retail buying and merchandising test exam 1

buyer

acting in the retailer's interests.

seller

acting in the supplier's interests.

In large retail organizations, rather than

entrepreneurs, you have hierarchical

structure—and entry levels.

Merchandise manager, Buying controllers, Buyers/Buying teams, Merchandisers, Assistant buyers, Buyer's assistants

buyer responsibilities

• The act of determining what products will be

offered in the retail assortment.

• What amounts will be purchased.

• Knows why the store's customers will prefer

these products.

• What locations will carry which products.

• Evaluates promotions, participation in vendor

initiated price promotions.

one buyer

for single line exclusive distributions, dsd wholesalers, and vendor managed categories

buyer importance increases

• Space for the category (and depth)

• Number of suppliers and options

• Subtleties of consumer behavior

• Competition

• Changing profitability

buyer importance

-increases as the number of suppliers in a merchandise line increases

- decreases as one supplier's brands and measures of

brand loyalty increase in strength and importance

( also known as a category captain )

buyer importance increases

As consumers increase...

- Their consumption in a category...

- Become more responsive to price changes...

- Are more interested in product variety...

- Become more willingness to shop, search

buyer decision

-Generate growth in sales, customer

penetration, superior position in customer's

mind.

• Permit higher gross margins, unique, superior

merchandise can receive a premium margin or

increased movement (or both!)

• Determine inventory investments

• Assortment differentiation

• Operate at the highest levels of ethical

standards

Return on Assets

(net income / sales ) X ( sales / total assets )

GRMOI ( gross margin return on inventory)

( gross margin / sales ) X ( sales / inventory )

= gross margin / inventory

Gross margin

net sales - cost of goods sold

* % of gross margin = gross margin / net sales

net profit

gross margin - expenses - taxes

net profit margin %

net income / net sales

after tax = "return"

market factors that affect gross margin

• Competition: Higher the competition—the lower gross margins, more intensely distributed brands have low margins.

- Differentiated merchandise

• Risk of the merchandise: Higher risk, higher

markups... (and greater markdowns)

• Within the firm—it starts with gross margin.

It is the driver of profit margin.

markup

-Markups (maintained markups) are equivalent

to gross margins

• The Buckle, 44.1% gross margin. Markup on a

denim item sold at $30: $13.23, Cost $16.77

inventory turnover

=Units sold / units in inventory

=Cost of goods sold / average inventory

=Sales / inventory @ retail

inventory

- on the balance sheet

high inventory turnover?

• Good—if the retailer is a high volume, low service format.

• Bad—higher turnover in a high service format

maybe difficult for store to accommodate.

• Ugly—higher turnover due to lower values of

inventory is a problem for a growing retailer.

Asset turnover

net sales / total assets

Leverage

total assets / net worth

* net worth = Assets - Liabilities = Share holder's equity

higher the ratio the less risk in the assets

Return on net worth RONW

= return on assets X leverage or

= net earnings / shareholder's equity

elements of market structure

• Number of firms: How many competitors?

• Relative size of firms

• Competitive rivalry—price vs. non‐price?

• Number of suppliers

• Number of customers

michael porters five forces strategy

• Bargaining Power of Suppliers

• Bargaining Power of Customers

• Threat of Entry of New Firms

• Threat of Substitutes

• Rivalry of Competitors

Retail Inventory Method

• Changes in inventory "tracked" at retail, orselling price.

• Sales, recorded at register, immediately

applied to the value of inventory.

• Markdowns, temporary discounts, employee

discounts bring down the value of inventory.

• Similarly, markdown cancellations, additional

markups, increase the value of inventory.

restocking fashion

fewer than 6 stock turns per year

merchandise budget

• Projects planned sales by month

• Determines planned store inventories

• Determines planned purchases

• Identifies periods with planned reductions

(important for coordination with an

advertising budget and media scheduling)

• Forms a consistent "plan" that both the supplier and the retailer's buyer can follow when working on multiple seasons.

data sources for developing sales forecasts

previous years sales volume, published sources, customer information, vendors and resident buying offices

large publicly traded chains

• All must report inventory "at cost"

• Assume nearly all inventory is in the stores—not

in warehouses or distribution centers.

• Follow a standardized process of estimating

inventories that can be used across the stores in the chain.

• Nearly all report using the "retail method" in the

computation of inventories.

• Auditors will conduct physical audit at a sample of stores.

planned purchases

• Obligations for merchandise are EOM

inventories, sales, and reductions.

• BOM represents existing inventory.

• [EOM + sales + reductions] minus BOM

inventory equals planned purchases.

• Purchases are a "positive" event

open to buy

• Planned purchases become commitments to

vendors (unless cancelled).

• Variation in actual monthly sales create deviations from planned purchases.

• The expression "open‐to‐buy" means that inventory requirements exceed commitments to vendors.