Merchandise Planning

By:: Debabrata Dash

In 1993, 48 underperforming GAP stores were converted into GAP

Warehouse stores and were renamed as Old Navy. Today Old Navy
Is a $ 7 billion brand !!
In the heart of this success lies a retail strategy that combines : :
value pricing
timely styling
an updated image
and sizing to fit Americans growing waistlines

Merchandise Plan
Developing and implementing a merchandise plan is a
Key phase in a RETAIL STRATEGY.
Merchandising consists of the activities involved in
Acquiring , particular goods and / or services and making
Them available at the prices , times , and places and in
The quantity that enables a retailer to reach his goals.

Merchandising is a critical function since this brings to market

The products that will excite and please target consumers.
Rarely is there a situation , as with retail merchandising ,
Where so few individuals drive so many decisions and
Outcomes. A small fraction of the employee population controls
As much as 70% -- 80% of a firms destiny !!
Retailers may be called on to place multibillion dollar bets !!!

Merchandising Philosophy
A Merchandising Philosophy sets the guiding principles for
All the merchandising decisions.
Merchandising Philosophy is an highly intricate concept that
Drives every product decisions that a retailer makes.
Scope of Responsibilities
Merchandising Function
Buy
Sell
Buying Function
Buy
An individual firm has to decide which format suits it.

antages of Merchandising-Oriented Philoso

Buying-selling combined

Smooth Chain of Command

Buyers Expertise is used in selling
Responsibility and Authority Clear
Buyer Involved with Display
Reduced Costs (buyer-seller combined)
Buyer Closer to Consumers

Advantages of Separate Buying & Selling

Similar Skills Not Needed for Each

Task
Higher Morale of store personnel
Selling Not Secondary
Specialists in sales sell
Merchandisers Not Always Good
Supervisors since their priorities are
diffused

Merchandising Considerations
To capitalize on merchandising opportunities , more retailers
Are now turning to : : :

Micromerchandising : Retailers adjusting shelf-space

Wal-Mart adapts space reflecting local demography

Cross-Merchandising : Retailers carry complimentary

goods and services. It can lose effectiveness , if carried too
far , and become scrambled merchandising.

Principles Of Merchandising

Understand the Target Market

Build the Merchandise Plan, one store at a time
Buy what your customers want, not you
Build the Right Assortment
Be consistent
Offer value
Understand the needs of the vendor on win-win
Share information
Accept that mistakes happen
Seek to surprise the customer

Buying Organizations : Formats And

Processes
A retail merchandise plan can not be properly drawn
Unless the buying organization and its processes are
Well defined.
The next slide illustrates the range of organization attributes
From which a retailer may choose.

butes and Functions of Buying Organization Form

Level of Formality

Formal
Informal

Degree of Centralization

Centralized
Decentralized

Breadth

General
Specialized

Source of Personnel
Philosophy

Internal
External
Resident Buying Office
Cooperative Buying
Merchandising
Buying

Staffing

Buyer
Sales Manager
Merchandising Buyer

Level Of Formality
Formal Buying Organization : Merchandising (buying) is a
Distinct task --- acquiring merchandise and making it available
For sale are under this organizations control. Mostly employed
By large retailers.
Informal Buying Organization : Merchandising (buying) is not a
Distinct task.

Both structures are found in great numbers.

Degree Of Centralization
In a Centralized Buying Organization , all buying decisions
Emanate from one office.

In a Decentralized Buying Organization , purchase decisions

Are made locally or regionally.

Centralized Buying Organization

Advantages : : Integration of efforts
Strict controls
Consistent Image
Proximity to Top Management
Staff Support
Volume discounts
Disadvantages : : Inflexibility
Time delays
Poor adaptability to local conditions
Excessive Uniformity

Decentralized Buying Organization

Advantages : : Adaptability to local conditions
Quick Order Processing
Improved Morale of store personnel
Disadvantages : : Disjointed Planning
Inconsistent Image & Positioning
Limited Control
Loss of volume discounts

Buying Organizational Breadth

A choice has to be made between a general buying
Organization and a specialized one.
General buying organization : one or group of people buy
All the merchandise for the firm.
Specialized buying organization : Each buyer is responsible
For a specific category.

Personnel Resources
The Inside buying organization : staffed by retailers own
Personnel. Mostly used by large retailers or very small
retailers such as bakeries and stationary stores.
Zellers , a Canadian firm with more than 350 full line
Discount department stores nationwide , and Ross Stores
Are examples of large retailers employing inside buying
Organization.
The Outside buying organization : A company or personnel
External to the retailer are hired , usually on a fee basis. Two
Leading companies that render this service to retailers are
The Doneger Group and Frederick Atkins.
Resident buying office / Cooperative buying

Functions Performed
When a retailer adopts merchandising view , its merchandise
Personnel oversee all buying and selling functions.
When a retailer adopts a buying view , its merchandise
Personnel oversee buying of products , advertising and pricing ,
And in store personnel oversee assortments , displays and
Sales presentations.

Staffing
The last buying organization decision focuses on staffing : :
What positions must be filled ?
What qualifications should be required ?
Firms with merchandising view must appoint expert buyers
Coupled with good selling skills.
And firms with a buying view are interested in hiring both
Expert Buyers and expert sales managers.

Considerations in drawing merchandise plans

Innovativeness

Forecasts

Assortments

Merchandise
Plan

Allocation

Brands

Timing

Forecasts
Staple Merchandise : Relatively stable sales : A basic

stock list , example milk, bread etc

Assortment Merchandise : variety needed , example cars,

apparel etc
Product Lines etc.
Model Stock Plan
Fashion Merchandise : Cyclical sales example : bow ties,

bell-bottom pants etc

Seasonal Merchandise
Fad Merchandise

nnovativeness : Factors to consider

Target Market(s)
Goods/Service Growth Potential
Fashion Trends and Theories
Retailers Image
Competition
Customer Segments
Responsiveness to Consumers
Investment Costs
Profitability
Risk
Constrained Decision Making
Declining Goods/Services

Product Life Cycle

Total Retail Sales

Introduction Growth

Maturity
Time

Decline

Product Life Cycle

Life Cycle Stage

Strategy
Variable

Introduction

Growth

Maturity

Decline

Target Market

High-Income
Innovators

Middle-Income
Adopters

Mass Market

Low-Income
and Laggards

Good or Service

One Basic
Offering

Some Variety

Greater
Variety

Less Variety

Distribution Intensity

Limited or
Extensive

More
Retailers

More
Retailers

Fewer
Retailers

Price

Penetration or
Skimming

Wide Range

Lower Prices

Lower Prices

Promotion

Informative

Persuasive

Competitive

Limited

Supplier Structure

MonopolyOligopoly

OligopolyCompetition

Competition

Oligopoly

Fashion Trends
Vertical : First accepted by upmarket

Horizontal : Accepted by a broad spectrum

of classes

Assortment
An ASSORTMENT is the selection of merchandise
A retailer carries.

Product Quality : High/medium or low ?

Width : Goods/service categories
Depth : Variety within category

Planning Merchandise Quality

Target Market(s)
Competition
Retailers Image
Store Location
Stock Turnover
Profitability
Manufacturer versus Private
Brands
Customer Services Offered
Personnel
Perceived Goods/Service
Benefits
Constrained Decision Making

Assortment Considerations

Impact on Sales and Profit

Space Requirements
Inventory Turnover
Cannibalization

Wide and Deep Assortment

Advantages

Disadvantages

Broad Market
Full Selection of Items
High Level of Customer
Traffic
Customer Loyalty
One-Stop Shopping
No Disappointed
Customers

High Inventory
Investment
General Image
Many Items with Low
Turnover
Some Obsolete
Merchandise

Wide and Shallow Assortment

Advantages

Disadvantages

Broad Market
High Level of Customer
Traffic
Emphasis on
Convenience
Customers
Less Costly Than Wide
and Deep
One-Stop Shopping

Low Variety Within

Produce Lines
Some Disappointed
Customers
Weak Image
Many Items with Low
Turnover
Reduced Customer
Loyalty

Narrow and Deep Assortment

Advantages

Disadvantages

Special Image
Good Customer Choice
in Category(ies)
Specialized Personnel
Customer Loyalty
No Disappointed
Customers
Less Costly Than Wide
and Deep

Too Much Emphasis on

One Category
No One-Stop Shopping
More Susceptible to
Trends/Cycles
Greater Effort Needed to
Enlarge the Size of the
Trading Area
Little (no) Scrambled
Merchandising

Narrow and Shallow Assortment

Advantages

Disadvantages

Aimed at Convenience
Customers
Least Costly
High Turnover of Items

Little Width and Depth

No One-Stop Shopping
Some Disappointed
Customers
Weak Image
Limited Customer Loyalty
Small Trading Area
Little (no) Scrambled
Merchandising

Brands
Manufacturer (National)

Private Label (Dealer)

TIMING and ALLOCATION

Timing and allocation are two last components to be

Considered in merchandise planning.

nagement : An emerging merchandisin

Arrange The Way Customers Would
Configuration Function of Time, Space, and Product
Utilitization
See to Drive Multiple Item Purchases
Management is Fluid, Dynamic, Proprietary Set of
Decisions
Create Unique Consumer Value
Based on Overall Trading-Area Scenarios
Management an Exclusionary Process
Data from Pre-Customer Interface Analysis of TradingArea Needs
Supplier and Retailer have Different Goals
Management Strategy of Differentiation

Category Management Application

Unit Sales
Few

High

Direct
Product
Profitability
Low

Many

High Potential (sleepers) --

Winners --

Promote more, better position,

more facings, display more,
sample, back with store coupons

Promote more, better position,

more facings, display more

Underachievers (dogs) --

Traffic Builders --

Raise prices, lower position,

Review prices, lower position,
cut promotions, consider delisting. expand space, mix with sleepers,
display.

Technology In Retail : Software

General Merchandise Planning Software

Forecasting Software
Innovativeness Software
Assortment Software
Allocation Software
Category Management Software

CONCLUSION
In developing merchandising plans the concept of merchanDising philosophy is very significant. The factors to be
Considered in drawing a merchandise plan are forecasts ,
Innovativeness , assortment , brands , timing and allocation.
Category management is an emerging trend in the field of
Merchandising management. Increasingly the role of IT is
Growing and various softwares are available that play a
Critical role in merchandise planning.

Prof. T. K. Chatterjee