Retail Merchandising is the process of developing, securing, pricing ,supporting and communicating the retailer’s merchandise offering.
It means offering the right product at the right time at the right price
with the right appeal!!
Buying Organisation
• Merchandise Group• Department• Classification• Categories• Stock Keeping unit
Types of Buying Systems
Staple MerchandisePredictable DemandHistory of Past SalesRelatively Accurate Forecasts
Fashion MerchandiseUnpredictable DemandLimited Sales HistoryDifficult to Forecast Sales
Other Types
• Fad
• Seasonal
Merchandise Management• Analysis• Planning• Handling• Control
Assortment planning
• It is the process of trading off variety , assortment and backup stock
• Category Management
• Setting objectives for the merchandise plan
TOOLS FOR MERCHANDISE PLAN
• GMROI• Inventory Turnover• Sales Forecasting : Category Life Cycle Types Of Merchandise : Fad Staples Fashion
CPFR
• Collaboration , planning, forecasting, and replenishment
PROFITABILITY
• The profit a product generates depends on:– gross margin– rate of sales
• GMROI (Gross margin return on investment) allows a retailer to compare the performance of products with different % profit margins and different sales turnover
• GMROI=Gross Margin/Average inventory at cost
Inter-organisational factors
• Retailer size• Retailer type• Retailer Location• Management mentality
Intra-organisational factors
• Type of merchandising• Product positioning• Regulatory constraints• Type of decisions
The process of merchandise planning
1.Developing the sales forecast:• Review past sales• Analyze economic conditions• Analyze the changes in the sales potential and marketing strategies
2.Determinig the merchandise requirements• The creation of Merchandise Budget:1)The sales plan,2)The stock support plan,3)The planned reductions4)The planned purchase level5)The gross margins• Types of merchandise
The process of merchandise planning
3.The Merchandise Control: Open to buy
4.Assortment Planning: Determine the quantity of each product. Details of color,
size brand, materials
Merchandise Management Issues
PRODUCT PROFIT
• The profit margin a product earns is a well established performance measure– Gross margin (mark-up)• The difference between cost and selling price
– A mark-down is a price reduction that reduces the gross margin
Staple Merchandise Buying System
Forecast SKU Sales
Order Merchandise
Monitor Sales and Inventory
Compare Inventory to Basic Stock List
Considerations in Determining How Much to Order
• Basic Stock List• Present Inventory• Merchandise on
Order• Safety stock • Sales Forecast– Rate of Sales of SKU
(Velocity)– Seasonality
Basic Stock List
Indicates the Desired Inventory Level for Each SKU– Amount of Stock Desired
Cost of CarryingInventory
Lost Sale Due to Stockout
Relationship between Inventory Investment and Product Availability
Inve
ntor
y in
vest
men
t Dol
lars
Product Availability (Percent)
600
500
400
300
200
100
0
80 85 90 95 100
Cycle and Buffer Stock
Uni
ts A
vaila
ble
Weeks
150 -
100 -
50 -
0 -
1 2 3 4
Order 96
Cycle Stock
Buffer Stock
Forecasting Demand
Forecasting -- extrapolating the past into future using statistical and mathematical methods
Objectives:– Ignore random
fluctuations in demand– But be responsive to
real change
Order Point
• Order point = the point at which inventory available should not go below or else we will run out of stock before the next order arrives.
• Assume Lead time = 0, Order point = 0• Assume Lead time = 3 weeks, review time =
1 week, demand = 100 units per week• Order point = demand (lead time + review
time) + buffer stock• Order point = 100 (3+1) = 400
Merchandise Budget Plan
• Plan for the financial aspects of a merchandise category
• Specifies how much money can be spent each month to achieve the sales, margin, inventory turnover, and GMROI objectives.
• Not a complete buying plan--doesn’t indicate what specific SKUs to buy or in what quantities.
Steps in Preparing Plan
• Forecast Six Month Sales for Category• Breakdown Total Sales Forecast into Forecast for each
Month• Plan Reductions for Each Month• Determine Beginning of the Month (BOM) Stock to Sales
Ratio• Calculate BOM Inventory• Calculate EOM Inventory• Calculate Monthly Additions to Stock
Open to Buy
• Monitors Merchandise Flow
• Determines How Much Was Spent and How Much is Left to Spend
Open to Buy
Limits overbuying and under buyingPrevent loss of sales due to unavailabilityMaintains purchase within the budgeted limitsReduce markdowns which may arise due to
excess buying
Open-to-buy for Past Periods
Projected EOM stock = actual EOM stockOpen-to-buy = 0There is no point in buying merchandise for a
month that is already over.
Open-to-Buy for Current Period (I)
• Projected EOM stock =
• Actual BOM stock
• + Actual monthly additions to stock (what was actually received)
• + Actual on order (what is on order for the month)
• - Plan monthly sales
• - Plan reductions for the month
Open-to-Buy for Current Period (II)
• Open-to-buy =
• Planned EOM stock (from merchandise budget plan)
– Projected EOM stock (based on what is really happening)
Analyzing Merchandise Management
Merchandise Performance– ABC Analysis– Sell Through Analysis
Vendor Analysis– Multiattribute Method
ABC Analysis Rank Merchandise By Performance Measures
Contribution MarginSales in UnitsGross MarginGMROIUse more than one criteria
ABC Analysis for Dress ShirtsPe
rcen
tage
of S
ales
Dol
lars
10 20 30 40 50 60 70 80 90 100
Percentage of Items
No Sales
1009080706050403020100
C10% B20%
A70%
A B C D5% 10% 65% 20%
Sales
ABC Analysis
Rank - orders merchandise by some performance measure determine which items:– should never be out of stock.– should be allowed to be out of stock
occasionally.– should be deleted from the stock selection.
13-34
Sell Through Analysis Evaluating Merchandise Plan
A sell-through analysis compares actual and planned sales to determine whether more merchandise is needed to satisfy demand or whether price reductions are required.
Ij *i 1
n
P ij = Sum of the expression
Ij = Importance weight assigned to the ith dimension
Pi= Performance evaluation for jth brand alternative on the jth issue
1 = Not important
10 = Very important
Evaluating a Vendor:A Weighted Average Approach
Evaluating a Vendor:A Weighted Average Approach
Performance Evaluation of Individual Brands Across Issues
ImportanceEvaluation Brand A Brand B Brand C Brand D
Issues of Issues (I) (Pa) (Pb) (Pc) (Pd) (1) (2) (3) (4) (5) (6)Vendor reputation 9 5 9 4 8Service 8 6 6 4 6Meets delivery dates 6 5 7 4 4Merchandise quality 5 5 4 6 5Markup opportunity 5 5 4 4 5Country of origin 6 5 3 3 8Product fashionability 7 6 6 3 8Selling history 3 5 5 5 5Promotional assistance 4 5 3 4 7Overall evaluation = 290 298 212 341
Ij *i
n
P1
ij
Merchandise Planning
• Top –Down (Corporate Objective)
• Bottom-Up (Stores)