Buying Merchandise

Merchandise Branding Strategies

• Manufacturer (National) Brands - designed, produced, and marketed by a vendor and
sold by many retailers
• Private-Label (Store) Brands - developed by a retailer and sold only in that retailer’s
outlets
– Past – not core competency, feared vendors, inferior reputation
– Today – growth area! (25% of US purchases; growth = 2x mfr. brands)
• used to balance the power of vendors, provides market power
• a way of offering unique merchandise
• gross margins higher (no wholesaler markup, often less promotion)
– Trends
• bargain  premium; copycat  parallel (i.e., quality, unique position)
• many specialty stores sell only their own private brands
• a few private brands sold in other stores – Starbucks, Tiffany
• Licensed Brands – licensor owns well-known name – e.g., manufacturer, designer,
celebrity, cartoon character, etc. – rights sold to either another manufacturer or to a
retailer (licensee)
– If a license is exclusive, another way of offering unique merchandise
Spectrum of Private vs. National Brand

% Store National
Brands Brands

Gap Macy’s Wal-Mart

Limited J.C. Penney Home Depot

Victoria’s Secret Target Kohl’s

IKEA Costco Gelson’s

Crate & Barrel Ralph’s

(most mall
specialty stores)
Examples of Private-Label & Licensed
Brands (some also use store name as private brand)
Supermarkets Safeway/Vons Safeway Select
Ralph’s Ralph’s, Perfect Choice, Private Selection
Discount Stores Kmart Sesame Street, Martha Stewart, Jacqueline Smith
Wal-Mart Sam’s Choice, Skin Simple
Popular Mechanics, Kathie Lee
Target Honors, Merona
Mossimo, Sonia Kashuk, Michael Graves, Isaac Mizrahi,
Liz Lange Maternity, Cherokee
Warehouse Clubs Costco Kirkland
Department Stores Sears Kenmore, Diehard, Craftsman, Canyon River Blues,
Apostrophe, Covington
J.C. Penney Arizona, St. John’s Bay, Hunt Club, Worthington, Stafford
Mervyn’s High Sierra, Partners, ellemenno
Robinson’s-May Valerie Stevens, Karen Scott, Amanda Smith, Claybrooke
Macy’s Charter Club, I.N.C.
Nordstrom Classiques Entier, Preview, Nordstrom
Specialty Stores Many chains Store name (e.g., Gap, Crate & Barrel, Chico’s)
Legal and Ethical Issues in Buying
Merchandise
Issues Arising from Retailer “Power”
NOTE: P&G does not pay;
• Slotting allowances (Slotting fees)
Wal-Mart does not demand
Food, o-t-c drugs, software, music, books, magazines, apparel
Grocery - 16% of product introduction costs; ~$1mn for national distribution
 Legal, but controversial - retailers view as reasonable method to ensure space is
used effectively & minimize the risk associated with new products; vendors view as
“extortion”
 Restraint of trade/antitrust concern – large vendors can effectively lessen competition by
paying fees that smaller vendors cannot afford; vendors with less brand loyalty are charged
more
 Price discrimination concern – large retailers demand, small cannot; with consolidation of
retailers, fees have increased
• Buybacks (Stocklift, Lift-out) – two types
 Legal - retailer forces vendor to buy back slow-moving merchandise
 Questionable – vendor buys up competing merchandise, makes room for its own
(restraint of trade/antitrust – if done to substantially lessen competition/create a
monopoly)
Legal and Ethical Issues in Buying
Merchandise
Issues Arising from Retailer “Power”
• Chargebacks – $$ deducted from vendor’s invoice
Merchandise not selling
Vendor mistakes – missing merchandise, wrong hangers, later delivery, etc.
 Legal – justifiable fees
 Questionable – using as a profit center
 Since retailer deducts from invoice, hard to get $$ without a lawsuit)
• Commercial bribery – giving or offering something of value to
influence purchase decisions
 Illegal – fine line between social courtesy and a bribe
 Many companies prohibit all gifts from vendors
 Accepting small token gifts is usually considered okay –
Key question – Is it large enough to be perceived as influencing a
buyer’s purchasing behavior?
Legal and Ethical Issues in Buying
Merchandise
Issues Arising for Vendor and Consumer Protection (and to
Protect Retailer Reputation)
• Counterfeit merchandise – goods made and sold without the
permission of the owner of the trademark, copyright, or patent
High visibility, strong brand name goods – e.g., designer apparel
CDs, DVDs, software – high unit value and easy to duplicate
~$200 billion annual losses due to counterfeiting
 Illegal – since 1984 a criminal offense in U.S., WTO sanctions
 “Knock-offs” okay if clearly knock-offs (e.g., uses different trademark)
 Consumer knowledge does not make it okay
• Diverted and gray-market merchandise – not counterfeit
Diverted – sold by intermediary to unauthorized dealers (e.g., discount stores)
Gray-market – sold across national boundaries without permission
 Legal – but can damage vendor image and distribution strategy
 Vendors must work to prevent (e.g., breach of contract, different versions for
different countries, etc.)
Legal and Ethical Issues in Buying
Merchandise
Issues Arising from Vendor “Power”
 All legal,
legal unless purpose is restraint of trade/antitrust
• Exclusive territories – benefits both vendor and retailer
Only illegal if competitors’ products are not available to other retailers
• Exclusive dealing agreements – vendor restricts retailer from
carrying competing vendors’ products
Only illegal if vendor has market share at monopolistic level, leaving other vendors
with no distribution options
• Tying contracts – vendor requires retailer to carry products it doesn’t
necessarily want in order to carry products it does
Only illegal if the consumer is forced to buy the tied products
• Okay if the purpose is to protect customer goodwill and quality reputation (e.g.,
complete apparel line), or to create an “integrated product” (Microsoft)
• Refusals to deal
Only illegal if done specifically to benefit a favored competing retailer – i.e., help a
favored retailer put a competitor out of business