CHAPTER 14: DEVELOPING MERCHANDISE PLANS

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

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.

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

Product Proliferation Data Aldi $620 sales/sq.ft 1,400 SKUS Costco $929 3,800 Stew Leonard’s $1500-$3,750 est. 2,000 Trader Joe’s $1,750 2,500-3,500 Average Supermarket $500 47,000

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

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

Figure 14-1: Stew Leonard’s

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

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

Figure 14-2: Attributes and Functions of Buying Organizations

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

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

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

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

Figure 14-5: Devising Merchandise Plans

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)

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

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.

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

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

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

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

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

Figure 14-6: Next

Figure 14-7: Traditional Product Life Cycle

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

Figure 14-8: Predicting Fashion Adoption

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

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

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

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).

Figure 14-10: Retailer Selling Shirts

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

Private Label Market Shares United Kingdom 42 percent of total category sales Belgium 41 Germany 38 Spain 32 France 31 Sweden 26 Denmark 25 Finland 25 Netherlands 23 Norway 19 Hungary 18 United States 17 Source: PLMA International/AC Nielsen

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).

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).

Figure 14-11: Chico’s

Figure 14-12: Lowe’s

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.

Figure 14-13: Applying Category Management

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

Figure 14-14 JDA Space Planning

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