Lecture Retailing management (6/e) - Chapter 14: Buying merchandise. This chapter presents the following content: Merchandise branding strategies, private labels, manufacturer (national) labels, buying from vendors of national brands, going to market for national brands,...
Chapter 14 Buying Merchandise McGrawHill/Irwin Retailing Management, 6/e Copyright © 2007 by The McGrawHill Companies, Inc. All rights reserved 14- Merchandise Management Planning Merchandise Assortments Retail Communication Mix Buying Merchandise Buying Systems Pricing Merchandise Branding Strategies – Designed, produced, and marketed by a vendor and sold by many retailers • Private-Label (Store) Brands – Developed by retailer and only sold in retailer’s outlets The McGraw-Hill Companies, Inc./Jill Braaten, photographer • Manufacturer (National) Brands 143 Spectrum of National vs Private Label 144 National Brands % Store Brands The Gap Macy’s WalMart Limited Target Home Depot Marks & Spencer IKEA 14- Value of Retail Brands Relative Advantages of Manufacturer versus Private Brands Impact on Store Type of Vendor Manufacturer Brands Private-Label Brands Store loyalty ? + Store image + + Traffic flow + + Selling and promotional expenses + - Restrictions - + Differential advantages - + Margins ? ? 146 Private Labels Advantages • Unique merchandise not available at competitive outlets • Difficult for customers to compare price with competitors • Higher margins 147 Disadvantages • Need to develop expertise in developing and promoting brand • Unable to sell excess merchandise • Typically less desirable for customers Manufacturer (National) Labels • Advantages • More desired by customers • Resell excessive merchandise • Don’t need skills and people to develop and promote merchandise Disadvantages • Lower margins • Vulnerable to competitive pressures • Limit retailer’s flexibility 148 149 Buying from Vendors of National Brands • Helps retailers build their image • Helps build traffic flow • Reduces selling and promotional expenses The McGraw-Hill Companies, Inc./Lars Niki, photographer Most Recognized Apparel 10 and Accessory Manufacturer Brands 14- 14- Chargebacks 45 • A practice used by retailers in which they deduct money from the amount they owe a vendor • Two Reasons: – merchandise isn’t selling – vendor mistakes • Can be a profit center – one senior executive at a large department store chain was told to collect $50 million on chargebacks 14- Slotting Allowances • Fees paid by a vendor for space in a retail store • Currently aren’t legal • Retailers argue that they are a reasonable method for ensuring that their valuable space is used efficiently • Manufacturers view them as extortion • $9 billion or 16% of all new product introduction costs in grocery industry 46 Slotting Allowances 1447 • Harvard School of Economics – Give big suppliers competitive advantage over small suppliers – Drive small suppliers out of business, then raise prices – Anti-competitive – adverse effect of social welfare • Chicago School of Economics – Free Market – Improves market efficiency – Resolve information asymmetry Buybacks 1448 • Used to get products into retail stores • Two scenarios: – Retailer allows a vendor to create space for its goods by “buying back” a competitors inventory and removing it from a retailer’s system – Retailer forces a vendor to buyback slowmoving merchandise 14- Counterfeit Merchandise 49 • Goods made and sold without the permission of the owner of a trademark, a copyright, or a patented invention that is legally protected in the country where it is marketed • Major problem is counterfeiting intellectual property What to About Counterfeiters 1450 • Trademark,copyright, and/or patent products in the countries in which they’re sold • US government is engaged in bilateral and multicultural negotiations and education to limit counterfeiting (WTO) • Take steps to protect yourself Gray-Market and Diverted Merchandise 1451 • Gray- Market Merchandise possesses a valid U.S registered trademark and is made by a foreign manufacturer but is imported into the United States without permission of the U.S trademark owner • Not Counterfeit • Is legal • Diverted Merchandise is similar to graymarket merchandise except there need not be distribution across international boundaries Gray-market and Diverted Merchandise: Taking Sides • Discount stores argue customers benefit because it lowers prices • Traditional retailers claim important service after sale will be unavailable • May hurt the trademark’s image 1452 Avoiding the Gray-Market Problem 1453 • Require customers to sign a contract stipulating that they will not engage in gray marketing • Produce different versions of products for different markets Steve Cole/Getty Images 14- Exclusive Territories 54 • Granted to retailers so no other retailer in the territory can sell a particular brand • Benefits vendors by assuring them that “quality” retailers represent their products • Assure retailers adequate supply • Grants retailers a monopoly • Illegal when they restrict competition Exclusive Dealing Agreements • Occur when a manufacturer or wholesaler restricts a retailer into carrying only its products and nothing from competing vendors • Illegal when they restrict competition 1455 Tying Contracts • An agreement that requires the retailer to take a product it doesn’t necessarily desire to ensure that it can buy a product it does desire • Illegal when they lessen competition • Ok to protect goodwill and quality reputation of vendor 1456 Refusals to Deal 1457 Suppliers and retailers have the right to deal or refuse to deal with anyone they choose Except when it lessens competition Kent Knudson/PhotoLink/Getty Images Ethical Issues 1458 • Should a retailer sell merchandise that it suspect was made using child labor? • Should a retailer advertise its prices are the lowest available in the market even though some items are not? • Should a retail buyer accept an expensive gift from a vendor? • Should retail salespeople to use a high-pressure sales approach when they know the product is the best for the customer’s needs? • Should a retailer give preference to minorities when making promotion decisions? • Should a retailer treat some customers better than other customers? Guidelines 1459 Would I be embarrassed if a customer found out about this behavior? Would my supervisor disapprove of this behavior? Would most co-workers feel that this behavior is unusual? Am I about to this because I think I can get away with it? Would I be upset if a company did this to me? Would my family or friends think less of me if I told them about engaging in this activity? Am I concerned about the possible consequences of this behavior? Would I be upset if this behavior or activity were publicized in a newspaper article? Would society be worse off if everyone engaged in this behavior or activity? ... Brands 1 4- Most Recognized Apparel and Accessory Private Label Brands 141 1 Examples of Private-Label Brands 141 2 Examples of Private-Label Brands 141 3 Examples of Private-Label Brands 141 4 Examples... LOSE LOSE 142 2 1 4- Lose - Lose Negotiation • Wastes time and energy • No relationships established • Objectives not met 23 142 4 Win - Win Negotiation Collaboration Cooperation Long-term relationship... Negotiating with Vendors 141 8 Two-way communication designed to reach an agreement when two parties have both shared and conflicting interests Royalty-Free/CORBIS 1 4- Planning Negotiations •