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PLANNING

MERCHANDISING
ASSORTMENTS
& BUYING SYSTEMS

Krithika G.K
Asst. Professor
FMS

Session 1
KGK-FMS

Retail Merchandising

 Retail Merchandising is the process of


developing, securing, pricing, supporting
and communicating the retailer’s
merchandise offering.
Merchandise Management
KGK-FMS

….
… is the process by which a retailer attempts to
offer the right quantity of merchandise, in the
right place, at the right time while meeting the
company’s financial goals.
- Levy & Weitz

...can be termed as the analysis, planning,


acquisition, handling and control of the
merchandise investments of a retail operation.

- Swapna Pradhan
Planning Merchandise KGK-FMS

Assortments

Organize the Buying Process by Categories

Set Merchandise Financial Objectives

Develop an Assortment Plan

Source: Retailing Management; Levy & Weitz, Exhibit 12-1, Pg. 348
KGK-FMS

Buying Systems

1. Fashion Merchandise 2. Staple Merchandise


Buying Systems Buying Systems

Set Merchandise Financial Objectives

Develop an Assortment Plan

Source: Retailing Management; Levy & Weitz, Exhibit 12-1, Pg. 348
KGK-FMS

Assortment Planning…
….the process of trading off variety,
assortment and backup stock

Assortment Plan…
….is the culmination of planning the financial
& merchandising objectives for a particular
merchandise category
Organizing the
Buying Process by
Categories

Session 1
KGK-FMS

Category
 Category is an assortment of items that
the customer sees as reasonable
substitutes for each other.

 Girls’ apparel, Boy’s apparel, infant’s


apparel are categories

 Categories have similar characteristics


The Buying
Organization

Session 1
Standard Merchandise KGK-FMS

Classification Scheme and


Organizational Chart
Merchandis Chairman Merchandise-Oriented Planning Group
e Group Partner
Sr. Vice Sr. Vice Sr. Vice Sr. Vice V.P.
Pres; Pres; Merch Pres; Merch Pres;
Merch Mgr: Mgr: Men’s, Mgr: Merch Planning
Women’s chld’s, Cosmet., Mgr: Soft
ready-to- intimate shoes, home
wear apparel jewelry, furn.,
Departme
access. kitchen
nt
Div. Div. Div. Div. Div. Div Dir..
merch merch merch merch merch
manager manager manager manager manager Plannin
Men’s suits, g
slacks, Men’s Young Children’s Intimate
dress shirts sports- men’s, apparel apparel
Classificatio wear, Polo boys’
n apparel Buyer
Buyer Buyer Buyer Buyer Buyer Mgr.
Pre-teen Girls’ Size Girls’ Toddlers’ Infants’ Little boys’ Plannin
accessories 7-14 Size 4-6 g
Categor
y
Sportswear Dresses Swimwear Outerwear
SKU
Girls Levi Jeans, Size 5, stone Source: Retailing Management; Levy
washed blue, straight leg & Weitz, Exhibit 12-2, Pg. 348
Setting Merchandise
Financial Objectives

Session 1
KGK-FMS

Overall: Return on Assets


 ROA:

= Net Profit margin X Asset Turnover

= Net Profit X Net Sales


Net Sales Total Assets

= Net Profit / Total Assets


KGK-FMS

Merchandising Financial
Performance: GMROI
 GMROI:

= Gross Margin Percentage X Sales to Stock Ratio*

= Gross Margin X Net Sale


Net Sales Av. Inventory#

= Gross Margin / Avg. Inventory

• * Sales to Stock Ratio = Net Sales / Avg. Cost of


Inventory
• # Inventory TO = Sales to Stock Ratio X (100% - Gross
Margin %)
KGK-FMS

Gross Margin & Sales/Stock


different for different Products

Source: Retailing Management; Levy & Weitz, Exhibit 12-3, Pg. 355
KGK-FMS

Not all products have same


GMROI…
Product GMROI

Apparel 241
Food 170
Furniture 111
Consumer electronics 97

(in a discount store)

Source: Retailing Management; Levy & Weitz, Exhibit 12-2, Pg. 348
KGK-FMS

Particulars Gross Margin Avg Inventory GMROI


Specialty Food 120000 28000 4.3

Countertop 80000 40000 2.0


Appliance

Glassware 200000 130000 1.5

Source: http://www.slideshare.net/shrirangan1986/retail-presentation-783281
Measuring Inventory
KGK-FMS

Turnover
 Inventory Turnover:

= Net Sales
Avg. Inventory at Retail

= Cost of Goods Sold


Avg. Cost of Inventory at Cost

 Avg. Inventory:

= Month1 + Month2 + Month3 + …..


Number of Months
Advantages of Rapid
KGK-FMS

Inventory TO
 Increased sales volume

 Less risk of obsolesce

 Improves salesperson morale

 More money for market opportunities

 Decreases operating expenses

 Increases asset TO
KGK-FMS

Disadvantages of Overly Rapid


Inv. TO
 Lower sales volume

 Increased cost of goods sold

 Increased operating expenses


Merchandise Planning
Process,
Tools & Techniques

Session 1
KGK-FMS

Developing the Sales


Forecast
 Specific period of time

 Typical questions it should answer:

 How much of each product to purchase?

 Should we add new products to merchandise


assortment?

 What price to charge for the product?


Steps to develop Sales
KGK-FMS

Forecasts:
 Review past sales

 Analyse change in economic conditions

 Analyse changes in sales potential

 Analyse changes in market strategies of retail


organisation & competition

 Creating the sales forecast


Sources of Data for
KGK-FMS

Forecasting
 Previous Sales Volume

 Published Data (CSO, NSSO others

 Customer Information

 The ‘Want Book’


 Interviews

 Focus Groups

 Competition

 Vendors & Resident Buying Offices


The Category Product Life KGK-FMS

Cycle

Maturit

Total Retail
Source: Retail Management; Berman & Evans; Eighth Edition; Pearson

y Declin
Introductio e
n Growth
Sales

STRATEGY VARIABLE INTRODUCTION GROWTH MATURITY DECLINE


High-income Middle-income Mass Market Low-income
TARGET MARKET Innovators adapters laggards
Education Asia; Fig.14.6; pp.465

One Basic
VARIETY Some variety Greater variety Less variety
Offering

DISTRIBUTION Limited or extensive More Retailers More Retailers Fewer Retailers


INTENSITY

PRICE Penetration or Skimming Wide Range Lower Prices Lower Prices

PROMOTION Informative Persuasive Competitive Limited


SUPPLIER Oligopoly-
Monopoly-Oligopoly Competition Oligopoly
STRUCTURE Competition
KGK-FMS

Variations on the Category Life


Cycle
FAD FASHION STAPLE SEASONAL

Sales over many seasons No Yes Yes Yes

Sales of a specific style No No Yes Yes


over many seasons

Sales vary dramatically No Yes No Yes


from one season to the
next

Illustration (Sales / Time)


SALES

SALES

SALES
SALES
TIME TIME TIME TIME

Source: Retailing Management; Levy & Weitz, Fourth Edition; Exhibit 12-6, Pg. 363
KGK-FMS

Determining the Merchandise


Requirements
Plan at two Levels:

1. Create Merchandise Budget

2. Develop the Assortment Plan

2 Methods of Deve. a Merchandise Plan:

1. Top-down Planning

2. Bottom-up Planning
Assortment Plan
Details the merchandise that will be sold in
each product/merchandise category –
complete mix of products available to the
consumer

Session 1
KGK-FMS

Stage 4:
Assortment Planning….
Merchandise
 …involves determining the Hierarchy
quantities of each product Company

that will be purchased to


Department
fit into the overall
Merchandise Plan . Merch. Classification

Merch. Category

Merch. Sub Category

Style Price Point

SKU
The Assortment Planning
KGK-FMS

Process
Key Merchandising Terms
 Staple / Basic Merchandise  Variety

 Fashion Merchandise  Assortment

 Fad  Product Availability

 Style  Assortment Planning

Merchandise Line:
A group of products that are closely related because they are intended
for the same end use, are sold to the same customer group or fall within
a given price range.
The Assortment Planning
KGK-FMS

Process
 Trade-offs b/w Variety, Assortment & Product
Availability

 Determining Variety & Assortment


 Profitability of Merchandising Mix
 Corporate Philosophy towards Assortment
 Store Layout / Layout of Website
 Complementary Merchandise

 Determining Product Availability


 Cycle/Base Stock, Backup/Safety/Buffer Stock, Lead time
etc

 Internet Assortment Planning Issues


KGK-FMS

Source: Retail Management; Berman & Evans; Eighth Edition; Pearson Education Asia; pp.469
Retail Assortment Strategies
1. Wide & deep

 Many categories & large assortment in each category

2. Wide & shallow

 Many categories & limited assortment in each category

3. Narrow & deep

 Few categories & large assortment in each

4. Narrow & shallow

 Few categories & limited assortment n each


KGK-FMS

Retail Assortment Strategies


1. Wide and Deep 2. Wide and Shallow
 Advantages  Advantages

- Broad market - Broad market


- Full selection of items - High level of customer traffic
- High level of customer traffic - Emphasis on convenience
- Customer loyalty customer
- One-stop shopping - Less costly than wide and deep
- No disappointed - One-step shopping
customers
 Disadvantages
 Disadvantages
- Low variety within product line
- High inventory investment - Some disappointed customers
- General image - Weak image
- Many items with low - Many items with low turnover
turnover - Reduced customer loyalty
- Some obsolete merchandise

Source: Retail Management; Berman & Evans; Eighth Edition; Pearson Education Asia; pp.469
KGK-FMS

Retail Assortment Strategies


3. Narrow & Deep 4. Narrow & shallow

 Advantages  Advantages

- Specialist image - Aimed at convenience


- Good customer choice in customers
category(ies) - Least costly
- Specialized personnel - High turnover items
- Customer loyalty
- No disappointed customers  Disadvantages
- Less costly than wide and deep
- Little width and depth
 Disadvantages - No one-stop shopping
- Some disappointed customer
- Too much emphasis on one - Weak image
category - Limited customer loyalty
- No one-stop shopping - Small trading area
- More susceptible to trends/cycles
- Greater effort needed to
enlarge the size of the trading area

Source: Retail Management; Berman & Evans; Eighth Edition; Pearson Education Asia; pp.469