1. Module 11: Merchandise Management
Retail Management
Module 11: Merchandise Management

2. Merchandise Planning and Management

3. Merchandise Management
Involves understanding and evaluating consumer’s buying habits to effectively source, plan, display, and stock merchandise
Process from beginning (strategy) to end (performance evaluation)

4. Retail Buying Organizations
Merchandise Buying:
Involves sourcing goods from vendors and wholesalers at the best possible cost to achieve maximum profitability
Merchandise Planning:
Goal is to maximize profitability by limiting markdowns and achieving/exceeding sales targets
Merchandise Operations
Thought of as those functions that support merchandise planning and buying
Merchandise buying:
A buyer must be fiscally responsible ensuring they are purchasing goods in line with their seasonal plans (prior to the season) and the Open to Buy (in-season).
The buyer must also understand the strategy of the company as well as how their category fits in line with that strategy
Lastly, one of the key roles of merchandise buying is in-season management of the business. Managing the business is essential as oftentimes sales will vary from what was initially planned. Sales might increase or decrease beyond original estimates. Inventory levels must be adjusted accordingly
Merchandise planning:
Typically the merchandise planner will plan pre-season utilizing history from last year to build the six month plan that is typically either Fall or Spring. Pre-season planning accounts for any shifts in the business such as major holidays and any missed sales opportunities.
The process involves forecasting sales which might be from a bottoms-up or tops-down approach.
Another function of merchandise planning is to assist in assortment planning, which is determining how many styles (breadth) and in what quantities (depth) should be carried in each merchandise category.
Merchandise operations:
While allocation and replenishment are often referred to as the same thing, they are quite different. A replenishment strategy is the process of ordering inventory on an ongoing basis to maintain preset inventory levels.
Purchase Orders are generated and managed via the merchandise operations team as well. They work hand in hand with both the buying and planning team to ensure orders are shipped by the vendor and received at the warehouse.

5. Merchandise Buying Systems
Staple vs. Fashion Merchandising Systems
Staple: items that are basic and essential
Fashion: difficult to forecast as it is seasonal and has unpredictable demand

6. Merchandise Planning Process

7. Forecasting Sales Numbers
Important for a few vital functions within the organization: human resources, marketing, product management, operations
Merchandise planner helps determine sales plan based on data from previous season and desired sales goals
Must consider external factors as well
Some categories of business aren’t affected by downturn in economy
We can also look at specific retailers that emerge during tough economic times
NRF Retail Sales forecast. Located at: License: All Rights Reserved

8. Merchandise Assortment Options
What: process of determining product in each merchandise category
Why: retailers increase sales, productivity, and margin while improving customer satisfaction
How: by identifying store level opportunities as well as how much and in what quantities should be carried
Considerations:
What is merchandise capacity of the stores?
Is there a need for complementary merchandise to service?
Is this merchandise profitable?
What are the corporate objectives and does it align with strategy/goals?
What are the regional needs for the area?

9. Inventory Levels Meet customer demand: peaks and valleys
Lead time: time from placement of order to arrival
Higher profit: sourcing inventory effect on profitability
Better cash flow: policies that will enable company to achieve sales goals
Forward weeks of supply: having enough inventory on hand
Weeks of supply: look at past trend vs. future sales
Stock-to-sales ratio: divide sales at beginning into inventory
Sell thru percent: ratio of sales to beginning inventory
Turnover: number of times inventory is sold and replaced
Basic stock: establishing baseline level of inventory

10. Merchandise Flow Most important goal of buyer is to achieve sales plan
Second most important priority is to keep inventory levels on plan
Begin by working with internal product production organization
Next, work with branded suppliers to commit for those purchases in upcoming season
Enter planned selling season: controlling inventory flow is crucial
SCM: where retailer partners with vendors to control product production
Open-to-buy formula: sales, markdowns, EOP
Keep in mind that these methods will vary depending on retail organization size, sophistication, business goals, strategies and category of goods.

11. Merchandise Allocations
Determining how to distribute merchandise to individual store units for maximum sales/minimal markdowns
Plan purchases from ground up based on ideal store allocation
Strategic, tactical considerations, & math
Allocation influenced by competitive strategy where retailer is attempting to show wide assortments
Commercial software applications were developed

12. Merchandising Decisions
Retailers evaluate their performance to continue success
One major common factor despite differences
Degree of complexity within business
Review of retailer merchandise decisions reflects this, revealing all dimensions of organization
Broken down from product perspective
Group, division, department, vendor, classification, subclass, SKU
Analysis is performed at financial AND unit level

13. Buying Merchandise

14. Brand Selection
Importance of brand to retailer depends on category of retailer and its market niche
Largest categories of retail market & popular brands:
Food (Kroger, Safeway, Publix), (PepsiCo, Coca-Cola)
Electronics (Amazon, Best Buy, Apple), (Apple, HP, Samsung)
Home improvement (Home Depot, Lowe’s), (Craftsman)
Variety/drug (Walgreen, Rite Aid, CVS), (Johnson & Johnson)
Apparel (Macy’s, JCPenney, Nordstrom), (Nike, Levi’s)
Some brands grant exclusive distribution rights
Brands in assortment create credibility for retailer
Brands offer variety of other benefits to retailers
Product design, manufacture, transportation

15. Sourcing Decisions Process of finding goods or services
Key issues when making sourcing decision:
Company
Cost
Logistics
Government regulations
Sourcing
Sourcing is art and science: larger organizations have staff who focus on providing sourcing services for company
Software applications developed to support sourcing process
Company: Does the company have a strong track record of manufacturing the products in question or performing the services being considered? Who are other customers of the company who have purchased similar products or received similar services being sought? Does the company being considered have the manufacturing capacity to handle your orders (if you are a large retailer like Target, Safeway, etc.)? Is the quality level of the company’s products consistent with the quality expectations of your company? Does your company have an existing relationship with the company being considered and has met expectations in prior dealings?
Logistics: This term could be used to cover a variety of considerations regarding which company to select for your sourcing decision. In order to procure goods at the lowest price, retailers will sometimes source in less-developed countries.

16. Negotiations Factors that show good negotiator Follows a procedure:
Ability to describe common goals
Emotional control and equal treatment
Good listening and communicating
Thorough knowledge of bargaining
Ability to close negotiation
Follows a procedure:
Plan: gather as much information as possible, setting goals
Discuss: set scene, identify key issues
Propose: clear solution
Bargain: discuss proposal
Agree: reach agreement
Implement: communicate outcome as necessary
Negotiation definition: “Formal discussion between two or more parties to reach an agreement”
Negotiation is easy to get wrong, can be internally or externally focused
Internal: between departments. External: center around function of merchandise buyers

17. Building Partner Relationships
Benefits of individual connections
Information, advice, introductions, referrals, etc.
Strong relationships are foundation of effective supply chain
Even if retailer and vendor aren’t in formal arrangement, strong partnership will create benefits
Retailer: ensure they have correct products
Vendors: source of market information
Strong relationships benefit vendors and suppliers
Video on Vendor Relationships at Learning Express. Located at: License: Public Domain: No Known Copyright

18. Ethical and Social Responsibilities
Idea that businesses should balance profit-making activities with activities that benefit society
Social responsibility takes on different meanings within industries and companies
Starbucks, Ben & Jerry’s have blended social responsibilities
Target donated to communities where stores operate
Fair Trade concept: movement where goods are produced and sourced in sustainable way
“Green” companies enjoy enhanced reputations & receive positive support to customers, leading to increased revenues

19. Quick Review Roles of buyer, planner, and operations differ
Crucial methodologies: planning, assortments, inventory levels, merchandise flow, allocations, merchandising
Buyers make brand selections and sourcing decisions
State of retail industry continues to evolve
Key core competency needed to run successful business Principles apply to all retailers