1. Chapter 14
Buying Merchandise

2. Merchandise Management
Planning Merchandise Assortments
Retail Communication Mix
Buying Merchandise
Buying Systems
Pricing

3. Merchandise Branding Strategies
Manufacturer (National) Brands
Designed, produced, and marketed by a vendor and sold by many retailers
Private-Label (Store) Brands
Developed by retailer and only sold in retailer’s outlets
Licensed Brand
Developed by licensee and right sold to either manufacturer or retailer
The McGraw-Hill Companies, Inc./Jill Braaten, photographer

4. Spectrum of National vs. Private Label
National Brands
% Store Brands
Wal-Mart
Home Depot
The Gap
Limited
Marks & Spencer
IKEA
Macy’s
Target

5. Value of Retail Brands

6. Relative Advantages of Manufacturer versus Private Brands
Type of Vendor
Impact on Store Manufacturer Private-Label
Brands Brands
Store loyalty ? +
Store image
Traffic flow
Selling and promotional
expenses
Restrictions
Differential advantages
Margins ? ?

7. Private Labels Advantages
Unique merchandise not available at competitive outlets
Difficult for customers to compare price with competitors
Higher margins
Disadvantages
Need to develop expertise in developing and promoting brand
Unable to sell excess merchandise
Typically less desirable for customers

8. Manufacturer (National) Labels
Advantages
More desired by customers
Resell excessive merchandise
Don’t need skills and people to develop and promote merchandise
Disadvantages
Lower margins
Vulnerable to competitive pressures
Limit retailer’s flexibility

9. Buying from Vendors of National Brands
Helps retailers build their image
Helps build traffic flow
Reduces selling and promotional expenses
The McGraw-Hill Companies, Inc./Lars Niki, photographer

10. Most Recognized Apparel and Accessory Manufacturer Brands

11. Most Recognized Apparel and Accessory Private Label Brands

12. Examples of Private-Label Brands

13. Examples of Private-Label Brands

14. Examples of Private-Label Brands

15. Examples of Private-Label Brands

16. Going to Market for National Brands
Wholesale Market Centers
National Markets (new York), Regional Markets (Atlanta, Miami)
Trade Shows
Frankfurt Book Fair, Las Vegas Consumer Electronics, Atlanta Sporting Goods
Internet Exchanges
Worldwide Retail Exchange
Meeting Vendors at Your Company
Diverters, Closeout Specialists, Liquidators, Other Retailers (Gray Markets, Diversion)

17. What do Buyers do at Market?
Meet with vendors
Discuss performance of vendor’s merchandise during the previous season
Review the vendor’s offering for the coming season
May place orders for the coming season
Sometimes they do not buy at market, but review merchandise, return to their offices to discuss with the buying team before negotiating with vendors

18. Negotiating with Vendors
Two-way communication designed to reach an agreement when two parties have both shared and conflicting interests.
Royalty-Free/CORBIS

19. Planning Negotiations
Consider prior history
Assess current situation
General market conditions
Vendor’s position
Power of vendor
Set goals
Be aware of vendor’s goal’s
Number of people involved
Select an advantageous place
Be aware of deadlines

20. Issues to Negotiation Price and gross margin
Additional markup opportunities
Purchase terms
Delivery times and exclusivity
Advertising allowances
Transportation
Steve Cole/Getty Images

21. Types of Negotiations Types of Negotiations Vendor Win Lose Win Buyer

22. Win - Lose Negotiation
Can be good in the short run and bad in the long-run
Short-term solution-- person you are negotiating with can’t lose all the time
Might degenerate into LOSE - LOSE

23. Lose - Lose Negotiation
Wastes time and energy
No relationships established
Objectives not met

24. Win - Win Negotiation Collaboration Cooperation Long-term relationship
Doesn’t mean “giving-in”
Enhances vendor trust
Royalty-Free/CORBIS

25. Guidelines for Negotiations
Separate people from problem
Insist on objective criteria to evaluate performance
Invent options for mutual gain
Let the other party do the talking
Know how far to go

26. Negotiating Tips Be aware of time Location -- comfortable
Keep negotiating participants even
Be patient
Let him/her mention a figure
Don’t be afraid to say “no”

27. Negotiating Tips Don’t over negotiate Don’t assume
Visualize the negotiation
Timing is everything
Always leave the door open
Maintain self-esteem

28. Negotiation SUMMARY Planning is critical Knowledge is power
A person will only do what is right for him/her
(c) Brand X Pictures/PunchStock

29. Functions Provided by Internet Exchanges
Product Directories
Use of Reverse Auctions
Collaboration in Planning – CPRF Software
General Information about Trends

30. Online Reverse Auctions
Why reverse?
Vendors bid for buyer’s business
Price falls
One buyer, multiple vendors

31. Reverse Auctions B S B
Reverse Auction B S
Traditional Auction B S S

32. Reverse Auction Process
Develop specification
Select potential sources and invite them to auction
Bidding for several hours
Select supplier

33. Price Path on Open-Bid Auction

34. Strategic (Partnering) Relationships
Retailer and vendor committed to maintaining relationships over the long-term and investing in mutually beneficial opportunities
PhotoLink/Getty Images

35. Strategic Relationships
Win – Win --Concerned about expanding the pie, not how to divide the pie
Retailer
vs.
Vendor

36. Building Partnering Relationship
Discrete
One Purchase at a Time
Short-Term
Focuses on Price
Win-Lose Negotiations
Governed by Contracts
Partnering
Anticipate Future
Long-Term
Considers all Elements
Win-Win Collaboration
Governed by Trust

37. Building Blocks for Strategic Partnerships
Mutual Trust
Open Communications
Common Goals
Credible Commitments
Stockbyte/Punchstock Images

38. Developing Trust: Capability or Competence
Salespeople demonstrate competence when they can show that they know what they are talking about.
Requires knowledge of:
The customer
The product
The industry
The competition
(c) Digital Vision/PunchStock

39. Stages in Building Strategic Relationships
Awareness
Exploration
Expansion
Commitment

40. Vendor Managed Inventory
Manufacturer access to POS information
Replenishment automatically triggered
Enables demand-based view of replenishment & production planning – reduce bull whip effect

41. VMI—What it Lacked Focused on replenishment activity only
Static-model based (assumed fixed reorder points to trigger replenishment)
Often only moved inventory ownership rather than removing it
Incomplete information for decision making
Vendor and retailers use different systems and data bases

42. Collaborative Partnering Relationship - CPFR
Common goals
A single demand forecast developed collaboratively
Collaborative Promotional planning & execution
A single, shared data source
Improved inventory management across entire Supply Chain
Optimized replenishment strategies with joint ownership
Process simplicity creates optimal framework for success

43. Legal and Ethical Issues
Contractual Disputes
Resale Price Maintenance
Chargebacks
Commercial Bribery
Slotting Allowances
Buybacks
Counterfeit Merchandise
Gray Markets and Diverted Merchandise
Exclusive Territories
Exclusive Dealing

44. Commercial Bribery
A vendor or its agent offers to give or pay a retail buyer “something of value” to influence purchasing decisions.
A fine line between the social courtesy of a free lunch and an elaborate free vacation.
Rule of thumb - accept only limited entertainment or token gifts.

45. Chargebacks
A practice used by retailers in which they deduct money from the amount they owe a vendor.
Two Reasons:
merchandise isn’t selling
vendor mistakes
Can be a profit center
one senior executive at a large department store chain was told to collect $50 million on chargebacks

46. Slotting Allowances Fees paid by a vendor for space in a retail store.
Currently aren’t legal.
Retailers argue that they are a reasonable method for ensuring that their valuable space is used efficiently.
Manufacturers view them as extortion.
$9 billion or 16% of all new product introduction costs in grocery industry.

47. Slotting Allowances Harvard School of Economics
Give big suppliers competitive advantage over small suppliers
Drive small suppliers out of business, then raise prices
Anti-competitive – adverse effect of social welfare
Chicago School of Economics – Free Market
Improves market efficiency
Resolve information asymmetry

48. Buybacks Used to get products into retail stores. Two scenarios:
Retailer allows a vendor to create space for its goods by “buying back” a competitors inventory and removing it from a retailer’s system.
Retailer forces a vendor to buyback slow-moving merchandise.

49. Counterfeit Merchandise
Goods made and sold without the permission of the owner of a trademark, a copyright, or a patented invention that is legally protected in the country where it is marketed.
Major problem is counterfeiting intellectual property.

50. What to do About Counterfeiters
Trademark,copyright, and/or patent products in the countries in which they’re sold.
US government is engaged in bilateral and multicultural negotiations and education to limit counterfeiting. (WTO)
Take steps to protect yourself.

51. Gray-Market and Diverted Merchandise
Gray- Market Merchandise possesses a valid U.S. registered trademark and is made by a foreign manufacturer but is imported into the United States without permission of the U.S. trademark owner.
Not Counterfeit.
Is legal.
Diverted Merchandise is similar to gray-market merchandise except there need not be distribution across international boundaries.

52. Gray-market and Diverted Merchandise: Taking Sides
Discount stores argue customers benefit because it lowers prices.
Traditional retailers claim important service after sale will be unavailable
May hurt the trademark’s image.

53. Avoiding the Gray-Market Problem
Require customers to sign a contract stipulating that they will not engage in gray marketing.
Produce different versions of products for different markets.
Steve Cole/Getty Images

54. Exclusive Territories
Granted to retailers so no other retailer in the territory can sell a particular brand.
Benefits vendors by assuring them that “quality” retailers represent their products.
Assure retailers adequate supply.
Grants retailers a monopoly.
Illegal when they restrict competition.

55. Exclusive Dealing Agreements
Occur when a manufacturer or wholesaler restricts a retailer into carrying only its products and nothing from competing vendors.
Illegal when they restrict competition.

56. Tying Contracts
An agreement that requires the retailer to take a product it doesn’t necessarily desire to ensure that it can buy a product it does desire.
Illegal when they lessen competition.
Ok to protect goodwill and quality reputation of vendor.

57. Refusals to Deal
Suppliers and retailers have the right to deal or refuse to deal with anyone they choose.
Except when it lessens competition.
Kent Knudson/PhotoLink/Getty Images

58. Ethical Issues
Should a retailer sell merchandise that it suspect was made using child labor?
Should a retailer advertise its prices are the lowest available in the market even though some items are not?
Should a retail buyer accept an expensive gift from a vendor?
Should retail salespeople to use a high-pressure sales approach when they know the product is the best for the customer’s needs?
Should a retailer give preference to minorities when making promotion decisions?
Should a retailer treat some customers better than other customers?

59. Guidelines
1. Would I be embarrassed if a customer found out about this behavior?
2. Would my supervisor disapprove of this behavior?
3. Would most co-workers feel that this behavior is unusual?
4. Am I about to do this because I think I can get away with it?
5. Would I be upset if a company did this to me?
6. Would my family or friends think less of me if I told them about engaging in this activity?
7. Am I concerned about the possible consequences of this behavior?
8. Would I be upset if this behavior or activity were publicized in a newspaper article?
9. Would society be worse off if everyone engaged in this behavior or activity?