Fashion Industry levels of merchandising

Retail organization merchandising Buying agency merchandising Export house merchandising

b.n.malar selvi, assoc. prof.

What is merchansing?

In retail organization:
Specialized management function within the fashion industry Business that moves the world fashion from designers showroom to retails sales floor and into the hands of the customers Internal planning that takes place within the retail organization in order to ensure adequate amount of merchandise are on hand to be sold at prices that the consumers are willing to pay to ensure a profitable operation

b.n.malar selvi, assoc. prof.

Marketing vs Merchandising

Marketing function :

Focuses on defining companys market and characteristics pinpoints new opportunities for growth thru self analysis ands market research and promotes companys image and products

Marketing function

More specific concerning itself with the development, execution and delivery of the product line with its close ties with the market it serves Merchandising is not only able to adjust to market variation rapidly but is capable of actually anticipating and helping to create market changes

b.n.malar selvi, assoc. prof.

Merchandiser

Person who gets converted inspiration into design, use technology to conceptualize and address the planning, production , promotion and distribution of products in the fashion industry to meet the consumer needs and wants

b.n.malar selvi, assoc. prof.

Merchandising involves 6 rights

Right merchandise At right price At right time At right place In right quantity With right promotion

Also to right customer

Right merchandise

Retailers must fill the shelves with the merchandise that customer wants Location of merchandise is the prime importance since it decides the accessibility Much merchandise is seasonal in nature and must be on hand when it is most needed
b.n.malar selvi, assoc. prof.

Right place

Right time

Right quantity A profitable balance between the volume of sales and amount inventory is the desired goal Right price Merchandiser should arrive a price that is high enough to give the store profit and yet low enough to meet the competition and customers expectations Right promotion Right balance between the investment and the appeal created for the customers

b.n.malar selvi, assoc. prof.

Interpreting Consumer demand

Elements of consumer demand Target Market Buying motivations

FASHION RETAIL ORGANIZATION

Organizational Structure & Responsibility

Organizational structure includes the clear understanding of the authority and responsibility for each job to be done. Organizational system differs with the difference in type of merchandise, size of retail firm, and target customer.

VARIOUS FASHION RETAIL BUSINESS

Three basic formats

The small single Unit store The departmentalized store The chain store The specialty store, discount store are also few of the other formats

Major Divisions & Responsibilities Merchandising division buying,

merchandise planning and control, selling, fashion coordination Sales and promotion division advertising, visual merchandising, special events, publicity and public relations

Major Divisions & Responsibilities

Finance and control division credit, account payable, and inventory control. Operational division maintenance of facilities, stores and merchandise protection , personnel, customer service and receiving and marking of merchandise. Personnel and Branch Store Division - May function separately if the store operations are very large.

Qualities of a Fashion Buyer

Dedication Enthusiasm Awareness Stamina Foresight Creativity

Product Knowledge Decision making skill Mathematical ability Communication skills Negotiation skills Managerial skills

THE BUYERS JOB

Planning Buying Selling

Planning

Based on 2 factors

How much the store expects to sell? How much inventory is needed to achieve that sales goal?

The buyer must plan stocks so that the store image is reflected in the merchandise.

Planning

Preparation of 6 months buying plan with knowledge of fashion trends, market conditions, economic factors, other records of the past seasons. Flexibility is the most important factor to be kept in mind. Includes provision for constant adjustment to actual results.

Buying

Adequately stocking the departments price lines and securing the best mark ups on all purchases. Supervising the physical inventory or stock counts to verify the accuracy of stock records. Establishing and maintaining effective buying relationships with vendors

Selling

Communication and promotional activities. Determining the selling features of the merchandise for promotion purposes and the timing of these promotions.

What is the difference between Buyer & The buyers role in USA includes the administrative Merchandiserbuying responsibility. and financial ? input part also besides core

In USA buying is often a subdivision of the merchandising team, whereas in many companies in UK, Buying is perceived as central role and merchandising as parallel department to buying Job details for both these profiles are different with different organizations and are quite overlapping but all fashion buyers are responsible for overseeing the development of range of products aimed at a specific type of customer and price bracket.

Buying Patterns

Central Buying

The centralization of all buying activities from a central headquarters with the authority and responsibility for the selection and purchase of merchandise limited to buyers of particular merchandise categories.

Three forms of Central buying

Three central merchandise plan The warehouse and requisition plan The price agreement plan

The central merchandise plan

Central buying assumes complete authority for buying the assortment of goods, pricing, warehousing and distribution to the many stores Central make their purchases and have the merchandise delivered to the warehouse. Buyer has an opportunity to check the goods to be sure they have been shipped as ordered.

The central merchandise planAdvantages

It provides a steady flow of merchandise provides for specialists in each merchandise category. Goods are inspected before delivery. It allows better stock control

Disadvantages

Adjustment to local conditions is difficult Cooperation may be lacking An enthusiastic selling force may be lacking

The warehouse and requisition plan

The central buyer arranges for the initial assortment as has the merchandise shipped to the individual stores. Used for staple goods. The store manager is provided a list of the stock that is inventories in the warehouse where the central buyer will see it is properly filled. The store manager has the responsibility for ordering enough merchandise to carry the store through the buying season

The warehouse and requisition plan

Advantages

Gives the store manager some responsibility in merchandise selection Reorders or fill ins are unusually filled promptly There is little control over the composition of the merchandise selection Poor warehouse control may lead to an imbalance in store inventory

Disadvantages

The Price agreement plan

Central buyer working with vendors and manufacturers will agree on the retail price, color, size and assortment of staple types of merchandise as well as the terms of shipping The merchandise is illustrated and described adequately in catalogue to be given to store manager The central buyer is responsible for prearranging the minimum amount of goods to be purchased by the entire chain , keeping the store catalogue up to date, adding new items, canceling old items The store manager has complete authority for the competition of the stock and orders can be placed directly with the vendors concerned

The Price agreement plan

Advantages

It develops a feeling of responsibility on the part of the store manager Reduces the expense of warehouse and the necessity of keeping detailed records of each unit Problems arise with tardy deliveries and with high transportation cost

Disadvantages

The planning & Control functions

Objectives

To satisfy the needs and wants of customer To earn profit

Planning for the profit

To maintain any inventory enough meet the anticipated customer demand To time the delivery of purchase so that merchandise is available for sale for customer demand To keep purchases in line with the stores ability to pay for them To have funds available for the purchase of new goods when needed

Dollar merchandise plan :

it is the specific budget that the buyer uses to project both, sales goals and the amount of stock that is required to achieve the goals.

Earning a profit

Net sales are all of the sales that have been made minus customer returns and allowances. Cost of goods sold is the amount the buyer has paid for the merchandise that the store has held for that same time period. Gross margin is the margin of dollars between what the merchandise cost and what it was sold for.

Expenses is the amount of money spent to run the business. It includes salaries, advertising, rent, heat and light Profit the amount of money that is left over after all of the merchandise that is offered for sale has been sold and all of the expenses of running the business have been paid

Earning a profit
Net sales cost of goods sold

$ 70,000 42,000 28,000 -24,000 4,000

% 100 -60 40 -34.3 5.7

= gross margin expenses = profit

Net sales cost of goods sold = gross margin gross margin expenses = profit

Use of retail figures

Majority of departments and stores operate under the accounting system known as retail method of inventory. In this system, all transactions affecting the stores inventory, such as sales, purchases. Markdowns, transfers, and return-to-vendor, are recorded at their retail prices.

Period of plan
The period plan may vary for a month to an year. The usual planning is of six months.

The spring season Feb. July The fall Season August January

Procedures for preparing the plan department supplies the buyer with a The stores accounting

planning form several months in advance of the start of the actual buying season.

On it are figures of the same departments merchandising operations during the same season last year. These goals are established by the store management, not by the departmental buyers The buyers then using the planning form and his knowledge of market conditions, trends, and demand cycles, prepare figures on anticipated sales, stocks, markdowns, and purchases for his department for the upcoming season

Procedures for preparing the plan

The plan made by the buyer is then reviewed by his divisional merchandise manager. The merchandise manager then consolidates all the plans made by buyers of the same division into a divisional plan and submits it to the general merchandise manager. All the plans are reviewed by both, the stores controller and the general manager or president When approved, departmental plans are combined into a master plan for the whole store.

Steps of dollar merchandise planning

Planning sales: The buyer makes a realistic estimate of prospective sales during the upcoming season. Reviews past sales figures, examine external internal factors that may effect sales, study general fashion trends that may influence the departments sales. These estimated plans are then broken down into sales goals for each of the months. (Ability to work with % is helpful tool, it is easier to understand the increase of 4.95% in sales than an increase from $24,200 to $ 25,400)

2. planning stock

To estimate the amount of stock that will be needed to support the planned monthly sales. In order to support planned sales, a beginning of moth (BOM) stocks: There must be adequate opening assortment on hand in sufficient quantity to meet anticipated consumer demand until stock replacements for goods sold can be secured. The planning must be such that the desired seasonal stock turnover may be realized, markdowns minimized and a steady flow of new, interesting merchandise assured throughout the month.

Variations in monthly stock goals

In planning monthly stock goals stocks should be bought to a peak just prior to the time when sales are expected to reach their peak. By peaking stocks before consumer demand reaches its crest the buyer will be able to present maximum assortments in needed styles, sizes and colors when the public is in the mood to buy. Similarly BOM stock plans should be reduced as a selling season approaches its close or demand decreases. MARKDOWNS can be used as tool of reducing inventory as the season ends.

Stock sales relationships

Stores are guided by two stock-sales relationships: Monthly stock sales ratio The monthly stock-sales ratio uses the no. of months that would be required to dispose of a BOM inventory at the planned rate of sales for the month. It also directly relates stock requirements to the planned sales. Stock-sales ratio = $ BOM stock / $ Planned Sales for month

Rate of stock turnover Refers to the no. of times that an average stock of merchandise has been turned into sales in any given period. Stock turnover = $ net sales / $ average inventory (In general the rate of stock turnover is higher in womens apparel that in mens clothing or home furnishing. It is also higher in departments featuring lower price ranges than in those featuring higher price ranges.)

What is average inventory

How to calculate average inventory for February to July season, BOM stocks of February till July + EOM Stock of July / 7 = Average Inventory

Planning markdowns

Markdowns are usually planned as a percentage of each seasons planned sales. They may then be allotted to individual months, according to the buyers estimates of when and to what extent the monthly markdowns are going to be needed to sell the goods. The chief factors to be considered in establishing seasonal markdown goals are: The past experience of the store or department Comparative figures of similar stores Amount of the old stock on hand at the beginning of a new season

Markdown % is the amount of dollar markdowns taken during a given period expressed as % of the net sales Markdown % = $ markdown / $ net sales

4. Planning Purchases

Planned purchases means the amount of money buyer can spend on merchandise during a given period without exceeding the value of the inventory planned to be on hand at the end of that period. In most of the large stores, purchases are planned on monthly basis. The planned purchase includes Planned EOM stock + planned sales + planned markdowns = total needs for the month. Planned purchase = total needs for the month BOM stock

SUPPLEMENTAL ELEMENTS RELATING TO DOLLAR MERCHANDISING PLANNING

Many retail stores, particularly large departmentalized stores, expand budgeting procedures beyond the four basic elements

Important elements are as follows:

Initial markup Gross margins Cash discounts earned as percentages of purchase on sales Rate of stock turnover Shortage reserves Operating expenses

Markup

Markup is the difference between the cost price and the retail price of the merchandise. Retail markup % = $ retail - $ cost / $ retail The dollar difference between the delivered cost of the merchandise and the retail price placed on it when it is first brought into stock is called initial markup. Retail stores plan initial markup percentages to ensure that the income derived from sales will be adequate to cover:

All expenses incurred in the operation of the business Anticipated reductions in the retail value of the inventory, such as mark downs, stock shortage and employee discounts A reasonable margin of profit for the store

Gross Margin:

Gross margin represents the amount of money left from sales income after deducting the total cost of merchandise sold during that given period. It also indicates the amount of money available to pay all operating expenses and taxes with a reasonable profit over.

GROSS MARGIN = NET SALES NET COST OF MERCHANDISE SOLD $ Gross Margin / Net Sales = % Gross Margin

Cash discounts:

Cash discounts are the percentages or premiums allowed by manufacturers off their invoices if payment of the invoice is made within a certain specific period of time. Such discounts are allowed to encourage to the prompt payments of the invoices. It is an additional income for a store. Cash discounts increase gross margin, because they reduce the actual cost of merchandise purchases.

Terms of sale

The combination of allowable discounts on purchases and the time allowed for taking such discounts is referred to as terms of sales.

Stock shortage

Stock shortages or overages represents the dollar difference between the book inventory ( the value of inventory on hand as indicated by the stores accounting records) and the physical inventory (the value determined by taking a physical count). When the book inventory is greater than the physical inventory there is said to be stock shortage When the physical inventory is greater than the book inventory there is said to be stock overage

The Buying Cycle

What is buying cycle? The key events and process in which the fashion buyer is involved in order to buy a garment range. Fashion industry traditionally splits the year into two main seasons, Spring / Summer February July Autumn / Winter August January

The competitive and constantly changing fashion business requires a more frequent introduction to merchandise, resulting in most stores introducing new ranges many times in between these two main seasons. The occurrence and the names of sub seasons vary from company to company. Refer doc.

Four distinct and two promotional season within each half of annual retailing period Phases Various ranges introduced within the season Transitionals Ranges which bridge the gap between one season and the next season.

The buying cycle

Review of current seasons sales Budget Planning Comparative Shopping Directional Shopping Sourcing for product development

The buying cycle (Contd)

Range planning Garment samples sourcing for range Pre Selection of garment samples Price Selection with suppliers Final Range Selection

The buying Cycle (Contd)

Placing orders for ranges Pre production sampling & approvals Bulk garment manufacturing Delivery of products to the retailer Purchase by customer Review of current seasons sales

Comparative Shopping

Often referred as comp.shop Undertaken at the beginning of each season and continues with once a month visit Buyers & Designers are involved Starts with the looking at current merchandise in the stores of competitors which sell comparable ranges Report will be produced with few sketches & information grid Analysis of missing important trends in own range

Directional shopping

Term used for trips to gain inspiration for design concepts Trips depend upon the buyers product range & travel budget Buyer may visit designers RTW ranges to mass market ranges Makes not on key shapes, details, colors and fabric for ref. Buyers usually have budget to buy samples which are referred as bought samples Designers may share responsibility of directional shopping with buyers

Pre Selection

Time after the Range planning stage at the Buyers end can be in form of the Line review/Range review meeting. Garments samples featuring on the Range plan are presented. Participants are the Design, Marketing, Merchandising and QC teams. Range is reviewed vis a vis: Styling, Colors, Price and Delivery Sourcing strategy regarding product and Supplier base.

Period after Line/ Range review

Finalization of the Style, Suppliers, prices for the Final Range. Involves:

Informing suppliers regarding the styles which have been included in the final Range. Change in style if any Price re-negotiations Order Delivery dates re-negotiations. Styles dropped. Request for additional samples if required for the final range review meeting by the buyer.

Final Order Placement

After the Final Range Selection meeting, orders are placed with the suppliers in form of sending Purchase orders / Purchase sheets for each individual items selected to be on the range. These may be generated by the Merchandising department or by a separate Purchase department.

Critical path/Time and Action Calendar for the buyer

The key activities and the timelines associated with them, for processes like product development and production of any item forms the critical path of the Time and Action calendar. By virtue of the T&A the various activities involved in the responsible party is fixed

Critical paths for product development, production & delivery (Time & Action Calendar) Refer doc

MANAGING MERCHANDISE ASSORTMENT

Merchandising

How to be effective at that? Merchandiser

A person who ensures that the right product reaches at the right price in right quantity and at the right time to the final destination

Supply Chain

Design conceptualization Planning Sourcing Planning Cost Negotiation Order Placement Fabric & Sourcing Pattern & Sampling Fitting Testing Promotion Production Finishing Inspection Packing Shopping Distribution Store Allocation Store Setup Visual Merchandising Sales Replenishment

Roles and Responsibilities

Product development & Sampling Fabric & Trim Sourcing Costing & Negotiation Fits & Pre Production Approvals Maintaining Records Plan Factory Capacity & Allocations Fabric Booking Trim Confirmations

Color / Fabric approval Fit approval Testing Product safety Production & Line planning Production follow up Quality audits & shipment status Quota / embargo movements Vessel / flight planning Documentation

Devising merchandise plans

Merchandise Plan Innovativeness Timings Assortment Brands Forecasts Allocation

Forecasts

These are projections of expected retail sales for given periods Components:

Overall company projections Product category projections Item-by-item projections Store-by-store projections (if a chain)

Types of merchandise

Staple merchandise Assortment merchandise Fashion merchandise Seasonal merchandise Fad merchandise

Staple merchandise

Regular products carried by a retailer Grocery store examples: milk, bread, canned soup

Basic stock lists specify inventory level, color, brand, style, category, size, package, etc.

Assortment merchandise

Apparel, furniture, auto, and other categories for which the retailer must carry a variety of products in order to give customers a proper selection Decisions on assortment

Product lines, styles, designs, and colors are projected Model stock plan

Fashion and seasonal merchandise

Fashion merchandise: products that may have cyclical sales due to changing tests and life-styles Seasonal merchandise: products that sell well over nonconsecutive time periods

Factors in planning merchandise innovativeness FACTOR RELEVANCE for PLANNING Target market (s)

Evaluate whether the target market is conservative or innovative Consider each new offering on the basis of rapidity of initial sales, maximum sales potential per time period, and length of sales life Understand vertical and horizontal fashion trends, if appropriate Carry goods / services that reinforce the firms image

Goods/service growth potential

Fashion trends

Retailer image

Factors in planning merchandise innovativeness

Lead or follow competition in the selection of new goods / services Segment customers by dividing merchandise into established product displays and new product displays Carry new offerings when requested by the target market Consider al possible investments for each new good/service: product costs, new fixtures, and additional personnel

Customer segments

Responsiveness to consumers

Amount of investment

Factors in planning merchandise innovativeness

FACTOR RELEVANCE for PLANNING Profitability

Assess each new offering for potential profits Be aware of the possible tarnishing of the retailers image, investment costs, and opportunity costs Restrict franchisees and chain branches from buying certain items Delete older goods/services if sales and / or profits are too low

Risk

Constrained decision making

Declining goods / services

Structured guidelines for Pruning Products

Select items for possible elimination on the basis of declining sales, prices, and profits, appearance of substitutes Gather and analyze detailed financial and other data about these items Consider nondeletion strategies such as cutting costs, revising promotion efforts, adjusting prices, and cooperating with other retailers After making a deletion decision, do not overlook timing, parts and servicing, inventory, and holdover demand

Predicting Fashion Adoption

Does the fashion satisfy a consumer need? Is the fashion compatible with emerging consumer life-style? Is the fashion oriented toward the mass market or a market segment? Is the fashion radically new? Are the reputations of the designer(s) and the retailers carrying the fashion good? Are several designers marketing some version of the fashion? Is the price range for the fashion appropriate for the target market? Will appropriate advertising be used? Will the fashion change over time? Will consumers view the fashion as a long-term trend?

Factors in Planning Merchandise Quality FACTOR RELEVANCE for PLANNING Target market (s)

Match merchandise quality to the wishes of the desired target market (s) Sell similar quality or different quality Relate merchandise quality directly to the perception that customers have or retailer Consider the impact of location on the retailers image and the number of competitions, which in turn, relate to quality

Competition

Retailers Image

Store location

Factors in planning merchandise quality

FACTOR RELEVANCE for PLANNING Profitability

Recognize that high quality goods generally bring greater profit per unit than lesser-quality goods: turnover may cause total profits to be greater Understand that, for many for the latter manufacturer brands connote higher quality than private brands Know that high-quality goods require personal selling, alternations, delivery, and so on Employ skilled, knowledgeable personnel for high-quality merchandise

Manufacturer versus private brands

Customer services offered

Personnel

Factors in planning merchandise quality

FACTOR RELEVANCE for PLANNING Perceived goods/service benefits

Analyze consumers. Lesser quality goods attract customers who desire functional products benefits: High-quality goods attract customers who desire extended product benefits Face reality. Franchises or chain store manages have limited or no control over products; independent retailers that buy from a few large wholesaler are limited to the range of quality offered by those.

Constrained decision making

Retail assortment strategies

Width of assortment refers to the number of distinct goods/service categories (product lines) a retailer carries Depth of assortment refers to the variety in any one goods/service category (product line) a retailer carries An assortment can range from wide and deep (department store) to narrow and shallow (box store)