Lecture Retailing management (6/e): Chapter 12 - Managing merchandise assortments. The following will be discussed in this chapter: Merchandise management, merchandise management and investment portfolio management,...
Chapter 12 Managing Merchandise Assortments McGrawHill/Irwin Retailing Management, 6/e Copyright © 2007 by The McGrawHill Companies, Inc. All rights reserved Merchandise Management Retail Communication Mix Buying Systems Planning Merchandise Assortments Buying Merchandise Pricing 122 Merchandise Management 123 Process by which a retailer offers the right quantity of the right merchandise in the right place at the right time and meets the company’s financial goals Sense market trends Analyze sales data Make appropriate adjustments c) image100/PunchStock Merchandise Management and Investment Portfolio Management • Dollars to invest in inventory • Invest in “hot” merchandise • Save a little for opportunities (open to buy) • Monitor portfolio • Sell losers (markdowns) 124 Standard Merchandise Classification Scheme and Organizational Chart 125 Merchandise Management Issues 126 The Category 127 A merchandise category is an assortment of items that customers see as substitutes for each other Vendors might assign products to different categories based on differences in product attributes Retailers might assign two products to same category based on common consumers and buying behavior Category Management 128 Category management is the process of managing a retail business with the objective of maximizing the sales and profits of a category Department stores manage at category level, but grocery stores manage merchandise around brands and vendors Objective is to maximize the sales and profits of the entire category, not just a particular brand The McGraw-Hill Companies, Inc./Andrew Resek, photographer Category Captain 129 Selected vendor responsible for managing a category Vendors frequently have more information and analytical skills about the category in which they compete than retailers • Helps retailer understand consumer behavior • Creates assortments that satisfy the customer • Improves profitability of category Problems • Vendor category captain may have different goals than retailer Antitrust Consideration 1210 The vendor category captain could collude with retailer to fix prices It could block brands from access to shelf space Category captains need to temper zeal for control over retailers Stockbyte/Punchstock Images 1222 Approaches for Improving Inventory Turnover • Reduce number of categories • Reduce number of SKUs within a category • Reduce number of items in a SKU BUT if a customer can’t find their size or color or brand, patronage and sales decrease! approach… another …another approach 1223 To improve inventory turnover • Buy merchandise more often • Buy in smaller quantities which should reduce average inventory without reducing sales BUT by buying smaller quantities • Buyers can’t take advantage of quantity discounts so • Gross margin decreases • Operating expenses increase • Buyers need to spend more time placing orders and monitoring deliveries Merchandise Planning Process 1224 Developing a Sales Forecast 1225 Understanding the nature of the product life cycle Collecting data on sales of product and comparable products Using statistical techniques to project sales Work with vendors to coordinate manufacturing and merchandise delivery with forecasted demand (CPFR) Royalty-Free/CORBIS The Category Product Life Cycle 1226 Variations in the Category Life Cycle 1227 Factors Affecting Sales Projections • • • • Controllable Promotions Store Locations Merchandise Placement • Cannabalization 1228 Uncontrollable • Seasonality • Weather • Competitive Activity • Product Availability • Economic Conditions Fad vs Fashion 1229 How buyers tell the difference? • Is it compatible with changes in consumer lifestyles? • Does the innovation provide real benefits? • Is the innovation compatible with other changes in the marketplace? • Who is adopting the trend? Ryan McVay/Getty Images 1230 Forecasting Fashion Merchandise Categories Retailers develop fashion forecasts by relying on: • • • • • Previous sales data Personal awareness Fashion and trend services Vendors Traditional market research The McGraw-Hill Companies, Inc./Lars A Niki, photographer Personal Awareness How fashion buyers know the trends? • • • • • Internet chat rooms Look in closets Go to the movies Go to rock concerts Go to nightclubs Ryan McVay/Getty Images 1231 Collaboration, Planning, Forecasting, and Replenishment Systems (CPFR) 1232 Systems used by retailers and vendors to work together to insure that the right merchandise is at the right place at the right time – Benefits both retailers and vendors – Increases fill rate, reduces stockouts, increases inventory turns www.cpfr.org Assortment Planning 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 percentage of demand for a particular SKU that is satisfied 1233 Assortment Plan for Girls’ Jeans 1234 Is This Store Heavy on Variety? On Assortment? PhotoLink/Getty Images 1235 Determining Variety and Assortment PhotoLink/Getty Images • Profitability of Merchandise Mix • Corporate Philosophy Toward Assortment • Physical Characteristics of Store • Complementary Merchandise • Retail strategy can determine this 1236 ... inventory = $93,000 ữ = $31,000 121 9 Inventory Turnover and Stock-to-Sale Ratio Inventory turnover = 122 0 Net Sales Average inventory at retail Inventory turnover = Sock-to-Sales Ratio = inventory Cost... portfolio • Sell losers (markdowns) 124 Standard Merchandise Classification Scheme and Organizational Chart 125 Merchandise Management Issues 126 The Category 127 A merchandise category is an assortment... Profit Total Assets Merchandise Management Level • GROI = Gross Margin Avg Inventory 121 5 Illustration of GMROI 121 6 GMROI for Selected Department in Discount 12Stores17 Calculating Inventory