When you go shopping, whether for shoes or salad dressing, everything that you find in a store has

ended up there through a carefully planned and monitored process of merchandise management. This
lesson explains what is meant by merchandise management and how retailers organize and control their
merchandise.

Chapter Objectives

 Explain merchandise plans.

 Describe the components of a merchandise plan.
 Define merchandise life cycles
 Explain the receiving process
 Explain the concept of inventory control
 Describe inventory systems
 Explain stock turnover

Merchandising Decisions

One of the most challenging tasks for a retailer is providing the right merchandise at the right
prices—and at the right time.

Before a retailer buys any merchandise for a store, he or she must make decisions and plans to
make the buying process more efficient. A retailer must make decisions about what merchandise to carry
and what prices to set.5

The Merchandise Plan

Retailers use a merchandise plan to make intelligent decisions before they purchase merchandise
for their stores. Merchandise plan is a basic budgeting tool that assists the retailer or buyer in meeting
departmental or classification goals.

What items to sell – quality levels will depend on:

1. Desired target market’s profile

2. Competition
3. Store image / positioning
4. Location of store
5. Profitability
6. Fashion trends
7. Seasonal items

How much merchandise to carry

- A function of width & depth of assortments.

Factors in Deciding Merchandise Plans

1. Forecasts: Projections of expected sale for given period. Variables would be:
- Overall company projections for the period
- Product category projections
- Item projection
 - Individual store projection
2. Innovativeness: A firm that carries new goods & services and plans for upcoming trends. Variables
would be:
- Target market & it’s behavior
- Product related trends
- Stores positioning
- Degree of risk
- PLC – staple item / fashion
- Allocation of resources
3. Assortment: Selection of merchandise that a retailer carries which is a function of variety, breadth
& depth.
4. Brands vs. Private Label: A proper mix of brands & private labels.
5. Timing: When is inventory required in the store, would be dependent on
- Seasonal relevance
- Order & delivery lead times
- Stock turnover rate
- Provision for special / urgent orders
- Prices & discounts

Merchandise Life Cycles

The four stages of the merchandise life cycle are: merchandise life cycle customer-acceptance
levels and buying levels of an item of merchandise

 Introduction
 Growth
 Acceptance
 Decline

Merchandise Management

Merchandise management is the process through which each retailer decides what items to carry,
how much to have on hand to meet the needs of customers, where they should be displayed in the store
to maximize sales, and how they should be priced to sell the best and maximize profits.

The goal of every retailer isn't just to make sure that what they carry meets the needs of their
customers. Retailers also need to have the ability to organize and manage their inventory. Retailers need
to be able to track their inventories from the time they're ordered from a manufacturer to the time a
consumer buys an item. They must ensure that all merchandise is handled and stored correctly, that it's
organized in the store so that consumers can easily find what they want, and that it's easy to determine
when it is time to re-order.

Merchandise Categories

Merchandise categories are the foundation unit that is used to manage merchandise in a retail
environment. Retailers group merchandise into categories in order to classify and structure every single
item sold in a store. Merchandise categories focus on considering how customers approach buying, how
they shop in-store, and their needs. Merchandise categories determine what stores will and will not carry.
 For a supermarket chain an example of merchandise categories could be Food and Non-Food.
Every single thing that they sell falls into one and only one of these two categories.

The Merchandise Hierarchy

Merchandise categories are the starting point. Once a retailer identifies the basic categories for
what is being sold, a merchandise hierarchy is typically created within each. The number of levels in the
hierarchy will depend on the scope of goods carried by the retailer. The merchandise hierarchy guides
how a retail operation will be organized in terms of in-store management, product placement in the store,
and inventory management. A retail hierarchy normally consists of groups, departments, product
classifications, and SKUs (or stock-keeping units).

Merchandise Assortment Planning Tools

Categorizing types of merchandise is one tool retailers use to make certain they have the
merchandise to satisfy their customers’ needs. Retailers also use stock lists to help plan their purchases.

Groups

Placing merchandise into groups assists in activities such as purchasing, promotion, and inventory
management. The food category in a supermarket would be divided into a variety of groups, usually based
on handling and storage requirements; for example, perishable items and non-perishable items. Non-
Food items could be grouped based on use such as cleaning or healthcare.

Types of merchandise are:

1. Staple merchandise - merchandise that sells well over a long period of time
2. Fashion merchandise - merchandise that sells well for several seasons but not as long as staple
merchandise
3. Seasonal merchandise - merchandise that sells well at certain times of the year
4. Convenience merchandise - merchandise that is purchased by customers without much planning
or thought

Types of stock lists are:

1. Basic stock list - list used for items a store should always have in stock
2. Model stock list - list used for fashion merchandise
3. Never-out list - list used for the most popular merchandise that should always be in stock

Retail Assortment Strategies

1. Wide & deep - Many categories & large assortment in each category
2. Wide & shallow - Many categories & limited assortment in each category
3. Narrow & deep - Few categories & large assortment in each
4. Narrow & shallow - Few categories & limited assortment in each

Optimal Merchandise Mix

3 Dimensions

1. Variety- Refers to the mix in terms of number of different lines the retailer stocks in the store
e.g. men’s wear, women’s wear, toys, appliances, cosmetics, sports goods etc.
 2. Breadth- Or assortment is the number of merchandise brands that are found in a merchandise
line. e.g. A ‘7-11’ store will carry very narrow breadth, as opposed to Shoppers Stop carries 6-8
brands of jeans or mens shirts. Battle of brands vs. private labels
3. Depth- The average number of SKU’s within each brand of individual merchandise line. e.g. Due
to shelf space constraints A7-11 store may carry only 1-2 fast moving sizes whereas a Walmart
may carry all sizes & sufficient quantity of each.

Retailers task is to find a balance between the above 3 dimensions in relation to his store, it’s
positioning, customer profile & financial resources.
Sources:

- Retail Marketing Management

Published by Wilfrid Wheeler
- Merchandise Assortment
Published by Deborah Payne