RETAIL MERCHANDISING

What is Merchandising
Merchandising consists of the activities involved in acquiring
particular goods and services and making them available at
the places, times, prices and quantities that enable a retailer
to reach its goals.
A merchandising philosophy sets the guiding principles for all
the merchandising decisions the retailer makes.
Must reflect the target market desires, retailers institution
type, the marketplace positioning, the defined value chain,
supplier capabilities, cost, competitors and product trends.
Drives every product decision, from what product lines to
carry to shelf space allotted to different products to inventory
turnover to pricing.

Merchandising Philosophy
Retailer needs to decide:
Breadth of assortment (narrow or
wide)
Depth of assortment (deep or
shallow)
Quality of assortment
(high/med/low)
Store brands or national brands
Pricing policies

Merchandise management
Includes the planning, acquisition, analysis,
handling and control of merchandise and
investment of the retail operation
- analysis: needs & wants of the target audience
- Planning: for future sale of merchandise
- acquisition: procurement from distributors and
mfgs
- Handling: merchandise available at required
store at right time and right condition
- Control: Amount of money spent on buying

 Micro merchandising: Retailer adjusts

shelf space allocations to respond to
customer and other differences amongst
the local markets. Data mined through the
data base. Eg space for cereals for adults.
Cross merchandise: carries
complementary goods and services to
encourage shopper to buy more. Eg
apparel stores and accessories (shirts and
scarves, frypans and scrubbers)

ATTRIBUTES AND FUNCTIONS

AFFECTING THE BUYING
ORGANIZATION

LEVEL OF FORMALITY
Formal

DEGREE OF
CENTRALIZATION
Centralized

Organizational breadth
In general buying organization, one
or several people buy all of the firms
merchandise
Eg owner of small store: does all the
buying himself. Good for small retail
store, saves cost and personnel
Specialized organization: Separate
buyers for each section. Greater
expertise and more personnel
required

Personnel Resources
Retailer can choose between an inside buying
organization and an outside buying organization.
Inside buying: staffed by retailers personnel and
decisions are made by permanent employees. Used
by very large retailers and very small retailers
Outside buying: external source is hired on a fee
basis. Used by small or medium sized retailers.
Resident buying office: touch with key market
trends, provide data and contacts.
Cooperative buying: Group of retailers come
together to avail of volume discounts

Functions performed
Merchandising view: oversee all buying
and selling functions ,including
assortments, advt, pricing, point of sale
displays, employee utilization and
personal selling approaches
Buying view: Merchandise personnel
oversee the buying of products, advt and
pricing while in store personnel oversee
the assortments, displays, employee
utilization and sales presentation

Buyer
Responsible for selecting the merchandise to be
carried and the strategy to market that merchandise.
Devises and controls sales and profit projections for a
product category
Plans proper merchandise
assortments,styling,sizes,qty
Negotiates with and evaluates the vendors
Oversees in store displays
Attuned to trends in marketplace, must be able to
bargain with suppliers, travel to the market place
Prepare detailed business plans

Staffing

Store management
track

Merchandising
track

erchandise manager

Store manager

MERCHANDISING
PLANNING

Role of Merchandise
Manager
Planning : Policy formulation,
forecasting sales for budget period,
estimate consumer demand and
impact of changes occurring in retail
environment
Directing: Guiding and training of
buyers
Co-ordinating: coordinate buying
effort of many buyers and fit into
stores image

Types of Merchandise
Staple: regular products carried Eg milk,
eggs, bread
Assortment: Apparel, furniture
Fashion : Products which have a cyclical
sales due to changing tastes and lifestyles
Seasonal: change according to seasons
Eg AC
Fad: high sales for a short period of time
Eg Harry Potter

Type of stock plans

Basic stock list: specifies the
inventory level, color, brand, style,
category, size, pack etc
Model Stock plan: project no of
specific items such as no of red,
green and blue sweaters. Items are
ordered according to popular size
and colors
Never out stock plan: enough
products so that they are not out of

Planning process
Done in advance, time to buy merchandise , have
it delivered and send it to stores
Analysis of consumers needs and wants, consumer
buying process, sale of high selling
products,interaction with sales staff ,analysis of
external sources of information
Steps:
1. Developing a sales forecast
2. Determining a merchandise requirements
3. Merchandise Control- The Open to Buy
4. Assortment Planning

Analysis and Developing the Sales

forecast
Forecasting involves what a consumers may do
under a given set of conditions
Determines the inventory need for the product or
category
Based on targets given by top management
Typically answer : How much, new products, price?
Made for a specific time period ie weeks, season
short term or long term
Aware of the changes in tastes and attitudes of
the consumers, size of target market and changes
in spending patterns

Analysis and Developing the Sales

forecast
Process:
o Reviewing past sales.
o Analysing the economic conditions.: direct
link to consumer spending patterns
o Analysing the sales potential: demographic
changes in market and products to be sold
o The marketing strategy of the competitors.
o Creating the forecast.: estimate

Determining the Merchandise

Requirements
Planning at Merchandise takes place
at two levels:
- The creation of merchandise budget
- The assortment plan
Merchandise budget: financial plan
as to how much to invest in product
inventories in monetary terms

Merchandise Budget
Sales plan: how much of each product
needs to be sold, dept wise/storewise etc
Stock Support plan: How much of
inventory is needed to achieve those sales
Planned reductions: incase of product not
selling
Planned purchase level: Qty of each
product that needs to be procured from
the market
Gross margins (diff between cost of goods
sold and sales) that each dept contributes

Methods of Inventory
planning

The
The
The
The

Basic Stock Method

Percentage Variation Method
Weeks Supply Method
Stock / Sales Ratio Method

Basic Stock Method

Retailer believes that it is necessary to have a given level
of inventory at all times. Min amt of inventory that needs
to be maintained for a product ,category or store even
during times of low sale
Basic Stock = Avg.stk for the season Avg mthly
sales for the season where,
Average Monthly Sales for the season = Total Planned
Sales for the season / No. of months in the season
Avg. stock for the season = Total Planned Sales for the
season/Estimated inventory turnover rate for the season.
BOM(Beginning of month) Stock = Planned Monthly Sales
+ Basic Stock.

The Percentage Variation

Method
Used when the stock turnover rate is
more than 6 times/year
Basic premise is that inventory
levels should reflect the actual sales
BOM stock = Avg stock for the
season x [1+planned sales for the
month / Average Monthly Sales ]

Weeks Supply
Followed by grocers who follow inventories
weekly, and whose sales dont fluctuate
substantially
The
Weeks Supply Method is calculated as under:
No of weeks to be stocked = the number of weeks
in the period / Stock turnover rate for the period
Avg weekly sales = Estimated total sales for the
period / The no. of weeks in the period
BOM Stock = Avg weekly sales x no of weeks to
be stocked

Stock to Sales Ratio Method

This method is very easy, however
requires the retailer to have a
beginning of the month stock/sales
ratio. This ratio tells the retailer how
much inventory is needed for the
month.
Stock to Sales Ratio = Value of
Inventory / Actual sales
Planned BOM Inventory = Stock
Sales Ratio x Planned Sales

The Stock Turnover Rate

An effective measure at which
products or merchandise moves in
and out of retail store at a given
period
Stock Turnover Rate = Planned Sales
( for the period) / Planned Average
Inventory ( for the period)

Six month merchandise plan

Done after a inventory plan,
merchandise plan
This plan is prepared for six months
Merchandise budget should be
prepared in advance of selling
season
Easy to understand
economy is changing, plan for 6
months
Flexible budgets

The Six Month Merchandise

Plan
Six Month Merchandise Budget

M1
BOM

Last Yr
Plan
Revised
Actual

Sales

Last Yr
Plan
Revised
Actual

Reductions

Last Yr
Plan
Revised

M2

M3

M4

M5

M6

Total

EOM Stock

Last Yr
Plan
Revised
Actual

Retail
Purchases

Last Yr
Plan
Revised
Actual

Purchase Cost

Last Yr
Plan
Revised
Actual

Initial Mark Up

Last Yr
Plan

Gross Margin % Last Yr

Plan
Revised
Actual
On order EOM

Last Yr
Plan
Revised
Actual

Merchandise Control- Open

to Buy
Depends on the sales for the month & reductions,
merchandise buying can be adjusted.
Maintains relation between stock and sales
Controlling the money to buy The Open to Buy
(OTB)
Limits overbuying & under buying
Prevents loss of sales due to unavailability of
required stock
Maintains purchases within the budgeted limits
Reduces markdowns which may arise due to
excess buying

Open to Buy
OTB is always calculated for the
current and future periods
Open to Buy = Planned EOM Stock
Projected EOM Stock
Projected EOM Stock = Average BOM
Stock + Actual Additions to Stock +
Actual on Order Planned Monthly
Sale Planned Reductions for the
month

Assortment Planning
Assortment is the selection of merchandise a
retailer carries. Includes breadth of the product
categories and the variety within each category
Need to choose quality of the merchandiseexpensive/moderately priced/inexpensive items
Width of assortment: number of distinct goods
and services (product lines) a retailer carries
Depth of assortment: Refers to variety in any one
goods /service category (product line) a retailer
carries

Brands
As a part of assortment planning, retailer chooses a
proper mix of manufacturer, private and generic
brands.
Manufacturer brands are produced and controlled by
mfgs. Well known ,presold by advts, represent max
quality to consumers. Eg Coke,Sony etc
Private /dealer/store brands: Names designated by
retailers, more profitable, better controlled ,not sold
by competing retailers ,less expensive and may lead
to loyalty
Generic brands: Form of private brands have plain
packages ,secondary shelf locations etc

Factors to consider before planning

Merchandise quality
Factor

Relevance for planning

Target Market

Match merchandise quality to

wishes of the desired target
market

Competition

Sell similar quality (as that of

competition) or different quality
to appeal to different target
market

Retailers image

Relate item quality with customer

perception of the retailer

Store location

Impact of location on image

which in turn impacts competitors
and in turn quality

Stock Turnover

High quality-high prices yield

lower turnover

Profitability

High quality- high profit, lower

quality- more turnover, more

Factors to consider before planning

Merchandise quality
Factor

Relevance for planning

Customer services offered

Know that high quality goods

require more personal selling,
alterations, delivery etc unlike
lesser quality merchandise

Personnel

Employ skilled personnel for

higher quality merchandise

Perceived goods/service benefits

Analyse consumers. Lesser

quality functional benefits. High
quality- status/services

Constrained decision making

Franchisee/chain store managersno control over products.

RETAIL ASSORTMENT
STRATEGIES

Wide & Deep : (many product lines &

large variety in each)
Advantages

Wide & Shallow : (many product lines

& limited variety in each)
Advantages

Narrow &Deep: (few product lines &

large variety in each)
Advantages

Narrow &Shallow: (few product lines &

few variety in each)
Advantages

Depth & Breadth of

merchandise
MENSWEAR

PRODUCT LINE

SHIRTS

ZODIAC

STYLES

COLOURS

VAN HEUSEN

SIZES

DEPARTMENT

TROUSERS

LOUIS PHILLIPPE

DEPTH

ACCESSORIES

ARROW

BREADTH

Model Stock Plan

The model stock plan gives the
precise items and quantities that
should be on hand for each
merchandise line.A model stock plan
needs to be compiled for each line of
merchandise.

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Steps involved
Identify the attributes that the
customer would consider in buying
the product.
Decide on the levels under each
attribute.
Allocate the total money or the units
to the respective item categories.

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Creating a model stock plan

A retailer has allocated Rs. 1 lakh to
buying shirts. Assuming that the
purchase price for the shirts is
Rs.100, he will be able to stock 1,000
shirts.
Create a model stock plan.

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 Identify the number of levels under

each attribute.
Type of shirt Dress, Casual,
Formal, Sport
Size Small, Medium, Large, Extra
Large
Sleeve Length Full Sleeves, Short
Sleeves
Collar Type Saville, Button Down
Color White, Blue, Cream, Grey

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Type

Dress

Casual

Formal

Sport

% of Sales

10

40

20

30

Sizes

Small

Medium

Large

Extra Large

% of Sales

25

40

25

10

Sleeve Length

Full Sleeves

Half Sleeves

% of Sales

30

70

Allocate the total units to the respective item categories

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Mens Shirts
100% (1,000)

Dress
10% (100)

Casual
40% (400)

Formal
(20%) 200

Sport
30% (300)

Small
25% (100)

Medium
40% (160)

Large
25% (100)

Extra Large
10% (40)

Full Sleeves
30% (48)

White
40% (18)
Cotton
25% (4)

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Half Sleeves
70% (112)

Button Down
40% (45)

Saville
60% (67)

Blue
30% (14)

Cream
20% (9)

Grey
10% (4)

Cotton Blend
75% (14)

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CATEGORY MANAGEMENT

Merchandise Category- A planning

unit
Retail- a business responding to change.
Faces demanding customer, intense competition and pressure on
costs
This combination of business condition and advances in technology
created an opportunity for new approach- Category management
A merchandise category is the basic unit of analysis for making
merchandising management decisions
A merchandise category is an assortment of items that customers
may see as substitutes of each other
Eg A department store- offers all brands, sizes ,colors of girls
dresses. A mother before purchase decision may consider whole set.
Lower price of one increase sale of that type but decrease sale of
other type. Thus a buyers decision of lowering price and promoting
specific SKU may affect sales of other SKU s in that category

Category management
Category Management can be
defined as the distributor / supplier
process of managing categories as
strategic business units, producing
enhanced business results by
focusing on delivering consumer
value
Thus, a category is an assortment of
items that the customer sees as
reasonable substitutes of each other.

Category Management
A focus for better understanding the customer
needs as a basis for the retailers and suppliers,
strategies, goals and work processes
Technology and information- key enabler
Use this information to tailor the product
according to consumer needs
Offering is aimed at providing customer
satisfaction and maximizing returns for the
organization
Sometimes results in reevaluation of business
practices

Core Components of Category

Management
Performance
Measurement

Organisational
Capabilities

Strategy and
Business Process

Trading Partner
Relationships

Information
Technology

Category Management Business

Process
C
A
T
E
G
O
R
Y
R
E
V
I
E
w

Category Definition
Category Role
Category Assessment
Category Scorecard
Category Strategies
Category Tactics
Plan Implementation

 Category Definition: Should be based on how the consumer

buys. For eg : for a grocery it would be aerated drinks one
category, ready to cook meals- another.
Category Role: Determines the priority and importance of
various categories in overall business Destination category:
Main offering for the store For eg Supermarket- groceries
Routine or Preferred category : customer buys from that
retailer as a routine /habit: Eg toothpaste/soaps
Occasional or Seasonal Category :not purchased often Eg
umbrellas
Convenience Category: finds convenient to purchase from
a neighbourhood retailer Eg bread/eggs
Category Assessment: Evaluation with respect to the
turnover, profits, ROA & the consumers, the market, the
retailer & the supplier.
Category Performance Measures: Setting measurable targets
in terms of Sales, Margins and GMROI (Gross Margin Return
on Investment)

 Category Strategies: Traffic building,

transaction building, turf defending,
profit generating, excitement creating
or image enhancing
Category Tactics: Assortments, Pricing,
Promotions and Merchandise
Presentation
Plan Implementation
Category Review

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The Category Captain

A preferred vendor works with the retailer to develop
a better understanding of customer behavior, create
assortments that satisfy consumer needs and
improve profitability of the merchandise category
Aids the retailer in developing a category
Overall view of the category focus and networking
with different retailers
Eg Kraft foods- supermarkets give Kraft access to
store information and competitor sales. Works with
store managers regarding assortments, product
placement on shelves, promotion, pricing for all
brands in that category

Advantages
Can increase profits
Merchandise management easier

Disadvantages
Letting a fox into henhouse
Eg Kraft may try to maximize its own
sales at expense of competition
Can suggest an assortment plan
which includes its SKUs and exclude
SKU a which are more profitable to
the retailer
Could block smaller brands

The Category Management Process

Indian Context
Location

Customers

Positioning

Deve
lop
initial
merc
handi
se/
categ
ory
portf
olio

Asse
ss
pote
ntial
and
refin
e
merc
hand
ise/
categ
ory
portf
olio

Deve
lop
merc
handi
se/
categ
ory
strat
egy
and
tactic
al
plan

Review merchandise/
category performance

Deve
lop
perfo
rman
ce
criteri
a
and
man
age
ment
metri
cs

Imple
ment
plan