2Merchandising is the heartbeat of retailing. Merchandising – consists of activities involved in acquiring particular goods / services & making them available at the places, time & prices and in quantities that will enable a store reach it’s goals.Merchandise ManagementAnalysis, planning, acquisition, handling & control of the merchandise investments of a retail operationAnalysisIdentifying needs and wants of customers in order to buy the correct merchandisePlanningTiming of purchase to ensure merchandise availability in time of season & availabilityMerchandising is the heartbeat of retailing.
3Merchandise Management Experiences of a Buyer at Walmart I am one the 7 buyers for the toys department.The categories I handle (large dolls, plush toys etc.) will produce $450m sales this year.I am responsible for sourcing new toys, promoting them thru our stores, getting them to the right stores at the right time & manage the assets like a portfolio.Buying merchandise is like making a series of investments – same risk-return trade offs, have to watch the performance of the portfolio – buy more of what’s hot & selling & mark-down / get rid those falling short of expectations.
4Experiences of a Buyer at Walmart Buying is being a visionary – reacting to trends, translate them into merchandise that will draw customers.E.g.- A toy using new tech was introduced at the New York toy fair.- decided with senior management to support this toy- put together a plan to ensure Walmart would be the first to have this toy in significant quantity.- worked with the manufacturing to get sufficient quantity ahead for promotions.- worked with marketing to develop a marketing / promo concept & deploy appropriate support material – leaflets / packaging / promo items / advertising to create excitement at stores.- being a new toy it was a high risk item but fortunately it paid off !
5Merchandise buying & Handling Process Merchandise PlanningMerchandise buying & Handling Process21Establish formal / informal buying organizationOutline Merchandiseplans34Determine merchandisesourcesGathering information. About customer demand567Evaluate merchandiseNegotiate priceConclude purchase810Re-evaluate on on-going basis9Re-order merchandiseHandle the merchandise
6Buying Organization1. Specify who is responsible merchandise decisionsTasks they will performAuthority to make decisionsRelationship of merchandising & retail operations2. Options areFormal / informal setup?Centralised vs decentralised buying ?General or specialisedInternal personnel or external e.g buying housesMerchandising or buying
7Buying Organization Formal used by larger organizations offers specializationoffers clarity of responsibility & authorityengage specialistsInformalless expensivegreater flexibilitypersonnel perform multiple rolesLacks expert knowledgeCentralizedAll purchase decisions from one officeBetter control on costs, quality & quantityProximity of top managementDecentralizedGreater adaptability to local req.Quicker order processingAutonomy leading to better moraleLose on controlsInconsistencies in buying, discountsLack of experts
8Merchandise Planning Merchandise Planning What items to sell – quality levels will depend on :- Desired target market’s profile- Competition- Store image / positioning- Location of store- Profitability- Fashion trends- Seasonal itemsHow much merchandise to carry- A function of width & depth of assortments.
9Merchandise Planning Elements of merchandise planning Acquisition Since merchandise is bought from other suppliers they have to be identified, terms negotiated, physical acquisition planned.HandlingEnsures timely availability at specific locations in time when required, duly capable of being put on the shelf for sale.ControlTo ensure optimum utilisation of resources – Financial & shelf space, so that profitability is ensured.Requires effective monitoring & co-ordination with regular suppliers
10Merchandise Planning Factors in Deciding Merchandise Plans Forecasts: Projections of expected sale for given period. Variables would be:Overall company projections for the periodProduct category projectionsItem projectionIndividual store projectionInnovativeness: A firm that carries new goods & services and plans for upcoming trends. Variables would be:- Target market & it’s behaviour- Product related trends- Stores positioning- Degree of risk- PLC – staple item / fashion / fad- Allocation of resources
11Merchandise Planning (contd…) 3. Assortment: Selection of merchandise that a retailer carries which is a function of variety, breadth & depth.Brands vs. Private Label: A proper mix of brands & private labels.Timing : When is inventory required in the store, would be dependent on- Seasonal relevance- Order & delivery lead times- Stock turnover rate- Provision for special / urgent orders- Prices & discounts
12Retail Assortment Strategies Wide & deep- Many categories & large assortment in each categoryWide & shallow- Many categories & limited assortment in each categoryNarrow & deep- Few categories & large assortment in eachNarrow & shallow- Few categories & limited assortment n eachAdvantages- Disadvantages of each & where what / which is appropriate ?`Shelf space is at a premium’
13Optimal Merchandise Mix 3 DimensionsVariety- Refers to the mix in terms of number of different lines the retailer stocks in the store e.g. men’s wear, women’s wear, toys, appliances, cosmetics, sports goods etc.Breadth- Or assortment is the number of merchandise brands that are found in a merchandise line. e.g. A ‘7-11’ store will carry very narrow breadth, as opposed to Shoppers Stop carries 6-8 brands of jeans or mens shirts.Battle of brands vs. private labelsDepth- The average number of SKU’s within each brand of individual merchandise line. e.g. Due to shelf space constraints A7-11 store may carry only 1-2 fast moving sizes whereas a Walmart may carry all sizes & sufficient quantity of each.Retailers task is to find a balance between the above 3 dimensions in relation to his store, it’s positioning, customer profile & financial resources.
14Retail Assortment Strategies Wide and DeepAdvantages- Broad market- Full selection of items- High level of customer traffic- Customer loyalty- One-stop shopping- No disappointed customersDisadvantages- High inventory investment- General image- Many items with low turnover- Some obsolete merchandiseWide and ShallowAdvantages- Broad market- High level of customer traffic- Emphasis on convenience customer- Less costly than wide and deep- One-step shoppingDisadvantages- Low variety within product line- Some disappointed customers- Weak image- Many items with low turnover- Reduced customer loyalty
15Retail Assortment Strategies Narrow & DeepAdvantages- Specialist image- Good customer choice in category(ies)- Specialized personnel- Customer loyalty- No disappointed customers- Less costly than wide and deepDisadvantages- Too much emphasis on one category- No one-stop shopping- More susceptible to trends/cycles- Greater effort needed to enlarge the size of the trading areaNarrow & shallowAdvantages- Aimed at convenience customers- Least costly- High turnover itemsDisadvantages- Little width and depth- No one-stop shopping- Some disappointed customer- Weak image- Limited customer loyalty- Small trading area
16Model Stock Plan : Mens Shirts Dependent VariablesCustomer profile – psychographic / demographicBuying behavior – occasion / frequency of purchase/ budgetStores positioning vis-a-vis product product categoryProduct Attributes – Some VariablesTypeDressy, casual, sports, work4SizeS, M, L, XLSleeveLong, short2CollarButton-down, normalColorBlue, white, beige, pink, off-white5FabricCotton, poly-mixPrice3 Price points3
17Model Stock Plan : Mens Shirts (contd…) If the store decides to keep one SKU of each type its initial inventory will be4 x 4 x 2 x 2 x 5 x 2 x 3 = SKU’s@ Avg. cost of Rs.300 = Rs. 576, 000Clearly the final decision will be based on the dominant dependent variable(s) and a retailer may not be able to offer the entire range but offer a more selective collection.Successful retailers know that they will have to allow some customers to walkout empty handed.
18Category Management Matrix High PotentialWinnersUnder AchieversTraffic BuildersMore than`X’ / itemProduct ProfitabilityLess than`X’ / itemLess `Y’ / wkMore `Y’ / wkHigh potential- Required promo, better position, more exposure, displays- Create interest & excitement around the item to move it into a winner category item.Winners- Capitalise by promo, prominent position, better displays & visibility- Cash cow’Traffic builders- Review prices, position, move closer to high potential items review space.Under achievers- Promos, move from prime position, prices, consider dropping item.
19Information about Customer Demand Efficient merchandise management depends on store’s ability to generate relative accurate sales forecastSources of informationConsumer – demographics, L-styles, preferences.Test marketsManufacturer’s own forecastsSales staffFormal system for new/missing itemsAnalysing dataCompetitors’ storesEmerging trendsTrade directoriesRoutine advertising by manufacturersProduct specific advt. by retailersInternetVisits to exhibitions & trade fairs
20Information about Customer Demand (contd…) Sources of MerchandiseDirect from manufacturersThrough distributors / agentsImportsSome criteria while sourcing merchandiseReliabilityPrice quality balanceProcessing time – reorder timeGuarantees / replacement facilitiesMarginsRelationshipsAdvertising & promo supportPrice contracts & validity - stability
21Sourcing Merchandise Sources of supply International or national brandsImports or supply through agentsProduct specialisationCost implications of buying sourcesSuppliers background in terms of- Selling history- Product quality / warranties- Consumers perception re: manufacturer- Reliability for delivery- Trade terms – credit / discounts- Margins- After – sales service- Order processing time- Inventory carrying cost- Packing norms & adaptability / flexibility- Participation in store promotions- Exclusivity of supplies – fashion / fad itemsABC analysis of vendors on above parameters
22Sourcing Merchandise (contd…) Issues in Buying MerchandiseStrategic partnerships : a win-win situation for buyer & sellerMutual trustOpen communication / sharing informationEthical issues- Origin of supplies- Genuine vs counterfeit- Compliance to local regulationsNegotiating with suppliersIn-store Merchandise HandlingReceiving merchandise - infrastructure / timingsStore / warehousing / handling – parkingChecking for order compliance – quantity / prices / disc.Coding & pricing – statutory considerationsAllocating to stores / departmentsSecurity of inventory – pilferage / shop lifting
23Whether direct from supplier to store or via warehouse? Advantages of warehousing - CentralEfficiency in transportationEfficiency in storageImproved securityBetter handlingEfficient marketing of goodsEase of returnsControl on payments / qualityDisadvantages of WarehousingExcessive controlsExtra handling – perishablesOrder processing delaysHigh operating costs – small storesReduces response time
24Evaluating Merchandise EvaluationCheck for compliance with order- Delivery date- Quantity ordered – billed – delivered- Price – as per contract / order- Discounts – usual / special / schemes- Payment terms – special discountsPhysical check of merchandiseQuality check – random / individualExpiry validity in case of perishablesMRP markingsOther statutory req.Transfer of title ?Transportation risk?Consignment supply
25Evaluating Merchandise (contd…) Handling MerchandisePhysical handlingReceiving – inspectionsStoring – locating / special storage req.Coding – inventory managementPrice marketing – checks / control / systemSetting up displaysDetermining how much to stockCustomer delivery – packingBilling – cash / credit cardsReturns & damaged goods – systemMonitoring pilferageMerchandise control
26Where to Store ?How much on the shelves?How much in the store?How much in the warehouseHow much among stores?