Merchandise Planning

By:: Debabrata Dash

In 1993, 48 underperforming GAP stores were converted into GAPWarehouse stores and were renamed as Old Navy. Today Old NavyIs a $ 7 billion brand !!In the heart of this success lies a retail strategy that combines : :

value pricingtimely stylingan updated imageand sizing to fit Americans’ growing waistlines

Merchandise Plan

Developing and implementing a merchandise plan is a

Key phase in a RETAIL STRATEGY.

Merchandising consists of the activities involved in

Acquiring , particular goods and / or services and making

Them available at the prices , times , and places and in

The quantity that enables a retailer to reach his goals.

Merchandising is a critical function since this brings to market

The products that will excite and please target consumers.

Rarely is there a situation , as with retail merchandising ,

Where so few individuals drive so many decisions and

Outcomes. A small fraction of the employee population controls

As much as 70% -- 80% of a firm’s destiny !!

Retailers may be called on to place multibillion dollar bets !!!

A Merchandising Philosophy sets the guiding principles forAll the merchandising decisions.

Merchandising Philosophy is an highly intricate concept thatDrives every product decisions that a retailer makes.• Scope of Responsibilities

– Merchandising Function• Buy• Sell

– Buying FunctionBuy

An individual firm has to decide which format suits it.

Merchandising Philosophy

• Smooth Chain of Command• Buyers’ Expertise is used in selling• Responsibility and Authority Clear• Buyer Involved with Display• Reduced Costs (buyer-seller combined)• Buyer Closer to Consumers

• Similar Skills Not Needed for Each Task

• Higher Morale of store personnel• Selling Not Secondary• Specialists in sales sell• Merchandisers Not Always Good

Supervisors since their priorities are diffused

To capitalize on merchandising opportunities , more retailersAre now turning to : : :

• Micromerchandising : Retailers adjusting shelf-space Wal-Mart adapts space reflecting local demography

• Cross-Merchandising : Retailers carry complimentary goods and services. It can lose effectiveness , if carried too far , and become scrambled merchandising.

Principles Of Merchandising• Understand the Target Market• Build the Merchandise Plan, one store at a time• Buy what your customers want, not you• Build the Right Assortment• Be consistent• Offer value• Understand the needs of the vendor on win-win• Share information• Accept that mistakes happen• Seek to surprise the customer

•

Buying Organizations : Formats And Processes

A retail merchandise plan can not be properly drawn

Unless the buying organization and its processes are

Well defined.

The next slide illustrates the range of organization attributes

From which a retailer may choose.

Level of Formality

Degree of Centralization

Breadth

Source of Personnel

Philosophy

Staffing

Formal

Informal

Centralized

Decentralized

General

Specialized

InternalExternalResident Buying OfficeCooperative Buying

BuyerSales ManagerMerchandising Buyer

Merchandising

Buying

Level Of Formality

Formal Buying Organization : Merchandising (buying) is aDistinct task --- acquiring merchandise and making it availableFor sale are under this organization’s control. Mostly employedBy large retailers.

Informal Buying Organization : Merchandising (buying) is not aDistinct task.

Both structures are found in great numbers.

Degree Of Centralization

In a Centralized Buying Organization , all buying decisionsEmanate from one office.

In a Decentralized Buying Organization , purchase decisionsAre made locally or regionally.

Centralized Buying Organization

Advantages : : Integration of effortsStrict controlsConsistent ImageProximity to Top ManagementStaff SupportVolume discounts

Disadvantages : : InflexibilityTime delaysPoor adaptability to local conditionsExcessive Uniformity

Decentralized Buying Organization

Advantages : : Adaptability to local conditionsQuick Order ProcessingImproved Morale of store personnel

Disadvantages : : Disjointed PlanningInconsistent Image & PositioningLimited ControlLoss of volume discounts

Buying Organizational Breadth

A choice has to be made between a general buyingOrganization and a specialized one.

General buying organization : one or group of people buyAll the merchandise for the firm.

Specialized buying organization : Each buyer is responsibleFor a specific category.

Personnel Resources

The Inside buying organization : staffed by retailer’s ownPersonnel. Mostly used by large retailers or very smallretailers such as bakeries and stationary stores.Zellers , a Canadian firm with more than 350 full – line Discount department stores nationwide , and Ross StoresAre examples of large retailers employing inside buyingOrganization.

The Outside buying organization : A company or personnelExternal to the retailer are hired , usually on a fee basis. TwoLeading companies that render this service to retailers areThe Doneger Group and Frederick Atkins.

Resident buying office / Cooperative buying

Functions Performed

When a retailer adopts ”merchandising” view , its merchandisePersonnel oversee all buying and selling functions.

When a retailer adopts a “buying” view , its merchandisePersonnel oversee buying of products , advertising and pricing ,And in – store personnel oversee assortments , displays andSales presentations.

Staffing

The last buying organization decision focuses on staffing : :What positions must be filled ?What qualifications should be required ?

Firms with “merchandising” view must appoint expert buyersCoupled with good selling skills.

And firms with a “buying” view are interested in hiring bothExpert Buyers and expert sales managers.

MerchandisePlan

Innovativeness

Brands

Timing

Forecasts

Allocation

Assortments

• Staple Merchandise : Relatively stable sales : A basic• stock list , example milk, bread etc• Assortment Merchandise : variety needed , example cars,• apparel etc

– Product Lines etc.– Model Stock Plan

• Fashion Merchandise : Cyclical sales example : bow ties,• bell-bottom pants etc• Seasonal Merchandise

• Fad Merchandise

• Target Market(s)• Goods/Service Growth Potential• Fashion Trends and Theories• Retailer’s Image• Competition• Customer Segments• Responsiveness to Consumers• Investment Costs• Profitability• Risk• Constrained Decision Making• Declining Goods/Services

Introduction Maturity DeclineGrowth

Total Retail S

ales

Time

Life Cycle Stage

StrategyVariable DeclineMaturityGrowthIntroduction

Target Market

Good or Service

Distribution Intensity

Price

Promotion

Supplier Structure

High-IncomeInnovators

Middle-IncomeAdopters

Mass Market Low-Incomeand Laggards

One BasicOffering

Some Variety GreaterVariety

Less Variety

Limited orExtensive

MoreRetailers

MoreRetailers

FewerRetailers

Penetration orSkimming

Wide Range Lower Prices Lower Prices

Informative Persuasive Competitive Limited

Monopoly-Oligopoly

Oligopoly-Competition

Competition Oligopoly

• Vertical : First accepted by upmarket

• Horizontal : Accepted by a broad spectrum

of classes

An ASSORTMENT is the selection of merchandise

A retailer carries.

• Product Quality : High/medium or low ?

• Width : Goods/service categories

• Depth : Variety within category

Retailer’s Image

Target Market(s)

Personnel

Customer Services Offered

Store Location

Stock Turnover

Manufacturer versus PrivateBrands

Competition

Perceived Goods/ServiceBenefits

Profitability

Constrained Decision Making

• Impact on Sales and Profit• Space Requirements• Inventory Turnover• Cannibalization

Advantages• Broad Market• Full Selection of Items• High Level of Customer

Traffic• Customer Loyalty• One-Stop Shopping• No Disappointed

Customers

Disadvantages• High Inventory

Investment• General Image• Many Items with Low

Turnover• Some Obsolete

Merchandise

Advantages• Broad Market• High Level of Customer

Traffic• Emphasis on

Convenience Customers

• Less Costly Than Wide and Deep

• One-Stop Shopping

Disadvantages• Low Variety Within

Produce Lines• Some Disappointed

Customers• Weak Image• Many Items with Low

Turnover• Reduced Customer

Loyalty

Advantages• Special Image• Good Customer Choice

in Category(ies)• 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/Cycles• Greater Effort Needed

to Enlarge the Size of the Trading Area

• Little (no) Scrambled Merchandising

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

• Manufacturer (National)

• Private Label (Dealer)

TIMING and ALLOCATION

Timing and allocation are two last components to be

Considered in merchandise planning.

• Arrange The Way Customers Would• Configuration Function of Time, Space, and Product

Utilitization• See to Drive Multiple Item Purchases• Management is Fluid, Dynamic, Proprietary Set of

Decisions• Create Unique Consumer Value• Based on Overall Trading-Area Scenarios• Management an Exclusionary Process• Data from Pre-Customer Interface Analysis of Trading-

Area Needs• Supplier and Retailer have Different Goals• Management Strategy of Differentiation

Unit Sales

Few Many

High

High Potential (sleepers) --

Promote more, better position,more facings, display more,sample, back with store coupons

Underachievers (dogs) --

Raise prices, lower position,cut promotions, consider delisting.

Traffic Builders --

Review prices, lower position,expand space, mix with sleepers,display.

Winners --

Promote more, better position,more facings, display more

Low

DirectProductProfitability

• General Merchandise Planning Software • Forecasting Software• Innovativeness Software• Assortment Software• Allocation Software• Category Management Software

CONCLUSION

In developing merchandising plans the concept of merchan-

Dising philosophy is very significant. The factors to be

Considered in drawing a merchandise plan are forecasts ,

Innovativeness , assortment , brands , timing and allocation.

Category management is an emerging trend in the field of

Merchandising management. Increasingly the role of IT is

Growing and various softwares are available that play a

Critical role in merchandise planning.

Prof. T. K. Chatterjee