Retail Marketing Management

RM 6,7

Merchandise Planning &

Management
 Merchandising
Merchandising – consists of activities involved in
acquiring particular goods / services & making them
available at the places, time & prices and in
quantities that will enable a store reach it’s goals.

Merchandise Management
Analysis, planning, acquisition, handling & control of the merchandise
investments of a retail operation
Analysis
Identifying needs and wants of customers in order to buy the correct merchandise
Planning
Timing of purchase to ensure merchandise availability in time of season & availability
Merchandising is the heartbeat of retailing.
 Merchandise Management
– Experiences of a Buyer at Walmart

 I am one the 7 buyers for the toys department.

 The categories I handle (large dolls, plush toys etc.) will produce $450m
sales this year.

 I am responsible for sourcing new toys, promoting them thru our stores,
getting them to the right stores at the right time & manage the assets
like a portfolio.
 Buying merchandise is like making a series of investments – same risk-
return trade offs, have to watch the performance of the portfolio – buy
more of what’s hot & selling & mark-down / get rid those falling short of
expectations.
 Experiences of a Buyer at Walmart
 Buying is being a visionary – reacting to trends, translate them into
merchandise that will draw customers.

 E.g.
– A toy using new tech was introduced at the New York toy fair.
- decided with senior management to support this toy
- put together a plan to ensure Walmart would be the first to have
this toy in significant quantity.
- worked with the manufacturing to get sufficient quantity ahead for
promotions.
- worked with marketing to develop a marketing / promo concept &
deploy appropriate support material – leaflets / packaging / promo
items / advertising to create excitement at stores.
- being a new toy it was a high risk item but fortunately it paid off !
 Merchandise Planning

Merchandise buying & Handling Process

Establish formal / informal 2 Outline Merchandise

1 plans
buying organization
3
4 Determine merchandise Gathering information. About
sources customer demand

5
Evaluate 6 Negotiate 7 Conclude
merchandise price purchase

10 Re-evaluate on 9 Re-order 8 Handle the

on-going basis merchandise merchandise
 Buying Organization

1. Specify who is responsible merchandise

decisions
 Tasks they will perform
 Authority to make decisions
 Relationship of merchandising & retail operations

2. Options are
 Formal / informal setup?
 Centralised vs decentralised buying ?
 General or specialised
 Internal personnel or external e.g buying houses
 Merchandising or buying
 Buying Organization
Formal • Centralized
• used by larger organisations • All purchase decisions from one
• offers specialisation office
• offers clarity of responsibility & • Better control on costs, quality &
authority quantity
• engage specialists • Proximity of top management
Informal • Decentralized
• less expensive • Greater adaptability to local reqm.
• greater flexibility • Quicker order processing
• personnel perform multiple roles • Autonomy leading to better morale
• Lacks expert knowledge • Lose on controls
• Inconsistencies in buying, discounts
• Lack of experts
 Merchandise Planning
Merchandise Planning
 What items to sell – quality levels will depend on :
- Desired target market’s profile
- Competition
- Store image / positioning
- Location of store
- Profitability
- Fashion trends
- Seasonal items
 How much merchandise to carry
- A function of width & depth of assortments.
 Merchandise Planning
Elements of merchandise planning
Acquisition
Since merchandise is bought from other suppliers they have to be
identified, terms negotiated, physical acquisition planned.
Handling
Ensures timely availability at specific locations in time when
required, duly capable of being put on the shelf for sale.
Control
To ensure optimum utilisation of resources – Financial & shelf
space, so that profitability is ensured.

Requires effective monitoring & co-ordination with

regular suppliers
 Merchandise Planning
Factors in Deciding Merchandise Plans
1. Forecasts: Projections of expected sale for given period.
Variables would be:
- Overall company projections for the period
- Product category projections
- Item projection
- Individual store projection

2. Innovativeness: A firm that carries new goods & services

and plans for upcoming trends. Variables would be:
- Target market & it’s behaviour
- Product related trends
- Stores positioning
- Degree of risk
- PLC – staple item / fashion / fad
- Allocation of resources
 Merchandise Planning (contd…)

3. Assortment: Selection of merchandise that a retailer

carries which is a function of variety, breadth & depth.

4. Brands vs. Private Label: A proper mix of brands &

private labels.

5. Timing : When is inventory required in the store, would

be dependent on
- Seasonal relevance
- Order & delivery lead times
- Stock turnover rate
- Provision for special / urgent orders
- Prices & discounts
 Retail Assortment Strategies

 Wide & deep

- Many categories & large assortment in each category
 Wide & shallow
- Many categories & limited assortment in each category
 Narrow & deep
- Few categories & large assortment in each
 Narrow & shallow
- Few categories & limited assortment n each
Q. Advantages
- Disadvantages of each & where what / which is
appropriate ?

`Shelf space is at a premium’

 Optimal Merchandise Mix
3 Dimensions

 Variety
- Refers to the mix in terms of number of different lines the retailer
stocks in the store. e.g. men’s wear, women’s wear, toys,
appliances, cosmetics, sports goods etc.
 Breadth
- Or assortment is the number of merchandise brands that are found in a
merchandise line. e.g. A ‘7-11’ store will carry very narrow breadth, as
opposed to Shoppers Stop carries 6-8 brands of jeans or mens shirts.
Battle of brands vs. private labels
 Depth
- The average number of SKU’s within each brand of individual
merchandise line. e.g. Due to shelf space constraints A7-11 store may
carry only 1-2 fast moving sizes whereas a Walmart may carry all sizes
& sufficient quantity of each.

Retailers task is to find a balance between the above 3 dimensions in relation

to his store, it’s positioning, customer profile & financial resources.
 Retail Assortment Strategies

Wide and Deep Wide and Shallow

• Advantages • Advantages
- Broad market - Broad market
- Full selection of items - High level of customer traffic
- High level of customer traffic - Emphasis on convenience
- Customer loyalty customer
- One-stop shopping - Less costly than wide and deep
- No disappointed customers - One-step shopping

• Disadvantages • Disadvantages
- High inventory investment - Low variety within product line
- General image - Some disappointed customers
- Many items with low - Weak image
turnover - Many items with low turnover
- Some obsolete merchandise - Reduced customer loyalty
 Retail Assortment Strategies
Narrow & Deep Narrow & shallow
• Advantages • Advantages
- Specialist image
- Aimed at convenience
- Good customer choice in customers
category(ies)
- Specialized personnel
- Least costly
- Customer loyalty - High turnover items
- No disappointed customers
- Less costly than wide and deep

• Disadvantages
• Disadvantages
- Too much emphasis on one
category - Little width and depth
- No one-stop shopping - No one-stop shopping
- More susceptible to - Some disappointed customer
trends/cycles - Weak image
- Greater effort needed to - Limited customer loyalty
enlarge the size of the
trading area - Small trading area
 Model Stock Plan : Mens Shirts
Dependent Variables
 Customer profile – psychographic / demographic
 Buying behavior – occasion / frequency of purchase/ budget
 Stores positioning vis-a-vis product product category

Product Attributes – Some Variables

Type Dressy, casual, sports, work 4

Size S, M, L, XL 4

Sleeve Long, short 2

Collar Button-down, normal 2

Color Blue, white, beige, pink, off-white 5

Fabric Cotton, poly-mix 2

Price 3 Price points 3

 Model Stock Plan : Mens Shirts (contd…)

If the store decides to keep one SKU of each type its initial inventory will be
4x4x2x2x5x2x3 = 1920 SKU’s
@ Avg. cost of Rs.300 = Rs. 576, 000

Clearly the final decision will be based on the dominant dependent variable(s) and
a retailer may not be able to offer the entire range but offer a more selective
collection.
Successful retailers know that they will have to allow some customers to walkout
empty handed.
 Category Management Matrix

Product Profitability
High Potential Winners

`X’ / item
More
than
Under Achievers Traffic Builders

`X’ / item
Less
than
Less `Y’ / wk More `Y’ / wk
 High potential
- Required ↑ promo, better position, more exposure, ↑ displays
- Create interest & excitement around the item to move it into a winner
category item.
 Winners
- Capitalise by ↑ promo, prominent position, better displays & visibility
- Cash cow’
 Traffic builders
- Review prices, ↓ position, move closer to high potential items review space.
 Under achievers
- ↓ Promos, move from prime position, ↑ prices, consider dropping item.
Information about Customer Demand
Efficient merchandise management depends on
store’s ability to generate relative accurate sales
forecast

Sources of information
 Consumer – demographics, L-styles, preferences.
 Test markets
 Manufacturer’s own forecasts
 Sales staff
 Formal system for new/missing items
 Analysing data
 Competitors’ stores
 Emerging trends
 Trade directories
 Routine advertising by manufacturers
 Product specific advt. by retailers
 Internet
 Visits to exhibitions & trade fairs
 Information about Customer Demand (contd…)

Sources of Merchandise
 Direct from manufacturers
 Through distributors / agents
 Imports

Some criteria while sourcing merchandise

 Reliability
 Price quality balance
 Processing time – reorder time
 Guarantees / replacement facilities
 Margins
 Relationships
 Advertising & promo support
 Price contracts & validity - stability
 Sourcing Merchandise
Sources of supply

 International or national brands

 Imports or supply through agents
 Product specialisation
 Cost implications of buying sources
 Suppliers background in terms of
- Selling history
- Product quality / warranties
- Consumers perception re: manufacturer
- Reliability for delivery
- Trade terms – credit / discounts
- Margins
- After – sales service
- Order processing time
- Inventory carrying cost
- Packing norms & adaptability / flexibility
- Participation in store promotions
- Exclusivity of supplies – fashion / fad items

 ABC analysis of vendors on above parameters

 Sourcing Merchandise (contd…)
Issues in Buying Merchandise

 Strategic partnerships : a win-win situation for buyer & seller

 Mutual trust
 Open communication / sharing information

 Ethical issues
- Origin of supplies
- Genuine vs counterfeit
- Compliance to local regulations
 Negotiating with suppliers

In-store Merchandise Handling

 Receiving merchandise - infrastructure / timings

 Store / warehousing / handling – parking
 Checking for order compliance – quantity / prices / disc.
 Coding & pricing – statutory considerations
 Allocating to stores / departments
 Security of inventory – pilferage / shop lifting
Whether direct from supplier to store or via warehouse?

Advantages of warehousing - Central

 Efficiency in transportation
 Efficiency in storage
 Improved security
 Better handling
 Efficient marketing of goods
 Ease of returns
 Control on payments / quality

Disadvantages of Warehousing
 Excessive controls
 Extra handling – perishables
 Order processing delays
 High operating costs – small stores
 Reduces response time
 Evaluating Merchandise
Evaluation
 Check for compliance with order
- Delivery date
- Quantity ordered – billed – delivered
- Price – as per contract / order
- Discounts – usual / special / schemes
- Payment terms – special discounts
 Physical check of merchandise
 Quality check – random / individual
 Expiry validity in case of perishables
 MRP markings
 Other statutory req.
 Transfer of title ?
- Transportation risk?
- Consignment supply
 Evaluating Merchandise (contd…)

Handling Merchandise

 Physical handling
 Receiving – inspections
 Storing – locating / special storage req.
 Coding – inventory management
 Price marketing – checks / control / system
 Setting up displays
 Determining how much to stock
 Customer delivery – packing
 Billing – cash / credit cards
 Returns & damaged goods – system
 Monitoring pilferage
 Merchandise control
Where to Store ?

 How much on the shelves?

 How much in the store?
 How much in the warehouse
 How much among stores?
 Space Metrices
Space Transactions
A - Occupancy cost/ Square foot selling space
Measure of comparing performance of units at different locations
= Occupancy Cost / Square feet of selling space

B - Gross Margin return on Floor space (GMROF)

Gross profit per linear foot of shelf space which is annual gross profit divided by the total linear footage devoted to the product category.
= Gross Margin / Total linear footage devoted to a product category or entire store

C - Sales per square foot

Total sales value in rupee for every square feet of retail space
= Net Sales / Square feet of selling space

D - Stock per square foot

Use of space involving different product lines or compares performance of different departments or stores sing common standard
= Net Stock / Square feet of selling space

Employee Transactions
A - Net Sales per full time employee
= Net Sales / Total full time employee

B - Customers served per full time employee

= No of customers served / Total no of full time employees

C - Labor productivity
= Total labor costs / Net Sales

D - Gross Margin per full time employee

= Gross margin / Total full time employees

E - Supplier/ Quantity or value purchased per buyer

= Total suppliers / quantity or value purchased / Total buyers
 Average GMROII
Financial textbooks often show a formula with a yearly or monthly calculation. When tactical decisions are required for
variable time periods, it is helpful for systems to be set up so that GMROII can be analyzed at either the yearly,
monthly, or weekly level. Due to the textbook GMROII formula, depending on the time period, a different result
would occur.
For example:
($100,000 annual profit) / ($25,000 average inventory cost) = GMROII of 4.0
($8,000 July profit) / ($25,000 average inventory cost) = GMROII of 0.32
($4,000 first two weeks of July profit) / ($25,000 average inventory cost) = GMROII of 0.16
Therefore it is advantageous to use Average Weekly GMROII which takes time out of the picture. That way, the retailer
looks at similar types of numbers regardless of how many weeks are being looked at. The formula is: Average
Weekly GMROII = (Profits for the total time period) / (Sum of each week ending inventory cost value)
[edit]Alternative Formulas for GMROII

Other formulas that are often given for GMROII are the following (note that all of these are mathematically equivalent
because all can be reduced down to Margin/Avg_Inventory_cost):
(Margin% / (100% − Margin%)) * AnnualInventoryTurns
(Margin / COGS) * AnnualInventoryTurns
Margin% * (Sales / AvgInventoryCost)
In the formulas above, "Margin %" refers to margin as a percent of sales, "Annual Inventory Turns" refers to COGS /
Avg Inventory Cost.