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PPT 12-1 5 th Edition. PPT 12-2 McGraw-Hill/Irwin Levy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights.

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Presentation on theme: "PPT 12-1 5 th Edition. PPT 12-2 McGraw-Hill/Irwin Levy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights."— Presentation transcript:

1 PPT th Edition

2 PPT 12-2 McGraw-Hill/Irwin Levy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Planning Merchandise Assortments Chapter 12

3 PPT 12-3 Merchandise Management Buying Systems Planning Merchandise Assortments Buying Merchandise Pricing Retail Communication Mix

4 PPT 12-4 Merchandise Management Issues

5 PPT 12-5 The Category A category is an assortment of items that the customer sees as reasonable substitutes for each other: girls’ apparel, laundry detergents, soup, DVD players. In merchandise management, we do everything at the category level. The category can mean different things to different retailers.

6 PPT 12-6 Category Management Category management is the process of managing a retail business with the objective of maximizing the sales and profits of a category. Objective is to maximize the sales and profits of the entire category, not just a particular brand. Breakfast cereal category vs. Kellogg Corn Flake Men’s knitted shirts vs. Polo shirts One person managing the entire category and responsible for its success or failure.

7 PPT 12-7 Category Captain Selected vendor responsible for managing assortment of merchandise in a category Vendors frequently have more information and analytical skills about the category in which they compete than retailers Works with category Mgr ---Promotion, pricing, brand & product placement on shelves. Problems –Vendor category captain may have different goals than retailer

8 PPT 12-8 Standard Merchandise Classification Scheme and Organizational Chart

9 PPT 12-9 The Buying Organization Merchandise Group…………Men’s wear Department………….……….Young Men’s wear Classification………….……..Pants Category……………………..Jeans Stock Keeping Unit (SKU)….Levi, 501, size 36 waist, 32 inseam

10 PPT Organization of a Regional Department Store: Rich’s

11 PPT GMROI Productivity Measures Inventory Gross Margin InputOutput

12 PPT GMROI Inventory Productivity Measures Combine Gross Margin % and Inventory Turnover (sort of) Gross Margin% Inventory Turn GMROI = Gross Margin x Net Sales Net Sales Avg cost GMROI = Gross Margin Avg Inventory cost) Output (Margin Generated by Sales) Input (Inventory Investment in Inventory)

13 PPT ROI and GMROI Asset Productivity Measures Strategic Corporate Level Return on Assets = Net Profit Total Assets Merchandise Management Level GMROI = Gross Margin Avg cost

14 PPT Illustration of GMROI

15 PPT Gross Margin %, Inventory Turnover,& GMROI for Selected Department in Discount Stores

16 PPT Calculating Inventory Turnover Inventory turnover = Net Sales Average inventory at retail Inventory turnover = Cost of goods sold Average inventory at cost Average inventory = Month1 + Month2 + Month 3 +… Number of months

17 PPT Inventory Turnover MonthRetail Value of Inventory EOM January$22,000 EOM February 33,000 EOM March 38,000 Total Inventory$93,000 Average inventory = $93,000 ÷ 3 = $31,000

18 PPT Inventory Turnover and Sales-to-Stock Ratio Inventory turnover = Net Sales Average inventory at retail Inventory turnover = Cost of goods sold Average inventory at cost Stock-to-Sales Ratio = Net Sales Average cost of inventory

19 PPT Advantages of Rapid Turnover Increased sales volume Less risk of obsolescence and markdowns Improved salesperson morale Money for market opportunities Decreased operating expenses Increased asset turnover

20 PPT Disadvantages of Rapid Rate of Turnover Lowered sales volume Increased cost of goods sold Increased buying and ordering time

21 PPT Developing a Sales Forecast Understanding the nature of the product life cycle Collecting data on sales of product and comparable products Using statistical techniques to project sales Work with vendors to coordinate manufacturing and merchandise delivery with forecasted demand (CPFR)

22 PPT The Category Product Life Cycle Total Retail Sales Introduction Growth Maturity Decline Time IntroductionGrowth MaturityDecline Strategy variable Target marketHigh-income Middle-income Mass market Low-income Innovators adapters and laggards VarietyOne basic Some variety Greater variety Less variety offering DistributionLimited or More retailers More retailers Fewer Intensityextensive retailers PricePenetrating Wide range Lower prices Lower prices or skimming PromotionInformative Persuasive Competitive Limited

23 PPT Variations of the Category Life Cycle Fad Fashion Staple Seasonal Sales over many seasons No Yes Yes Yes Sales of a specific style No No Yes Yes over many seasons Sales vary dramatically No Yes No Yes from one season to the next Illustration (Sales against Time) SALES TIME

24 PPT Data Sources for Developing Sales Forecasts Previous Sales History Published Sources - Buying Power Index (BPI), Monthly Retail Trade Report, InfoScan, Claritas, general retail trade publications like Stores, WWD and Chain Store Age Customer Information Vendors and Resident Buying Offices

25 PPT Sales for Levi Jeans at Trendsetters Department Store SALES ($000) DOLLARS YEAR Fall sales Winter sales Spring & summer sales

26 PPT Factors Affecting Sales Projections Controllable Promotions Store Locations Merchandise Placement Cannabalization Uncontrollable Seasonality Weather Competitive Activity Product Availability Economic Conditions

27 PPT Collaboration, Planning, Forecasting, and Replenishment Systems (CPFR) Systems used by retailers and vendors to work together to insure that the right merchandise is at the right place at the right time. –Benefits both retailers and vendors –Increases fill rate, reduces stockouts, increases inventory turns

28 PPT Assortment Planning Variety is the number of different merchandising categories within a store or department Assortment is the number of SKUs within a category. Product availability defines the percentage of demand for a particular SKU that is satisfied.

29 PPT Assortment Plan for Girls’ Jeans StylesTRA D I T IO N A L Price levels $20 $20 $35 $35 $45 $45 FabricReg denim Stone- Reg denim Stone- Reg denim Stone- composition washedwashed washed ColorsLight blue Light blue Light blueLight blue Light blue Light blue BOOTCUT Price levels $25 $25 $40 $40 FabricReg denim Stone- Reg denim Stone- composition washedwashed ColorsLight blue Light blue Light blueLight blue Indigo Indigo IndigoIndigo Black Black BlackBlack

30 PPT Size Distribution for Traditional $20 Denim Jeans in Light Blue for a Large Store SIZE Length Short % units Medium % units Long % units Total100% 429 units

31 PPT Is This Store Heavy on Variety? On Assortment?

32 PPT Determining Variety and Assortment Profitability of Merchandise Mix Corporate Philosophy Toward Assortment Physical Characteristics of Store Complementary Merchandise

33 PPT Relationship between Inventory Investment and Product Availability Inventory investment Dollars Product Availability (Percent)

34 PPT Cycle and Backup Stock Units Available Weeks Order 96 Cycle Stock Buffer Stock


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