CHAPTER 14 DEVELOPING MERCHANDISE PLANS Chapter Objectives To

CHAPTER 14: DEVELOPING MERCHANDISE PLANS

Chapter Objectives • • To demonstrate the importance of a sound merchandising philosophy To study various buying organization formats and the processes they use To outline the considerations in devising merchandise plans: forecasts, innovativeness, assortment, brands, timing, and allocation To discuss category management and merchandising software © 2013 Pearson Education 14 -2

Merchandising Activities involved in acquiring particular goods/ services and making them available at the places, times, prices, and quantities that enable a retailer to reach its goals. © 2013 Pearson Education 14 -3

Merchandising Philosophy • • Sets the guiding principles for all the merchandise decisions that a retailer makes It should reflect • Target market desires • Retailer’s institutional type • Market-place positioning • Defined value chain • Supplier capabilities • Costs • Competitors • Product trends © 2013 Pearson Education 14 -4

Product Proliferation Data • • • Aldi $620 sales/sq. ft 1, 400 SKUS Costco $929 3, 800 Stew Leonard’s $1500 -$3, 750 est. 2, 000 Trader Joe’s $1, 750 2, 500 -3, 500 Average Supermarket $500 47, 000 © 2013 Pearson Education 14 -5

Average Sales Per SKU • • • Aldi Costco Stew Leonard‘s $ 5. 0 million $18. 4 million $188, 000 (only 5 stores) • • Trader Joe’s Winn-Dixie $2. 4 -$2. 9 million $142, 000 -$247, 000 With only four stores, Stew Leonard’s has the same bargaining power per SKU than Winn-Dixie, a chain with revenues 20 times higher that Stew Leonard’s © 2013 Pearson Education 14 -6

Scope of Merchandising Responsibility • Full array of merchandising functions • Buying and selling • Selection, pricing, display, customer transactions OR • Focus on buying function only © 2013 Pearson Education 14 -7

Figure 14 -1: Stew Leonard’s © 2013 Pearson Education 14 -8

Micromerchandising Retailers adjust shelf-space allocations to respond to customer differences and other differences among

Cross-Merchandising Retailers carry complementary goods and services to encourage shoppers to buy more. ©

Figure 14 -2: Attributes and Functions of Buying Organizations © 2013 Pearson Education 14

Merchandising and Store Functions Performed o Merchandising view • All buying and selling functions • Assortments • Advertising pricing • Point-of-sale displays • Employee utilization • Personal selling approaches © 2013 Pearson Education 14 -12

Merchandising and Store Functions Performed (cont. ) o Buying view • Buyers manage buying functions: • Buying • Advertising • Pricing • In-store personnel manage other tasks: • Assortments • Point-of-sale displays • Employee utilization • Personal selling approaches © 2013 Pearson Education 14 -13

Figure 14 -4 a: Merchandising Career Track at Macy’s © 2013 Pearson Education 14

Figure 14 -4 b: Store Management Career Track at Macy’s © 2013 Pearson Education

Figure 14 -5: Devising Merchandise Plans © 2013 Pearson Education 14 -16

Forecasts o These are projections of expected retail sales for given periods • Components: • Overall company projections • Product category projections • Item-by-item projections • Store-by-store projections (if a chain) © 2013 Pearson Education 14 -17

Types of Merchandise • • • © 2013 Pearson Education Staple merchandise Assortment merchandise

Staple Merchandise • Regular products carried by a retailer • • © 2013 Pearson Education Grocery store examples: milk, bread, canned soup Basic stock lists specify inventory level, color, brand, style, category, size, package, etc. 14 -19

Assortment Merchandise • • Apparel, furniture, automotive, and other categories for which the retailer must carry a variety of products in order to give customers a proper selection Decisions on assortment • • © 2013 Pearson Education Product lines, styles, designs, and colors are projected Model stock plan 14 -20

Fashion and Seasonal Merchandise • • Fashion Merchandise: Products that may have cyclical sales due to changing tastes and life-styles Seasonal Merchandise: Products that sell well over nonconsecutive time periods © 2013 Pearson Education 14 -21

Table 14 -1 a: Factors in Planning Merchandise Innovativeness FACTOR RELEVANCE for PLANNING Target market(s) Evaluate whether the target market is conservative or innovative Goods/service growth potential Consider each new offering on the basis of rapidity of initial sales, maximum sales potential per time period, and length of sales life Fashion trends Understand vertical and horizontal fashion trends, if appropriate Retailer image Carry goods/services that reinforce the firm’s image © 2013 Pearson Education 14 -22

Table 14 -1 b: Factors in Planning Merchandise Innovativeness FACTOR Competition Customer segments Responsiveness to consumers Amount of investment © 2013 Pearson Education RELEVANCE for PLANNING Lead or follow competition in the selection of new goods/services Segment customers by dividing merchandise into established-product displays and new-product displays Carry new offerings when requested by the target market Consider all possible investment for each new good/service: product costs, new fixtures, and additional personnel 14 -23

Table 14 -1 c: Factors in Planning Merchandise Innovativeness FACTOR Profitability RELEVANCE for PLANNING Assess each new offering for potential profits Risk Be aware of the possible tarnishing of the retailer’s image, investment costs, and opportunity costs Constrained Restrict franchisees and chain decision making branches from buying certain items Declining goods/ Delete older goods/services if sales services and/or profits are too low © 2013 Pearson Education 14 -24

Figure 14 -6: Next © 2013 Pearson Education 14 -25

Figure 14 -7: Traditional Product Life Cycle © 2013 Pearson Education 14 -26

Structured Guidelines for Pruning Products • • Select items for possible elimination on the basis of declining sales, prices, profits, and appearance of substitutes Gather and analyze detailed financial/ miscellaneous data about these items Consider non-deletion strategies such as cutting costs, revising promotion efforts, adjusting prices, and cooperating with other retailers After making a deletion decision, do not overlook timing, parts and servicing, inventory, and holdover demand © 2013 Pearson Education 14 -27

Figure 14 -8: Predicting Fashion Adoption © 2013 Pearson Education 14 -28

Table 14 -2 a: Factors in Planning Merchandise Quality FACTOR RELEVANCE for PLANNING Target market(s) Match merchandise quality to the wishes of the desired target market(s) Competition Sell similar quality or different quality Retailer’s image Relate merchandise quality directly to the perception that customers have of retailer Store location Consider the impact of location on the retailer’s image and the number of competitors, which, in turn, relate to quality © 2013 Pearson Education 14 -29

Table 14 -2 b: Factors in Planning Merchandise Quality FACTOR Profitability Manufacturer versus private brands Customer services offered Personnel © 2013 Pearson Education RELEVANCE for PLANNING Recognize that high quality goods generally bring greater profit per unit than lesser-quality goods; turnover may cause total profits to be greater for the latter Understand that, in the minds of many consumers, manufacturer brands connote higher quality than private brands Know that high-quality goods require personal selling, alterations, delivery, etc. Employ skilled, knowledgeable personnel for high-quality merchandise 14 -30

Table 14 -2 c: Factors in Planning Merchandise Quality FACTOR RELEVANCE for PLANNING Perceived goods/ Analyze consumers. Lesser quality service benefits goods attract customers who desire functional product benefits; High-quality goods attract customers who desire extended product benefits Constrained Face reality. Franchises or chain store decision making managers have limited or no control over products, so independent retailers that buy from a few large wholesalers are limited to the range of quality offered by those wholesalers © 2013 Pearson Education 14 -31

Retail Assortment Strategies Width of assortment refers to the number of distinct goods/service categories (product lines) a retailer carries. Depth of assortment refers to the variety in any one goods/service category (product line) a retailer carries. An assortment can range from wide and deep (department store) to narrow and shallow (convenience store). © 2013 Pearson Education 14 -32

Figure 14 -10: Retailer Selling Shirts © 2013 Pearson Education 14 -33

Brands Manufacturer (national) Private (dealer or store) © 2013 Pearson Education Generic 14 -34

Private Label Market Shares • • • United Kingdom Belgium Germany Spain France Sweden Denmark Finland Netherlands Norway Hungary United States 42 percent of total category sales 41 38 32 31 26 25 25 23 19 18 17 Source: PLMA International/AC Nielsen © 2013 Pearson Education 14 -35

Advantages of Private Labels versus National brands • Store loyalty– A 1 percent increase in private label purchasing increases a retailer’s market share of a household’s purchases by 0. 3 percent. A 10 percent increase in private label purchases, increases that retailer’s market share of that household by 3 percentage points. • Differentiation strategy- Opportunity to differentiate store on the basis of recipe, styling, value, features. • Increased channel power over suppliers— Depends on strength of private label versus national brand • Higher profit margins on private labels- 25 to 30 percent higher (but no return privileges, co-op promotions, slotting fees, and warehousing support). © 2013 Pearson Education 14 -37

Successful Private Label Strategies • Be a purchasing agent for consumers, not a selling agent for suppliers • Develop distinctive products (Trader Joe’s wild salmon in a can, chocolate-covered sunflower seeds, pretzels with sesame seeds (instead of salt) • Co-brand with famous designer (Target with Michael graves, Mossimo and Liz Lange) or with national brand (Costco and Starbucks, Jelly-Belly, Stony. Field) • Taste and product perfromance testing (Costco, Trader Joe’s, Aldi) • Tell a story about the product (ingredients, source, recipe, and health). © 2013 Pearson Education 14 -38

Figure 14 -11: Chico’s © 2013 Pearson Education 14 -39

Figure 14 -12: Lowe’s © 2013 Pearson Education 14 -40

Category Management • Category management is a merchandising technique used to improve productivity. • It is a way to manage a retail business that focuses on the performance of product category results rather than individual brands. • It arranges product groupings into strategic business units to better meet consumer needs and to achieve sales and profit goals. • Retail managers make merchandising decisions that maximize the total return on the assets assigned to them. © 2013 Pearson Education 14 -41

Figure 14 -13: Applying Category Management © 2013 Pearson Education 14 -42

Merchandising Software • • • General Merchandise Planning Software Forecasting Software Innovativeness Software Assortment Software Allocation Software Category Management Software © 2013 Pearson Education 14 -43

Figure 14 -14 JDA Space Planning © 2013 Pearson Education 14 -44

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