MERCHANDISE PLANNING FOR RETAIL

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

Advantages of Merchandise Assortment planning for retail business

Merchandise Planning is : the science of forecasting sales and managing inventory, balanced with the art of identifying the merchandise that your customer needs. On one hand the retailers suffers from lost opportunities as a result of stock unavailability and on the other hand their margins are squeezed if the unsold merchandise is marked down at the end of a season. Assortment Planning helps: Ensures the right product in the right store at the right time and at the right price. It implies anticipating what your customers are looking for and building a product mix that attracts the customers. In order to provide customer-centric assortments, merchandisers need to deploy highly customized and customer centric plan.

Advantages of Merchandise Assortment planning for retail business

Retail environment in todays scenario is very complex and dynamic. Every retailer has the challenge to effectively plan and execute unique store level assortments that can help him to match the local consumer demand. Moreover, manufacturers and retailers face an even bigger challenge to achieve a sustainable growth and enjoy long term profitability. This is because of the high level of:

product proliferation, rapidly changing consumer priorities and constantly opening up of retail outlets.
The need of the hour for retailer is to coordinate between various sources to integrate information, analyse it and apply it for informed decision making. For this they need to continuously re-evaluate the assortment of their merchandise mix with the change in supply and demand factors. This involves not only accurate assessment of the historical performance but also precise forecasting.

Advantages of Merchandise Assortment Planning

Integrated Sales and Inventory Forecasting Improved Assortment Accuracy Faster Inventory Turnover Maximizing Sales opportunities and decline in lost opportunities Fewer Markdowns and reduced shrinkages Increased ROI

Buying Decision Process

What to Buy? How much to buy? When to buy? From whom to buy?

Store Image

Satisfy Cust. Wants

Type of Merchandise Control Systems Merchandise Policies

Financial Obj.

Open-to-buy

Suppliers The Market

Mdse. Budget Sales Reductions Inventories Purchases Shortages

Negotiations Estimated Sales Beginning Inv. Ending Inv.

Unit Price Terms

Merchandise Management
The planning and control of merchandise inventories to meet desired sales and product-related objectives. Also includes the planning of the size and composition of the merchandise inventories, as well as a variety of functions dealing with the purchase, display, pricing, promotion, and sale of merchandise.

Merchandise Planning
Involves those activities which are needed to ensure a balance between inventories and sales. Marketing the right merchandise at the right place at the right time in the right quantities at the right price. Management of the product component of the marketing mix.

Merchandise Mix

The breadth and depth of the products carried by retailers

Also Known As: Product Assortment

KEY TERMS

Variety is the number of different merchandising categories within a store or Product availability defines the percentage Department

of demand for a particular SKU that is satisfied

A product line is a broad category of products having similar characteristics and uses Product Depth the variety of choices available for each specific product line (shallow to deep) store carries
A SKU is a number that uniquely identify a product. Definition: A number assigned to a product by a retail store to identify the price, product options and manufacturer of the merchandise.

Product Breadth Definition: The variety of product lines offered. Also Known As: Product Assortment Width, Merchandise Breadth Examples: Our store only stocks up to 4 items of each SKU, but our product breadth (variety) consists of 3,000 different types of products.

Definition of 'Assortment Strategy

The number and type of products displayed by retailers for purchase by consumers. The two major components of an assortment strategy are the depth of products offered (how many variations of a particular product a store carries), and the width of the product variety (how many different types of products a store carries).

A deep assortment of products means that a retailer carries a number of variations of a single product;

A broad assortment means a retailer carries a large number of different products

Balanced Assortment

Why plan stock levels?

Meet sales expectations Avoid out-of-stock conditions Guard against overstock Keep inventory investment at acceptable level

Merchandise Planning Objective

Ensure that both the customers merchandise needs and the retailers financial requirements are satisfied by creating an acceptable balance between merchandise inventories and sales

Various factors affect the assortment planning process

1. The type of merchandise that is to be shocked in the retail store. Merchandise may be classified as basic or staple merchandise, fashion, convenience or specialty goods. Buying staple merchandise is relatively easier as it can be easily done by analyzing past sales records. Seasonal staples are those products which are in demand only at a particular time of the year, every year. For example, decorative diyas sold during the Diwali season in India, or decorative ornaments of the Christmas tree before Christmas or umbrellas and rain coats / rainy shoes in the rainy seasons.

Various factors affect the assortment planning process

2. The retailers policies with respect to the type of brands stocked and the level of exclusively to be maintained in the store also affect the merchandise buying decisions. Thus, after arriving at the amount of money available to invest in inventory, a merchandiser would have to determine the variety of merchandise.

Various factors affect the assortment planning process

Assortment size actually reflects two related aspects namely: the number of stock keeping units (SKUs) and shelf space. While a merchandiser always works towards creating an optimal; merchandise mix, various factors would affect his /her decision. 3. These would be the amount of money actually available for buying the targets set by the management for merchandise turnover , 4. the space actually available within the stores for stocking the merchandise and 5. the market constraints. Working under these constraints, a buyer works towards creating an optimal merchandise plan.

Determining Variety and Assortment

profitability of the merchandise mix the corporate philosophy toward the assortment physical characteristics of the store, layout of the Internet site balance between too much versus too little assortment complementary merchandise GMROI of Merchandise Assortment Buyers are constrained by the amount of money they have to invest in a merchandise category and the store space available to display the merchandise. They must deal with the trade-off of increasing sales by offering more breadth and depth but potentially reducing inventory turnover and GMROI by stocking more SKUs.

How much to order?

Lead time: length of time between order placement and receipt of goods Importance of safety or cushion stock: protection against strikes, delays Base or cycle stock: amount sufficient to accomodate regular sales Lead time + Safety stock + Basic stock = Inventory Level

Analyzing Merchandise Performance

ABC Analysis
Rank order merchandise categories (SKUs) by some performance measure
Contribution margin Sales Dollars/Units Gross margin Gross margin return on investment Sales or gross margin per square foot

Determine optimal stocking formulas based on performance measures

Analyzing Performance continued

Sell-Through Analysis
Comparison between actual and planned sales to determine whether early markdowns are required or whether more merchandise is needed to satisfy demand

Multiple-Attribute Method
Used to evaluate vendors using a weighted average score for each vendor (current or proposed).

Collaboration, Planning, Forecasting, and Replenishment Systems (CPFR)

Systems used by retailers and vendors to work together to insure that the right merchandise is at the right place at the right time. Benefits both retailers and vendors Increases fill rate, reduces stock-outs, increases inventory turns

The Category
A category is an assortment of items that the customer sees as reasonable substitutes for each other: girls apparel, laundry detergents,soup, DVD players. In merchandise management, we do everything at the category level. The category can mean different things to different retailers.

Category Management
Category management is the process of managing a retail business with the objective of maximizing the sales and profits of a category. Objective is to maximize the sales and profits of the entire category, not just a particular brand. Breakfast cereal category vs. Kellogg Corn Flake Mens knitted shirts vs. Polo shirts One person managing the entire category and responsible for its success or failure.

Category Captain
Selected vendor responsible for managing assortment of merchandise in a category. Category captain forms an alliance with the retailer to help gain consumer insight , satisfy consumer needs and improve the performance and profit potential across the entire category. Category captain works with category manager to make decisions about product placement on shelves, promotions, and pricing of all the brands in the category. Vendors frequently have more information and analytical skills about the category in which they compete than retailers

Problems Vendor category captain may have different goals than retailer

The category life cycle describes a merchandise categorys sales pattern over time. The category life cycle is divided into four stages: introduction, growth, maturity, and decline. Knowing where a category, or specific item within a category, is in its life cycle is important in developing a sales forecast and merchandising strategy.

Most categories follow the basic form of the category life cycle: sales increase, peak, and then decline. Variations on the category life cyclefad, fashion, staple, and seasonal. The distinguishing characteristics between them are whether the category lasts for many seasons, whether a specific style sells for many seasons, and whether sales vary dramatically from one season to the next. A fad is a merchandise category that generates a lot of sales for a relatively short time often less than a season. Fads are often illogical and unpredictable.

Unlike a fad, a fashion is a category of merchandise that typically lasts several seasons, and sales can vary dramatically from one season to the next.
Items within the staple merchandise, also called basic merchandise, category are in continuous demand over an extended period of time. Seasonal merchandise is inventory whose sales fluctuate dramatically according to the time of the year. Both fashion and staple merchandise usually have seasonal influences. For instance, wool sweaters sell in fall and winter, whereas staples such as lawn mowers and garden tools are popular in spring and summer.

Product Life Cycle curve is typically divided into 4 stages: Introduction: Product introduced in market. Slow sales growth. No profits as expenses are high. Growth: Period of rapid market acceptance. Profit increases. Maturity: Sales growth slows down. Profits stability then decline to fight competition. Decline: Sales decreases Profits decreases

Stages and promotion strategies employed.

Introduction When a product is new, the organisations objective will be to inform the target audience of its entry. Television, radio, magazine, coupons etc may be used to push the product through the introduction stage of the lifecycle. Push and Pull Strategies will be used at this crucial stage. Growth As the product becomes accepted by the target market the organisation at this stage of the lifecycle works on the strategy of further increasing brand awareness to encourage loyalty. Maturity At this stage with increased competition the organisation take persuasive tactics to encourage the consumers to purchase their product over their rivals. Any differential advantage will be clearly communicated to the target audience to inform of their benefit over their competitors. Decline As the product reaches the decline stage the organisation will use the strategy of reminding people of the product to slow the inevitable

Merchandise Hierarchy for typically Apparel Retailer

Menswear <> Product Line>> Shirts >> Trousers >> Accessories >> Shirts>> Zodiac > Van Heusen > Louis Phillippe >> Arrow <> Styles >> Colors >> Size << Depth