Planning Merchandise Assortments

Merchandise Management
Retail Communication Mix Planning Merchandise Assortments

Buying Systems

Buying Merchandise

Pricing

Merchandise Management process (Buying Organisation)

Merchandise Group-highest classification level Department-second level of merchandise classification scheme Classification-group of items targeting same customer type Categories-every buyer manages several merchandise category SKU-smallest unit available for inventory control

Merchandise Management Issues

Planning Merchandise Assortments

Organize the buying process by categories Set merchandise financial objectives Develop an assortment plan Staple/Fashion Merchandise Buying Systems Open-to-Buy systems Allocate merchandise to stores Analyze merchandise performance

Buying Systems

The Category

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

Boys apparel DVD players Detergents

In merchandise management decisions are taken at category level

The category may mean different things to different retailers

Category Management

Is the process of managing a retail business with the objective of maximizing the sales and profits of a category (not just a particular brand)

Breakfast cereal category vs Kellogg Corn Flakes

Mens knitted shirts Vs Polo Shirts

One manager managing a particular category and responsible for its growth and profits approach to have one buyer or category manager who oversees all merchandising activities for entire category

Category Captain

Selected vendor chosen in assisting retailer in managing assortment of particular category

Colgate for oral care

P&G for detergents HUL for personal care

Vendors have more information and analytical skills

Problem: Category Captain may have different objectives than the retailer

Standard Merchandise Classification Scheme and Organization chart

Department

Classification

Category
SKU

The Buying Organization

Department: Footwear Classification: Men Category: Executive Stock Keeping Unit (SKU):

Hush Puppies, Black, Size 9, Design D3

GMROI

Inventory Productivity Measure Gross Margin Return on Inventory

Gross Margin% Inventory Turnover

GMROI GMROI

= Gross Margin x Net Sales Net Sales Avg Inventory @ cost = Gross Margin Avg Inventory @ cost

ROI and GMROI

Asset Productivity Measure

Strategic Corporate Level Return on Assets = Net Profit Total Assets

Merchandise Management Level GMROI = Gross Margin Avg Inventory @ cost

GMROI Illustration
Bread Gross Margin Rs 20,000 Ready to Eat Foods Rs 1,500,000

Net Sales
Average Inventory Gross Margin/Net sales Net Sales/Avg Inventory GMROI

Rs 1,500,000
Rs 10,000 1.333% 150 times 200%

Rs 3,000,000
Rs 750,000 50% 4 times 200%

Types of Merchandise Management Planning Processes

Staple merchandise categories- items in continuous demand over an extended time period Fashion Merchandise- items in demand only for short period. new products continuously introduced into these categories. Forecasting difficult Seasonal Merchandise- items whose sales fluctuates depending on the time of year

Merchandise Management Process

1. Forecasting sales 2. Developing an assortment plan 3. Determining appropriate inventory level

1.Data Sources for Sales Forecasts

1.

Forecasting staple merchandising categories-past sales history Forecasting Fashion merchandise categories Previous sales history Personal awareness Fashion and trend services Market research Published sources Customer information Vendors and buying offices

2.

Factors Affecting Sales Forecasts

Collaboration, Planning, Forecasting and Replenishment Systems (CPFR)

Systems use by retailers and vendors to work together to ensure that the right merchandise is at the right place at the right time

Benefits both retailers and vendors Increases fill rate, reduces stock-outs, increases inventory turns

2)Developing an Assortment Plan

Variety is the number of different merchandising categories within a store or department Assortment is the number of SKUs within a category Product Availability defines the % of demand for a particular SKU that is satisfied

Determining Variety and Assortment

Profitability of merchandise mix Physical characteristic of the store Complementary merchandise Corporate philosophy towards assortment GMROI of merchandise assortment Retail strategy

3)Setting Inventory and Product Availability levels

Assortment plans include inventory level of each SKU stocked in the store Product availability-% of demand for particular SKU It is also referred to as level of support or service level

Several factors needed to determine appropriate level of buffer stock and product availability for each SKU