Lecture Retailing management (6/e): Chapter 12 - Levy Weitz

Chapter 12
Managing Merchandise
Assortments
McGraw­Hill/Irwin
Retailing Management, 6/e

Copyright © 2007 by The McGraw­Hill Companies, Inc. All rights reserved.


Merchandise Management
Retail
Communication
Mix

Buying
Systems
Planning
Merchandise
Assortments

Buying
Merchandise

Pricing

122


Merchandise Management

123

Process by which a retailer offers the right
quantity of the right merchandise in the
right place at the right time and meets the
company’s financial goals.
Sense market trends
Analyze sales data
Make appropriate adjustments

c) image100/PunchStock


Merchandise Management and
Investment Portfolio Management
• Dollars to invest in inventory
• Invest in “hot” merchandise
• Save a little for opportunities (open to
buy)
• Monitor portfolio
• Sell losers (markdowns)

124


Standard Merchandise Classification
Scheme and Organizational Chart

125

Merchandise Management Issues

126


The Category

127

A merchandise category is an assortment of
items that customers see as substitutes for each
other.
Vendors might assign products to different
categories based on differences in product
attributes
Retailers might assign two products to same
category based on common consumers and
buying behavior


Category Management

128

Category management is the process
of managing a retail business with the
objective of maximizing the sales
and profits of a category.
Department stores manage at category
level, but grocery stores manage

merchandise around brands and vendors
Objective is to maximize the sales and
profits of the entire category, not just a
particular brand.

The McGraw-Hill Companies, Inc./Andrew
Resek, photographer


Category Captain

129

Selected vendor responsible for managing a category
Vendors frequently have more information and analytical skills
about the category in which they compete than retailers
• Helps retailer understand consumer behavior
• Creates assortments that satisfy the customer
• Improves profitability of category
Problems
• Vendor category captain may have different goals than
retailer


Antitrust Consideration

1210

The vendor category captain
could collude with retailer to

fix prices
It could block brands from
access to shelf space
Category captains need to
temper zeal for control over
retailers

Stockbyte/Punchstock Images


The Buying Organization

1211

Ryan McVay/Getty Images

Merchandise Group…………Men’s wear
Department………….……….Young Men’s wear
Classification………….……..Pants
Category……………………..Jeans
Sock Keeping Unit (SKU)…..Levi, 501, size 26
waist, 32 inseam


Evaluating Merchandise Management

12Performance12

Merchandise managers have control over
• The merchandise they buy

• The price at which the merchandise is sold
• The cost of the merchandise
Merchandise managers do not have control over
• Operating expenses
• Human resources
• Real estate
• Supply chain management
• Information systems

SO HOW ARE MERCHANTS EVALUATED?


GMROI
Gross Margin Return on Investment

A measurement of how many gross margin
dollars are earned on every dollar of
inventory investment made by the buyer

1213


GMROI

1214

Inventory Productivity Measures

GMROI = Gross Margin Percent x sales to stock ratio
= gross margin

net sales
=

x

net sales
avg inventory at cost

gross margin
avg inventory at cost


ROI and GMROI
Asset Productivity Measures
Strategic Corporate Level
• Return on Assets = Net Profit
Total Assets
Merchandise Management Level
• GROI
= Gross Margin
Avg Inventory

1215


Illustration of GMROI

1216

GMROI for Selected Department in Discount

12Stores17


Calculating Inventory Turnover
– Inventory turnover =
– Inventory turnover =

– Average inventory =

1218

Net Sales
Average inventory at retail
Cost of goods sold
Average inventory at cost
Month1 + Month2 + Month 3 +…
Number of months


Inventory Turnover
Month
Retail Value of Inventory
• EOM January
$22,000
• EOM February
33,000
• EOM March
38,000

ã Total Inventory
$93,000
ã Average inventory = $93,000 ữ 3 = $31,000

1219


Inventory Turnover and
Stock-to-Sale Ratio
Inventory turnover =

1220

Net Sales
Average inventory

at retail
Inventory turnover =

Sock-to-Sales Ratio =
inventory

Cost of goods sold
Average inventory at cost
Net Sales
Average cost of


Advantages of Rapid Turnover

1221

• Increased sales volume
• Less risk of obsolescence and
markdowns
• Improved salesperson morale
• More resources to take advantage of new
buying opportunities


1222

Approaches for Improving Inventory Turnover
• Reduce number of categories
• Reduce number of SKUs within a category
• Reduce number of items in a SKU
BUT if a customer can’t find their size or
color or brand, patronage and sales
decrease!
approach…

another


…another approach

1223

To improve inventory turnover
• Buy merchandise more often

• Buy in smaller quantities which should reduce average
inventory without reducing sales
BUT by buying smaller quantities
• Buyers can’t take advantage of quantity discounts so
• Gross margin decreases
• Operating expenses increase
• Buyers need to spend more time placing orders and
monitoring deliveries


Merchandise Planning Process

1224


Developing a Sales Forecast

1225

Understanding the nature of the product life
cycle
Collecting data on sales of product and
comparable products
Using statistical techniques to project sales
Work with vendors to coordinate manufacturing
and merchandise delivery with forecasted
demand (CPFR)

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