Merchandise Management

Session: 11 Prof: Yasmin

Retail Merchandising is the process of developing, securing, pricing, supporting and communicating the retailers merchandise offering.

It means offering the right product at the right time at the right price with the right appeal!!
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Stages in Merchandising
Planning
Careful consideration of Customer

Sourcing
Locating and purchasing merchandise

Buying
Negotiation and purchase process

Arranging and Displays

Visual merchandising

Space Management
Space allocation and planning
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Category Management
Category management is a concept in which the range of products purchased by a business organization or sold by a retailer is broken down into discrete groups of similar or related products; these groups are known as product categories (examples of grocery categories might be: tinned fish, washing detergent, toothpastes).

Category Management
It is a systematic, disciplined approach to managing a product category as a strategic business unit Each category is run as a "mini business" (business unit) in its own right, with its own set of turnover and/or profitability targets and strategies

Category Management
A category is a distinct, manageable group of products or services that consumers perceive to be inter-related and\or substitutable The aim of category management are to:
Satisfy the consumer Grow the category

Category Management
Category is an assortment of items which the consumer may perceive as substitute for each other The merchandise is priced and promoted to appeal to a similar target market and the price promotion are timed for the same period

Category Management
Category
Basic unit of analysis for making merchandising decisions

Category Management
The process of managing a retail business with objective of maximizing sales and profits of a category
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Category Management
Category management looks at answering a series of questions. Issues that need to be addressed include What items should be carried, in what quantities, at what prices, in which stores, where in the store, how much shelf space should be allocated, what level of advertising is required and so on

Category Management Process

Category definition Role of category Category assessment Category scorecard (GMROI) Category strategies
Demand-chain strategy Supply-chain strategy

Category tactics Implementation

Role of Category
Routine categories: products used by the customers on a regular basis Convenience categories: more conveniently purchased by customers from their neighborhood retail outlets Seasonal Categories: products that are bought occasionally Destinations Categories: are used by the retailers to position themselves as the preferred stores of customers through their superior service and better value offering
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Setting Objective for the Merchandise Plan

1. Defining the target market 2. Establishing performance goal & 3. Deciding on the basis of general trends in the marketplace, which merchandise classification deserves more or less emphasis

Buyers & Merchandise Planners Approach

Study their categories past performance Look at trends in the market Based on market trends, try to project the assortments for merchandise categories for the coming seasons

The considerations for Merchandise Plans

Marketing Consideration Merchandise strategy options Type of customer base Store format, environment, retail proposition, trends in fashion, potential buyer base. Availability of stock based on assortment profile, quality, specific choice, seasonal requirements, estimated cost, promotional agreement Items, range of purchase, time period (season) average transaction value for various products, frequency of visits and purchases Projections of profitability and sales, stock taking (investment and return), terms of contract and payment, corporate objectives and pricing strategies Merchandise must meet the following criteria: desired range, cost, price-offer, brand policy, be available, delivery, stockholding needs and financial returns

Financial plans

Merchandise assortment search

Setting Objective for the Merchandise Plan

GMROI Return on assets= net profit/ net sale * net sales/ total assets
= net profit/ total assets

Gross margin return on inventory investment = gross margin/ average inventory Where average inventory is taken at cost

Merchandise in Motion
Eg. Jeans are delivered to the store through the loading dock in the back, spend sometime in the store on the racks, and then are sold and go out from the front door. The faster this process takes place the higher the inventory turnover will be

Advantages of high inventory turnover

Less risk of obsolescence & markdowns Improved sales person morale More money for market opportunity Decreased operating expenses Increased asset turnover

Disadvantages of too high inventory turnover

Lowered sales volume Increased cost of goods sold Increased operating expenses

Developing Merchandise Plans

The Traditional Product Life Cycle

Maturity
Total Retail Sales

Introduction

Decline

Growth

Time

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Developing Merchandise Plans

Life Cycle Stage

Strategy

Variable

Introduction
High - income Innovators One basic offering Limited or extensive Penetration or skimming

Growth
Middle-income adaptors Some variety

Maturity
Mass market

Decline

Target Low-income Market Good or and laggards Less Service variety Distribution Intensity Price prices

Greater variety

More retailers Wide range

More retailers Lower prices

Fewer retailers Lower

Promotion

Informative

Persuasive

Competitive

Limited

Supplier Oligopoly Structure

Monopoly oligopoly

Oligopoly competition

Co mpetition

Variations on the Category Life Cycle

Fad: is a merchandise category that generates a lot of sales for a relatively short time often less than a season Fashion: fashion is a category that typically lasts several seasons and sales can vary dramatically from one season to the next

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Fad - Merchandising

Fad
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Variations on the Category Life Cycle

Staple Merchandise: items in this category are in demand over an extended period Seasonal Merchandise

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Develop sales forecast

Sources of information for category-level forecasts
Previous sales volume Published sources customer information
Want book Depth interview Focus group Shop competition

Vendors & resident buying officers

Steps In The Retail Merchandising Process

1. Develop the merchandise mix and establish the merchandise budget. 2. Build the logistic system for procuring the merchandise mix. 3. Price the merchandise offering. 4. Organize the customer support service and manage the personal selling effort. 5. Create the retailers advertising, sales incentive and publicity programs.

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Assortment Planning Process

The decision of merchandise assortment depends on the availability of store space & the financial budget of the retailer. Establishing a trade-off between variety, assortment & product availability is the most challenging task of a retailer.

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Assortment Planning Process

Variety Assortment Product availability Assortment planning for service retailers Trade offs between variety, assortment and product availability

Assortment Planning
SKU Stock Keeping Units
Smallest Unit available to keeping inventory control

Category Life Cycle

A categories sales pattern over time Four stages Introduction, growth, Maturity and decline

Variations in category life cycles

Fad, Fashion, Staple, Seasonal

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Assortment Planning Process - Line Planning

Variety
The number of different merchandise categories within a store or department . Breadth defined

Assortment
The number of SKUs within a category. Depth Defined

Product Availability
Percentage of demand for SKU that is satisfied Service level defined
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Influencing Factors
Pricing Strategy
Special Offer, EDLP, Brand, Game Plan

Desired mix of novel vs. basic product lines

Growth opportunities and game plan

Style or Model Trend

Life cycle issues Nature of SKU
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THE COMPONENTS OF THE MERCHANDISE MIX

Merchandise Variety
(no. of product lines)

Merchandise Assortment
(no. of product items)

Merchandise Support
(no. of product units)
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Planning Merchandise Variety Involves Planning And Controlling Product Lines

Retailers use MANY factors to evaluate product lines!!
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PLANNING MERCHANDISE ASSORTMENT AND SUPPORT

Must organize the merchandise mix as to the number of different product lines carried Must decide on: Brands Sizes Colors Material Styles 33 Price points Yasmin

PLANNING MERCHANDISE ASSORTMENT AND SUPPORT

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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CONTROLLING MERCHANDISE ASSORTMENT AND SUPPORT

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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Product Mix trends

Retailers need to develop an innovative product mix strategy, that suits the needs of the unsatisfied customers. Two emerging trends are1. Shotgun Merchandising 2. Rifle Merchandising

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Shotgun Merchandising
It involves expansion of the merchandise being offered in the store in order to satisfy the increasing needs of the consumers Retailer attempts to increase his market share by catering to different sub markets and trying to fulfill the specific needs of various individual target customers

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Rifle Merchandising
Aimed at targeting merchandise at a select group of customers The store carries a very limited number of product lines, but a large assortment is made available in each product line Uses penetration strategy

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Buying
Buyers select the merchandise and negotiate the terms with suppliers. The duties include following up orders and shipments to ensure they arrive as and when specified
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Buying Process

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Arrangement and Displays

Open merchandising allows the customer to interface with displays and physically handle the products they might want to purchase Themed displays are arrangement of goods made for some special days or promotions.
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Effective use of displays

Maintain balance for viewer

Displays should be designed with a central point.

Must not distract from other displays Smaller pieces in the front and larger pieces in the rear Presentation at eye level Keep it simple

Top and right side of display should be reserved for important merchandise

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Space Management
Floor space sales per square feet Display space sales per linear feet Exposure space Cubic feet - refrigeration Location within store
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Factors for space allocation

Historical Sales Contribution to profit Gross margin Industry Average Plannogram
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