Chapter 14 Developing Merchandise Plans Dr Pointers Notes

Chapter 14 Developing Merchandise Plans Dr. Pointer’s Notes

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 14 -2

Merchandising 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. 14 -3

Merchandising Philosophy ¯ Sets the guiding principles for all the merchandise decisions that a retailer makes ¯ Should reflect * Target market desires * Retailer’s institutional type * Market-place positioning * Defined value chain * Supplier capabilities * Costs * Competitors * Product trends 14 -4

Scope of Responsibility Two different philosophies ¯ Full array of merchandising functions * Buying and selling * Selection, pricing, display, customer transactions or is the ¯ Focus on buying function only and leave selling to other specialists 14 -5

Micromerchandising To capitalize on opportunities, retailers adjusts shelf-space allocations to respond to customer and other differences among local markets. What is on the shelves in Houston, Tx maybe different from what is on the shelves in other markets 14 -6

Cross-merchandising Another way to capitalize on opportunities is for Retailers to carry complementary goods and services to encourage shoppers to buy more. This is the reason apparel stores stock accessories. Similar to scramble merchandising. 14 -7

Attributes and Functions of Buying Organizations Level of Formality Degree of Centralization Organization Breadth Personnel Resources Functions Performed Staffing 14 -8 Formal Informal Centralized Decentralized General Specialized External/Internal Resident buying office Merchandising Buyer Sales Manager

Level of Formality ¯ Formal buying organizations, merchandising buying is distinct retail task and a separate department is set up to do this. Advantage is clarify of responsibilities. Disadvantage could be the cost for the dept. ¯ Informal buying organization, merchandise buying is not a separate function but can be done by different folks. Advantage is low cost and flexibility but disadvantage is less defined tasks and lesser emphasis 14 -9

Degree of Centralization ¯ Multiunit retailers have to options for controlling buying function ¯ Centralized buying where all purchasing is done from one office. Advantage include integrated effort, strict controls, consistent image, closeness to top mgmt, staff support and bigger volume discounts, Disadvantage is inflexibility, time delays, morale and excessive uniformity ¯ Decentralized buying where buying decisions are made locally or regionally 14 -10

Degree of Centralization ¯ Multiunit retailers have to options for controlling buying function ¯ Decentralized buying where buying decisions are made locally or regionally. Advantages are more adaptability to locale needs, quicker reordering and improved morale ¯ Disadvantages are disjointed planning, , inconsistent image and limited control, lower volume discounts and less staff support 14 -11

Organizational Breadth ¯ Generalized approach is where one buyer buys for complete store which is possible with small organizations ¯ Specialist approach is needed for large retailers where it is best to use buyers for each department 14 -12

Personnel Resources ¯ Inside buying organization – is staffed by retailer’s owned people ¯ Outside buying organization – personnel external to the retailer are used to staff the organization usually for a fee ¯ Resident buying office responsible for buying and keeping abreast of trends in the market ¯ Cooperative buying offices – group of unrelated retailers purchase together to get economies that larger chains get. 14 -13

Functions Performed ¯ Merchandising view Merchandise personnel oversees all * All buying and selling functions • Assortments • Advertising pricing • Point-of-sale displays • Employee utilization • Personal selling approaches 14 -14

Functions Performed ¯ Buying view * Buyers manage buying functions • Buying • Advertising • Pricing * In-store personnel manage other functions • Assortments • Point-of-sale displays • Employee utilization • Personal selling approaches 14 -15

Staffing ¯ List of all the positions that need to be filled ¯ Buyers - selects the merchandise that is to be sold and for setting a strategy to market the products ¯ Sales Managers- supervises the on the floor selling and operations activities for specific retail depts 14 -16

Different Career Tracks in Retailing Merchandising Track Divisional Merchandise Manager Buyer 14 -17 Store Management Track Store Manager Assistant Store Manager Associate Buyer Sales Manager Assistant Buyer Assistant Sales Manager

Figure 14. 5 Considerations in Devising Merchandise Plans Forecasts Innovativeness Assortment Merchandise Plan Brands Allocation Timing 14 -18

Forecasts ¯ Forecasts are projections of expected retail sales for given periods. Serves as the foundation of merchandise planning * Components: • Overall company projections • Product category projections • Item-by-item projections • Store-by-store projections (if a chain) 14 -19

Types of Merchandise ¯ Staple merchandise- all regular products to carried all the time ¯ Assortment merchandise-consist of merchandise from many different depts. ¯ 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. ¯ Fad merchandise- high sales generated for short period of time 14 -20

Staple Merchandise ¯ Regular products carried by a retailer * Grocery store staple examples • Milk • Bread • Canned soup ¯ Basic stock lists specify inventory level, color, brand, style, category, size, package, etc. 14 -21

Assortment Merchandise ¯ Apparel, furniture, auto, and other products for which the retailer must carry a variety of products in order to give customers a proper selection ¯ Decisions on Assortment * Product lines, styles, designs, and colors are projected * Model stock plan-used to project the number of different colors/variations of a certain design product 14 -22

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 14 -23

Table 14. 1 a Factors to Bear in Mind When 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 14 -24

Table 14. 1 b Factors to Bear in Mind When Planning Merchandise Innovativeness FACTOR RELEVANCE for PLANNING Competition Lead or follow competition in the selection of new goods/services Customer segments Segment customers by dividing merchandise into established-product displays and new-product displays Responsiveness to consumers Carry new offerings when requested by the target market Amount of investment Consider all possible investment for each new good/service: product costs, new fixtures, and additional personnel 14 -25

Table 14. 1 c Factors to Bear in Mind When Planning Merchandise Innovativeness FACTOR RELEVANCE for PLANNING Profitability 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 decision making Restrict franchisees and chain branches from buying certain items Declining goods/ services Delete older goods/services if sales and/or profits are too low 14 -26

Product life Cycle for product ¯ Product life Cycle shows the expected behavior of a good or service over its life. ¯ Introduction- limited target market. One basic version supplied ¯ Growth – as innovators purchase sales increases as others begin to emulate them ¯ Maturity – largest portion of target market is using product with a wide assortment of products. ¯ Declines stage comes about due to shrinking market. 14 -27

Total Retail Sales Figure 14. 7 The Traditional Product Life Cycle Maturity Growth Introduction Decline Time 14 -28

Structured Guidelines for Pruning Products ¯ Select items for possible elimination on the basis of declining sales, prices, and profits, appearance of substitutes ¯ Gather and analyze detailed financial and other 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 14 -29

Assortment ¯ Assortment is the selection of merchandise a retailer carries. It includes both breadth of product categories and variety within each category ¯ Width of assortment – number of distinct goods/service categories (lines) ¯ Depth- number (variety) within each line 14 -30

Table 14. 2 a Factors to Consider When 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 14 -31

Table 14. 2 b Factors to Consider When Planning Merchandise Quality FACTOR RELEVANCE for PLANNING Profitability Recognize that high quality goods generally bring greater profit per unit than lesserquality goods; turnover may cause total profits to be greater for the latter Manufacturer versus private brands Understand that, for many, manufacturer brands connote higher quality than private brands Customer services offered Know that high-quality goods require personal selling, alterations, delivery, and so on Personnel Employ skilled, knowledgeable personnel for high-quality merchandise 14 -32

Table 14. 2 c Factors to Consider When Planning Merchandise Quality FACTOR RELEVANCE for PLANNING Perceived goods/ service benefits Analyze consumers. Lesser quality goods attract customers who desire functional product benefits; High-quality goods attract customers who desire extended product benefits Constrained decision making Face reality. Franchises or chain store managers have limited or no control over products; Independent retailers that buy from a few large wholesalers are limited to the range of quality offered by those wholesalers 14 -33

Brands- need to select the proper mix of Brands Manufacturer (national) Private (dealer or store) 14 -34 Generic

Brands ¯ Manufacturer (national) products are produced and controlled by manufacturer ¯ Private or dealer brands (store brands) – owned by wholesalers or retailers and cost less and are controlled by them ¯ Generic brands – no frills goods stocked by retailers (receive no support, poor shelf locations and are very inexpensive) 14 -35

Private Label Brands ¯ Are 20 % of USA and Canadian sales ¯ Priced 20 -30% lower than manufacturers products ¯ 80% of consumers buy them ¯ Many retailers sales are heavily done in private label products 14 -36 ¯ Research shows that consumers feel that private label quality is just as good as branded ¯ Premium private brands are now emerging ¯ Battle of the brands are in progress

Table 14. 3 The Berman/ Evans Private Brand Test Match the Retailer with the Brand Name Retailer Bloomingdale’s Costco Kmart Brand Arizona Jeans Sam’s Choice Michael Graves J. C. Penney Sears Wal-Mart Target Macy’s Martha Stewart Joseph & Lyman Kenmore Kirkland Charter Club 14 -37

Timing and Allocation ¯ Timing is deciding on when certain merchandise is purchased, displayed, and sold ¯ Allocation deals with how the stock is allocated either between stores or once in the store how much is displayed on shelves or in storage area 14 -38

Category Management ¯ Category management refers to how to manage products in categories in order to improve productivity ¯ Products are arranged into strategic business units to generate the highest profits 14 -39

Merchandising Software ¯ General Merchandise Planning Software ¯ Forecasting Software ¯ Innovativeness Software ¯ Assortment Software ¯ Allocation Software ¯ Category Management Software 14 -40

Questions ¯ Make sure that you read this chapter carefully and make additional notes. 14 -41