merchandise mix

Merchandise Mix

By,Sameer Dhurat (83)Anand Kalambe (84)Ahire Krutica (80)

• Term Merchandising literally means "buying and selling“

• It is planning, development and presentation of product lines for identified target markets.

• Merchandising is the planning, buying and selling of merchandise

• It is integral part of retailing.

• Merchandise mix is the total set of all products offered for sale by a retailer, including all product lines sold to all consumer groups.

• The retail industry covers everything from large supercenters (Big-box stores) to small vendors pedaling goods along the roadside.

• The biggest dilemma a retail store owner faces, is what to sell, or what their merchandise mix should consist of. If retailers stock too much of a variety of merchandise, they risk appearing like a jack-of-all-trades, potentially losing money in the long run.

• If they stock a small merchandise mix (few items) they run the risk of losing business, especially to local brick-and-mortar stores and online competitors.

• For retailers, deciding on their marketing mix is similar to deciding on their market segments. Retailers need to decide who they are selling to and the needs of their market segment.

'The Rights of Merchandising' are :

• The right merchandise

• The right quantity

• The right price

• The right time

• The right place

• The right quality

• Selecting and presenting the right merchandise is critical as product is the focal point of customers buying

• Each market segment and geographical region demands a different merchandise mix

• Seasonal and trend changes effect the merchandise mix

• The product assortment must have all types of merchandise -basic, trendy, seasonal

• Assortment is the number of pieces per size per color for each style or product variety.

• The right colors / sizes /product features to fulfillneeds and desires of customer have to be offered by retailer

• Enough stock must be available to meet planned sales and give customer wide assortment for selection

• Quantity is all about demand and supply.

• Enough stock must be available in the right assortment of color and sizes.

• Deciding the correct quantity of each style is critical.

• Price is a function of profit and cost.

• Price should be high enough to make the desired profit, at the same time low enough to get business and meet target sales.

• Price should make production feasible and product saleable at a profit accepted by the target customer.

• Timing is critical so that the merchandise does not get wasted.

• In seasonal products like apparel, umbrellas, woolens, if the planned delivery date is not adhered to the selling season will be missed and the entire merchandise becomes a dead stock.

• Quality is a standard acceptable to customer and satisfies the need of the product.

• It includes reliability, responsiveness, compliance and compatibility.

• Quality has to be appropriate for the product and that target customer.

• Quality has to' be compatible with the product price also.

• The importance of location for a retailer cannot be emphasized enough.

• The right store location is the first step towards retail success.

• The location should have enough footfall of the target segment to achieve sales.

• Even withhold store the placement of various sections or departments is critical to achieving the desired sales.

• Breadth:

The breadth of a company's products relates to the number of product lines a

company produces or a retailer carries.

Ex. An automobile manufacturer, may have a line of sedans, a line of SUVs, and a

line of trucks.

• Length:

This refers to the number of products in a particular product chain or line.

Ex. An automobile manufacturer may have four models of sedans, three models

of SUVs, and two models of trucks in each respective product line.

• Depth:

A product line's depth relates to the different versions of the same product that

may exist in each product line.

Ex. An automobile manufacturer may have a basic, standard and luxury version

for each of its sedans and SUVs but only a basic and standard model for its trucks.

Planning merchandise variety involves Planning & Controlling Product Lines

Retailers use many factors to evaluate product lines

• The compatibility among product lines

– Product substitute

– Product complements

– Unrelated products

• The physical attributes of each product line

– Product standardization

– Product service level

– Product selling method

• The product line potential profitability

– Direct and indirect contribution to profitability

– Calculations of gross margin percentage and money

• The role of branding plays in the success of the product line

– How brands can distinguish a retailer from competitors

– How brands can build store loyalty

– The advantages and disadvantages of offering different types ofbrands – no names, vendors brands, private labels and licensedmerchandise

• The market appropriateness of each product line

– The relative advantage, affinity, observability and complexity ofnew product introductions

– Market trends- provide products the market wants

– How well the product matches consumption patterns andbuying needs of targeted consumers

• The age of each product within the product lifecycle

– What stage a product is in to judge future sales potential

– The number of products offered at different stages

• The fashionable nature of each product line

– Use of unique fashion designers as a part of the store’s strategy

– Above average risk of fashion merchandise i.e. High marginitems with above average profitability

• The competitive threat facing each product

– Competitive conditions under which the product line isavailable- intensive, selective or exclusive distribution

– Is the product line available to direct competitors or indirectcompetitors or both

• The impact of lifecycle on product line acceptance– Targeted customer activities, interest and opinions

– Match between consumers lifestyles and retailers image

– Usefulness of trade to identity product lines for targetedconsumer lifestyles

• The conditions under which each product line will beprocurable– Availability and reliability of various suppliers

– Terms and conditions under which the product will be madeavailable

• No rules for what should be included in the merchandise

mix and what should be excluded

• Two useful methods

– Category management: each product managed as a business

unit at the store level

– ABC Analysis: each product line is rank ordered based on

performance levels

• Involves monitoring and adjusting the types of product lines

that are added and dropped from the merchandise mix

• Two widely used methods to control assortments and

support:

– Inventory turnover: rate at which the retailer depletes and

replenishes stock

– Open to buy: amount of new merchandise a retailer can

buy during a specific time period without exceeding

planned purchases for the period

• Goal- to ensure that the product choice must meets the targetedconsumer needs

• Planning should be done carefully for the number of units tohave on hand to meet the expected sales for the brands

• Must organise the merchandise mix as to the number ofdifferent product lines carried

• It depends on:

- Brands - Materials

- Sizes - Styles

- Colors - Price

• Must develop merchandise list

– Basic stock list

• Ex. Staple items like consumer goods such as bread, milk, paper,sugar that are bought often and consumed routinely

– Model stock list

• Ex. Fashion Items consumer goods where style holds the primaryimportance and the price is secondary (goods include clothing,jewellery, handbags, sun shades, shoes etc)

– Never out list

• Ex. key items and best sellers items like baby care, bath soaps etc

• Key Components of the Six Month Merchandise Plan:

Planned Sales

Planned Purchases

Planned Reductions

Planned markdowns

Employee discounts

Shrinkage

Six Month Merchandise Budget

M1 M2 M3 M4 M5 M6 Total

BOM Last Yr

Plan

Revised

Actual

Sales Last Yr

Plan

Revised

Actual

Reductions Last Yr

Plan

Revised

Actual

EOM Stock Last Yr

Plan

Revised

Actual

Retail Purchases Last Yr

Plan

Revised

Actual

Purchase Cost Last Yr

Plan

Revised

Actual

Initial Mark Up Last Yr

Plan

Revised

Actual

Gross Margin % Last Yr

Plan

Revised

Actual

On order EOM Last Yr

Plan

Revised

Actual

Wide & Deep : (many product lines & large variety in each)

Advantages

• Broad market

• Full selection of items

•High level of customer traffic

• Customer loyalty

•One stop shopping

•No disappointed customer

Disadvantages

• High inventory investment

• General image

• Many items with low turnover

• Some obsolete merchandise

Wide & Shallow : (many product lines & limited variety in each)

Advantages

• Broad market

•High level of customer traffic

• Emphasis on convenience customer

•One stop shopping

• Less costly than wide and deep

Disadvantages

• Low variety within product lines

• Some disappointed customers

• Weak image

•Many items with low turnover

• Reduced customer loyalty

Narrow &Deep: (few product lines & large variety in each)

Advantages

• Specialist image

• Good customer choice in categories

• Specialized personnel

• Customer loyalty

• No disappointed customers

• Less costly than wide and deep

Disadvantages

• Too much emphasis on one category

• No one stop shopping

• More susceptible to trends and cycles

• Greater effort required to increase the store size

• Little/no scrambled merchandizing

Narrow &Shallow: (few product lines & few variety in each)

Advantages

• Aimed at convenience customers

• Least costly

• High turnover of items

Disadvantages

• Little width and depth

• No one stop shopping

• Some disappointed customers

• Weak image

• Limited customer loyalty

• Small trading area

• Little/no scrambled merchandising

1/2/2018 Retailing Management - Swapna Pradhan 35

• The model stock plan gives the precise items and quantities that should be on hand for each merchandise line.

• A model stock plan needs to be compiled for each line of merchandise.


• Identify the attributes that the customer would consider in buying the product.

• Decide on the levels under each attribute.

• Allocate the total money or the units to the respective item categories.


• A retailer has allocated Rs. 1 lakh to buying shirts. Assuming that the purchase price for the shirts is Rs.100, he will be able to stock 1,000 shirts.

• Create a model stock plan.


• Identify the number of levels under each attribute.

Type of shirt – Dress, Casual, Formal, Sport

Size – Small, Medium, Large, Extra Large

Sleeve Length – Full Sleeves, Short Sleeves

Collar Type – Saville, Button Down

Color – White, Blue, Cream, Grey

Fabric – Cotton, Cotton Blend


Type Dress Casual Formal Sport

% of Sales 10 40 20 30

Sizes Small Medium Large Extra Large

% of Sales 25 40 25 10

Sleeve Length Full Sleeves Half Sleeves

% of Sales 30 70

Allocate the total units to the respective item categories


Men’s Shirts

100% (1,000)

Dress

10% (100)Casual

40% (400)

Formal

(20%) 200

Sport

30% (300)

Small

25% (100)Medium

40% (160)

Large

25% (100)

Extra Large

10% (40)

Full Sleeves

30% (48)Half Sleeves

70% (112)

Button Down

40% (45)

Saville

60% (67)

White

40% (18)

Blue

30% (14)

Cream

20% (9)

Grey

10% (4)

Cotton

25% (4)

Cotton Blend

75% (14)

References

• https://www.thebalance.com/merchandise-mix-2890200

• https://www.dotactiv.com/blog/merchandise-mix

• http://study.com/academy/lesson/product-assortment-definition-strategy-quiz.html

• http://www.mytotalretail.com/article/how-develop-profitable-merchandise-mix-15726/all/

• http://vasantkothari.com/content/view_presentation/511/16-Merchandise-Mix

https://www.thebalance.com/merchandise-mix-2890200

https://www.dotactiv.com/blog/merchandise-mix

http://study.com/academy/lesson/product-assortment-definition-strategy-quiz.html

http://www.mytotalretail.com/article/how-develop-profitable-merchandise-mix-15726/all/

http://vasantkothari.com/content/view_presentation/511/16-Merchandise-Mix

merchandise mix

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