2. 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.
3. 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
4. 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
5. • 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)
7. LEVEL OF FORMALITY
Formal
• Distinct retail task with
separate dept
• includes functions of
acquiring the merchandise
and making it available for
sale
• Used by larger firms
• Full time, specialized
merchandisers
• Clarity of responsibilities
Informal
• Not a distinct task
• Same personnel carry out
buying (merchandising) and
other retail functions
• Small retailers
• Responsibility and
authority are not clear cut
• Low costs and flexibility
• less emphasis on
merchandise planning
8. DEGREE OF CENTRALIZATION
Centralized
• All buying (multichain) done
at the HQ
• Adv include integration of
effort, strict controls,
consistent image proximity
to top mgt, staff support,
volume discounts ,
• Disadv: inflexibility, time
delays, excessive uniformity,
poor morale at local stores
Decentralized
• All buying done locally
• Adv include adaptability to
local conditions, quick order
processing, good employee
morale due to local
autonomy
• Disadv: disjointed planning,
inconsistent planning, l
limited controls,loss of
volume discounts
9. 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
10. 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
11. 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
12. 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
15. 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
• Controlling: assessing buyers performance
16. 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
17. 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 stock
18. 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
19. 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
20. 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
21. 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
22. 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 to the overall
profitability
23. Methods of Inventory planning
• The Basic Stock Method
• The Percentage Variation Method
• The Week’s Supply Method
• The Stock / Sales Ratio Method
24. 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.
25. 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 ½
[1+planned sales for the month / Average
Monthly Sales ]
26. Weeks Supply
• Followed by grocers who follow inventories weekly,
and whose sales don’t fluctuate substantially
The
Week’s 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
27. 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
28. 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)
29. 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
30. The Six Month Merchandise Plan
Six Month Merchandise Budget
M1 M2 M3 M4 M5 M6 Total
BOM Last Yr
Plan
Revised
Actual
Sales Last Yr
Plan
Revised
Actual
Reductions Last Yr
Plan
Revised
Actual
31. 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
Revised
Actual
33. • 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
Merchandise Control- Open to Buy
34. 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
35. 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 merchandise-
expensive/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
36. 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
37. 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 profit
Mfg vs private brands Mfg brands may connote better quality
than store brands for consumers
38. 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 managers- no
control over products.
40. Wide & Deep : (many product lines & large
variety in each)
Advantages
• Broad market
• Full selection of items
• High level of customer
traffic
• Customer loyalty
• One stop shopping
• No disappointed
customer
Disadvantages
• High inventory
investment
• General image
• Many items with low
turnover
• Some obsolete
merchandise
41. Wide & Shallow : (many product lines & limited
variety in each)
Advantages
• Broad market
• High level of customer
traffic
• Emphasis on
convenience customer
• One stop shopping
• Less costly than wide and
deep
Disadvantages
• Low variety within
product lines
• Some disappointed
customers
• Weak image
• Many items with low
turnover
• Reduced customer
loyalty
42. Narrow &Deep: (few product lines & large
variety in each)
Advantages
• Specialist image
• Good customer choice in
categories
• Specialized personnel
• Customer loyalty
• No disappointed customers
• Less costly than wide and
deep
Disadvantages
• Too much emphasis on one
category
• No one stop shopping
• More susceptible to trends
and cycles
• Greater effort required to
increase the store size
• Little/no scrambled
merchandizing
43. Narrow &Shallow: (few product lines & few
variety in each)
Advantages
• Aimed at convenience
customers
• Least costly
• High turnover of items
Disadvantages
• Little width and depth
• No one stop shopping
• Some disappointed
customers
• Weak image
• Limited customer loyalty
• Small trading area
• Little/no scrambled
merchandising
44. Depth & Breadth of merchandise
DEPARTMENT
PRODUCT LINE
BREADTH
DEPTH
STYLES COLOURS SIZES
ZODIAC VAN HEUSEN LOUIS PHILLIPPE ARROW
SHIRTS TROUSERS ACCESSORIES
MENSWEAR
45. 7/18/2013 Retailing Management - Swapna Pradhan 45
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.
46. 7/18/2013 Retailing Management - Swapna Pradhan 46
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.
47. 7/18/2013 Retailing Management - Swapna Pradhan 47
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.
48. 7/18/2013 Retailing Management - Swapna Pradhan 48
• 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
Fabric – Cotton, Cotton Blend
49. 7/18/2013 Retailing Management - Swapna Pradhan 49
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
50. 7/18/2013 Retailing Management - Swapna Pradhan 50
Men’s 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)
Half Sleeves
70% (112)
Button Down
40% (45)
Saville
60% (67)
White
40% (18)
Blue
30% (14)
Cream
20% (9)
Grey
10% (4)
Cotton
25% (4)
Cotton Blend
75% (14)
52. 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
53. 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.
54. 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
55. Core Components of Category
Management
Performance
Measurement
Trading Partner
Relationships
Information
Technology
Organisational
Capabilities
Strategy and
Business Process
56. Category Management Business
Process
Category Definition
Category Role
Category Assessment
Category Scorecard
Category Strategies
Category Tactics
Plan Implementation
C
A
T
E
G
O
R
Y
R
E
V
I
E
w
57. 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)
59. 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
61. 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
62. The Category Management Process –
Indian Context
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
Deve
lop
perfo
rman
ce
criteri
a
and
man
age
ment
metri
cs
Location
Positioning
Customers
Imple
ment
plan
Review merchandise/
category performance
