Q.1 How to plan and control merchandise budgets? Mention some merchandising perspectives on pricing. A.

1 Merchandise Budget Plan Merchandise budget plan specifies how much money should be spent each month to support sales and achieve merchandise objectives Model six month merchandise budget plan: Produc Feb Mar Apr May Jun Spring ts: Mens Mens tailore d Wool suits cotton suits super coats Jan Mont 1 21 12 12 19 21 15 100 hly % sale s% distri buti on to seas on Mont 2 Rs Rs Rs Rs Rs Rs Rs hly 27,3 15,6 15,6 24,7 27,3 19,5 130, sale 00 00 00 00 00 00 000 s Mont 3 40 14 16 12 10 8 100 hly redu ction s% distri buti on to seas on

Mont hly redu ction s BOM stoc k to sale s ratio BOM stoc k EOM stoc k Mont hly addi tions to stoc k

Rs 6,60 0 3.6

Rs 2,31 0 4.4

Rs 2,64 0 4.4

Rs 198 0 4

Rs 165 0 3.6

Rs 1,32 0 4

Rs16 ,500

6 7 8

Rs 98,2 80 Rs 68,6 40 Rs 4,26 0

Rs 68,6 40 Rs 68,6 40 Rs 17,9 10

Rs 68,6 40 Rs 98,8 00 Rs 48, 400

Rs 98,8 00 Rs 98,2 80 Rs 26,1 60

Rs 98,2 80 Rs 78,0 00 Rs 8,67 0

Rs 78,0 00 Rs 65,6 00 Rs 8,42 0

Rs 98,2 80 Rs 65,6 00 Rs 113, 820

Explanation of the merchandise budget plan: 1. Feb Mar Apr May Jun Spring Month ly sales perce nt distrib ution to seaso n (MSPD S) Jan Mon 1 21 12 12 19 21 15 100 thly % sale s% distr ibuti on

to seas on significantly year after year. Hence in this example we arrive at 21% for the mens apparels. 2. Monthly sales Monthly sales = Total sales forecasted for a season* each sales percentage by month Monthly sales for January = Rs 130,000*21% = Rs Feb Mar Apr May Jun Spring 27,30 0 Jan Mon 2 Rs Rs Rs Rs Rs Rs Rs thly 27,3 15,6 15,6 24,7 27,3 19,5 130, sale 00 00 00 00 00 00 000 s 3. Monthly reductions percent distribution to seasons Merchandise budget planner should consider the markdowns, discounts, and shrinkage, as these reduce the inventory level in a store. These items are dealt with in detail in the vendor management unit. Jan Mon 3 thly red ucti ons % distr ibuti on to seas on Feb 40 Mar 14 Apr 16 May 12 10 Jun 8 Sprin g 100

4. Monthly reductions Monthly reductions= Total reductions in the spring * monthly reductions % distribution to a corresponding month. = Rs 16,500* 40% = Rs 6,600. Jan Mon thly Feb 4 Mar Apr Rs Rs Rs 6,60 2,31 2,64 May Jun Spring Rs Rs Rs Rs 198 165 1,32 16,5

redu ctio ns

00

5. BOM stock to sales ratio Please see the procedure in the merchandise objectives BO M stoc k to sale s rati o 5 3.6 4.4 4.4 4 3.6 4 4

6. BOM stock BOM= Monthly sales * BOM stock to sales ratio = Rs 27,300* 3.6 = Rs 98,280 7. EOM stock: BOM stoc k EOM stoc k 6 7 Rs 98,2 80 Rs 68,6 40 Rs 68,6 40 Rs 68,6 40 Rs 68,6 40 Rs 98,8 00 Rs 98,8 00 Rs 98,2 80 Rs 98,2 80 Rs 78,0 00 Rs 78,0 00 Rs 65,6 00 Rs 98,2 80 Rs 65,6 00

End of month stock is equal to the BOM stock of the next month. 8. Monthly addition to stock Monthly Addition to stock = sales+ reductions + EOM inventory - BOM inventory Monthly Addition to stock for January = Rs 27,300+ 6,600+68640- 98920 = Rs 4260

Q.2 Saraswathi Merchandisers want to develop and present their product lines in unique ways that will help them outweigh their competitors. How can they do it? Will global sourcing will help? A.2 Developing the category strategy Footfall: Retailers adopt this strategy when the category requires communicating the price awareness and promote frequent purchase. In this strategy retailers focus will be on increasing the traffic to the retail store.

Market basket: The strategy is focused on increasing the average transaction done by the customer in the retail store Turf defending: the strategy of defending some of the SKUs in a category which are prone to the aggressive competition. Retailer wants to protect this category from the competition. Bottom line: retailer would like to focus on the categories which are not price sensitive and provides high margins. These categories enjoy higher customer loyalty. Cash flow generation: The strategy is adapted to the categories that are having higher inventory turnover. These helps in generating the higher sales that result in better sales. Consumer impulsion: Strategy is used to sell impulse goods in a retail store. Categories should attract the customers even who pass through the retail shop or who come for window shopping. Image building: Categories stored in the retail store should help it in improving the brand image of the retail store. Categories that do not provide proper image to the retailer will put his business in jeopardy. Implementing category plan Category implementation requires supporting an organization structure. Large retail organizations ensure a lean hierarchy to manage the category. To manage the category retailer hires the staff having knowledge in the domain, train them and allocate the task and responsibility. The better category staff understands the movement of it in the store and tweaks the category if the performance is below the level expected. Category implementation should also focus on the information technology requirements. The success of the category depends on the efficient supply chain. Hence category implementation should focus on the supply chain integration and relationship building.

Q.3 Write notes on a) International buying b) Bulk buying. A.3 International Buying - In a globalised world where competition comes from across the countries, the retailer has two options to make decisions regarding merchandise sourcing, i.e., either to source domestically or internationally. Retailer would like to source it internationally because : i) Some countries are having a reputation for certain product manufacturing and provide value to the retailer. For example, Japan for automobiles and Switzerland for watches. ii) The imported brands provide image to the retailer. A customer thinks that if a retailer is storing international brands, then he is a specialty retailer. International sourcing by merchandiser needs to take certain cost related decisions such as : a. Country of origin effect: Consumer associates certain products with a particular nation. These nations either provide quality

products or offer the merchandise at a cheaper price. This will help the retailer to increase the traffic and profitability. Japan is known for electronics products. Sony still enjoys a high brand reputation in India. Consumers in India think that Chinese products are cheap in price and quality. b. Foreign exchange: The fluctuations in the foreign exchange are another important factor in the international sourcing. Assume a retailer in Indore places an order with a Brazilian shoe company when the foreign exchange price for US$ is Rs 40. If the total worth of the buy is $ 10000, the retailer should pay Rs. 400, 000. If the rupee is depreciated to $ 50, then the retailer has to pay Rs. 500,000. Change in the total amount payable will affect the entire pricing strategy of the retailer. c. Countrys political and legal system: Buyer should analyze the situation in a country where he or she is outsourcing the goods. The countrys external environment may turn hostile. For example, an Indian retailer in Ludhiana is outsourcing products from Pakistan. If the Indian government changes the policy and restricts imported goods from Pakistan, then it directly affects his business. d. Quality of products: All those products outsourced internationally are not of good quality. Sometimes a manufacturer in another country goes for economies of scale and sells at a cheaper price. A retailer who gives weightage to the price alone will regret for the quality of products. Products from China face this severe limitation. The above discussion gives an overview of complexities, advantages and limitations of international sourcing. Thus, few retailers decide it to source it completely from domestic vendors. There are many advantages of sourcing it from domestic vendors. They are i) Retailer gets quick response from the vendor. ii) Retailer can ensure better supply from domestic vendors than international vendors. iii) Some customers prefer made in India products only. iv) Integration of process and technology with a vendor. 2. Bulk Buying There are serious discussions on whether retail buying should be centralized or decentralized or combined. Centralized buying gives more power to the retailer, as he is buying in bulk. It reduces the work of store employees. The retailer can have better control over the vendors in centralized purchasing. Centralized buying makes negotiations intense and makes retail buyers specialists. Sales forecasting will be easy, as aggregate sales data are available with retailers. Centralized buying faces severe limitations like conflicts which may arise between the central office and stores. It may not cater to the local needs of the store. Hence it is very difficult to maintain the staple nature of merchandise. All this makes centralized buying unviable and makes the retailer think about decentralized buying

Q.4 Which are the various competitive buying procedures? Explain.

A.4 Buying situations vary to a large extent in retail marketing. First time buying and repeated buying situations require a different type of buying process. The negotiation process and vendor evaluation will not be there if the company wants to purchase the same material from the existing suppliers. Therefore, in this section we are discussing the different situations involved in retail buying. They are: a. New Task b. Straight re-buy and c. Modified re-buy. New task: A retail organization is purchasing a major product for the first time. Therefore retailer will be having more number of people involved in the decision making. In this situation, sellers try to meet all the buying participants of the retail organization and convince them. This will result in higher uncertainty and cost for the seller. Straight re-buy: In this situation, the retail organization follows routine step of informing sellers about their requirements and supply specifications. This is the easiest situation in the organization buying. This provides lot of flexibility to both buyers and sellers. Company already has the list of suppliers. It gets the information from the store about their requirements and the same is conveyed to the customer. Modifies re-buy: In this stage buyer wants either product modification, price modification or terms modification. For example, retailer X is buying Rs 100,000 worth of cream biscuits from company Y every month. Company would like to change their purchase from cream biscuits to salt biscuits. It starts the negotiation with their suppliers on the new terms and conditions.

Q.5 Is it necessary to investigate sellers business and to know the buyers motives especially in retail sector? Validate your answer. A.5 Investigating Vendor Capabilities Investigating Buyers a. From supplier perspective. We will discuss this section with a hypothetical example of a FMCG Company and retail start up and established retail chain. Assume a new retail start up ABC wants to buy the goods from a well known FMCG company. ABC sends the buying request to FMCG Company. A FMCG Buying and Merchandising Unit 9 Sikkim Manipal University Page No.: 108

Company cannot take their policies directly to the ABC as they follow for other existing retailers. Seller investigates the retail buyers request and asks the distributor to meet the buyers demand. In this situation, the supplier is not sure of buyers ability to buy in big volume. Therefore margin given to retailer is less. Once the retailer reaches the volume targets of seller, he will be supplied through a master distributor. A master distributor deals with a large volume compared to general distributors. Further, reaching other distributors volume level buyers will be asking his or her warehouse or C&F to sell directly to the retailer. By direct selling retail buyer will be benefited by the higher margin. Buyers business also analyzes if supplier is having more bargaining power. Supplier analyzes buyers documents on immovable asset documents, financial performance, hypothecation of business to banks or other parties, tax related procedures.

b. From organization perspective: Retail buyers performance will be analyzed by the organization. Buyers performance evaluation criteria are a) Value of merchandise to the total sales. b) Utilization of the space. c) Gross margin on total merchandise. d) Impact of merchandise on the image of a store. e) Utilization of open to buy f) Preparation of merchandise plan and budget. c. From consumer perspective: Retail organization would like to know their consumer behavior, purchasing pattern, satisfaction level and influence of competition on the buyer. To know these consumer related factors on the business, the retailer conducts market research. Definition: Marketing Research is the function which links the consumer, customers and public to the marketer through information information used to identify and define marketing opportunities and problems; generate, refine and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process.

Q.6 Benjamin is a MBA student. He is interested in retail specialisation subjects. He aspires to pursue a career in retail especially related with merchandising. Do you see any career prospects for Benjamin for the areas that hes interested in? Please advice. [ A.6 Merchandising are the activities involved in acquiring particular goods and/or services and making them available at the places, times and prices in the quantity that enable retailers to reach its goals2. Interpretation of the definition: Merchandising function enables retailer to reach his store or retail organization goals. When the product required is available in the quantity sought, customer is either satisfied or delighted. Assume a customer walks in to the Subhiksha retail store near to his house to purchase 50g Dabur red tooth paste. After searching in the store category he found that variety of toothpastes available including Dabur Red but could not locate 50g size. He doesnt want to buy 100g or 200g toothpaste. Therefore Subhiksha lost a customer. If the same quantity of toothpaste is offered to the customer then store would have a business. This shows the importance of providing the right product at the right place at right time. Another definition of merchandising is The planning involved in marketing the right merchandise at the right place at the right time in the right quantities at the right price3 Merchandising philosophy works as guiding principles for retailers before he or she takes the merchandise related decisions. Merchandise philosophy should be based on Target market: A retailer would like to open an apparel store in the semi urban area of Bihar. He or she should understand the target market characteristics before storing the clothes. If the retailer stores premium branded shirts and trousers, will he be able to succeed? He may not. Therefore understanding the target market is very essential before taking any decision on target market.

Retailers institutions type: There is big difference between the merchandise present in the hypermarket and specialty store. Hypermarket may be interested in storing all types of merchandise but specialty store focuses on the niche. Therefore hypermarket will have large assortment and specialty store will have small assortment. Market place positioning: Positioning is the strategy of creating the product image in the minds of the consumers. The positioning strategy depends on the product, quality, price, service, distribution and packaging. Which of these attributes shall be used to highlight the merchandise in the store? How this positioning strategy can be communicated. All these questions need to be addressed Thus merchandising is a very good prospective for a career and I suggest Benjamin to go for this subject as a specialization as he will have a bright career ahead. ___________________________________________________________________________________