BUYING AND MERCHANDISING

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Module Overview
1. Inventory Management
2. Merchandising Principles
INVENTORY MANAGEMENT
Inventory Management is having the -

Right Stock Right Time Right Place

Glossary

COGS
Cost of Goods Sold - COGS are the direct costs associated with the production of goods, and carrying costs associated with those goods

Dead Stock
Stock that was never sold to or used by customers, and is usually held in warehouses for future sales.

SKU
Stock Keeping Unit - Stock Keeping Units or SKUs are unique tracking numbers/letters that you assign to each of your products, indicating
style, size, color and other attributes

SSPD
Sales Per Square feet per day (Calculated by using the formula Total in store sale / Selling area in Square feet)

DOC
Days of Cover (The average number of days goods remain in inventory before being sold)

SOH
Stock on Hand ( Stock currently available at the stores)

Fill Rate
Percentage of customer or consumption orders satisfied from stock at hand. It is a measure of an inventory's ability to meet demand
Basic Concepts of Inventory Management
Stock to Sale Ratio Space to Sale Ratio
Stock to Sales Ratio is the ratio of the inventory
available for sale versus the quantity actually
sold

Days of Cover (DOC) Sell Through

Days of Cover (The average number
of days goods remain in inventory before
being sold)
Stock to Sale Ratio
What is stock to sale Ratio??
Let us see how it is calculated

 Stock to Sales Ratio is the ratio of the Current stock available – 655 pieces
inventory available for sale versus the Quantity Sold – 300
quantity actually sold
Stock to sale ratio = Current stock available
 For every unit sold, how many units -----------------------------------
were on hand Quantity Sold

 For every single sale I made of that = 655

particular item, how many did I have in -------
stock at that time? 300

Stock to sale ratio = 2.18

This 2.18 means they have stock of 2 months and 18% of
the next month, so about 70 days.
Lets Calculate…

Current Stock available - 715

Quantity sold – 270
Stock to Sale - ??

Current Stock available - 256

Quantity sold – 100
Stock to Sale - ??

Current Stock available - 325

Quantity sold – 75
Stock to Sale - ??
Why is Stock to Sale ratio Important??

 A store can use this ratio to make critical inventory management decisions
 In general, a low value of this ratio is good for business. A low value might suggest that sales are
high and inventory levels are low
 It means that the business can quickly get rid of its inventory by way of sales and thus represents
efficient operations
 A high value of this ratio could mean two things. Either the category is witnessing a major increase
in its inventory or the category's sales are dwindling for some reason
 We can use this ratio for comparison with similar stores
 Retail KPIs
that directly impact Store Health

Average Basket Value

Average Basket Size (ABS) (ABV) Conversion
ABS refers to the number of items ABV tells you the average amount a Conversion is the percentage of
getting sold in a single bill. It is also customer spends in your store. customers who bought from you. This
called UPT (Units Per Transaction). is calculated in terms of percentage.

ABS = Total Quantity ABV = Total Sales Conversion = (Total Number

sold Total Number of Bills of bills / Total walk-ins) * 100
Total Number
of Bills
SOLVE

Example: There are stores of Van Heusen , Allen Solly & Louis Philippe in the high street of Jayanagar. In the
month of April 2023 -
Van Heusen Allen Solly Louis Philippe
Sales (in lakhs) 35 30 40
Units Sold 1100 1000 1200
Walk-ins 1000 900 800
Buyers 450 400 400

After the end of the month of April , the ABM of Allen Solly wants to understand how has been his store’s
performance compared to the other 2 stores. Help him understand and advise him on where he can
improve.
 Advanced Retail KPIs
Sales Per Square Foot Contribution Before
Sales Growth Percentage per Day (SSPD) Advertisement (CBA)
Sales Growth Percentage is a quick SSPD) is the total revenue divided by CBA is the money earned after
indicator to track sale performance. total square feet of retail space considering all operational expenses
It is the like-to-like growth year on divided by the number of days and Cost of goods sold.
year.

SSPD = Avg Sales per day

Sales Growth percentage= CBA = Revenue - Cost
Area
[(This year sales - last year
*Avg Sale per day = (total sale/
sales) / last year sales] * 100
no. of days)
SOLVE

1. Let’s say Van Heusen Store, Mantri Mall, Bangalore did a total monthly sale of Rs. 10,00,000 in the month of June
2022 while in June 2021, it made a sale of Rs. 8,00,000. What will be the percentage growth for this store?

 According to you, what are the factors that affect the target setting?

2. Which of the two Stores is more profitable for ABFRL?

Store 1: LP sport Store in Chennai with area of 420 square feet. Sales generated from this store in one month is Rs.
3,00,000
Store 2: Allen Solly store in Mumbai with area of 430 square feet. Sales generated from this SIS in one month is Rs.
2,90,000
SALES GROWTH PERCENTAGE SSPD CBA

Gives a quick look on your Tells you how efficient you are Used to calculate Profit & Loss of
current sales performance with your use of the store space the store

Helps you take corrective It gives insights for improving Includes capital and operational
measures if necessary store layout, merchandising, expenses
staff performance and so on

Can be quickly evaluated by your CBA is calculated post sale

store staff since it is easy
measure

Can be used for comparison with

your competitors’ performance
in the same DS
3.b)Space to Sale Ratio

 The Sales per Square Foot KPI

How do calculate SSPD
measures how much sales revenue
you are able to generate for each foot
SSPD – Total Net Sales
of retail space provided
 This a popular retail sales KPI because ---------------------
Total Floor Area
it clearly demonstrates how effective
your store layout and retail personnel
SSPD - 200000 -Net Sale per Day
are at selling product
 This KPI is important when you are ------------
3500 -Size of the Store
checking performance of individual
categories’ compared to space
SSPD – 57.1
allotted
Lets Calculate
1) LP Sport wall in Indiranagar store is 6 Ft * 6 Ft and the total sale they do per month is 3 Lakhs . Their average
sale per day is 10000 Rs. Calculate the SSPD of the counter

2) PE Casuals wall in Kamanahalli is 8 Ft * 6 Ft and the total sale per month is 2 Lakhs. Their average sale per
day is 7000 Rs. Calculate the SSPD of this counter

3) VH Move suits have a 10 Ft * 8 Ft wall in Ameerpet store. Their average suit sale per day is 12000 Rs and
they do a business of 30 Lakhs per month. Calculate their SSPD

Calculation 1 Calculation 2 Calculation 3

Sale per day – 10000 Sale per day – 7000 Sale per day – 12000
Net sales Area – 36 Sqft Net sales Area – 48 Sqft Net sales Area – 180 Sqft

SSPD – 10000 / 36 SSPD – 7000 / 48 SSPD – 12000 / 180

SSPD - 277 SSPD - 145 SSPD - 67

Why is calculating SSPD important / How do we increase the SSPD

 A store can use this ratio to make critical space Reducing

discounts
management decisions

 Help you decide the Layout of your counters Have a

Increase the
winning
basket
product
value
 Help you to have the right product assortment in assortment

the place allocated

 Increase the visibility of the product and any

Encourage
promotions customers
to spend Up sell and
more time Cross sell
 Increase your bill and basket value at the
counter
3.c)DOC – Days of Cover

What is DOC??

Days of cover shows numbers of days require to sale current inventory

How is it calculated??

To calculate DOC you need to know the following things 1) Closing / Existing inventory in the store
and Average sale (Volume) for the next 90 days

Example – Counter A has 800 Pieces stock and the Average sale in the next 90 days is 500 Pieces

DOC – 800 / 500 = 1.6 ( This counter has a DOC of 1.6 months) = 48 Days
Lets Calculate
1) JP Nagar’s VH Sport Store has a closing inventory of 1000 Pieces and the projected sale for the next 3
months is 300 Pieces. Calculate the DOC for this store
2) Solly Jeans store in Mantri Mall has a closing Inventory of 900 pieces and the average sale for the coming
month is 150 Pieces. Calculate the DOC for this store
3) PE Store in GIP Noida has 1500 shirts and the projected sale for the next quarter is 900 pieces. Calculate the
DOC for this counter
Calculation 1 Calculation 2 Calculation 3

Closing inventory - 1000 Closing inventory - 900 pieces Closing inventory - 1500
pieces Average Sale per month – 150 pieces
Average Sale - 300 Average sale for 3 months - Average sale for 3 months -
1000/300 = 3.3 months 150 900
DOC = 3.3 * 30 = 100 Days 900 / 150 = 6.0 months 1500/ 900 = 1.6 months
DOC = 6.0 * 30 = 180 Days DOC = 1.6 * 30 days – 48 days
 Fill Rate / Norms Vs Exiting stock

Based on historical sales data and store space BnM/Planning team decides DOC for each category which
further defines stock level and the Stock level decided per counter is called as the Norm

Availibility of stock at the store to meet the customers demand against the Norms set for the store is Fill Rate
Why Should you know the fill rate of your counter??

 Meet customers expectations in terms of availability of options and Variety

 Keep the Shelf full and create a Visual Appeal
 Ensure that the replenishments are done regularly
 Analysis of fast movers and slow movers
 Helps in calculation of Sell trough's
 Helps in management of Oddments
3.d)Sell Through

What is Sell through??

It is a comparison of the amount of inventory Manufactured to the Amount of Inventory sold!!!

Sell through is a calculation, commonly represented as a percentage, comparing the amount

of inventory a retailer receives from a manufacturer or supplier against what is actually sold to the
customer.
Lets see how Sell through is Calculated!!
Sell through = Sales / Total Dispatch* 100 (To convert to %)

Example – 25000 PE perform shirts were Dispatched out of which 20000 shirts were sold in the
season from Feb – July 2019.
Sales – 20000 Shirts
Dispatch– 25000
Sell through – (20000 / 25000) * 100 = 80%

Lets Practice Calculating Sell Through

1. 1500 Pieces of VH move suits were dispatched in AW 2020 out of which 860 suits are already
sold across counters. Can you calculate the Sell through of move suits??

2. 27000 Permapress shirts were dispatched for the season out of which 14000 shirts are sold out
by A Store / 8000 shirts by B Store and 2000 shirts at C Store . Can you calculate the sell through
of Permapress shirts
Interpretation of various sell through scenarios!!

If Full price sell through is Low what does it mean???

 It means the store/brand has not been able to sell well
 witness accumulation of inventory which could go through mark-downs/discounts
 impacting margins and working-capital requirements

If Full price sell through is High what does it mean???

It means the store/brand is able to sell its products well during full price months
it also means that the store/brand has perhaps bought/manufactured less
Loss of additional sales opportunity
MERCHANDISING PRINCIPLES
Merchandise Pyramid
Current definition
Current definition for Retail
Time on Shelf for Retail Channel
Channel

8-9 weeks
(3 new Hits)
High Fashion Product with a specific statement on trend &
Last Hit to be designed
style
closer to the season
A part would be designed Close to the Season
Launch (To start initially with V-Dot, VH
Fashion Women) 13 weeks
(2 new Hits)
Product with a specific trend element

Basic/ Basic product with style quotient wide 26 weeks

Mainstream acceptability & is more seasonal in nature (1 Hit followed by
than Core replenishment)

Basic product with a sense of

Core timelessness, wider acceptance and 12+ months
hence established performance
Can You Identify these markets??
Catchment Area
What is the profile of customers walking in to our counters?

What are the preferences of these customers in terms of :

 Fits
 Colours
 Sizes
 Fashionability

What are the Major Festivals / Occasions of the Market that you work in?
Assortment Strategies
Assortment strategy for the buy for a particular region depends on the following factors

• Colour • Class
• Design segmentation
• Finish • Buying Capacity
• Fabrics • Basic Vs Luxury

Product Profile of
Aesthetics customers

Demand based Preferences of

on Season Customers

• Formals • Sleeve option

• Casual • Fit
• Ceremonial • Styling
• Festive • Weather
 Assortment strategy –Market Grouping (Based on acceptance of
fashion)

Can you Guess some of the Fast Fashion Markets in the Country??

Lets see which are the most Fashionable cities in India….

10. Bangalore 05. Ahmedabad

09. Hyderabad 04. Siliguri
08. Pune 03. Guwahati
07. Mumbai 02. Delhi
06. Lucknow 01. Chandigarh and Whole of Punjab

If you are in any of these cities, You buy just be skewed more towards fast fashion merchandise…
 Assortment strategy –Market Grouping (Markets with demand on
Basics)

Can you Guess some of the country where the demand for basics / core is High??

Lets see which are the cities which rely on basics and core..

10. Chandigarh 05. Delhi

09. Guwahati 04. Hyderabad
08. Siliguri 03. Cochin
07. Mumbai 02. Bangalore
06. Pune 01. Chennai

If you are in any of these cities, You buy just be skewed more towards basic / Core merchandise…
Which product / Collection of your brand is most preferred by your
customers?
Which are the best products of your brand based on the
physical attributes / Benefits to the consumer?
What are the best selling Fits in your Counters / What is the Slim : Regular split?
What is the maximum price consumer is willing to pay in your respective
Markets / What is the ARP of the product?
Which is your peak season in terms of Business??
Which are your fast moving Sizes???
Understanding the customers
preferences in the only and the most
critical step in deciding your stock
requirement!!!!

With this Analysis of your customers

preferences, Lets Understand the
concept of Assortment Groups
Assortment Groups

Based on
the
Based on catchment Based on
the MRP the season

Based on Based on
the the Sell
collection through

Based on
Based on Assortment
the
the Fit Groups
preference
Lets discuss on how Biryani is Made

What are the Ingredients Required??

What Quantity ???

How to make it??

Who are the customers we are serving it to??

How are we serving it??

Do Remember, Right quantity of all the Ingredients with the awareness of who is going to eat it will make
your Biryani the best in the World!!!
 Things to remember while deciding the Stock Mix

 Always see the Sell through of the products from the last season to decide on fast
movers

 Keep in mind the Catchment and customer preferences

 Decide your stock Norms based on the season / Need and plan for a buffer

 Be aware of what Market Type you are in (Basic / Fashion / Fast fashion)

 Sensitize on the ARP of your region – Don’t request for a high price options (It may
look good but it will not sell)

 Be Aware of what competition has to offer

 Spend time in the counters speaking to consumers and understand their preferences
Time to Reflect

 What is the stock Norms of your store?

 What is the current stock level at your store?

 What is the Merchandise Mix / What Assortment

groups can you identify?

 Is there something specifically that you require

that is not available?

 How would you raise your stock related requests

to the Merchandiser and how will you validate
the same?
Thank you