1. CHAPTER 14: DEVELOPING MERCHANDISE PLANS

2. Chapter Objectives
To demonstrate the importance of a sound merchandising philosophy
To study various buying organization formats and the processes they use
To outline the considerations in devising merchandise plans: forecasts, innovativeness, assortment, brands, timing, and allocation
To discuss category management and merchandising software

3. Merchandising
Activities involved in acquiring particular goods/ services and making them available at the places, times, prices, and quantities that enable a retailer to reach its goals.

4. Merchandising Philosophy
Sets the guiding principles for all the merchandise decisions that a retailer makes
It should reflect
Target market desires
Retailer’s institutional type
Market-place positioning
Defined value chain
Supplier capabilities
Costs
Competitors
Product trends

5. Product Proliferation Data
Aldi $620 sales/sq.ft 1,400 SKUS
Costco $ ,800
Stew Leonard’s $1500-$3,750 est. 2,000
Trader Joe’s $1, ,500-3,500
Average Supermarket $ ,000

6. Average Sales Per SKU Aldi $ 5.0 million Costco $18.4 million
Stew Leonard‘s $188,000
(only 5 stores)
Trader Joe’s $2.4 -$2.9 million
Winn-Dixie $142,000-$247,000
With only four stores, Stew Leonard’s has the same
bargaining power per SKU than Winn-Dixie, a chain
with revenues 20 times higher that Stew Leonard’s

7. Scope of Merchandising Responsibility
Full array of merchandising functions
Buying and selling
Selection, pricing, display, customer transactions OR
Focus on buying function only

8. Figure 14-1: Stew Leonard’s

9. Micromerchandising
Retailers adjust shelf-space allocations to respond to customer differences and other differences among local markets.

10. Cross-Merchandising
Retailers carry complementary goods and services to encourage shoppers to buy more.

11. Figure 14-2: Attributes and Functions of Buying Organizations

12. Merchandising and Store Functions Performed
Merchandising view
All buying and selling functions
Assortments
Advertising pricing
Point-of-sale displays
Employee utilization
Personal selling approaches

13. Merchandising and Store Functions Performed (cont.)
Buying view
Buyers manage buying functions:
Buying
Advertising
Pricing
In-store personnel manage other tasks:
Assortments
Point-of-sale displays
Employee utilization
Personal selling approaches

14. Figure 14-4a: Merchandising Career Track at Macy’s

15. Figure 14-4b: Store Management Career Track at Macy’s

16. Figure 14-5: Devising Merchandise Plans

17. Forecasts
These are projections of expected retail sales for given periods
Components:
Overall company projections
Product category projections
Item-by-item projections
Store-by-store projections (if a chain)

18. Types of Merchandise
Staple merchandise
Assortment merchandise
Fashion merchandise
Seasonal merchandise
Fad merchandise

19. Staple Merchandise Regular products carried by a retailer
Grocery store examples: milk, bread, canned soup
Basic stock lists specify inventory level, color, brand, style, category, size, package, etc.

20. Assortment Merchandise
Apparel, furniture, automotive, and other categories for which the retailer must carry a variety of products in order to give customers a proper selection
Decisions on assortment
Product lines, styles, designs, and colors are projected
Model stock plan

21. Fashion and Seasonal Merchandise
Fashion Merchandise: Products that may have cyclical sales due to changing tastes and life-styles
Seasonal Merchandise: Products that sell well over nonconsecutive time periods

22. Table 14-1a: Factors in Planning Merchandise Innovativeness
RELEVANCE for PLANNING
Target market(s)
Evaluate whether the target market is conservative or innovative
Goods/service growth potential
Consider each new offering on the basis of rapidity of initial sales, maximum sales potential per time period, and length of sales life
Fashion trends
Understand vertical and horizontal fashion trends, if appropriate
Retailer image
Carry goods/services that reinforce the firm’s image

23. Table 14-1b: Factors in Planning Merchandise Innovativeness
RELEVANCE for PLANNING
Competition
Lead or follow competition in the selection of new goods/services
Customer segments
Segment customers by dividing merchandise into established-product displays and new-product displays
Responsiveness to consumers
Carry new offerings when requested by the target market
Amount of investment
Consider all possible investment for each new good/service: product costs, new fixtures, and additional personnel

24. Table 14-1c: Factors in Planning Merchandise Innovativeness
RELEVANCE for PLANNING
Profitability
Assess each new offering for potential profits
Risk
Be aware of the possible tarnishing of the retailer’s image, investment costs, and opportunity costs
Constrained decision making
Restrict franchisees and chain branches from buying certain items
Declining goods/ services
Delete older goods/services if sales and/or profits are too low

25. Figure 14-6: Next

26. Figure 14-7: Traditional Product Life Cycle

27. Structured Guidelines for Pruning Products
Select items for possible elimination on the basis of declining sales, prices, profits, and appearance of substitutes
Gather and analyze detailed financial/ miscellaneous data about these items
Consider non-deletion strategies such as cutting costs, revising promotion efforts, adjusting prices, and cooperating with other retailers
After making a deletion decision, do not overlook timing, parts and servicing, inventory, and holdover demand

28. Figure 14-8: Predicting Fashion Adoption

29. Table 14-2a: Factors in Planning Merchandise Quality
RELEVANCE for PLANNING
Target market(s)
Match merchandise quality to the wishes of the desired target market(s)
Competition
Sell similar quality or different quality
Retailer’s image
Relate merchandise quality directly to the perception that customers have of retailer
Store location
Consider the impact of location on the retailer’s image and the number of competitors, which, in turn, relate to quality

30. Table 14-2b: Factors in Planning Merchandise Quality
RELEVANCE for PLANNING
Profitability
Recognize that high quality goods generally bring greater profit per unit than lesser-quality goods; turnover may cause total profits to be greater for the latter
Manufacturer versus private brands
Understand that, in the minds of many consumers, manufacturer brands connote higher quality than private brands
Customer services offered
Know that high-quality goods require personal selling, alterations, delivery, etc.
Personnel
Employ skilled, knowledgeable personnel for high-quality merchandise

31. Table 14-2c: Factors in Planning Merchandise Quality
RELEVANCE for PLANNING
Perceived goods/ service benefits
Analyze consumers. Lesser quality goods attract customers who desire functional product benefits; High-quality goods attract customers who desire extended product benefits
Constrained decision making
Face reality. Franchises or chain store managers have limited or no control over products, so independent retailers that buy from a few large wholesalers are limited to the range of quality offered by those wholesalers

32. Retail Assortment Strategies
Width of assortment refers to the number of distinct goods/service categories (product lines) a retailer carries.
Depth of assortment refers to the variety in any one goods/service category (product line) a retailer carries.
An assortment can range from wide and deep (department store) to narrow and shallow (convenience store).

33. Figure 14-10: Retailer Selling Shirts

34. Brands
Manufacturer
(national)
Private
(dealer or store)
Generic

35. Private Label Market Shares
United Kingdom percent of total category sales
Belgium
Germany
Spain
France
Sweden
Denmark
Finland
Netherlands
Norway
Hungary
United States
Source: PLMA International/AC Nielsen

37. Advantages of Private Labels versus National brands
Store loyalty– A 1 percent increase in private label purchasing increases a retailer’s market share of a household’s purchases by 0.3 percent. A 10 percent increase in private label purchases, increases that retailer’s market share of that household by 3 percentage points.
Differentiation strategy- Opportunity to differentiate store on the basis of recipe, styling, value, features.
Increased channel power over suppliers— Depends on strength of private label versus national brand
Higher profit margins on private labels- 25 to 30 percent higher (but no return privileges, co-op promotions, slotting fees, and warehousing support).

38. Successful Private Label Strategies
Be a purchasing agent for consumers, not a selling agent for suppliers
Develop distinctive products (Trader Joe’s wild salmon in a can, chocolate-covered sunflower seeds, pretzels with sesame seeds (instead of salt)
Co-brand with famous designer (Target with Michael graves, Mossimo and Liz Lange) or with national brand (Costco and Starbucks, Jelly-Belly, StonyField)
Taste and product perfromance testing (Costco, Trader Joe’s, Aldi)
Tell a story about the product (ingredients, source, recipe, and health).

39. Figure 14-11: Chico’s

40. Figure 14-12: Lowe’s

41. Category Management
Category management is a merchandising technique used to improve productivity.
It is a way to manage a retail business that focuses on the performance of product category results rather than individual brands.
It arranges product groupings into strategic business units to better meet consumer needs and to achieve sales and profit goals.
Retail managers make merchandising decisions that maximize the total return on the assets assigned to them.

42. Figure 14-13: Applying Category Management

43. Merchandising Software
General Merchandise Planning Software
Forecasting Software
Innovativeness Software
Assortment Software
Allocation Software
Category Management Software

44. Figure 14-14 JDA Space Planning

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