66 MERCHANDISE
MERCHANDISE
MANAGEMENT
MANAGEMENT
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MERCHANDISE MANAGEMENT
Definition
The planning and implementation of the
acquisition, handling and monitoring of
merchandise categories for an
identified retail organization
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Category
• A category is an assortment of items
that the customer would broadly
perceive as being substitutes for
each other while reflecting the
extent of possible variants for eg. A
pair of trousers for jeans
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Inventory Turnover
• Can also be described as merchandise
stock-turn
• To workout how long inventory is on
hand prior to it being sold
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Inventory Turnover
• Net sales
Average inventory at retail store
• Cost of merchandise sold
Average inventory at cost
• Units sold
Average inventory at retail store
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METHODS OF PLANNING AND CALCULATING
INVENTORY LEVELS
• Basic stock method of planning inventory
• When it is agreed that there should be a
particular level of inventory avle at all
times
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The level of Beginning of month stock (BOM)
= Planned monthly sales + Basic Stock
Where
(a) Av. Stock for season
= Total planned sales for season
Estimated inventory turnover
(b) Av. Monthly sales
= Total planned sales for season
No. of months
And
Basic Stock = (a) + (b)
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Percentage variation method (PVM)
Beginning of month planned inventory level
= Planned av. Mthly stock for season X
½ [1+(Estimated mthly sales/ Estimated av. Mthly. Sales)]
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Week’s supply method
BOM=Av. Weekly sales * no. of weeks to be stocked
Where
Av. Weekly sales=Estimated total sales for the period
Stock turnover rate for the period
And
No. of weeks to be stocked
= No. of weeks in the period
Stock turnover rate for the period
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• Stock-to-sales method
If a retailer wants to maintain a
specified ratio of goods on hand to sales
Shrinkage – is the difference between the
amt of merchandise that is reported on
inventory stock system and what is avle
for sale or on the shelves
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Markdowns are a lowering of the prices
of the merchandise so that the
reduction (markdown) acts as
promotion
Employee discounts are part of planned
reductions and offer value to the
employee in working at the store
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MERCHANDISER SKILLS AND PROFILE
Developing the first stage of the merchandise plan
It requires:
• understanding the target market groups
• Agreeing regional and branch sales forecasts
• collecting information on competitors and any new
branch plans
• Taking into consideration branding and corporate
policy
• Agreeing merchandise budget
• Liaison and initial discussion with buyer(s)
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CATEGORY MANAGEMENT
Definition
Category management is related to
decisions over group of products that
are selected and placed to satisfy use-
occasions or patterns. This is based
upon strategic retailing principles that
attempt to maximize sales and profits
and may also include trade partnerships
- Gilbert
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Components of Category Management
• Strategy: Performance Measurement
& Organizational Capabilities;
• Business Process: Trading Partner
Relationships & IT
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Category Management Business
Process
• Category definition
• Category role (Destination,Routine,Seasonal,Convenience)
• Cat. assessment (customer,market,competition,suppliers)
• Category Performance Measures (sales, profits, mkt share,
inv. t/o, assortment)
• Category Strategies & Tactics
• (traffic, defend, profit, image, excitement)
• Category Plan Implementation
• Category review
Q - Who is a category captain ?
See S.Pradhan.
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Challenges in retail traditional supply chain
• Product development and sourcing
• Supplier mgmt
• Buying
• Merchandising
• Distribution
• Retail operations
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RANGE PLANNING
• A retailer’s stock range can be
described in terms of its width and
depth, with the extent of each
determined by company policy. This is
sometimes termed the assortment.
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Ranging policy: assortment versus variety
Product line breadth/ width:
Wide choice of generic product classes with few brand
choices (variety).(It is also called pdt. range)
In other words, the no. of different lines a retailer
stocks in a store is often referred to as the variety of
the merchandise mix.
eg. Men’s wear, women wear, kids wear
The width will relate to the no. of categories that are
found in the merchandise line and different generic
classes of product or merchandise carried.
A wide and narrow stock assortment is normally where
there is little choice of brands, styles etc. within an
individual range. Stock-turn could be higher for a broad
merchandise assortment, but margins will be slim. 18
• Product line depth:
Wide choice with generic product class
(assortment)
The depth relates to sizes, styles, colours and
prices within a particular generic class of a
product. There are specialist shops, such as the
niche boutiques, which offer a lot of depth but
with a narrow product range.
eg. Various sizes, styles (striped, checks
etc.), colours and prices in men’s wear
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Assortment profiles and merchandise strategies
Cook and Walters 1991
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Assortment profiles and merchandise strategies
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Assortment profiles and merchandise strategies
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Developing the range planning and
merchandise allocation plan
It requires:
• Understanding the selection process of
consumers
• Deciding upon core and seasonal merchandise
• Agreeing the range – e.g. style, size and colour
mix – depth and width
• Taking into consideration the sales-to-stock
level targets and calculating the optimum level
of stock by utilizing one of the stock inventory
planning methods
• Relating the range plans to individual stores
and possible promotional plans
• Briefing the buyer(s) on agreed source
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Developing the control mechanisms of the
merchandise plan
It requires:
• An understanding of comparative frequency of store
visits, based upon the browsing of, or items purchased
by, the target market groups
• Forecasting sales of range items and profitability
• Monitoring stock levels and availability of new stocks
and replenishment levels
• Assessing value of merchandise through shrinkage,
markdowns, employee reductions
• Liaisoning with the buyer(s) to discuss the performance
figures
• Expanding or reducing merchandise categories, based
upon sales performance
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Store grading
• Can be related to the gross sales
forecast
• Rather than produce a unique plan for
each store, it is a common practice to
grade the stores
• The grading is normally done on the
basis of floor sales area
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SPACE ALLOCATION
There is a need to know:
• Are products easy to locate individually
and as part of a basket of goods?
• How long does it take to obtain and
purchase a category?
• Is the range broad enough to provide a
satisfactory selection?
• Are other retailers offering a superior
layout of categories?
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• Space allocation will be driven by:
– Financial emphasis of yield mgmt techniques
– Competitive strategy
• Space allocation will be constrained by:
– Practical operational and
– Merchandise related factors
• New product launch
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• Fixture layout
– Space allocation and layout decision making
– Pangrams – proprietary software
– Shelf layouts
– Impact of category role on range and space
strategies
– Temporary shifts in space allocation
– Use of off-shelf displays
• In-store layout
– Grid layout
– Free flow layout
– Can be instrumental in creating the ambience
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MERCHANDISE ASSORTMENT AND SUPPORT
• Analysis of merchandise category
performance
• If Demand>projected figures->prospect
of missed out Opportunities and
disappointed customers
• > anticipated sales volume of the under-
performing category->prospect of
markdowns
• The gross margin is only realized when
the stock is turned over or sold
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• All retailers have to execute markdowns
• Customer perceptions of reduced merchandise
are a key consideration and the public profile
of the ‘bargain-bin’ cannot be allowed to
compromise image
• So the merchandiser has to strike the balance
between stimulating stock-turn with price-
reductions, and not undermining the perception
of added value that the retailer has to
preserve in order to command its ‘full’ price on
the reminder of the stock range
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NEGOTIATING THE PURCHASE
• Centralized buying
• Decentralized buying
• Specialist buyers
• Generalist buyers
• Negotiated Contract
• Uniform Contract
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CONCLUSION
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