Retailing Management: Merchandise Planning Process

Retailing Management

• Determining variety and assortment in retailing involves considering physical characteristics of the store and the effects of assortment size on buying behavior.

Effects of Assortment Size on Buying Behavior

• Offering large assortments provides several benefits to customers, including:
  • Increasing the number of SKUs that customers can purchase
  • Providing a more informative and stimulating shopping experience
  • Offering more variety

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
• Retailers typically classify stores on the A, B, and C system, with C stores stocking the basic assortment and A and B stores having more space and accommodating more SKUs

Product Availability

• Product availability defines the percentage of demand for a particular SKU that is satisfied
• Buyers need to recognize regional differences and arrange for merchandise to be shipped to the appropriate regions to increase inventory turnover in the category

Buying Merchandise

• The first strategic decision in the merchandise management process is the type of merchandise to buy for the category: well-known national brands or private-label brands

National Brands

• National brands are products designed, produced, and marketed by a vendor and sold to many different retailers
• Vendors are responsible for developing the merchandise, producing it with consistent quality, and undertaking an advertising program to establish an appealing image for the brand

Private-Label Brands

• Private-label brands are products developed by retailers
• Retailers develop the design and specifications for their private-label products and then contract with manufacturers to produce those products
• In some cases, national brand vendors work with a retailer to develop a special version of its standard merchandise offering to be sold exclusively by the retailer

Categories of Private Brands

• Comparable to, even superior to, manufacturer’s brand quality, with modest price savings
• Imitate the manufacturer’s brand in appearance and packaging, perceived as lower quality, offered at a lower price
• Exclusive Co-brands developed by a national brand vendor, often in conjunction with a retailer, and sold exclusively by the retailer
• Premium or Copycat brands

National (Manufacturer) Labels

• Disadvantages:
  • Lower margins
  • Vulnerable to competitive pressures
  • Limit retailer’s flexibility
• Advantages:
  • Help retailers build their image and traffic flow
  • Reduce selling and promotional expenses
  • More desired by customers
  • Customers patronize retailers selling the branded merchandise
  • Push some of the financial risk onto the vendor

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

Analyze Merchandise Performance

• The next step in the merchandise management process is to analyze the performance of the process and make adjustments as necessary

Merchandise Management

• Merchandise management is the process by which a retailer attempts to offer the right quantity of the right merchandise in the right place at the right time while meeting the company’s financial goals
• Buyers need to be in touch with and anticipate what customers will want to buy

Buying Organization

• Merchandise Group Department Classification
• Each merchandise group is managed by a general merchandise manager (GMM)
• Departments are managed by a divisional merchandise manager (DMM)

Merchandise Category – The Planning Unit

• The merchandise category is the basic unit of analysis for making merchandising management decisions
• A merchandise category is an assortment of items that customers see as substitutes for one another

ABC Analysis

• A items: 5% of SKUs, represent 70% of sales
• B items: 10% of SKUs, represent 20% of sales
• C items: 65% of SKUs, represent 10% of sales
• D items: 20% of SKUs, represent 10% of sales

Multiattribute Method for Evaluating Vendors

• The multiattribute method for evaluating vendors uses a weighted average score for each vendor
• The score is based on the importance of various issues and the vendor’s performance on those issues
• A buyer can evaluate vendors by using five steps:
  • Develop a list of issues to consider in the decision
  • Determine importance weights for each issue
  • Make judgments about each individual brand's performance on each issue
  • Combine the importance and performance scores by multiplying the importance for each issue by the performance for each brand
  • Determine the vendor’s overall rating by summing the product for each brand for all issues to compute an overall rating