Merchandise

Management

Merchandise Management
is the analysis, planning,
acquisition, handling, and control
of the merchandise investments
of a retail operation.
 Merchandising Philosophy

 Sets the guiding principles for all the

merchandise decisions that a retailer makes
 Should reflect
* Target market desires
* Retailer’s institutional type
* Market-place positioning
* Defined value chain
* Supplier capabilities
* Costs
* Competitors
* Product trends

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 Scope of Merchandising
Responsibility

 Full array of merchandising functions

* Buying and selling
* Selection, pricing, display, customer
transactions
OR

 Focus on buying function only

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 Nike’s Own Store Merchandising
Philosophy

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 Micromerchandising

Retailer adjusts shelf-space

allocations to respond to customer
and other differences among
local markets

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 Cross-Merchandising

Retailers carry complementary

goods and services to encourage
shoppers to buy more

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 Attributes and
Functions
of
Buying
Organizations

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Constraints influencing optimal
merchandise mix
Cash Constraint - seldom are there enough
dollars to emphasize all three!
Space Constraint - Is there enough?
Turnover Constraint - As depth
increases, more variations of the product
are needed
Market Constraint - How will the
customer react?
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 Devising Merchandise
Plans

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 Forecasts

 These are projections of expected retail

sales for given periods
* Components:
• Overall company projections
• Product category projections
• Item-by-item projections
• Store-by-store projections (if a chain)

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 Types of Merchandise

 Staple merchandise
 Assortment merchandise
 Fashion merchandise
 Seasonal merchandise
 Fad merchandise

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 Staple Merchandise

 Regular products carried by a retailer

* Grocery store examples: milk,
bread, canned soup
 Basic stock lists specify inventory
level, color, brand, style, category,
size, package, etc.

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 Assortment Merchandise
 Apparel, furniture, auto, and other
categories for which the retailer must
carry a variety of products in order to
give customers a proper selection
 Decisions on Assortment
* Product lines, styles, designs, and
colors are projected
* Model stock plan

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 Fashion and Seasonal
Merchandise

 Fashion Merchandise: Products that

may have cyclical sales due to changing
tastes and life-styles
 Seasonal Merchandise: Products that
sell well over nonconsecutive time
periods

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 Factors in Planning Merchandise
Innovativeness
FACTOR RELEVANCE for PLANNING
Target market(s) Evaluate whether the target market is
conservative or innovative

Goods/service Consider each new offering on the basis of

growth potential rapidity of initial sales, maximum sales
potential per time period, and length of
sales life

Fashion trends Understand vertical and horizontal fashion

trends, if appropriate

Retailer image Carry goods/services that reinforce the

firm’s image
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 Factors in Planning Merchandise
Innovativeness
FACTOR RELEVANCE for PLANNING
Competition Lead or follow competition in the selection
of new goods/services

Customer segments Segment customers by dividing

merchandise into established-product
displays and new-product displays

Responsiveness to Carry new offerings when requested by the

consumers target market

Amount of Consider all possible investments for each

investment new good/service: product costs, new
fixtures, and additional personnel
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 Factors in Planning Merchandise
Innovativeness
FACTOR RELEVANCE for PLANNING
Profitability Assess each new offering for potential
profits

Risk Be aware of the possible tarnishing of the

retailer’s image, investment costs, and
opportunity costs

Constrained Restrict franchisees and chain branches

decision making from buying certain items

Declining goods/ Delete older goods/services if sales and/or

services profits are too low

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 Conflicts in unit stock planning
Maintain Strong In-Stock Avoid the 90 Percent of Products
Position in Genuinely New Items That Will Fall During Introduction

Have Inventory Dollars to

Stock Basic Popular Items
Capitalize on Opportunities

Maintain Higher Turnover Goals Maintain High Margin Goals

Have Selection Don’t Confuse Customer

Utilize Space Don’t Congest Store

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 Factors in Planning Merchandise
Quality
FACTOR RELEVANCE for PLANNING

Target market(s) Match merchandise quality to the wishes of

the desired target market(s)

Competition Sell similar quality or different quality

Retailer’s image Relate merchandise quality directly to the

perception that customers have of retailer

Store location Consider the impact of location on the

retailer’s image and the number of
competitors, which, in turn, relate to quality
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 Factors in Planning Merchandise
Quality
FACTOR RELEVANCE for PLANNING
Profitability Recognize that high quality goods generally
bring greater profit per unit than lesser-
quality goods; turnover may cause total
profits to be greater for the latter
Manufacturer Understand that, for many, manufacturer
versus private brands connote higher quality than private
brands brands
Customer services Know that high-quality goods require
offered personal selling, alterations, delivery, and so
on
Personnel Employ skilled, knowledgeable personnel for
high-quality merchandise
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 Factors in Planning Merchandise
Quality
FACTOR RELEVANCE for PLANNING

Perceived goods/ Analyze consumers. Lesser quality goods

service benefits attract customers who desire functional
product benefits; High-quality goods attract
customers who desire extended product
benefits

Constrained Face reality. Franchises or chain store

decision making managers have limited or no control over
products; Independent retailers that buy from
a few large wholesalers are limited to the
range of quality offered by those wholesalers

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 Retail Assortment
Strategies
Width of assortment refers to the number
of distinct goods/service categories
(product lines) a retailer carries
Depth of assortment refers to the variety
in any one goods/service category
(product line) a retailer carries
An assortment can range from wide and
deep (department store) to narrow and
shallow (box store)
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 Brands

Manufacturer
(national)

Private
(dealer or store) Generic

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 What does the merchandise
budget include?
Projected sales
Projected stock
Planned reductions
Planned purchases
Planned markup
An outline of merchandising objectives to
insure profitability!

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 Sample

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 Merchandising Software
 General Merchandise Planning Software
 Forecasting Software
 Assortment Software
 Allocation Software
 Category Management Software

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 Shelf Logic Software for Category
Management Planning

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 Shelf Logic Software for Category
Management Planning

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 The Process for Implementing
Merchandise Plans

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 Outside
Sources
of
Supply

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 Selecting Merchandise Sources

 Company-owned
 Outside, regularly used supplier
 Outside, new supplier

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 Zara – A Collaborative Supplier-
Retailer Program

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 Negotiating the Purchase

 Special considerations
* Opportunistic buying
* Slotting allowances

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 Concluding Purchases

 The retailer takes title immediately upon

purchase
 The retailer assumes ownership after titles
are loaded onto the mode of transportation
 The retailer takes title when a shipment is
received
 The retailer does not take title until the end
of a billing cycle, when the supplier is paid
 The retailer accepts goods on consignment
and does not own the items. The supplier is
paid after merchandise is sold

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 Reordering Merchandise

 Four critical factors:

* Order and delivery time
* Inventory turnover
* Financial outlays
* Inventory versus ordering costs

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 Order Processing and
Fulfillment

 Quick Response Inventory Planning

(QR)
 Floor-ready merchandise
 Efficient Consumer Response
(ECR)

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 Problems Balancing
Inventory Levels
 The retailer wants to be appealing and
never lose a sale by being out of stock; it
does not want to be “stuck” with excess
merchandise
 What fad merchandise and how much
should be carried?
 Customer demand is never completely
predictable
 Shelf space allocation should be linked to
current revenues

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 Structured Guidelines for
Pruning Products
 Select items for possible elimination on the basis
of declining sales, prices, and profits, appearance
of substitutes
 Gather and analyze detailed financial and other
data about these items
 Consider nondeletion strategies such as cutting
costs, revising promotion efforts, adjusting prices,
and cooperating with other retailers
 After making a deletion decision, do not overlook
timing, inventory, and holdover demand

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