Professional Documents
Culture Documents
Session: 1 & 2
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Merchandise Planning
This process of Merchandise Planning begins with the formulation of objectives, setting of policies and implementation of procedures necessary to carry out dept. / store objectives. It includes both Cash planning in terms of Merchandise budgets Unit planning in terms of Merchandise lists
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Six-month merchandise plan Successful retail working requires the right merchandise assortment. To achieve this, the following variables must be planned at least 6 months in advance. Receipt Plans Sales Plan Mark-up Plans Mark-down Plans Inventory shortages EOM Stock levels Weeks Supply
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Objectives : the goal towards which the management activities of the business establishment are directed. Policies: provide management with a frame of reference for decision making that is consistent with planned objectives they provide guidelines for dealing consistently with problems & issues.
Procedures: are necessary steps that must be followed to execute a given policy. Management must emphasize if the procedure is a rule / guide.
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Variables of record-keeping
Cash Disbursements Cash Receipts Credit
Expenses
oDirect: paid out directly for the dept.s benefit. E.g. salary, advertising, promotions, special events. oIndirect: that serve the whole store. E.g. electricity, rent, taxes, insurance etc.
Dept. Sales
COGS Total Direct Expenses Total
20,000
- 14000 6000 -4000 2000(indirect ex + profit)
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Sales Purchases Stocks & Inventories Profit & Loss Statement / Income Statement / Operating Statement
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= Gross Sales =
Op. Inventory (cost)
Purchase (cost)
Shipping (cost)
Gross COGS
Cash Discount
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Gross Margin
Net Sales
Net COGS
Direct Expenses
Indirect Expenses
Net Profit
Gross Margin
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Operations Budget
It is defined as a forecast of expected sales along with expected costs for a specified time period.
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Cash Budget
It is an estimate of the cash receipts & cash disbursements for a specified period of time. It tells management the amount of cash required in the future period under consideration. Cash budgets may extend over one year with cash receipts & disbursements estimated on a daily basis.
Capital Budget
It plans for the investment of assets that will last longer than one year.
It contains a list of future investment projects with a justification for each proposal mentioned against it. It takes into account an analysis of the geographical region, income level, competition etc. It is prepared by the store research division. However, the buyer has the responsibility of merchandising each new branch.
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Merchandise Management
Buying Merchandise
Retail Pricing
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Merchandise Budget
It is a plan that forecasts specific merchandising activities for a department or store for a specific period of time. The buyer works with other department executives to develop the plan that will guide him through various phases of merchandising activities.
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Merchandise Mix Definition: The breadth and depth of the products carried by retailers. Also Known As: Product Assortment Product Breadth
Definition: The variety of product lines offered. Also Known As: Product Assortment Width, Merchandise Breadth.
Product Depth Definition: The number of each item or particular style of a product. Also Known As: Product Assortment, Merchandise Depth. SKU Definition: A number assigned to a product by a retail store to identify the price, product options and manufacturer of the merchandise.
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1. 2. 3. 4. 5.
Planning Merchandise Variety Controlling Merchandise Variety Planning Merchandise Assortment Controlling Merchandise Assortment Merchandise Mix Strategies
Developing the merchandise mix allows the retailer to segment the market and appeal to a select group of consumers!!
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1. 2. 3. 4. 5.
Planning And Controlling Retail Sales Planning And Controlling Inventory Levels Planning And Controlling Retail Reductions Planning And Controlling Purchases Planning And Controlling Profit Margins
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Merchandise Variety
(# of product lines)
Merchandise Assortment
(# of product items)
Merchandise Support
(#of product units)
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Planning Merchandise Variety Involves Planning Merchandise Variety Involves Planning And Controlling Product Lines Planning And Controlling Product Lines
Retailers MANY factors to evaluate product lines!! Retailers use use MANY factors to evaluate product lines!!
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1. The compatibility among product lines. Must Consider: Product substitutes Product complements Unrelated products
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2. The physical attributes of each product line. Must Consider: Product standardization Product service levels Product selling methods
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3. The product lines potential profitability. Must Consider: Direct and indirect contribution to profitability Calculations of gross margin % and $$
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4.
The role branding plays in the success of the product line. Must Consider: How brands can distinguish a retailer from competitors How brands can build store loyalty The advantages and disadvantages of offering different types of brands no names, vendor brands, store brands (private labels) and licensed merchandise
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5. The age of each product within the product lifecycle Must Consider:
What stage a product is in to judge future sales potential The number of products offered at different stages
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Use of unique designer fashions as part of the stores strategy The above average risk of fashion merchandise ( But also note: high margin items with above average profitability)
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7)
The market appropriateness of each product line. Must Consider: How well the product matches consumption patterns and buying needs of targeted consumers The relative advantage, affinity, trialability, observability and complexity of new product introductions Market trends provide products the market wants!!
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8.
The impact of lifestyle on product line acceptance. Must Consider: Targeted customers activities, interests, and opinions The match between consumers lifestyle and retailers image Usefulness of trade shows to identify product lines for targeted consumers lifestyles
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Competitive conditions under which the product line is available intensive, selective or exclusive distribution Is the product line available to direct (intra type) competitors or indirect (inter type) competitors, or both
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10. The conditions under which each product line will be procurable. Must Consider:
Availability and reliability of various suppliers Terms and conditions under which the product will be made available
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II.
Is an art and a science No rules for what should be included in the merchandise mix and what should be excluded Two useful management methods Category Management: each product managed as a business unit at the store level ABC Analysis: each product line is rank ordered based on performance levels
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Must organize the merchandise mix as to the number of different product lines carried Must decide on: Brands Sizes Colors Material Styles Price points
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Goal is to ensure that product choice meets targeted consumer needs Must carefully plan the number of units to have on hand to meet the expected sales for the brand, size, color combinations Must develop merchandise lists 1. Basic Stock List (staple items) 2. Model Stock List (fashion items) 3. Never Out List (key items and best sellers)
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Involves monitoring and adjusting the types of product lines that are added and dropped from the merchandise mix Two widely used methods to control assortment and support: 1. Inventory turnover: rate at which the retailer depletes and replenishes stock 2. Open-to-buy:amount of new merchandise a retailer can buy during a specific time period without exceeding planned purchases for the period
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Merchandise Mix Strategies Different optimal variety and assortment strategies possible!!
Narrow Variety/Shallow Assortment Vending machines Newsstands Door-to-door Wide Variety/Shallow Assortment Variety Stores General Stores Discount Stores Narrow Variety/Deep Assortment Specialty Stores Wide Variety/Deep Assortment Full-line Department Stores
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Financial management tool used to plan and control the total amount (in dollars) of inventory carried in stock at any time Determines how much a retailer should invest in inventory during a specified period Remember: Merchandise Budget controls dollars; Merchandise Mix controls product units
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Bottom-up: initial planning is done by people responsible for actually implementing the plans.
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Questions
How does a staple merchandise buying system operate? What are a merchandise budget plan and opento-buy systems, and how are they developed? How do multi-store retailers allocate merchandise to stores? How do retailers evaluate their merchandising performance?
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System:
Monitors Inventory levels Automatically reorders when inventory gets below a specified level
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Retailers try to reduce the stock level to keep Inventory Investment low by reordering and receiving merchandise often but without increased administrative and transportation costs with frequent reorders
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Basic Stock
Indicates the Desired Inventory Level for Each SKU
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desired product availability Backup stock for desired product availability Sales forecasts
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Performance measures
Order Point
the point at which inventory available should not go below or else we will run out of stock before the next order arrives
Order point = sales/day (lead time + review time) + buffer stock Assume Lead time = 3 weeks, review time = 1 week, demand = 100 units per week Order point = 100 (3+1) = 400 Assume Buffer stock = 50 units, then Order point = 100 (3+1) + 50 = 450 We will order something when order point gets below 450 units.
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132 units = [5.43 units x (14 + 7 days)] + 18 units So Buyer Places Order When Inventory in Stock Drops Below 132 units
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Order Quantity
When inventory reaches the order point, the buyer needs to order enough units so the cycle stock isnt depleted and sales dip into backup stock before the next order arrives. Order Quantity = Order Point Quantity Available
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Avocado Bath Mat Quantity available = Quantity on Hand + Quantity on Order = 90 Order Quantity = Order Point Quantity Available Order Quantity = 132 90 = 42
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The system for managing fashion merchandise categories is typically called a Merchandise Budget Plan
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Royalty-Free/CORBIS
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Set margin and inventory turn goals Seasonal sales forecast for category Breakdown sales forecast by month Plan reductions markdowns, inventory loss Determine stock needed to support forecasted sales Determine open to buy for each month
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Net Sales
Avg. COGS
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Planned Reductions
Allowance for the difference between the original retail value & actual final sales value of the merchandise.
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Merchandise Shortage
It is the diff. between the book inventory & the physical inventory when the book inventory is larger. Special attention should be paid while inwarding stocks or transferring stocks.
Merchandise Overage
It is the diff. between the book inventory & the physical inventory when the physical inventory is larger. This is generally due to error in physical count.
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Employee Discounts & Discounts for Other Special Groups It is the price reduction granted to store employees. They are also granted to some groups like charitable institutions / bulk corporate orders etc.
Markdown & Markdown %
Reduction in price from original retail price is called Markdown. Markdown = Original Retail Price Markdown Price Markdown % = Net Markdown Net Sales
100
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Markups
Buyer sells merchandise at a price that will cover the cost of goods & the expenses incurred for acquiring the goods & thereby also yield profit. Markup = Retail Price Cost Price Foll. Information is crucial for planning mark-ups:
Total amount of sales for the season Planned expenses Planned reductions Profit goal for the season
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Markups
Initial Markups & Maintained Markups For planning initial markups the buyer must consider the foll:
Covering costs & expenses & making profits Consumer demand Store clientele Kind of merchandise Type of Retail Competition
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Markups
Markup = Retail Price Cost Price Markup% at Retail = Markup/ Retail Price
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[1/2 (1+
)]
52 Weeks
Beginning Stock
Months Sales
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The percentage distribution of sales by month is based on Historical data Special promotion plans
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Retail sales are very seasonal. The Christmas season often accounts for more than 40% of a retailers annual sales.
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Sales % Distribution 1. Month 6 mo. data April May 100.00% 21.00% 12.00% 2. Mo. Sales $130,000 $27,300 $15,600
Monthly sales = the forecasted total season for the six-month period x monthly sales %
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To have enough merchandise every month to support the monthly sales forecast, buyers need to consider factors that reduce the inventory level in addition to sales made to customers Markdowns Shrinkage Discounts to Employees
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Shrinkage
Inventory loss caused by shoplifting, employee theft, merchandise being misplaced or damaged and poor bookkeeping. Retailers measure shrinkage by taking the difference between 1. The inventory recorded value based on merchandise bought and received 2. The physical inventory actually in stores and distribution centers Shrinkage % = $ shrinkage $ net sales
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Reduction % Distribution 3. Month % 6 mo. data April 100.00% 40.00% 4. mo. reductions $16,500 $6,600
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June 4.4
July 4.0
Aug 3.6
Sept 4.0
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April 98280
May 68460
June 68640
July 98800
Aug 98280
Sept 8000
BOM Stock
= monthly sales (line 2) x BOM stock-to-sale ratio (line 5) = $27,300 x 3.6 = $98,280
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April 68640
May 68460
June 275080
July 98280
Aug 78000
Sept 65600
The BOM stock for the current month = the EOM stock in the previous month
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June 48406
July 26180
Aug 8670
Sept 8420
Why did performance exceed or fall short of the plan? Was the deviation from the plan due to something under the buyers control? Did the buyer react quickly to changes in demand by either purchasing more or having a sale?
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Open-to-Buy System
The OTB system is used after the merchandise is purchased Monitors Merchandise Flow Determines How Much Was Spent and How Much is Left to Spend
PhotoLink/Getty Images
PhotoLink/Getty Images
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Open-to-Buy System
The Right Amount Of the Right Stuff At the Right Time This is where Open To Buy planning comes into play.
It helps the buyer to decide how much inventory should be on hand at the beginning of any given month and how much new merchandise should be received during the month to maintain your optimum inventory levels.
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Open-to-Buy System
There are four basic steps to creating a simple, effective open to buy system.
The first three steps are usually done once a year and, when completed, gives the buyer/planner a complete open to buy plan for the upcoming year. The final step is to use the open to buy plan thus created to adjust for monthly merchandise flow.
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Open-to-Buy System
Step 1. Plan annual sales and markdowns. This is probably the most important step in the process since the stock levels are derived from the planned sales. Step 2. Plan your average stock, turn, and Beginning Of Month stocks. This step is the more difficult step. This determines what stock levels and turnover rates are appropriate for the business. Turns that are too slow will give stock levels that are too high - high markdowns and low cash flow. If turns are too fast, the planned stock levels will be too low - youll miss sales and give poor customer service due to out of stocks.
Step 3. Calculate an Open To Buy plan for every month. Once sales and stocks are planned, calculate how much merchandise to receive (how much you have open to buy) each month.
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Open-to-Buy System
Start with the beginning of month stock plan (stocks at retail dollars) and subtract sales (sales decrease stock levels), and subtract markdown dollars (the amount you take in markdowns also decreases stock levels). Compare the result to your planned end of month stock levels. The difference is how much merchandise you should receive during that month.
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Open-to-Buy System
What does the monthly plan look like and how does it work?
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Open-to-Buy System
Step 4. Adjust monthly using OTB projections. The last step is to use the plan to monitor sales, stock levels, and purchases. For example, if sales slow down, stock levels are likely to increase. In order to stay on plan, buy has to be less the next month, or take additional markdowns, or cancel orders, or a combination of these. If sales are increasing, buy more in order to stay on stock plan. Adjusting monthly lets the buyer keep stock levels at the optimum levels for business.
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Smaller stores require a proportionally higher inventory allocation than larger stores because the depth of the assortment or the level of product availability is too small, customers will perceive it as being inferior.
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The assortment offered in a ready-to-eat cereal aisle should match the demands of the demographics of shoppers in a local area
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