Chapter 1414Developing Merchandise Plans

Dr. Pointer’s NotesDr. Pointer’s Notes

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Chapter Objectives

To demonstrate the importance of a sound merchandising philosophy

To study various buying organization formats and the processes they use

To outline the considerations in devising merchandise plans: forecasts, innovativeness, assortment, brands, timing, and allocation

To discuss category management and merchandising software

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Merchandising

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.

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Merchandising Philosophy

Sets the guiding principles for all the merchandise decisions that a retailer makes

Should reflect * Target market desires* Retailer’s institutional type* Market-place positioning* Defined value chain* Supplier capabilities* Costs* Competitors* Product trends

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Scope of Responsibility

Two different philosophies Full array of merchandising functions

* Buying and selling * Selection, pricing, display, customer

transactions or is the Focus on buying function only and leave

selling to other specialists

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Micromerchandising

To capitalize on opportunities, retailers adjusts shelf-space allocations to respond to customer and other differences among local markets. What is on the shelves in Houston, Tx maybe different from what is on the shelves in other markets

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Cross-merchandising

Another way to capitalize on opportunities is for Retailers to carry complementary goods and services to encourage shoppers to buy more. This is the reason apparel stores stock accessories. Similar to scramble merchandising.

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Attributes and Functions of Buying Organizations

Level of Formality FormalInformal

Degree of Centralization

Organization Breadth

Personnel Resources

Functions Performed

Staffing

CentralizedDecentralized

GeneralSpecialized

External/InternalResident buying office

MerchandisingBuyingBuyer

Sales Manager

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Level of Formality

Formal buying organizations, merchandising buying is distinct retail task and a separate department is set up to do this. Advantage is clarify of responsibilities. Disadvantage could be the cost for the dept.

Informal buying organization, merchandise buying is not a separate function but can be done by different folks. Advantage is low cost and flexibility but disadvantage is less defined tasks and lesser emphasis

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Degree of Centralization

Multiunit retailers have to options for controlling buying function

Centralized buying where all purchasing is done from one office. Advantage include integrated effort, strict controls, consistent image, closeness to top mgmt, staff support and bigger volume discounts, Disadvantage is inflexibility, time delays, morale and excessive uniformity

Decentralized buying where buying decisions are made locally or regionally

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Degree of Centralization

Multiunit retailers have to options for controlling buying function

Decentralized buying where buying decisions are made locally or regionally. Advantages are more adaptability to locale needs, quicker reordering and improved morale

Disadvantages are disjointed planning,, inconsistent image and limited control, lower volume discounts and less staff support

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Organizational Breadth

Generalized approach is where one buyer buys for complete store which is possible with small organizations

Specialist approach is needed for large retailers where it is best to use buyers for each department

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Personnel Resources

Inside buying organization – is staffed by retailer’s owned people

Outside buying organization – personnel external to the retailer are used to staff the organization usually for a fee

Resident buying office responsible for buying and keeping abreast of trends in the market

Cooperative buying offices – group of unrelated retailers purchase together to get economies that larger chains get.

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Functions Performed

Merchandising view Merchandise personnel oversees all* All buying and selling functions

• Assortments• Advertising pricing• Point-of-sale displays• Employee utilization• Personal selling approaches

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Functions Performed

Buying view* Buyers manage buying functions

• Buying• Advertising• Pricing

* In-store personnel manage other functions• Assortments• Point-of-sale displays• Employee utilization• Personal selling approaches

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Staffing

List of all the positions that need to be filledBuyers - selects the merchandise that is to

be sold and for setting a strategy to market the products

Sales Managers- supervises the on the floor selling and operations activities for specific retail depts

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Divisional Merchandise

Manager

Buyer

Associate Buyer

Assistant BuyerAssistant Sales

Manager

Sales Manager

Assistant Store Manager

Store Manager

Merchandising Track

Store Management Track

Different Career Tracks in Retailing

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Figure 14.5 Considerations in Devising Merchandise Plans

Merchandise Plan

Forecasts Innovativeness

Allocation

Timing

Brands

Assortment

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Forecasts

Forecasts are projections of expected retail sales for given periods. Serves as the foundation of merchandise planning* Components:

• Overall company projections• Product category projections• Item-by-item projections• Store-by-store projections (if a chain)

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Types of Merchandise

Staple merchandise- all regular products to carried all the time

Assortment merchandise-consist of merchandise from many different depts.

Fashion merchandise-products that may have cyclical sales due to changing tastes and life-styles

Seasonal merchandise- products that sell well over nonconsecutive time periods.

Fad merchandise- high sales generated for short period of time

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Staple Merchandise

Regular products carried by a retailer* Grocery store staple examples

• Milk• Bread• Canned soup

Basic stock lists specify inventory level, color, brand, style, category, size, package, etc.

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Assortment Merchandise

Apparel, furniture, auto, and other products for which the retailer must carry a variety of products in order to give customers a proper selection

Decisions on Assortment* Product lines, styles, designs, and colors are

projected* Model stock plan-used to project the number of

different colors/variations of a certain design product

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Fashion and Seasonal Merchandise

Fashion Merchandise: Products that may have cyclical sales due to changing tastes and life-styles

Seasonal Merchandise: Products that sell well over nonconsecutive time periods

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Table 14.1a Factors to Bear in Mind When Planning Merchandise Innovativeness

FACTOR RELEVANCE for PLANNING

Target market(s) Evaluate whether the target market is conservative or innovative

Goods/ service growth potential

Consider each new offering on the basis of rapidity of initial sales, maximum sales potential per time period, and length of sales life

Fashion trends Understand vertical and horizontal fashion trends, if appropriate

Retailer image Carry goods/ services that reinforce the firm’s image

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Table 14.1b Factors to Bear in Mind When Planning Merchandise Innovativeness

FACTOR RELEVANCE for PLANNING

Competition Lead or follow competition in the selection of new goods/services

Customer segments Segment customers by dividing merchandise into established-product displays and new-product displays

Responsiveness to consumers

Carry new offerings when requested by the target market

Amount of investment

Consider all possible investment for each new good/service: product costs, new fixtures, and additional personnel

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Table 14.1c Factors to Bear in Mind When Planning Merchandise Innovativeness

FACTOR RELEVANCE for PLANNING

Profitability Assess each new offering for potential profits

Risk Be aware of the possible tarnishing of the retailer’s image, investment costs, and opportunity costs

Constrained decision making

Restrict franchisees and chain branches from buying certain items

Declining goods/ services

Delete older goods/services if sales and/or profits are too low

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Product life Cycle shows the expected behavior of a good or service over its life.

Introduction- limited target market. One basic version supplied

Growth – as innovators purchase sales increases as others begin to emulate them

Maturity – largest portion of target market is using product with a wide assortment of products.

Declines stage comes about due to shrinking market.

Product life Cycle for product

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Figure 14.7 The Traditional Product Life Cycle

Decline

Maturity

GrowthIntroduction

Total Retail Sales

Time

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Structured Guidelines for Pruning Products

Select items for possible elimination on the basis of declining sales, prices, and profits, appearance of substitutes

Gather and analyze detailed financial and other data about these items

Consider non-deletion strategies such as cutting costs, revising promotion efforts, adjusting prices, and cooperating with other retailers

After making a deletion decision, do not overlook timing, parts and servicing, inventory, and holdover demand

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Assortment

Assortment is the selection of merchandise a retailer carries. It includes both breadth of product categories and variety within each category

Width of assortment – number of distinct goods/service categories (lines)

Depth- number (variety) within each line

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Table 14.2a Factors to Consider When Planning Merchandise Quality

FACTOR RELEVANCE for PLANNING

Target market(s) Match merchandise quality to the wishes of the desired target market(s)

Competition Sell similar quality or different quality

Retailer’s image Relate merchandise quality directly to the perception that customers have of retailer

Store location Consider the impact of location on the retailer’s image and the number of competitors, which, in turn, relate to quality

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Table 14.2b Factors to Consider When Planning Merchandise Quality

FACTOR RELEVANCE for PLANNING

Profitability Recognize that high quality goods generally bring greater profit per unit than lesser-quality goods; turnover may cause total profits to be greater for the latter

Manufacturer versus private brands

Understand that, for many, manufacturer brands connote higher quality than private brands

Customer services offered

Know that high-quality goods require personal selling, alterations, delivery, and so on

Personnel Employ skilled, knowledgeable personnel for high-quality merchandise

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Table 14.2c Factors to Consider When Planning Merchandise Quality

FACTOR RELEVANCE for PLANNING

Perceived goods/ service benefits

Analyze consumers. Lesser quality goods attract customers who desire functional product benefits; High-quality goods attract customers who desire extended product benefits

Constrained decision making

Face reality. Franchises or chain store managers have limited or no control over products; Independent retailers that buy from a few large wholesalers are limited to the range of quality offered by those wholesalers

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Brands- need to select the proper mix of Brands

Private(dealer or store)

Manufacturer(national)

Generic

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Brands

Manufacturer (national) products are produced and controlled by manufacturer

Private or dealer brands (store brands) – owned by wholesalers or retailers and cost less and are controlled by them

Generic brands – no frills goods stocked by retailers (receive no support, poor shelf locations and are very inexpensive)

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Private Label Brands

Are 20 % of USA and Canadian sales

Priced 20-30% lower than manufacturers products

80% of consumers buy them

Many retailers sales are heavily done in private label products

Research shows that consumers feel that private label quality is just as good as branded

Premium private brands are now emerging

Battle of the brands are in progress

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Table 14.3 The Berman/ Evans Private Brand Test

Match the Retailer with the Brand Name

Retailer Brand

Bloomingdale’s Arizona Jeans

Costco Sam’s Choice

Kmart Michael Graves

J.C. Penney Martha Stewart

Sears Joseph & Lyman

Wal-Mart Kenmore

Target Kirkland

Macy’s Charter Club

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Timing and Allocation

Timing is deciding on when certain merchandise is purchased, displayed, and sold

Allocation deals with how the stock is allocated either between stores or once in the store how much is displayed on shelves or in storage area

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Category Management

Category management refers to how to manage products in categories in order to improve productivity

Products are arranged into strategic business units to generate the highest profits

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Merchandising Software

General Merchandise Planning Software

Forecasting SoftwareInnovativeness SoftwareAssortment SoftwareAllocation SoftwareCategory Management Software

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Questions

Make sure that you read this chapter carefully and make additional notes.