1. Merchandising Planning
Section Two
Merchandising Planning

2. Planning and Controlling Merchandise Budgets
Chapter Seven
Planning and Controlling
Merchandise Budgets

3. ©2010 Fairchild Books, A Division of Condé Nast Publications.
Learning Objectives
Introduce the retail method of accounting
Practice the mechanics of fundamental merchandise budgets
Examine the integrated relationships among the components of merchandise budgets
Develop the components of dynamic, expanded, merchandise budgets
Kunz
Chapter 7
©2010 Fairchild Books, A Division of Condé Nast Publications.

4. Components of Merchandise Budgets
Merchandise plans
Merchandise budgets
Applications of pricing strategies
Assortment plans
Delivery plans
Retail merchandise budgets use retail method of accounting for inventory
value of inventory determined by retail prices
Kunz
Chapter 7
©2010 Fairchild Books, A Division of Condé Nast Publications.

5. Mechanics of Fundamental Merchandise Budgets
Components of a fundamental merchandise budget
Last year’s sales
Planned % increase or decrease in sales
Planned sales
Planned reductions
Merchandise to receive
First price
Number of units
Kunz
Chapter 7
©2010 Fairchild Books, A Division of Condé Nast Publications.

6. ©2010 Fairchild Books, A Division of Condé Nast Publications.
Planning Sales
Planned sales
foundation of a merchandise budget
just as net sales are the foundation of an income statement
based on forecasting process that determines the percent increase or decrease
Goal is to “make plan”
planned sales is the sales goal for the selling period
Kunz
Chapter 7
©2010 Fairchild Books, A Division of Condé Nast Publications.

7. Time Frame for Planning Sales
Sales can be planned for
Merchandising Cycle
Selling periods
Months
Weeks
Days
Based on last year’s percent of sales for same category/class
Same time frame last year
Forecasts help determine percent increase or decrease
Kunz
Chapter 7
©2010 Fairchild Books, A Division of Condé Nast Publications.

8. Planning Sales Based on Space Productivity
Based on sales per square foot:
Consider annual sales per square foot being generated by competing stores for same classes
Industry-wide annual sales per square foot generated by merchandise classification
Determine the number of square feet allocated to the classification
Decide on a reasonable estimate of sales per square foot based on your research related to merchandise class and retail channel
Kunz
Chapter 7
©2010 Fairchild Books, A Division of Condé Nast Publications.

9. ©2010 Fairchild Books, A Division of Condé Nast Publications.
Table 7.5
Kunz
Chapter 7
©2010 Fairchild Books, A Division of Condé Nast Publications.

10. ©2010 Fairchild Books, A Division of Condé Nast Publications.
Planning Reductions
Reductions
Factors other than sales that reduce the value of inventory
Markdowns for sales promotions or inventory clearance
Employee discounts
Inventory shortage due to
shoplifting
employee theft
damaged merchandise
recordkeeping errors
Kunz
Chapter 7
©2010 Fairchild Books, A Division of Condé Nast Publications.

11. Planning Merchandise to Receive
Because of reductions, must sell more merchandise than indicated by planned sales alone
Only way to achieve planned sales is to cover value of reductions
Kunz
Chapter 7
©2010 Fairchild Books, A Division of Condé Nast Publications.

12. ©2010 Fairchild Books, A Division of Condé Nast Publications.
Table 7.6
Kunz
Chapter 7
©2010 Fairchild Books, A Division of Condé Nast Publications.

13. Planning First Price, Allowable Cost, and Number of Units to Receive
Determine average first price last year for a merchandise category, class, subclass, or group
determine first price of each style
multiply the price of each style by the number of units
add together the total value of the styles
divide by the total number of units
Kunz
Chapter 7
©2010 Fairchild Books, A Division of Condé Nast Publications.

14. Planning First Price, Allowable Cost, and Number of Units to Receive
Allowable cost can be determined either for total merchandise to receive or for a single unit
Allowable cost = average first price x % merchandise cost
Units to Receive
Divide merchandise to receive by allowable cost
Kunz
Chapter 7
©2010 Fairchild Books, A Division of Condé Nast Publications. 14

15. Developing an Expanded Merchandise Budget
Dynamic
Forecast-based
Can be used for fashion/seasonal goods or basic/staple goods
When computerized, allows immediate comparison
Kunz
Chapter 7
©2010 Fairchild Books, A Division of Condé Nast Publications.

16. Planning Inventory and Purchases During the Selling Period
Fulfill sales goals
Avoid stockouts
Prevent overstocks
Minimize inventory investment
(Lewison, 1994)
Kunz
Chapter 7
©2010 Fairchild Books, A Division of Condé Nast Publications.

17. Planning Inventory and Purchases During the Selling Period
Merchandise classifications
Sector 1: Fashion/Seasonal Goods
inventory-to-sales ratio = total inventory for the period ÷ sales for the same period
Sector 2: Basic/Staple Goods
maximum inventory = (lead time × rate of sale) + reserve stock
Sector 3: Basic/Seasonal and Sector 4: Fashion/Staple Goods
planned FOM stock = average inventory × 1/2 [1 + (planned sales for the month ÷ average monthly sales)]
Kunz
Chapter 7
©2010 Fairchild Books, A Division of Condé Nast Publications.

18. Planning Purchases, Merchandise On Order, and Open-to-Buy
Determine planned purchases, followed by planned merchandise on order, and then planned open-to-buy
How much merchandise do you plan to receive (planned sales + reductions)?
How much do you want to have on hand at the end of the period?
How much do you plan to have at the beginning of the first of the period?
Kunz
Chapter 7
©2010 Fairchild Books, A Division of Condé Nast Publications.

19. Planning Initial Markup
Initial markup is the difference between merchandise cost and first price
Must cover
reductions
expenses
profit
Kunz
Chapter 7
©2010 Fairchild Books, A Division of Condé Nast Publications.