1. McGraw-Hill © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Retail Buying Chapter Ten Core Concepts in Fashion by Laura Portolese Dias

2. 10-2 Chapter Ten Retail Buying Profit and loss statements – Used to see the big picture in a retail environment – A profit and loss statement is generally good for a specific time period, such as one quarter (3 months) – In any kind of merchandising, the goal for all buyers and designers is to maximize profit

3. 10-3 Chapter Ten Retail Buying Components of a profit and loss statement – Sales – Cost of Merchandise (inventory) Sold – Operating Expenses – A Profit or Loss figure

4. 10-4 Chapter Ten Retail Buying

5. 10-5 Chapter Ten Retail Buying Balance sheet – Allows the business to see the assets it owns – Assets can include the inventory, buildings and any thing of value the company may own – The balance sheet also shows the debt of the retailer (what the retailer owes)

6. 10-6 Chapter Ten Retail Buying

7. 10-7 Chapter Ten Retail Buying Gross Sales – The total amount of sales without accounting for actual cost of the good or the overhead involved Customer Returns and Allowances – Any rebates given to customers – Any defective merchandise

8. 10-8 Chapter Ten Retail Buying Net Sales – The total number of sales for the day, less customer returns and allowances Cost of Inventory – Sometimes called Cost of Goods Sold (COGS) – The amount the buyer paid for the merchandise that sold

9. 10-9 Chapter Ten Retail Buying Gross Margin – The difference between sales and cost of inventory – Important because it is an indication of a retailers ability to turn sales into profit Direct Expenses – Those expenses which can be attributed to the cost of selling – Salaries, Advertising Indirect Expenses – Those expenses which are fixed-they don’t change regardless of the number of sales – Rent, power

10. 10-10 Chapter Ten Retail Buying Total Operating Expenses – The cost of inventory sold, direct and indirect expenses added together Markup – The amount above cost which will be charged for an item

11. 10-11 Chapter Ten Retail Buying Why Markdowns occur – Buying errors  Overbuying quantities  Buying of wrong sizes (poor form utility)  Poor timing in orders  Purchasing of wrong sizes, or too many of one size  Stock becomes obsolescent – Pricing errors  Setting the initial price too high  Not being competitive for same type of goods – Selling errors  Careless handling, that results in damaged goods  Failure to display merchandise properly  Un-informed salespeople – Broken assortments  Merchandise has sold, leaving only a few uncoordinated miscellaneous items

12. 10-12 Chapter Ten Retail Buying Markdown money – an agreement from a vendor to take back (buy back) or refund money if a particular item does not sell well Sell Through – The percentage of merchandise which sells at full price Cash Flow – The amount of money on hand – Effected by the amount a buyer purchases and how much is sold

13. 10-13 Chapter Ten Retail Buying Turnover – How quickly merchandise in a store sells – Usually calculated on a yearly basis

14. 10-14 Chapter Ten Retail Buying Shrinkage – Goods which are missing when inventory is taken – Two types of shrinkage-customer and employee shrink – Shrinkage due to customers can be minimized in the following ways:  Good customer service  Awareness of what a customer has in the dressing room  Security systems – Shrinkage due to employees can be minimized by:  Offering a generous discount on merchandise  Checking person and bags/purses before leaving for lunch breaks and after a shift  Using skills in chapter eight to motivate employees  Insuring all cash wrap transactions are correct

15. 10-15 Chapter Ten Retail Buying Open-To-buy – The amount of money a buyer has to make purchases – Determined by sales forecasts and what has already been purchased Six-Month Plan – A plan for all purchases which will be made in two seasons

16. 10-16 Chapter Ten Retail Buying

17. 10-17 Chapter Ten Retail Buying Merchandise classifications – A category assigned to all clothing  Can include junior knits, junior denim, petite career

18. 10-18 Chapter Ten Retail Buying The Buying Trip – Review of Profit and Loss statement – Know pricing and markup – Have knowledge on desired turnover rate – Have an updated open to buy figure – Review Six month merchandising plan – Use merchandise classifications to insure she has right merchandise mix

19. 10-19 Chapter Ten Retail Buying Negotiation Tips for Buying Trips – Build trust  Vendors will be more likely to negotiate with a buyer if they know an ongoing relationship will occur. – Listen  Understand and evaluate the needs of the other party. – Know the settlement range  A settlement range is neither at the lower end or the high end of an acceptable range. It is simply a range that would make the negotiation successful.

20. 10-20 Chapter Ten Retail Buying Negotiation tips for Buying Trips – Win-win  Every negotiation should be a win-win situation for both parties. – “You can catch more flies with honey than with vinegar.”  Be kind to the vendor. Most people do not get far by taking a hard position up front. – Understand the power dynamics  Know the position of power each person comes from. If a buyer really wants to obtain a trendy item from a vendor, he might have less negotiation power than with a less popular item.