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Organize the Buying Process by Categories Set Merchandise Financial Objectives -- GMROI Develop an Assortment Plan
Buying Systems (Chapter 13)
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What is Buying?
Buying is the business activity that involves selecting and purchasing products to satisfy the wants and needs of consumers
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Buying Merchandise
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Merchandise Management
Process by which a retailer offers the right quantity of the right merchandise in the right place at the right time and meets the companys financial goals. Merchandise management: The analysis, planning, acquisition, handling, and control of the merchandise investments of retail operation.
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The Category
A merchandise category is an assortment of items that customers see as substitutes for each other. Vendors might assign products to different categories based on differences in product attributes Retailers might assign two products to same category based on common consumers (i.e. buying behavior, target groups)
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Category Management
Category management The process of managing a retail business with the objective of maximizing the sales and profits of the entire category, not just a particular brand. Merchandise Management Department stores - Category level Grocery stores - Brands and Vendors
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Category Captain
Selected vendor responsible for managing a category This supplier forms an alliance with a retailer to help gain consumer insight, satisfy consumer needs, and improve the performance and profit potential across the entire category. The category captain works with the category manager/buyer to make decisions about product placement on shelves, promotions, and pricing for all brands in the category.
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Time
Strategy variable Target market Variety Distribution Intensity Price Promotion
Introduction
High-income Innovators One basic offering Limited or extensive Penetrating or skimming Informative
Growth
Middle-income adapters Some variety More retailers Wide range Persuasive
Maturity
Mass market Greater variety More retailers Lower prices Competitive
Decline
Low-income and laggards Less variety Fewer retailers Lower prices Limited
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Fashion Yes
Staple Yes
Seasonal Yes
No
No
Yes
Yes
No
Yes
No
Yes
SALES
SALES
SALES
TIME
TIME
TIME
SALES TIME
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Evaluating Merchandise Management Performance Merchandise managers have control over The merchandise they buy The price at which the merchandise is sold The cost of the merchandise Merchandise managers do not have control over Operating expenses Human resources Supply chain management & Information systems
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GMROI
Gross Margin Return on Investment
A measurement of how many gross margin dollars are earned on every dollar of inventory investment made by the buyer
GMROI is a similar concept to Return on Assets, only its components are under the control of the buyer rather than other managers. GMROI = Gross margin percentage X Sales-to-stock ratio
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Inventory turnover = (1 Gross Margin %) x Sales to Stock Ratio Inventory turnover = Net Sales Average inventory at retail price Cost of Goods Sold Average inventory at Cost
Inventory turnover =
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Illustration of GMROI
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Advantages of Rapid Inventory Turnover Increased sales volume Less risk of obsolescence and markdowns Improved salesperson morale More resources to take advantage of new buying opportunities
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Reduce number of categories Reduce number of SKUs within a category Reduce number of items in a SKU BUT if a customer cant find their size or color or brand, patronage and sales decrease!
another approach
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another approach
To improve inventory turnover Buy merchandise more often Buy in smaller quantities which should reduce average inventory without reducing sales BUT by buying smaller quantities Buyers cant take advantage of quantity discounts so Gross margin decreases Operating expenses increase Buyers need to spend more time placing orders and monitoring deliveries
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Assortment Planning
Variety is the number of different merchandising categories within a store or department Assortment is the number of SKUs within a category. Product availability defines the percentage of demand for a particular SKU that is satisfied.
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Determining Variety and Assortment 1. 2. 3. 4. Retail strategy GMROI of merchandise assortment Physical characteristics of the store Complementary merchandise.
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Mini-Cases
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Setting Inventory and Product Availability Levels Assortment plans typically include the inventory levels of each SKU stocked in the store. A model stock plan is a summary of the typical store inventory support for a merchandise category. The retailer might have a model stock plan for each type in a merchandise category and for different store sizes.
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Product Availability
The percentage of demand for a particular SKU that is satisfied. The higher the product availability, the higher the amount of back up stock necessary to ensure that the retailer won't be out of stock on a particular SKU when the customer demands it.