CHAPTER

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Buying
Merchandise
CHAPTER 13
McGraw-Hill/Irwin

Retailing Management 8e

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

The McGraw-Hill Companies, All rights reserved.

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Brand Alternatives- Branding

options for retailers

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National (Manufacturer)
Brands.
Designed, produced, and
marketed by a vendor
and sold by many
retailers. (Brand/sub brand)
Private-Label
(Store/house/own) Brands
Developed by a retailer
and only sold in the
retailers outlets
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Categories of Private Brands

(Branding options for retailers)

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Exclusive Brands

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National Brands or Private

Labels?

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National (Manufacturer) Labels

Advantages
Help retailers build their
image and traffic flow
Reduces selling and
promotional expenses
More desired by
customers
Customers patronize
retailers selling the
branded merchandise
Push some of the financial
risk onto the vendor

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Disadvantages
Lower margins
Vulnerable to
competitive pressures
Limit retailers flexibility

The McGraw-Hill Companies, Inc./Lars Niki, photographer

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Private Labels
Advantages
Unique merchandise
not available at
competitive outlets
Exclusivity boosts
store loyalty
Difficult for
customers to
compare price with
competitors
Higher margins

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Disadvantages
Require significant
investments in design,
global manufacturing
sourcing
Need to develop
expertise in developing
and promoting brand
Unable to sell excess
merchandise
Typically less desirable for
customers
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Buying National Brand

Merchandise

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Buying decision for fashion

apparel/accessories:
5-6 times a year
Many months before delivery
Withhold open-to-buy (OTB) for new items
with fashion change
Buying decision for staple merchandise:
Less frequent
Continuous replenishment
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National Brand Buying Process

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Meet with vendors

Discuss performance of vendors merchandise
during the previous season
Review the vendors offering for the coming
season
May place orders for the coming season
Sometimes they do not make a buying
decision, but review merchandise, return to
their offices to discuss with the buying team
before negotiating with vendors
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Developing and Sourcing

Private Label Merchandise

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In-House: Large retailers (e.g., JCPenney,

Macys, The Gap, American Eagle Outfitters)
have divisions specialized in

identifying trends, designing,

specifying products
Selecting manufacturers
Monitoring and managing
manufacturing conditions and
product quality
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Sourcing Merchandise

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After decisions are made on what and how

much private label merchandise will be
acquired,
Designers develop specifications
Sourcing departments find a manufacturer,
negotiate a contract, and monitor the
production process, or
Use Reverse Auctions to get quality private
label merchandise at low prices
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Negotiating with Vendors

Continued

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Negotiation Issues
Price and gross margin
Margin Guarantees
Slotting Allowances/Listing Fee

Additional markup
opportunities (extra /volume
buying)
Terms of purchase (days)
Exclusivity
Advertising allowances
Transportation
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Terms of Conditions of Purchase

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The Robinson-Patman Act (Anti-Chain-Store Act)

Restricts the prices and terms that vendors can
offer to retailers
Forbid vendors from offering different terms and
conditions to different retailers for the same
merchandise and quantity
Different prices can be offered if
The costs of manufacturing, selling, and delivery
are different
The retailers are providing different functions
(e.g., distribution, store service, etc.)
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Tips for effective negotiating

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Have at least as many negotiators as the Vendor

( retailers have psychological advantage if the
vendor out numbered)
Choose a good place to negotiate (own office !!!)
Be aware of the real deadlines ( sales
budget/deadlines etc)
Separate the people from problem (no personal
favors)
Insist on objective information ( exact numbers in
case of any issue to be sorted out)
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Tips for effective negotiating

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Invent options for mutual gains ( work on multiple

options- quick decision making)
Let them do the talking ( phenomenon can work to
negotiators advantage- those who break the
silence first in negotiation may loose
Know how far to go ( Fine deadline between
negotiating too hard and walk away negotiate
but go for Win Win situation
Dont burn bridges. ( it is a small world)
Dont assume ( review, summarize and bring in
writing)
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Commercial Bribery

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A vendor or its agent offers to give or pay a

retail buyer something of value to influence
purchasing decisions.
A fine line between the social courtesy of a
free lunch and an elaborate free vacation.
Some retailers with a zero tolerance policy
Some retailers accept only limited
entertainment or token gifts.

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Chargebacks

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A practice used by retailers in which they

deduct money from the amount they owe a
vendor without getting vendor approval.
Two Reasons:
merchandise isnt selling
vendor mistakes
Difficult for vendors - Disrupt relationships

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Buybacks

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Stocklifts, Lift-outs
Used to get products into retail stores.
Two scenarios:
Retailer allows a vendor to create space for
its goods by buying back a competitors
inventory and removing it from a retailers
system.
Retailer forces a vendor to buyback slowmoving merchandise.
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