Planning Merchandising Budgets: Six Month Plan

Tepper, Unit V (cont.) Kunz, Ch. 6

Merchandising Plans

PLANS of

How much of merchandise? For how much to sell? What kind of merchandise and how many pieces? How much to buy and when? When to have?

Merchandise Budget (6(6-Month Plan)

Answer to How How much of merchandise do we need? need? (Dollar (Dollar Plan Plan) ) Tool to translate profit objectives into merchandise plans. S Specify if i important t t dollar d ll items it buyer b must t adhere to when planning merchandise:

Sales Reductions Inventory levels Planned purchases OTB

Operational Benefits of Budget Plan (6 (6-Month Plan)

Allows owner/merchandiser to:

estimate capitol needed to invest in inventory

Anticipate cash flow needs Control operations

Take corrective actions

Merchandising Benefits of Budget Plan (6 (6-Month Plan)

Provides budget to take to market make purchases of right dolar size at right time

Allows calculation of openopen-to to-buy at any time

Provides data for negotiations with GMM

Provides evidence of needs for additional sales allowance, markdown allowance, floor space, selling personnel, etc.

Components of Budget Plan (6(6Month Plan)

Sales

Reductions

Season total ($) Monthly sales ($, % to total season sales) Season total ($) Monthly ($, % to total season reduction $, % of monthly sales) Planned BOM$ by month Planned EOM$ by month By month, @ cost & retail By month ($ & %)

Planned Stock

Planned Purchases

MMU

Merchandising Calendar
1 season = 6 months=26 weeks 1 year= 364 days

Merchandising Calendar

I. Planning Monthly Sales

Step 1: Plan Seasonal Sales
Adjust LY sales for TY using projected trend (%variation indicating gain or loss) in sales Spring p g Year LY TY Feb
15.0%

Mar
20.0%

Apr
15.0%

May
15.0%

Jun
20.0%

Jul
15.0%

Total
$ 400,000 100.0%

$ 60,000 $ 80,000 $ 60,000 $ 60,000 $ 80,000 $ 60,000

I. Planning Monthly Sales

Step 1 (cond)

LY Seasonal Sales $400,000 If TY plan +5%

LY Seasonal Sales $400,000 If TY plan -5%

$400,000 400,000 X 1.05 (=105%) $420, 420,000 000

400,000 x .95 (=95%) ____________ 380,000

I. Planning Monthly Sales

Step 2: Break down seasonal sales into Monthly Sales$ estimates

Multiply planned seasonal sales total by monthly % Monthly % is determined based on history or projection Spring Mar
20.0%

Year LY TY

Feb
15.0%

Apr
15.0%

May
15.0%

Jun
20.0%

Jul
15.0%

Total
$ 400,000 100.0% $ 420,000

$ 60,000 $ 80,000 $ 60,000 $ 60,000 $ 80,000 $ 60,000

15.0%

20.0%

15.0%

15.0%

20.0%

15.0%

100.0%

feb sals plan=$season sales plan x feb. distribution %=420,000 x 15%=63,000

I. Planning Monthly Sales

Step 2 (cond)
February March Total Sales $400,000 100% $420,000 100%

LY Sales (Actual) TY Sales (Plan)

$60,000 15% $420,000 x 15% = $63,000

$80,000 $80, 000 20% $420,000 x 20% = $84,000

I. Planning Monthly Sales

Step 3: Make monthly adjustments if necessary

According to predictions on special environmental changes in TY Spring

Year LY TY

Feb
15.0%

Mar
20.0%

Apr
15.0%

May
15.0%

Jun
20.0%

Jul
15.0%

Total
$ 400,000 100.0% $ 420,000 100.0%

$ 60,000 $ 80,000 $ 60,000 $ 60,000 $ 80,000 $ 60,000

$63,000 $84,000 $60,000 $66,000 $84,000 $63,000 15.0% 20.0% 14.3% 15.7% 20.0% 15.0%

II. Planning Reductions

Plan Seasonal & Monthly Reductions

(Red. = markdowns + shortage + sales discounts)

Step p 1: 1: Plan seasonal reductions % (of total seasonal sales) and $ Step 2: 2: Calculate monthly reductions $ Step 3: 3: Make adjustments if necessary

II. Planning Reductions

Step 1: Plan season reductions

Total season reduc $ = Seasonal sales $ x Reduc% planned for the season Example)

Planned season sales = $420,000 Planned season reduc = 5% Planned season reduc $ = ???

II. Planning Reductions

Step 2: Calculate monthly reduc $

Based on LY results (LYs monthly red.% of season red.) unless otherwise planned. F b Feb M Mar
2,000 10%

A Apr
3,000 15%

M May
3,000 15%

J Jun
5,000 25%

J l Jul
7,000 35%

T t l Total
20,000 100% 21,000

Red $ (LY) Red % (LY) Red $ (TY)

0 0%

Month reduc $ = total season reduc $ x month reduc %

III. Planning Stock Levels

Plan monthly SSR or seasonal TO based on those of LY and other market circumstances. Based on planned SSRs or TO TO, project BOMs and EOMs using appropriate stock planning methods

SSR SSR method TO Basic stock method

III. Planning Stock Levels

Example: SSR Method

Spring
Feb
TY Planned 63,000 Sales Planned 1.5 SSR TY Planned BOM TY Planned EOM

Mar 84,000 2.0

Apr 63,000 2.5

May 63,000 2.0

Jun 84,000 1.5

Jul
63,000 1.2

Planned BOM = Planned Sales x Planned SSR Planned EOM = BOM of following month EOM of the last month = BOM Sales Reduction, Otherwise, Last Month EOM = Average Inventory or an arbitrary EOM stock level thats considered appropriate
if planning to make no purchase in the last month.

IV. Planning Purchases

Plan monthly purchases (at retail and cost) based on planned sales, reductions, EOM, & BOM.

At retail:

At cost:

Net sales + EOM + Reductions - BOM . = Plan Purchase @ retail

Plan Purch @ retail x (100% initial MU%) = Plan Purch @ cost

IV. Planning Purchases

Example
Feb
Planned Sales Planned BOM Planned reduction Planned EOM Planned purchase @ retail 63,000

Mar
84,000

Apr
63,000

May
63,000

Jun
84,000

Jul
63,000 75,600 7,350 5,250

94,500 168,000 157,500 126,000 126,000 0 2,100 3,150 3,150 5,250 75,600

168,000 157,500 126,000 126,000

IV. Planning Purchases

Example cond

When IMU% = 54% Feb Mar Apr May Jun Jul

0

Planned purchase @ retail Planned purchase @ cost

136,500 75,600 34,650 66,150 38,850

V. Maintained Markup - Monthly

Step 1: Project monthly MMU%

Recall MMU% formula MMU% =IMU% - {Red% x (100% - IMU%)}

** Again, recall Red% = Red% of Sales

= $Red $Sales

Step 2: Calculate Monthly MMU$

Month MMU$ = MMU% x Sales for the month

V. Maintained Markup

MMU - Example

April Sales $ $84,000 84,000 April retail reductions $2,100 IMU% = 54%

MMU% for April = ? MMU$ for April =?

V. Maintained Markup

MMU Example (cond)

Red % (of sales) for April = Red$ = Sales$

MMU% for April = IMU% - {Red% x (100% - IMU%)} =

MMU$ = MMU% x Sales for month =

Reminder

Six month plan provides

Cash flow info Merchandise flow info Borrowing needs for cash Merchandise needs for buying trips

Allows company to determine

CADS 3850-Kwon

Random-Points In-Class Exercise: SIX-MONTH PLAN (16.5 points maximum) Name: ________________________________ Q1. Planning Sales (2.5 points) A sweater buyer is about to set up a 6-month plan for this fall season (Aug Jan). The total fall sweater sales in LY were $135,000, and the monthly sales distribution was as in the following table. TY, the buyer predicts a 10% increase in total sweater sales, and that the monthly sales % distribution would be exactly the same as LY. Complete the Sales rows of the 6-month plan.

Q2. Planning Reductions (3 points) The sweater buyer is now planning retail reductions for this fall season. Considering market environments, she projects that the total reductions of this fall (including all markdowns, employ discounts, and shortages) will be 8% of Sales. TYs monthly reductions distribution (% of seasonal total reductions) is planned to remain the same as LY. Complete the Reductions rows of the 6-month plan.

CADS 3850-Kwon

Q3. Planning BOM & EOM Stock Levels (4 points) The sweater buyer is now planning inventory levels for each month using the SSR Method.
Monthly SSRs of TY are planned to be the same as those of LY, as presented in the table. For this exercise, to calculate the January (the last month) EOM, assume that the buyer does not want to make any purchase during the last month. Complete the BOM and EOM rows of the 6-month plan.

Q4. Planning Purchases (4 points) Now, the sweater buyer needs to set up a monthly purchase plan based on the projected sales, BOM, reductions, and EOM for each month in this fall season. Initial markup goal for this fall season is determined at 55%. Complete the Planned Purchases (@Retail and Cost) rows of the 6-month plan.

Q5. Maintained Markup Projection (3 points) Based on the 6-month plan created, the sweater buyer is now trying to project monthly and seasonal maintained markup % and $ for merchandise planned for this fall season. Complete the MMU rows of the 6-month plan (6 months and total)

Random-Point Exercise: Six-Month Plan

Name:__________________________________________
Fall (Aug - Jan) Aug Sales LY Actual ($) LY Actual (%) TY Plan ($) TY Plan (%) Reductions LY Actual ($) LY Actual (% of seasonal reductions) TY Plan ($) TY Plan (% of seasonal reductions) TY Plan - (% of Sales) LY & TY TY Plan ($) TY Plan ($) TY Plan ($) TY Plan ($) TY Plan (%) TY Plan ($) Sep Oct Nov Dec Jan TOTAL

$6,750.00 5.00% 3) 5.00% $0.00 0.00% $0.00 7) 0.00% 0.00% 3.00 12) 14) 20) 21) 55.00% $4,083.75 15) 4)

$20,250.00 15.00% 2) 5) 15.00% 2) $1,350.00 10.00%

$40,500.00

$40,500.00 30.00% $44,550.00 4) 30.00%

$20,250.00 15.00% 3) 15.00% $3,375.00 25.00% 9) 25.00% 11)

$6,750.00 5.00% 1) 5.00% $4,725.00 35.00% 6) 35.00% 56.00%

$135,000.00 100.00%

100.00% $13,500.00 100.00%

$2,025.00 15.00% $1,782.00

$2,025.00 15.00% $1,782.00 8) 15.00% 10)

10.00% 5.33% 10) 2.50 $55,687.50 16) $47,965.50 $21,584.48 52.60% 28) $11,716.65 29)

15.00%

100.00%

SSR BOM EOM Purchases @Retail Purchases @Cost MMU

1.80 $80,190.00 17) $37,422.00 22) $16,839.90 23) 28) 29)

1.60 $71,280.00 13) 18) 24) 25) 30) 31)

2.00

2.70 $20,047.50 19) 26) 27) 29.80% 32) $2,212.65 33)