5The CategoryA 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.
6Category ManagementCategory 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 FlakeMen’s knitted shirts vs. Polo shirtsOne person managing the entire category and responsible for its success or failure.
7Category CaptainSelected vendor responsible for managing assortment of merchandise in a categoryVendors frequently have more information and analytical skills about the category in which they compete than retailersWorks with category Mgr ---Promotion, pricing, brand & product placement on shelves.ProblemsVendor category captain may have different goals than retailer
8Standard Merchandise Classification Scheme and Organizational Chart
15Gross Margin %, Inventory Turnover,& GMROI for Selected Department in Discount Stores
16Calculating Inventory Turnover Inventory turnover = Net Sales Average inventory at retailInventory turnover = Cost of goods sold Average inventory at costAverage inventory = Month1 + Month2 + Month 3 +… Number of months
17Inventory Turnover Month Retail Value of Inventory EOM January $22,000 EOM February 33,000EOM March 38,000Total Inventory $93,000Average inventory = $93,000 ÷ 3 = $31,000
18Inventory Turnover and Sales-to-Stock Ratio Inventory turnover = Net Sales Average inventory at retailInventory turnover = Cost of goods sold Average inventory at costStock-to-Sales Ratio = Net Sales Average cost of inventory
19Advantages of Rapid Turnover Increased sales volumeLess risk of obsolescence and markdownsImproved salesperson moraleMoney for market opportunitiesDecreased operating expensesIncreased asset turnover
20Disadvantages of Rapid Rate of Turnover Lowered sales volumeIncreased cost of goods soldIncreased buying and ordering time
21Developing a Sales Forecast Understanding the nature of the product life cycleCollecting data on sales of product and comparable productsUsing statistical techniques to project salesWork with vendors to coordinate manufacturing and merchandise delivery with forecasted demand (CPFR)
22The Category Product Life Cycle Total Retail SalesIntroductionGrowthMaturityDeclineTimeStrategy variableTarget market High-income Middle-income Mass market Low-incomeInnovators adapters and laggardsVariety One basic Some variety Greater variety Less varietyofferingDistribution Limited or More retailers More retailers FewerIntensity extensive retailersPrice Penetrating Wide range Lower prices Lower pricesor skimmingPromotion Informative Persuasive Competitive Limited
23Variations of the Category Life Cycle Fad Fashion Staple SeasonalSales over many seasons No Yes Yes YesSales of a specific style No No Yes Yes over many seasonsSales vary dramatically No Yes No Yes from one season to the nextIllustration(Sales against Time)SALESTIME
24Data Sources for Developing Sales Forecasts Previous Sales HistoryPublished Sources - Buying Power Index (BPI), Monthly Retail Trade Report, InfoScan, Claritas, general retail trade publications like Stores, WWD and Chain Store AgeCustomer InformationVendors and Resident Buying Offices
25Sales for Levi Jeans at Trendsetters Department Store Spring & summer salesWinter salesSALES ($000) DOLLARSFall salesYEAR
27Collaboration, 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 vendorsIncreases fill rate, reduces stockouts, increases inventory turns
28Assortment PlanningVariety is the number of different merchandising categories within a store or departmentAssortment is the number of SKUs within a category.Product availability defines the percentage of demand for a particular SKU that is satisfied.
29Assortment Plan for Girls’ Jeans Styles T R A D I T I O N A LPrice levels $ $ $ $ $ $45Fabric Reg denim Stone- Reg denim Stone Reg denim Stone-composition washed washed washedColors Light blue Light blue Light blue Light blue Light blue Light blueB O O T C U TPrice levels $ $ $ $40Fabric Reg denim Stone- Reg denim Stone-composition washed washedColors Light blue Light blue Light blue Light blueIndigo Indigo Indigo IndigoBlack Black Black Black
30Size Distribution for Traditional $20 Denim Jeans in Light Blue for a Large Store LengthShort %unitsMedium %unitsLong %unitsTotal %429 units