Merchandise management

- Analysis, planning, acquisition, handling and control of the merchandise investments of the retail operations.

Largest investment retailers make, this is why they are in business.

Barnes and Noble: My Book

Dollar Merchandise Planning

To measure the performance of the inventory:

Gross margin return on inventory (GMROI)

Four methods to determine stock levels:

Basic Stock Method: Allows for a base stock level plus a variable amount of inventory that will increase or decrease at the beginning of each sales period in the same dollar amount as the period's expected sales.

Calculated as follows: Basic stock = Average Stock for the Season - Average Monthly Sales for Season

Beginning of Month stock at Retail = Basic Stock + Planned monthly sales

Percentage Variation Method: Assumes that the percentage fluctuations in monthly stock from average stock should be half as great as the percentage fluctuations in monthly sales from average sales.

Calculated as follows: BOM Stock = Average stock for season x 1/2 (1 + (Planned sales per month/Average monthly sales))

Weekly Supply Method: Inventory level set to predetermined number of weeks' supply, which is directly related to desired stock turnover

Calculated as follows: BOM Stock = Average weekly sales x number of weeks to be stocked (Number of weeks to be stocked = Number of weeks in period / Stock turnover rate for period)

Stock-to-Sales Method: BOM is a stock to sales ratio.

Open-to-buy

Dollar amount for purchasing inventory, takes into account orders not yet received for the period etc. How much needs to be spent to maintain inventory levels.

Buying Errors:

  1. priced too high / too low for store's target market

  2. wrong merchandise, or too trendy

  3. too little, or too much basic stock on hand, hard to predict accurately (weather versus consumer confidence re: dip in sales)

  4. too many vendors

  5. failure to identify season's hot items early enough (Zara)

  6. failure to let vendor assist buyer by adding new items to mix

Planning stock levels can be impacted by:
  1. sales from previous month lower or higher than anticipated, why?

  2. reductions are higher or lower than anticipated

  3. merchandise shipments are delayed

Inventory Planning

Dollar plan (above) needs to be converted to an inventory plan.

Optimal Merchandise Mix

Merchandise line, determined by type of retailer, same customer type, same end use, or same price level.

Merchandise: variety versus depth versus breadth

JC Penney, store within a store concept

Constraining Factors:

  1. Dollar-merchandise (Consignment); extra dating

  2. Space Planogram

  3. Merchandise-turnover

  4. Market

Retailers make choices that filter choices for customers

Using RFIDs to manage inventory (Wal Mart: Wal-Mart issues RFID mandate)

Item File to manage inventory. SKU, needs linking to appropriate categories to track performance by category as well as single unit.

Conflict in Stock Planning:

  1. stocking new items while avoiding items that won't succeed

  2. maintain strong level of basic stock, while having room to make special purchases

  3. high inventory turnover goals versus high margin goals

  4. adequate selection without overwhelming customer choice (orange juice in a supermarket, Apple versus Samsung for example)

How to manage overstocking issues (current dilemma for many retailers which misjudged the Spring season):

Is the Weather Masking Deeper Obstacles for the Retail Industry?

Children’s Place on Tuesday, for example, blamed “unfavorable weather” and the weak macroeconomic environment on softer consumer spending and projected a first-quarter EPS that at its high point is still 49 cents below Wall Street expectations.

“Retailers are beginning to panic,” Bornn said. “Thare overloaded with spring inventory that just isn’t selling.”

It has prompted sharp sales and promotions across the retail sector, from Express (EXPR) offering a deal on dresses this past weekend ahead of the often-dressy Easter holiday to Gap’s (GAP) Banana Republic and Ann Taylor (ANN) chopping as much as 40% from total bills.

Department stores like Macy’s and J.C. Penney (JCP) are perhaps most sensitive to these late seasonal swings because they tend to get merchandise into stores earlier than niche brands. Penney late last month said it would resume offering promotions this spring after its failed “no sales” promise in 2012 eroded its profit margins.

“The question is how long can they offer store-wide promotions without their margins starting to get hit,” Bornn said.

With the spring shopping season quickly meshing with the summer season, retailers with stagnant merchandise and rapidly building inventories are finding themselves in a conundrum. They must decide whether to keep offering promotions, ship clothes to warmer-weather stores, pack them up for use later on clearance, or simply take a loss.

Performance review, at end of season.

Review by line item, review with each vendor.

Selecting Vendors

Trade Fairs, by industry

Fashion weeks

Multiple criteria, including:

  1. selling history

  2. consumers' perception of brand

  3. reliability of delivery, trade terms, mark ups

  4. quality of merchandise and after sales service

  5. logistics

  6. inventory carrying costs

  7. country of origin (bar codes)

    The Secret Behind Forever 21's Dirt Cheap Clothing

    Juicy Couture: Not Actually Made in the Glamorous USA?

  8. Vendor profitability analysis statement.

Lululemon, and Eclat (the risks of one sourcing versus dual sourcing, especially in a very tight supply chain)

Vendor discounts for negotiation:

  1. trade discount

  2. promotional discount

  3. seasonal discount

  4. quantity discount

  5. cash discount

Delivery Terms:

  1. Free on board (FOB), factory

  2. Free on board, shipping

  3. Free on board, destination

Packaging can also form part of the vendor negotiation. It impacts price as well as shipping, storage, and display.

In Store Merchandise Handling

Employee theft, customer theft , vendor collusion

Shrinkage: Inside Organized Retail Crime Raids

Daily Report: Databases of Retail Thefts Are Used to Bar Employment