘the combination of all products made

available in a store’ and ‘a set of products offered within a
product category’

•Assortment Planning involves determining the quantities of

each product that will be purchased to fit into the overall
merchandise plan

•Let us take the example of a merchandiser who is working

towards the assortment plan for menswear department for a
large retail store.
 SHOPPER’S STOP

Department Menswear

Shirt Trouser Jeans Kurta/Pyzama

Breadth Zodiac Van Heusen Louis Phillippe Allen Solly

Depth Styles Colours Size

 MODEL STOCK PLAN

• Identify what to buy and in what quantity

• The buyer needs to identify the attributes that the

customer would consider in buying the product, then
decide on the levels under each attribute and finally,
allocate the total money available or the units to the
respective item categories
The following example illustrates the steps involved in
preparing a Model Stock Plan:

A retailer has allocated Rs 1 lakh to buying of shirts. Assuming

that the purchase price of each shirt is Rs. 100, he will be able
to stock 1,000 shirts in the store.

Step-1
Firstly, retailer needs to identify which factors affect the
customer’s buying decision and the number of levels under
each attribute.
Step-2
Identify the levels under each attribute:
a. Type of shirt (Dress, Casual, Formal, Sport)
b. Size (small, Medium, Large, Extra Large)
c. Sleeve Length (Full Sleeves, Short Sleeves)
d. Collar type (Seville, Button Down)
e. Colour (White, Blue, Cream, Grey)
f. Fabric (Cotton, Cotton Blend)
Step-3
The third step is to allocate the total units to the respective
item categories. Thus, the units that are recommended for
each item are in direct proportion to the estimated demand
patterns, as illustrated in Figure.
 Men’s Shirts
100% (1,000)

Dress 10% (100) Casual 40% (400) Formal 20% (200) Sport 30% (300)

Small 25% (100) Medium 40% (160) Large 25% (100) Extra Large
10% (40)

Full Sleeves 30% (48) Half Sleeves 70% (112)

Button Down 40% (45) Saville 60% (67)

White 40% (18) Blue 30% (14) Cream 20% (9) Grey 10% (4)

Cotton Cotton Blend

25% (4) 75% (14) Fig: The Model Stock Plan
DISCUSSION
Nike’s Own Store Merchandising Philosophy
Sephora’s Very Deep Assortment of
Cosmetics