RETAIL MERCHANDISING

RETAIL MERCHANDISING REFERS TO THE WAY

RETAILERS, BRANDS AND OTHER PRODUCT
COMPANIES MAKE THEIR MERCHANDISE AVAILABLE
IN STORES. RETAIL MERCHANDISING INCLUDES BOTH
EXECUTION AND STRATEGY, WHICH INCLUDES
PRODUCT SELECTION, PRODUCT PLACEMENT,
DISPLAY DESIGN, AND OTHER TECHNIQUES. THE
PURPOSE OF RETAIL MERCHANDISING IS TO
ENCOURAGE PURCHASES.
RETAIL MERCHANDISING

MERCHANDISING CONSISTS OF THE

ACTIVITIES INVOLVED IN ACQUIRING
PARTICULAR GOODS AND/OR SERVICES AND
MAKING THEM AVAILABLE AT THE PLACES,
TIMES, AND PRICES AND IN THE QUANTITY
THAT ENABLE A RETAILER TO REACH ITS
GOALS. MERCHANDISING DECISIONS CAN
DRAMATICALLY AFFECT PERFORMANCE. 
MERCHANDISE MANAGEMENT

MERCHANDISE MANAGEMENT IS THE

PROCESS THROUGH WHICH EACH RETAILER
DECIDES WHAT ITEMS TO CARRY, HOW MUCH
TO HAVE ON HAND TO MEET THE NEEDS OF
CUSTOMERS, WHERE THEY SHOULD BE
DISPLAYED IN THE STORE TO MAXIMIZE
SALES, AND HOW THEY SHOULD BE PRICED
TO SELL THE BEST AND MAXIMIZE PROFITS.
OBJECTIVES OF MERCHANDISING

Diversity in Fashions/Market trends Suppliers capacity to Competitors Warehousing capacity Warehousing costs 
requirements of the supply merchandising strategy
customers
 BUYING
ORGANIZATION
FORMATS
Right merchandise

Right time 

Right quantity 
FIVE R S OF
MERCHANDISING

Right place

Right price
MERCHANDISE
MIX
FORECASTS

OVERALL PRODUCT ITEM BY-ITEM STORE-BY-STORE

COMPANY CATEGORY PROJECTION PROJECTIONS
PROJECTIONS PROJECTIONS
 Staple

Assortment merchandise

TYPES OF Fashion
MERCHANDISE
Fads

Seasonal
 INNOVATIVENESS

THE INNOVATIVENESS OF A
MERCHANDISE PLAN DEPENDS
ON A NUMBER OF FACTORS. AN
INNOVATIVE RETAILER HAS A
GREAT OPPORTUNITY—
DISTINCTIVENESS (BY BEING
FIRST TO MARKET) AND A GREAT
RISK (POSSIBLY MISREADING
CUSTOMERS AND BEING STUCK
WITH LARGE INVENTORIES).
 FACTORS TO CONSIDER FOR MERCHANDISE
INNOVATIVENESS

Goods/services
Target market(s) Fashion trends Retailer image Competition
growth potential

Customer Responsiveness to Amount of

Profitability
segments consumers investment
 ASSORTME
NT
AN ASSORTMENT IS THE
SELECTION OF
MERCHANDISE A
RETAILER CARRIES. IT
INCLUDES BOTH THE
BREADTH OF PRODUCT
CATEGORIES AND THE
VARIETY WITHIN EACH
CATEGORY.
ASSORTMENT

Width of assortment refers to the number of distinct

goods/services categories (product lines) a retailer carries

Depth of assortment refers to the variety in any one

goods/services category (product line) a retailer carries
ASSORTMENT PATTERNS

• WIDE AND DEEP ASSORTMENT (MANY GOODS/SERVICE

CATEGORIES AND A LARGE ASSORTMENT IN EACH CATEGORY)
• WIDE AND SHALLOW ASSORTMENT (MANY GOODS/SERVICE
CATEGORIES AND A LIMITED ASSORTMENT IN EACH CATEGORY)
• NARROW AND DEEP ASSORTMENT (FEW GOODS/SERVICE
CATEGORIES AND A LARGE ASSORTMENT IN EACH CATEGORY)
• NARROW AND SHALLOW ASSORTMENT (FEW GOODS/SERVICE
CATEGORIES AND A LIMITED ASSORTMENT IN EACH CATEGORY)
BRANDS

Manufacturer (national) brands

Private (dealer or store) brands

Generic brands
 CATEGORY MANAGEMENT

CATEGORY MANAGEMENT IS A MERCHANDISING

TECHNIQUE THAT SOME FIRMS— INCLUDING
SUPERMARKETS, DRUGSTORES, HARDWARE STORES, AND
GENERAL MERCHANDISE RETAILERS—USE TO IMPROVE
PRODUCTIVITY. IT IS A WAY TO MANAGE A RETAIL
BUSINESS THAT FOCUSES ON THE PERFORMANCE OF
PRODUCT CATEGORY RESULTS RATHER THAN
INDIVIDUAL BRANDS. IT ARRANGES PRODUCT
GROUPINGS INTO STRATEGIC BUSINESS UNITS TO BETTER
MEET CONSUMER NEEDS AND TO ACHIEVE SALES AND
PROFIT.
 CATEGORY MANAGEMENT

 1. DEFINE THE CATEGORY BASED ON THE NEEDS OF THE TARGET MARKET

 2. ASSIGN A ROLE TO THE CATEGORY BASED ON SEVERAL QUESTIONS: HOW IMPORTANT
IS THE CATEGORY TO THE CONSUMER? HOW IMPORTANT IS THE CATEGORY TO THE
RETAILER? HOW IMPORTANT IS THE CATEGORY TO THE RETAILER’S COMPETITORS?
WHAT IS THE CATEGORY’S OUTLOOK IN THE MARKETPLACE? 
 3. ASSESS THE CATEGORY TO FIND OPPORTUNITIES FOR IMPROVEMENT
 4. SET PERFORMANCE TARGETS AND MEASURE PROGRESS WITH A CATEGORY
SCORECARD
 5. CREATE A MARKETING STRATEGY THAT DRAWS THE OVERARCHING PICTURE OF HOW
TO ACHIEVE THE CATEGORY ROLE AND SCORECARD TARGETS
 6. CHOOSE TACTICS FOR CATEGORY ASSORTMENT, PRICING, PROMOTION,
MERCHANDISING, AND SUPPLY CHAIN STRATEGIES
 7. ROLL OUT THE PLAN. 8. REVIEW PERFORMANCE REGULARLY AND ADJUST AS NEEDED.
 SALES PER LINEAR FOOT OF SHELF SPACE: ANNUAL SALES DIVIDED BY THE TOTAL
LINEAR FOOTAGE DEVOTED TO THE PRODUCT CATEGORY
 GROSS PROFIT PER LINEAR FOOT OF SHELF SPACE: ANNUAL GROSS PROFIT DIVIDED BY
THE TOTAL LINEAR FOOTAGE DEVOTED TO THE PRODUCT CATEGORY
 RETURN ON INVENTORY INVESTMENT: ANNUAL GROSS PROFIT DIVIDED BY AVERAGE
INVENTORY AT COST.
 INVENTORY TURNOVER: THE NUMBER OF TIMES DURING A GIVEN PERIOD, USUALLY ONE
YEAR, THAT THE AVERAGE INVENTORY ON HAND IS SOLD
 DAYS’ SUPPLY: THE NUMBER OF DAYS OF SUPPLY OF AN ITEM ON THE SHELF
 DIRECT PRODUCT PROFITABILITY (DPP): AN ITEM’S GROSS PROFIT LESS ITS DIRECT
RETAILING COSTS (WAREHOUSE AND STORE SUPPORT, OCCUPANCY, INVENTORY, AND
DIRECT LABOR, BUT NOT GENERAL OVERHEAD)

CATEGORY MANAGEMENT
MERCHANDISING PROCESS
GATHERING INFORMATION

CUSTOMERS
• TARGET-MARKET DEMOGRAPHICS
• LIFESTYLES, PRODUCT PREFERENCES, 
• POTENTIAL SHOPPING PLANS
SUPPLIERS
MARKETING RESEARCH
SELECTING & INTERACTING WITH MERCHANDISE
SOURCES

• COMPANY-OWNED
• OUTSIDE, REGULARLY USED SUPPLIER
• OUTSIDE, NEW SUPPLIER
MERCHANDISE
 SOURCES
EVALUATIN
G
▶ The retailer takes title immediately on purchase

▶ The retailer assumes ownership after items are loaded

onto the mode of transportation

CONCLUDING
▶ The retailer takes title when a shipment is received
PURCHASE

▶ The retailer does not take title until the end of a billing
cycle, when the supplier is paid

▶ The retailer accepts merchandise on consignment and

does not own the items. The supplier is paid after
merchandise is sold
ECONOMIC ORDER QUANTITY (EOQ)

ECONOMIC ORDER QUANTITY (EOQ) IS A MODEL USED

TO ESTABLISH OPTIMAL INVENTORY LEVELS. IT
HELPS RETAILERS FIND THEIR IDEAL ORDER
QUANTITY TO MAXIMIZE INVENTORY, LOWER
HOLDING COSTS, AND AVOID STOCKOUTS.
ECONOMIC ORDER QUANTITY (EOQ)

How much to order? When to order?

 ECONOMIC
ORDER
QUANTITY (EOQ)
 ECONOMIC ORDER QUANTITY (EOQ)

Q= √2DS / H

• Q = THE NUMBER OF EOQ UNITS

• D = ANNUAL DEMAND YOU GET FOR A PRODUCT
• S = ORDER COST, OR “SETUP COST,” WHICH IS HOW MUCH ONE
ORDER COSTS PER PURCHASE
• H = HOLDING COSTS, OR “CARRYING COSTS,” WHICH IS THE TOTAL
COST OF HOLDING INVENTORY
ANNUAL DEMAND (D)

HOW MUCH DEMAND DO YOU GET FOR A

PRODUCT EACH YEAR? BY LOOKING INTO
HISTORICAL ORDER DATA, YOU CAN
DETERMINE HOW MUCH PRODUCT YOU
SELL YEAR OVER YEAR.
ORDER COST (S)

ALSO REFERRED TO AS ‘SETUP COST,’ HOW

MUCH DOES AN ORDER COST PER
PURCHASE? THIS IS DONE ON A PER-ORDER
BASIS AND INCLUDES BOTH THE SHIPPING
AND HANDLING COSTS.
 HOLDING COSTS (H)

HOLDING COST (ALSO KNOWN AS CARRYING COSTS) REFERS

TO THE TOTAL COST OF HOLDING INVENTORY. MINIMIZING
INVENTORY COSTS IS AN IMPORTANT RETAIL SUPPLY CHAIN
MANAGEMENT STRATEGY. HOW MUCH DO YOU SPEND ON
HOLDING AND STORING INVENTORY, PER UNIT, PER YEAR? IN
ORDER TO PROPERLY CALCULATE EOQ, YOU’LL FIRST NEED
TO DETERMINE YOUR HOLDING COST.
 HOLDING COSTS (H)

Employee
Equipment Insurance Warehousing
salaries

Related
Opportunity
Damage inventory
costs
expenses 
EOQ...........?

LET’S SAY YOU RUN AN ELECTRONICS STORE CALLED

BAJAJ ELECTONICS. YOU NEED TO PURCHASE 10,000
REFRIGERATORS PER YEAR TO MEET DEMAND (D). YOU
INCUR AN ORDER FEE OF RS.5000 (S) AND A HOLDING
COST OF 400 (H) PER REFRIGERATOR. 
BENEFITS OF ECONOMIC ORDER QUANTITY
(EOQ)

• IMPROVED ORDER FULFILLMENT

• LESS OVERORDERING
• LESS WASTE
• LOWER STORAGE COSTS
• QUANTITY DISCOUNTS
STOCK TURNOVER

STOCK TURNOVER REPRESENTS

THE NUMBER OF TIMES DURING
A SPECIFIC PERIOD, USUALLY 1
YEAR, THAT THE AVERAGE
INVENTORY ON HAND IS SOLD.
 STOCK TURNOVER

THE RATIO USED TO CALCULATE YOUR

INVENTORY TURNOVER IDENTIFIES THE
CYCLES OF A CERTAIN PRODUCT OVER A
SPECIFIED TIME FRAME. UNDERSTANDING
HOW FAST EACH INVENTORY ITEM IS
SOLD (TURNOVER), WILL HELP YOUR
BUSINESS OPERATIONS IN A NUMBER OF
WAYS
 STOCK
TURNOVE
R
 STOCK TURNOVER
A SHOE BUSINESS SELLS OVER RS.60,00,000 IN ITEMS
FOR THE YEAR, AND THEY HELD, ON AVERAGE,
RS.30,00,000 OF INVENTORY.  
RS.60,00,000 SALES DIVIDED BY RS.30,00,000 OF
INVENTORY = 2
USING THIS FORMULA WE CAN CALCULATE THAT THIS
BUSINESS'S INVENTORY TURNOVER IS 2. THIS MEANS
THAT DURING THE YEAR THEY HAD TO REPLENISH
THEIR ENTIRE INVENTORY TWICE. QUITE SIMPLY, THIS
RATE SHOWS THAT THE BUSINESS IS SELLING
PRODUCTS AT A PROFITABLE RATE.  
 STOCK TURNOVER
A HAIR SUPPLIES STORE SOLD RS.20,00,000 IN PRODUCTS
FOR THE YEAR AND HAD, ON AVERAGE, AROUND
RS.50,00,000 IN INVENTORY.  
RS.20,00,000 SALES DIVIDED BY RS.50,00,000 OF
INVENTORY = 0.40
THIS BUSINESS HAS AN INVENTORY TURNOVER RATE OF
0.40 WHICH INDICATES THAT THEY ARE SPENDING AND
HOLDING TOO MUCH INVENTORY. NOT ONLY DO THEY
HAVE MONEY TIED UP IN STOCK THAT IS JUST SITTING
ON SHELVES, BUT THEY’RE ALSO INCURRING THE
COSTS INVOLVED IN STORING THE INVENTORY.  
STOCK REPLENISHMENT

STOCK REPLENISHMENT IS A STANDARD RETAIL

PRACTICE, TO ENSURE THAT THE RIGHT PRODUCTS ARE IN
THE BEST PLACE, AT THE OPTIMUM QUANTITY. RETAILERS
CAN AUTOMATE REPLENISHMENT USING INTELLIGENT
ALGORITHMS, WHICH CAN BE PARTICULARLY BENEFICIAL
DURING PROMOTIONAL OR SEASONAL EVENTS.
REPLENISHMENT IS ESSENTIAL TO AVOID STOCK-OUTS.
Collect Stocking Data in the Field

Automate Inventory Replenishment 

STOCK
Streamline Replenishment
REPLENISH
MENT
Maintain Open Communication

Monitor and Adjust Your Stock Replenishment

System