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Buying Merchandise
Merchandise Management
Retail Pricing
Chapter 15
Questions
What branding options are available to retailers? How do retailers buy national brands? What issues do retailers consider when buying and sourcing private label merchandise internationally? How do retailers prepare for and conduct negotiations with their vendors? Why are retailers building strategic relationships with their vendors? What legal and ethical issues are involved in buying merchandise?
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Brand Alternatives
National (Manufacturer) Brands
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Target
Home Depot
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Premium
Generic
Copycat
Exclusive co-brands
Exclusive Co-Brands
American Beauty by Estee Lauder in Kohls Simply Vera by Vera Wang in Kohls
Exclusive Brands
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Private Labels
Advantages
Unique merchandise not available at competitive outlets Exclusivity boosts store loyalty Difficult for customers to compare price with competitors Higher margins
Disadvantages
Require significant investments in design, global manufacturing sourcing Need to develop expertise in developing and promoting brand Unable to sell excess merchandise Typically less desirable for customers
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5-6 times a year Many months before delivery Withhold open-to-buy (OTB) for new items with fashion change
Less frequent Continuous replenishment
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MAST
one of the worlds biggest contract manufacturers, importers, distributors of apparel Have manufacturing operations and join ventures in 12 countries Also provides private label merchandise for Abercrombie & Fitch, Lane Bryant, New York & Company, Chicos
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Factory Sourcing
Manufacturing Control
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Bangalore Shanghai Chennai Nanjing Mumbai Seoul New Delhi Taipei Karachi Hepu Lahore Macau Dhaka Colombo Sharjah Bahrain Southeast Asia (9 locations) Singapore Bangkok Shah Alam Manila Hanoi Ho Chi Minh City Jakarta Phnom Penh Saipan
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Designers develop specifications Sourcing departments find a manufacturer, negotiate a contract, and monitor the production process, or Use Reverse Auctions to get quality private label merchandise at low prices
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Reverse Auctions
B
Why reverse? One buyer (the retailer), multiple sellers Sellers bid for buyers business Price falls No strategic relationships with vendors
Reverse Auction S S S
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Traditional Auction
Price Path on Open-Bid Auction Develop specification Select potential sources and invite them to auction Bidding for several hours Select supplier
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Global Sourcing
Costs Associated with Global Sourcing Decisions
Remote production facilities in developing economies with low labor costs Foreign currency fluctuations, tariffs, longer lead times, increased transportation costs Obsolete costs and inventory carrying costs from larger inventories
Managerial Issues
Quality control, time-to-market, social political factors Difficult for collaborative supply chain management (CPFR) based on short and consistent lead times Human rights and child labor
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The decline of the value of the US dollar against other important world currencies has made imports to the US more expensive, And exports from the US has become less expensive.
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Services include
Reports on market and fashion trends Assistance with merchandise budget and assortment plans Assistance in order placement, adjustments with vendors Introduction to new resources Import purchases Exclusivity of merchandise (private label and special purchases) Arrangement of vendor appointments
Retail Exchange
Internet-based solutions and services for retailers Example: Agentrics, WorldWide Retail Exchange (WWRE), GlobalNetXchange (GNX)
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Two-way communication designed to reach an agreement when two parties have both shared and conflicting interests.
Royalty-Free/CORBIS
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Additional markup opportunities Purchase terms Terms of purchase Exclusivity Advertising allowances Transportation
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Funds from a vendor to a retailer to cover decreased gross margin from markdowns
Slotting Allowances
A charge imposed by a retailer to stock a new item (in supermarkets) For Retailers
To ensure efficient uses of their valuable space To determine which new products merit inclusion in their assortment
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Retailer and vendor committed to maintaining relationships over the long-term and investing in mutually beneficial opportunities
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Types of Relationship
Vendor
Win
Win Buyer Lose
Lose
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Strategic Relationships
Win-Win Relationships -- Concerned about expanding the pie, not how to divide the pie
Retailer
vs.
Vendor
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Stockbyte/Punchstock Images
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The costs of manufacturing, selling, and delivery are different The retailers are providing different functions (e.g., distribution, store service, etc.)
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For ensure adequate margin for retailers, but some retailers do not appreciate RPM to have the flexibility on pricing Reduces free riding of discount stores Is legal (was illegal in the past for obstructing competition) as long as it promotes interbrand competition and restricts intrabrand competition
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Commercial Bribery
A vendor or its agent offers to give or pay a retail buyer something of value to influence purchasing decisions. A fine line between the social courtesy of a free lunch and an elaborate free vacation. Some retailers with a zero tolerance policy Some retailers accept only limited entertainment or token gifts.
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Chargebacks
A practice used by retailers in which they deduct money from the amount they owe a vendor without getting vendor approval. Two Reasons:
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Buybacks
Stocklifts, Lift-outs 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 retailers system. Retailer forces a vendor to buyback slow-moving merchandise.
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Counterfeit Merchandise
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
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Diverted Merchandise is similar to gray-market merchandise except there need not be distribution across international boundaries.
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Tying Contracts
An agreement that requires the retailer to take a product it doesnt necessarily desire (the tied product) to ensure that it can buy a product it does desire (the tying product) Illegal when they lessen competition Ok to protect goodwill and quality reputation of vendor legal for a vendor to require a buyer to buy all items in its product line
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Refusals to Deal
Suppliers and retailers have the right to deal or refuse to deal with anyone they choose. Except when it lessens competition.
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