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Merchandising- Definition
Activities involved in acquiring particular goods and/or services and making them available at the places, times, and prices and in the quantity that enable a retailer to reach its goals.
Primary Functions of Merchandising?
It means offering the right quantity of the right product in the right place at the right time !!
Analysis of past sales and trends Planning merchandise assortments Acquisition of merchandise
Merchandise Hierarchy
The merchandising hierarchy is a disciplined Division way of grouping the merchandise mix at different levels, starting from a high-level grouping to the lowest level of the stock keeping unit-(SKU). The grouping may at Department times have even more than four-five levels.
Merchandise Heirarchy
Apparel
Supermarket
Electronics
Men's
Ladies
Kid's
Accessories
Category
Shirts
Trousers
suits
Under Garments
Sub Category
Half Sleeve
Brand
Arrow
V.Heusen
Louie Phillip
Polo
Merchandise Hierarchy
Style
Options SKU Size 4 40,42,44,46 color 4 white blue green yellow Design 3 solid stripe bold price 3 650,750, 1000
The merchandising hierarchy is a disciplined way of grouping the merchandise mix at different levels, starting from a high-level grouping to the lowest level of the stock keeping unit-(SKU). The grouping may at times have even more than four-five levels.
Merchandise Support
(#of product units)
refers to the number of distinct goods/service categories (product lines) a retailer carries.
SKU
A 40 size white shirt of solid design at the price-point of 750 having a button down collar of the Arrow brand in the full sleeves sub-category or sub class of the shirts category belonging to the mens department of the apparel division in a retail organization is a SKU.
Level hierarchy will be diff for various product category, for supermarket,the levels will be: Division : Food Dept: Packaged food Category: Sauces Sub-category: Tomato Brand: Maggi SKU: 250g, 500g, 1kg.
Assortment plan
Is a list of merchandise that indicates in general terms what the retailer wants to carry in a particular merchandise category. An assortment can range from wide and deep (department store) to narrow and shallow (box store)
Retailers are limited by the amount of money available for the merchandise and the space in the store. They need to decide how much backup stock to carry for each item.the more back up stock ,the less likely they are to run out of particular item. On the other hand if they carry a lot of backup stock they will have less money available to invest in a deeper assortment or in more categories
Merchandise Group
Planning Group
V.P. Planning
Second level
Div. merch Div. Third level merch manager manager Mens suits, Fourth level Mens sportsslacks, dress wear, Polo shirts
Sr. vice pres merch mgr Mens, chlds, intimate apparel Div. merch manager
Sr. vice pres merch mgr Cosmet, shoes, jewelry, access. Div. merch manager Childrens apparel Buyer Infants
Classification
Buyer Preteen accessories
Fifth level
Buyer Girls
Mgr. Planning
Category
Sportswear
SKU
08/21/97 08/01/97
Girls Levi jeans, sz 5, stone washed blue, straight leg
Irwin/McGraw-Hill
4
The McGraw-Hill Companies, Inc., 1998
B O O T Price levels Fabric composition Colors $25 $25 Reg denim Stonewashed Light blue Indigo Light blue Indigo
C U T $40 $40 Reg denim Stonewashed Light blue Indigo Light blue Indigo
Black
Black
Black
Black
Time
Strategy variable Target market No of products 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
Types of Merchandise
Fad merchandise Fashion merchandise Staple merchandise Seasonal merchandise
Fad
Recognizing and Identification of fad in its earliest stages and immediately locking up distribution rights for the merchandise is important. Also, to identify the peak of the product life cycle so it can bail out all merchandise before it gets stuck in the warehouse
Fashion
Is a category of merchandise that last for many seasons. Sales can vary dramatically from one season to the next. Also called BASIC MERCHANDISE are category which are in constant demand over extended period of time . 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. Merchandise bought by consumers Year in and year out
Staple
Seasonal
Fad
Sales over many seasons No
Fashion
Yes
Staple
Yes
Seasonal
Yes
No
Yes
Yes
No
Yes
No
Yes
SALES
SALES
SALES
TIME
TIME
TIME
SALES TIME
The forecasting and inventory management systems used for fads and fashion merchandise and staple merchandise is different.
Managing fashion merchandise is tricky as there is no history of SKUs. But in staple merchandise there is rich sales history for each SKU.
Must organize the merchandise mix as to the number of different product lines (categories) carried. Must decide on options: Brands Sizes Colors Material Styles Price points
Goal is to ensure that product choice meets targeted consumer needs Must carefully plan the number of units to have on hand to meet the expected sales for the brand, size, color combinations Must develop merchandise lists 1. Basic Stock List (staple items) 2. Model Stock List (fashion items) 3. Never Out List (key items and best sellers)
Involves monitoring and adjusting the types of product lines that are added and dropped from the merchandise mix Two widely used methods to control assortment and support: 1. Inventory turnover: rate at which the retailer depletes and replenishes stock 2. Open-to-buy:amount of new merchandise a retailer can buy during a specific time period without exceeding planned purchases for the period
RETAIL MERCHANDISING
MERCHANDISING Termed as the planning, buying and selling of merchandise It is an integral part of retailing and is also one of he most challenging functions Retailers often say, GOODS WELL BOUGHT ARE HALF SOLD.
MERCHANDISE MANAGEMENT Termed as the analysis, planning, acquisition, handling and control of merchandise investment of retail operation
ANALYSIS Analysis is required because a retailer needs to understand the needs and wants of his target audience PLANNING It is necessary to plan since the merchandise to be sold in future must be bought in advance ACQUISITION Merchandise to be sold in retail store, needs to be procured from others either from distributors or manufacturers
HANDLING It is necessary to determine where merchandise is needed and ensure that the merchandise reaches the required stores at he right time and the right condition CONTROL As the function of retailing involves spending money for acquiring of products, it necessary to control the amount of money spent of buying
RETAIL MERCHANDISING
Process of merchandise management includes the developing of strategies to ensure that the right product Is bought at the right price Is available at he right place At the right time In the right amount In order o satisfy he needs of the target customer No one in retail can avoid any contact with merchandising activities Merchandising is the day-to-day business of all retailers As inventory is sold, new stocks need to be purchased, displayed and sold Hence merchandising is often said to be at the core of retail management FACTORS AFFECTING THE MERCHANDISING FUNCTIONS
SIZE OF THE ORGANIZATION MERCHANDISING FUNCTION ORGANIZATION STRUCTURE TYPE OF STORE MERCHANDISE TO BE CARRIED
Basic Stock = Average stock for the season average monthly sales for the season where Average monthly sales for the season = Total planned sales for the season Number of months in the season
Average stock for the season = Total planed sales for the season Estimated Inventory Turnover Rate for the season
Beginning of Month (BOM) stock = Planned Monthly Sales + Basic Stock
Illustration : Using the basic stock method, calculate BOM inventory for the month of January, given the following information Planned sales for January : 30,000 Average monthly sales : 25,000 Average monthly inventory : 40,000 Basic stock = 40,000 25,000 = 15,000 BOM stock = 30,000 + 15,000 = 45,000
2. The Percentage Variation Method This method is used when the stock turnover rate is more than six times a year The basic premise is that this method of inventory planning is that inventory levels should reflect the actual sales
It is calculated as under :
BOM Stock = Avg stock for the season x [ 1 + (Planned Sales for the month / Avg monthly sales)]
Illustration: Using the Percentage Variation Method, calculate the BOM inventory for the month of January, given the following information
Planned sales for the month of January Average monthly sales Average monthly inventory : 30,000 : 25,000 : 40,000
BOM Stock = Avg stock for the season x [ 1 + (Planned Sales for the month / Avg monthly sales)] BOM stock = 40,000 = 40,000 = 40,000 = 40,000 = 44,000 x x x x [1 + 30,000/ 25,000)] (1 + 1.2) x 2.2 1.1
3. Stock to Sales Ratio Method This method is very easy to use, but it requires the Retailer les ratio. It involves the maintaining of the inventory levels at a specific ratio to the sales This ratio tells he retailer how much inventory is needed at the beginning of the month, to support the months estimated sales
Stock-Sales ratio = Value of Inventory / Actual sales Planned BOM inventory = Stock-Sales Ratio x Planned Sales
Illustration: Using the ales Ratio Method, calculate the BOM inventory for the month of January, given the following information Stock to sales Ratio = 1.4 Planned sales for the month of January : 20,000 Planned BOM inventory = 1.4 x 20,000 = 28,000
Stock Turnover Rate An effective measure of the speed with which products or merchandise moves in and out of a retail store for a given period It is a measure of efficiency and is usually calculated for a period, of six months or a year It is calculated using the following formula Planned Sales (for a period) ---------------------------------------------------- = Stock turnover Planned average Inventory (for the period) The stock turnover rate is a measure of efficiency Every department usually has its own stock turnover rate as different merchandise need different speeds of selling From the managements perspective, the stock turnover indicates the level of capital usage ie. Turning money into inventory, inventory into money and then repeating the process again