Merchandising Mathematics for Retailing: Definitive Study Guide

Retailing and Merchandising Foundations

• Retailing and Merchandising Defined:

  • Retailing is the final step in the supply chain that moves goods from the producer to the ultimate consumer.
  • Retailing encompasses all business activities and functions involved in obtaining goods from manufacturers or wholesalers and selling those goods to the final consumer for personal, family, or household use.
  • A retailer is any firm that sells a product or service to the final consumer across physical store locations or nonstore settings (such as e-commerce websites, direct-mail catalogs, home personal selling, or vending machines).
  • Essential store-level retail functions include store operations, human resources, financial control, sales promotion, and merchandising.
  • Merchandising is recognized as the "heart" of retailing; all other retail functions exist to support the profitable buying and selling of goods and services.
  • Definitions of Merchandising:
  • The management of the buying and selling of merchandise.
  • The planning involved in estimating customers' requirements and procuring merchandise to satisfy those requirements.
  • According to the American Marketing Association (AMA), merchandising can (1) relate to the promotional activities of manufacturers that bring about in-store displays, or (2) identify the product and product line decisions of retailers.
  • Broadly defined, merchandising includes all activities necessary to buy and sell merchandise at a profit, including: (1) estimating customer needs and wants, (2) planning purchases, (3) buying goods and making them available when and where the customer wants them, and (4) motivating customers to buy those goods.
  • For mathematical and operational purposes, merchandising is defined as a retail function involving all activities of planning and control concerned with selling goods and services to achieve a profit.

• The Five "Rights" of Merchandising:

  • Successful merchandising requires competent financial planning and control of inventory.
  • A successful merchant effectively and profitably blends the five "rights" of merchandising by providing:
  1. The right merchandise
  2. At the right place
  3. At the right time
  4. In the right quantities
  5. At the right price

• Merchandising by Manufacturers and Wholesalers:

  • Manufacturers produce inventory that retailers purchase to sell to the ultimate consumer.
  • Wholesalers purchase goods from manufacturers and resell them to industrial users and retailers.
  • For manufacturers, merchandising involves planning, developing, and presenting product lines for identified target markets (encompassing pricing, assortment planning, sizing, styling, and timing).

• Retail Store Organization & Evolution:

  • In 1927, Paul M. Mazur established the Mazur Plan, a four-function organizational structure dividing store management into:
  1. Merchandising
  2. Financial Control
  3. Store Operations/Management
  4. Sales Promotion
  • As retail organizations expanded in scale and complexity, additional divisions were integrated, including Human Resources, Information Technology, Real Estate, and Maintenance/Construction.
  • 

• The Centralized Merchandising Function:

  • Prior to the 1980s, retail stores were primarily independently owned specialty stores or local department store chains, with buyers headquartered in the original flagship store.
  • Department store consolidation (e.g., Federated Department Stores, Inc. acquiring traditional retailers and eventually becoming Macy's, Inc., operating over 800 stores under Macy's and Bloomingdale's) shifted corporate structures toward centralized buying.
  • Centralized buying concentrates the responsibility for selecting and purchasing merchandise for a chain or group of stores in the hands of a corporate headquarters staff (e.g., J. C. Penney Company headquarters in Plano, Texas).
  • Centralized buying organizations frequently split merchandising into four distinct functions:
  1. Buying: Developing buying plans, selecting merchandise, setting retail prices, placing orders/reorders, maintaining vendor relations, managing assortments, and coordinating promotional plans.
  2. Planning: Analyzing sales history, market trends, and performance objectives to project sales and inventory levels.
  3. Distribution: Allocating merchandise to individual store units based on planned inventory levels and sales projections.
  4. Product Development: Conceptualizing product ideas for internal development, establishing design specifications, sourcing fabrics/trims, and negotiating with contractors to manufacture private-label goods (e.g., Macy's INC label, Nordstrom's Classiques Entier).
  • 

• Hierarchy of the Merchandising Division:

  • General Merchandise Manager (GMM): Vice president reporting directly to the corporate president; formulates store policies, sets store image, defines merchandise classifications and price zones, and manages planning and control across all merchandising divisions.
  • Divisional Merchandise Manager (DMM): Supervises a group of buyers within a specific division or related group of departments; monitors sales, inventory levels, and promotional activities to ensure department consistency and profit goal achievement.
  • Buyer: Implements company merchandising policies, plans purchases, selects merchandise, sets retail prices, places orders, manages vendor relations, and coordinates promotions. In small or single-unit stores, the buyer may also act as department manager.
  • Assistants & Trainees: Associate buyers, assistant buyers, clerical assistants, planners, and allocators who support senior buyers and planners.
  • Staff Bureaus: Specialized corporate advisory units including comparison shopping, fashion offices (headed by a Fashion Director), quality control/testing laboratories, merchandise research, unit control, and resident buying offices.
  • 

• Retail Merchandising by Manufacturers:

  • Popular national brand and designer manufacturers (e.g., Nike, Ralph Lauren, St. John, Levi Strauss, Guess) operate company-owned retail divisions and boutique stores.
  • Buyers for manufacturer-owned retail divisions procure inventory exclusively from internal corporate production, capturing retail margins and expanding brand visibility.
  • 
  • 

• Interrelationship with Other Corporate Divisions:

  • Financial Control Division: Headed by the Controller; manages accounting records, credit operations, cash flow, expense budgets, and statistical reporting.
  • Operations Division: Oversees store maintenance, housekeeping, shipping/receiving, warehousing, workrooms, asset protection/loss prevention, and customer service.
  • Human Resources Division: Oversees recruitment, hiring, training, employee benefits, labor relations, and job performance evaluations.
  • Sales Promotion Division: Led by the Marketing/Promotion Director; handles advertising (print, digital, broadcast), visual merchandising (displays, signage, floor plans, fixtures), and public relations (fashion shows, special events).

• Evaluating Buyer Efficiency:

  • Management evaluates buyers using three categories of objective measurements:
  1. Sales Performance: Total dollar/unit sales volume compared to planned goals and previous year figures; sales per square foot; percentage increase/decrease in sales; comparative performance against industry standards or group store units.
  2. Inventory Performance: Stock turnover rates, proportion of old/aged stock in inventory, and ratio of stock shortage to sales.
  3. Margin Performance: Initial markup percentage, maintained markup percentage, gross margin dollars and percentages, operating profit, and gross margin return on inventory (GMROI).

• Career Corner Highlights (Chapter 1):

  • Kathleen Hayman (General Manager, Barnes & Noble College Booksellers, Inc., Southern Miss Campuses):
  • Oversees bookstore operations, general merchandise, textbook course materials, apparel, gifts, and convenience items.
  • Emphasizes that interpreting spreadsheet calculations, managing course book stock levels, and analyzing productivity are required daily to achieve maximum return on investment.
  • Career progression: Sales assistant at McRae's department store -> Visual Merchandising Manager -> General Merchandise Buyer at University of Southern Mississippi Bookstore -> Textbook Manager -> Director of College Retail Sales -> General Manager at Barnes & Noble College Booksellers.
  • Key advice: Adaptability is the most critical trait in retailing due to rapid fashion, technological, and market changes.
  • Annette Repasch (Senior Vice President, General Merchandise Manager, Stage Stores, Inc.):
  • Oversees Misses Sportswear, Special Sizes, Dresses, Swim, Outerwear, Accessories, and Intimate Apparel divisions, reporting to the Chief Merchandising Officer.
  • Career progression: Executive trainee at Hess's -> Buyer -> Saks Inc. -> The Limited (product development) -> Vice President/GMM at QVC -> Senior VP/GMM at Stage Stores, Inc.
  • Key advice: Maintain a clear career vision, challenge yourself, think outside the box, and treat last year's history as a guide rather than a given ("worry forward").

Basic Merchandising Mathematics and Arithmetic Operations

• Fundamentals of Decimals:

  • Decimals represent fractional parts of tenths, hundredths, thousandths, or other multiples of 10.
  • Adding and Subtracting Decimals: Align decimal points vertically in the same column. Add trailing zeros to the right of the decimal point if necessary to match place values ($125 = 125.000$).
  • Multiplying Decimals: Multiply numbers as whole numbers. Calculate the total number of decimal places in all factors combined and count off that sum of places from the right edge of the product.
  • Dividing Decimals: Convert the divisor into a whole number by shifting its decimal point to the right; shift the decimal point in the dividend to the right by the exact same number of positions. Place the decimal point in the quotient directly above the shifted decimal point in the dividend.
  • Rounding Decimals in Merchandising:
  • Standard Rule: Round all final calculated monetary and percentage answers to the nearest hundredth (two decimal places).
  • Decision Rule: Examine the digit in the third decimal place ($10^{-3}$ position). If the third digit is $5$ or greater, drop the remaining digits and add $1$ to the second decimal place digit. If the third digit is less than $5$, drop all digits beyond the second decimal place.

• Unit Measures in Merchandising:

  • Standard Conversion Factors:
  • $2\,\text{units} = 1\,\text{pair}$
  • $12\,\text{units} = 1\,\text{dozen}$
  • $144\,\text{units} = 12\,\text{dozens} = 1\,\text{gross}$
  • Fractional Dozen Conversions to Units ($\text{Fraction} \times 12$):
  • $\frac{1}{3}\,\text{dozen} = \frac{1}{3} \times 12 = 4\,\text{units}$
  • $\frac{2}{3}\,\text{dozen} = \frac{2}{3} \times 12 = 8\,\text{units}$
  • $\frac{1}{4}\,\text{dozen} = \frac{1}{4} \times 12 = 3\,\text{units}$
  • $\frac{3}{4}\,\text{dozen} = \frac{3}{4} \times 12 = 9\,\text{units}$
  • $\frac{1}{6}\,\text{dozen} = \frac{1}{6} \times 12 = 2\,\text{units}$
  • $\frac{5}{6}\,\text{dozen} = \frac{5}{6} \times 12 = 10\,\text{units}$
  • $1\frac{3}{4}\,\text{dozens} = \frac{7}{4} \times 12 = 21\,\text{units}$
  • $3\frac{5}{6}\,\text{dozens} = \frac{23}{6} \times 12 = 46\,\text{units}$
  • Mandatory Rounding Rule for Units: Quantities of physical units calculated from fractional dozens must always be rounded to whole integers prior to calculating total order costs or retail values.

• Percentage Calculations in Merchandising:

  • A percent represents a part of a whole expressed in hundredths ($47\% = \frac{47}{100} = 0.47$).
  • Conversion Operations:
  • Percent to Fraction: Drop percent sign, place number over $100$, and reduce fraction to lowest terms ($20\% = \frac{20}{100} = \frac{1}{5}$).
  • Percent to Decimal: Shift decimal point two places to the left and drop percent sign ($4.5\% = 0.045$; $12.75\% = 0.1275$).
  • Decimal to Percent: Shift decimal point two places to the right and add percent sign ($0.75 = 75\%$
  • Fraction to Percent: Divide numerator by denominator to obtain a decimal, then convert to percent ($\frac{1}{4} = 0.25 = 25\%$
  • The Three Elements of Percentage Equations:
  1. Base ($B$): The total amount ($100\%$
  2. Percent ($P\%$): The rate or ratio relationship.
  3. Percentage Amount ($A$): The fractional dollar or unit portion resulting from applying the percent to the base.
  • Core Percentage Formulas:
  • $\text{Percentage Amount} = \text{Percent} \times \text{Base}$
  • $\text{Percent} = \frac{\text{Percentage Amount}}{\text{Base}}$
  • $\text{Base} = \frac{\text{Percentage Amount}}{\text{Percent}}$
  • Calculating Percentage Increase or Decrease:
  • $\text{Percent Change} = \frac{\text{Difference Between Two Figures}}{\text{Previous Figure}} = \frac{\text{Current Figure} - \text{Previous Figure}}{\text{Previous Figure}}$

• Career Corner Highlights (Chapter 2):

  • Lawrence William Patterson (Executive Team Leader, Softlines and Guest Experience, Target Corporation):
  • Manages store sales, operations, human resources, and merchandise placement.
  • Uses retail math daily for ordering supplies, ensuring rack/fixture layout maximizes margin and Return on Investment (ROI), and maintaining brand standards.
  • Career progression: Management intern at Buckle during junior year at Oklahoma State University -> Store Manager -> Area Manager & Recruiter -> Executive Team Leader at Target.
  • Ashley Fairley (Showroom Manager, D2 Showroom):
  • Manages day-to-day wholesale operations, customer service, e-mail marketing, website updates, and end-of-day sales reports for 13 clothing lines.
  • Analyzes sales by week, month, and season compared to previous year figures to make strategic marketing and distribution decisions.
  • Career progression: Earned Marketing degree at University of New Orleans while working retail and trade shows -> Road representative for four clothing companies -> Showroom Manager.

Profitability and Operating Statement Analysis

• The Skeletal Profit-and-Loss Statement:

  • Operating profit is generated through the relationship among three fundamental factors: Sales Volume, Cost of Merchandise Sold, and Operating Expenses.
  • Structure of the Skeletal Profit-and-Loss Statement:
  • $\text{Net Sales} = 100.00\%$
  • $\text{Cost of Merchandise Sold} = -\text{Dollar Cost}$
  • $\text{Gross Margin} = \text{Net Sales} - \text{Cost of Merchandise Sold}$
  • $\text{Operating Expenses} = -\text{Dollar Expenses}$
  • $\text{Operating Profit (or Loss)} = \text{Gross Margin} - \text{Operating Expenses}$
  • Key Margin Equations:
  • $\text{Gross Margin} = \text{Net Sales} - \text{Cost of Merchandise Sold}$
  • $\text{Gross Margin} = \text{Operating Expenses} + \text{Operating Profit}$
  • $\text{Operating Profit} = \text{Gross Margin} - \text{Operating Expenses}$
  • If Operating Expenses exceed Gross Margin, an Operating Loss occurs, represented in financial records inside parentheses, e.g., $\left(\$1,300\right)$ or $\left(1.91\%\right)$.
  • Expressing Factors as Percentages of Net Sales ($\text{Net Sales} = 100\%$
  • \text{Gross Margin \%} = \frac{\text{Gross Margin \}}{\text{Net Sales \}}
  • \text{Expense \%} = \frac{\text{Operating Expenses \}}{\text{Net Sales \}}
  • \text{Profit \%} = \frac{\text{Operating Profit \}}{\text{Net Sales \}}
  • \text{Net Sales \} = \frac{\text{Operating Profit \}}{\text{Profit \%}}

• Net Sales and Customer Returns:

  • Gross Sales: Total prices charged to customers for all merchandise and services before deducting returns or allowances.
  • Net Sales: Actual sales revenues retained after subtracting customer returns and allowances.
  • $\text{Net Sales} = \text{Gross Sales} - \text{Customer Returns}$
  • Customer Return Percentage Calculation:
  • \text{Customer Returns \%} = \frac{\text{Customer Returns \}}{\text{Gross Sales \}}
  • Note: Customer Returns Percentage is the ONLY performance percentage calculated using Gross Sales as the denominator base.
  • \text{Gross Sales \} = \frac{\text{Net Sales \}}{100\% - \text{Customer Returns \%}} = \frac{\text{Net Sales \$}}{\text{Gross Sales \% Complement}}

• Expense Classification and Controllable Margin:

  • Direct Expenses: Costs incurred directly from operating a specific department or store unit that would be completely eliminated if that unit were discontinued (e.g., sales personnel wages, departmental advertising, department selling supplies, buyer/manager travel expenses).
  • Indirect Expenses: Storewide or corporate overhead expenses that benefit the business as a whole and continue even if a specific department is eliminated (e.g., building rent, building maintenance, corporate executive salaries, institutional advertising, technology infrastructure).
  • Contribution (Controllable Margin): The net dollar amount a specific department or store contributes toward covering corporate indirect expenses and generating profit after deducting direct expenses.
  • $\text{Contribution (Controllable Margin)} = \text{Gross Margin} - \text{Direct Expenses}$

• Profit Performance Improvement Strategies:

  • Increasing Sales Volume: Optimizing merchandise assortments, improving visual presentation, enhancing associate sales training, reducing customer return rates.
  • Expense Control: Payroll is the single largest controllable operating expense in retailing. Optimizing employee scheduling to match customer traffic peaks (e.g., noon to 3:00 p.m.) minimizes labor costs without sacrificing customer service.

• Productivity and Efficiency Performance Measures:

  • Human Resource Productivity:
  • $\text{Gross Wages} = \text{Hours Worked} \times \text{Hourly Pay Rate}$
  • \text{Selling Cost \%} = \frac{\text{Gross Wages \}}{\text{Net Sales \}}
  • Commission Calculations: $\text{Commission \$} = \text{Net Sales} \times \text{Commission \%}$
  • Average Earnings per Hour: $\text{Average Earnings per Hour} = \frac{\text{Gross Earnings \$}}{\text{Total Hours Worked}}$
  • Units per Transaction (UPT): $\text{UPT} = \frac{\text{Gross Units Sold}}{\text{Number of Transactions}}$
  • Sales per Transaction (Average Sale): $\text{Average Sale per Transaction} = \frac{\text{Gross Sales \$}}{\text{Number of Transactions}}$
  • Sales per Employee Hour: $\text{Sales per Employee Hour} = \frac{\text{Net Sales \$}}{\text{Total Employee Work Hours}}$
  • Sales per Full-Time Employee Equivalent (FTE): Converts part-time employee hours into equivalent full-time workloads (typically $35$ to $40\,\text{hours/week}$).
    • $\text{Full-Time Equivalents} = \text{Full-Time Staff} + \frac{\text{Total Part-Time Hours Worked}}{\text{Full-Time Workweek Hours}}$
    • $\text{Sales per FTE} = \frac{\text{Net Sales \$}}{\text{Total Full-Time Equivalent Employees}}$
  • Space Productivity:
  • Sales per Square Foot of Selling Space: $\text{Sales per Sq. Ft.} = \frac{\text{Net Sales \$}}{\text{Square Feet of Selling Space}}$
  • Gross Space vs. Selling Space: Gross space includes total building footage; selling space excludes non-selling areas like administrative offices, remote stockrooms, and stairwells.
  • Space Allocation Planning: \text{Required Space (Sq. Ft.)} = \frac{\text{Planned Sales Volume \}}{\text{Planned Sales per Square Foot \}}
  • Estimated Sales Projection: \text{Estimated Sales \} = \text{Square Feet of Space} \times \text{Expected Sales per Sq. Ft. \}
  • Sales per Linear Foot of Shelf Space: Used in supermarkets, drugstores, and discount retailers ($\text{Sales per Linear Foot} = \frac{\text{Net Sales \$}}{\text{Linear Feet of Shelving}}$).
  • Inventory Productivity:
  • Gross Margin Return on Inventory (GMROI): Evaluates inventory profitability relative to the cost investment required.
    • \text{GMROI} = \frac{\text{Gross Margin \}}{\text{Average Inventory at Cost \}}

• Career Corner Highlights (Chapter 3):

  • Merle Mack (Vice President of Human Resources, Kohl's Department Stores):
  • Responsible for talent acquisition, development, and retention across 270 Kohl's stores and nearly 40,000 associates.
  • Highlights that math skills are essential for merchants to analyze business performance and generate profit.
  • David Schwarz (District Manager, The TJX Companies, Inc. / Marshalls):
  • Oversees 10 to 12 Marshalls stores, focusing on coaching, teaching, sales growth, inventory management, and expense control.

Cost of Merchandise Sold and Terms of Sale

• Vendor Negotiations and Legal Considerations:

  • A vendor (supplier or resource) is a manufacturer, importer, or wholesaler from whom a retailer purchases goods.
  • The Robinson-Patman Act of 1936 prohibits unlawful price discrimination in interstate commerce among buyers of goods of like grade and quality where the effect may be to lessen competition or create a monopoly. Quantity discounts are legal only if they reflect actual manufacturing, selling, or delivery cost savings.
  • Private-label buying provides higher markup flexibility and exclusive assortments because national brand royalties and licensing fees are eliminated.
  • Invoices are bills issued by vendors detailing shipped merchandise, costs, discounts, and terms.

• Types of Vendor Discounts:

  • Quantity (Patronage) Discounts: Deductions allowed for purchasing a specified quantity of goods. Calculated and deducted first, regardless of invoice payment timing.
  • Trade (Functional) Discounts: Percentage deductions from the vendor's list price (suggested retail price) based on the buyer's function in the distribution channel.
  • Series Discounts (e.g., list price less $40\%$, $15\%$, and $5\%$):
    1. Direct Method: Deduct each percentage sequentially from the remaining balance.
    2. Complement Method: Multiply list price by the product of the complement percentages ($100\% - 40\% = 60\%$, $100\% - 15\% = 85\%$, $100\% - 5\% = 95\%$).
    3. On-Percent Method: Calculate an overall "On-Percent" by multiplying individual complements ($0.60 \times 0.85 \times 0.95 = 0.4845 = 48.45\%$
    • $\text{Billed Cost} = \text{List Price} \times \text{On-Percent}$
  • Seasonal Discounts: Price reductions granted for placing orders or accepting shipments out of season.
  • Cash Discounts: Percentage reductions allowed for paying invoices within a specified cash discount period. Calculated on billed cost (gross cost after quantity/trade discounts, before freight).

• Dating Methods (Terms of Sale):

  • Cash on Delivery (COD): Payment due immediately upon physical delivery. (CBD = Cash Before Delivery; CWO = Cash With Order).
  • Regular (Ordinary) Dating: Calculated from the date of the invoice (usually shipment date). E.g., $3/10, n/30$ allows a $3\%$ cash discount if paid within $10\,\text{days}$; net amount due in $30\,\text{days}$.
  • Receipt of Goods (ROG) Dating: Calculated from the date merchandise arrives at the retailer. E.g., $2/10\,\text{ROG}$ on goods received March 12 gives a discount deadline of March 22.
  • End-of-Month (EOM) Dating: Discount period calculated from the end of the month in which the invoice is dated. E.g., $8/10\,\text{EOM}$ for an invoice dated June 11 gives a discount deadline of July 10.
  • The 26th Cutoff Rule: An invoice dated on or after the 26th of any month with EOM terms is treated as if it were dated on the 1st day of the following month. (E.g., an invoice dated May 26 with $8/10\,\text{EOM}$ has a cash discount deadline of July 10).
  • Extra Dating (X-Dating): Extends credit and discount periods by adding extra days. E.g., $3/10\text{-}30\text{X}$ provides a $40\text{-day}$ total cash discount period ($10 + 30$).
  • Advanced Dating ("As Of"): Calculated from a specified future date. E.g., an invoice dated June 12 with terms $3/10, n/30\,\text{as of Sept 1}$ has a discount deadline of September 11.

• Allowances and Rebates:

  • Trade Allowance: Compensation for stocking or displaying merchandise.
  • Buying Allowance: Temporary off-invoice price reduction during a specific buying period.
  • Slotting Allowance (Stocking/Introductory Allowance, or "Street Money"): Fee paid by vendors to secure shelf space for new products.
  • Markdown Guarantees (Markdown Money): Vendor funds provided to offset lost gross margin dollars from excessive retail price reductions.
  • Promotional Allowance: Money provided to compensate retailers for advertising or promotional support.
  • Damage Allowance: Percentage or dollar allowance compensating retailers for unsellable damaged goods.
  • Rebates: Cash refunds returned to the retailer after submitting proof of sales or promotional performance.

• Transportation Terms (FOB - Free on Board):

  • FOB Factory (FOB Origin): Title transfers at factory; buyer pays all freight costs and bears transit risk.
  • FOB Destination (FOB Store/Warehouse): Vendor pays freight and retains title until goods arrive at buyer's location.
  • FOB Shipping (Consolidation) Point: Vendor pays freight to consolidation point; buyer pays freight from consolidation point to destination.
  • FOB Destination; Charges Reversed: Vendor retains title during transit, but buyer pays freight charges.
  • Prepaid Freight: Vendor pays freight charges to carrier upon shipment and adds cost to invoice; buyer reimburses vendor.

• Financial Intermediaries and Services:

  • Factors: Financial institutions that purchase vendor receivables, advance cash, collect payments, and absorb credit losses.
  • Back Offices: Third-party service providers handling logistics, warehousing, importing/exporting, and customer service for vendors.

• Career Corner Highlights (Chapter 4):

  • Margaret Bowman (Vice President of Apparel, Academy Sports + Outdoors):
  • Oversees athletic and outdoor apparel buying, private label development, vendor relations, and marketing.
  • Stresses that sales, margin, turnover, and GMROI are essential performance metrics in building a retail plan.

Markup as a Key Merchandising Tool

• Markup Concepts and Formulas:

  • Markup (Markon) is the dollar amount added to cost price to establish retail selling price.
  • Core Dollar Formula: \text{Markup \} = \text{Retail \} - \text{Cost \$} ($\text{Cost} = \text{Retail} - \text{Markup}$; $\text{Retail} = \text{Cost} + \text{Markup}$).
  • Keystone Markup: Setting retail price at double the cost price ($100\%$ markup on cost, or $50\%$ markup on retail; retail factor of $2.0$).
  • Markup Percentages:
  • Based on Retail: \text{Markup \%}_{\text{Retail}} = \frac{\text{Markup \}}{\text{Retail \}} = \frac{\text{Retail} - \text{Cost}}{\text{Retail}}
  • Based on Cost: \text{Markup \%}_{\text{Cost}} = \frac{\text{Markup \}}{\text{Cost \}} = \frac{\text{Retail} - \text{Cost}}{\text{Cost}}
  • Note: Markup percentage based on cost is always larger than markup percentage based on retail.

• Basic Markup Calculations (Retail Base = 100%):

  • Cost Complement Percentage: $\text{Cost Complement \%} = 100\% - \text{Markup \%}$
  • Calculating Retail Price when Cost and Markup % are Known:
  • \text{Retail \} = \frac{\text{Cost \}}{\text{Cost Complement \%}} = \frac{\text{Cost \$}}{100\% - \text{Markup \%}}
  • Calculating Cost Price when Retail Price and Markup % are Known:
  • \text{Cost \} = \text{Retail \} \times \text{Cost Complement \%} = \text{Retail \$} \times \left(100\% - \text{Markup \%}\right)
  • Calculating Group Markup Percentage:
  • \text{Group Markup \%} = \frac{\text{Total Group Retail \} - \text{Total Group Cost \}}{\text{Total Group Retail \$}}

• Averaging Markups:

  • Averaging Markups on Balance of Purchases:
  • \text{Total Planned Cost \} = \text{Total Planned Retail \} \times \left(100\% - \text{Planned Markup \%}\right)
  • \text{Balance Retail \} = \text{Total Planned Retail \} - \text{Purchased Retail \$}
  • \text{Balance Cost \} = \text{Total Planned Cost \} - \text{Purchased Cost \$}
  • \text{Needed Markup \% on Balance} = \frac{\text{Balance Retail \} - \text{Balance Cost \}}{\text{Balance Retail \$}}
  • Averaging Costs across Multiple Items:
  • Determine remaining cost balance allowed and divide by remaining units required to establish target unit cost.
  • Averaging Retail across Multiple Items:
  • Determine total retail required ($\frac{\text{Total Cost}}{100\% - \text{Markup \%}}$), subtract retail generated by known items, and divide by remaining units.

• Types of Markup:

  • Initial Markup (IMU): The original markup placed on goods as received, based on original retail prices.
  • Must cover Operating Expenses, Planned Profit, and Retail Reductions (Markdowns, Employee/Customer Discounts, Stock Shortages).
  • Dollar Formula:       \text{Initial Markup \%} = \frac{\text{Expenses \} + \text{Profit \} + \text{Reductions \} + \text{Alteration Costs \} - \text{Cash Discounts \}}{\text{Net Sales \} + \text{Reductions \$}}
  • Percentage Formula:       $\text{Initial Markup \%} = \frac{\text{Expenses \%} + \text{Profit \%} + \text{Reductions \%} + \text{Alterations \%} - \text{Cash Discounts \%}}{100\% + \text{Reductions \%}}$
  • Cumulative Markup: The average markup resulting from beginning inventory plus new purchases accumulated over a specific period.
  • \text{Cumulative Markup \%} = \frac{\text{Cumulative Markup \}}{\text{Cumulative Retail \}} = \frac{\text{Total Retail \} - \text{Total Cost \}}{\text{Total Retail \$}}
  • Maintained Markup (MMU): The final markup achieved when merchandise is sold, based on net sales.
  • $\text{Maintained Markup \$} = \text{Net Sales} - \text{Gross Cost of Merchandise Sold}$
  • \text{Maintained Markup \%} = \frac{\text{Maintained Markup \}}{\text{Net Sales \}}
  • Relationship with Initial Markup:       $\text{Maintained Markup \%} = \text{Initial Markup \%} - \left[\text{Reductions \%} \times \left(100\% - \text{Initial Markup \%}\right)\right]$
  • Relationship with Gross Margin: Gross margin includes cash discounts earned and alteration/workroom costs incurred.       \text{Gross Margin \} = \text{Maintained Markup \} + \text{Cash Discounts Earned \} - \text{Alteration Costs \}

• Career Corner Highlights (Chapter 5):

  • Kasia Romo (General Merchandise Manager, Charming Charlie):
  • Oversees women's accessories, private branding, trend forecasting, and assortment planning.

Retail Pricing Strategies, Markdowns, and Price Adjustments

• Retail Pricing Policies:

  • Prestige Pricing (Above-the-Market Pricing): Setting prices high to project an elite, luxury image (e.g., Saks Fifth Avenue, Neiman Marcus).
  • Leader Pricing: Offering well-known brand-name items at discounted prices to generate customer traffic. Loss leaders are sold below cost.
  • Competitive Pricing (At-the-Market Pricing): Pricing items at or near competitors' price levels.
  • Everyday Low Pricing (EDLP): Maintaining stable, low prices without frequent sale promotions (e.g., Walmart, Amazon.com).
  • High/Low Pricing: Setting regular prices higher than EDLP competitors while offering frequent, deep promotional discounts.

• Price Lines, Ranges, and Zones:

  • Price Line / Price Point: Specific predetermined retail price ($\$89$, $\$99$, $\$129$, $\$159$
  • Price Range: Spread between lowest and highest price lines ($\$89$ to $\$159$
  • Price Zone: Series of price lines appealing to specific target segments (promotional/good, moderate/better, prestige/best).

• Sell-Through Analysis:

  • Sell-through measures the rate at which stock is sold over a specified time period.
  • $\text{Sell-Through \%} = \frac{\text{Units Sold}}{\text{Units Received}} = \frac{\text{Original On-Hand Units} - \text{Current On-Hand Units}}{\text{Original On-Hand Units}}$

• Markdowns and Price Adjustments:

  • A markdown is a reduction from the original or previous retail price.
  • Causes of Markdowns: Buying errors, pricing errors, selling errors, promotional sales, broken assortments, out-of-season stock.
  • Permanent vs. Temporary Markdowns:
  • Permanent Markdowns: Permanent reductions in inventory retail value, following a structured markdown cadence (e.g., $25\% \rightarrow 35\% \rightarrow 50\%$
  • Temporary (POS) Markdowns: Short-term price reductions recorded at the point of sale during promotions.
  • Markdown Formulas:
  • $\text{Markdown \$} = \text{Previous Retail Price} - \text{New Reduced Retail Price}$
  • \text{Markdown \%} = \frac{\text{Total Markdown \}}{\text{Net Sales \}}
  • Markdown Cancellations and Net Markdowns:
  • Markdown Cancellation: An upward price adjustment following a temporary sale, restoring price back toward original retail.
  • \text{Net Markdown \} = \text{Total Markdowns \} - \text{Markdown Cancellations \$}
  • \text{Net Markdown \%} = \frac{\text{Net Markdown \}}{\text{Actual Net Sales \}}
  • Additional Markups and Markup Cancellations:
  • Additional Markup: Price increase above original retail price.
  • Markup Cancellation: Reduction of an additional markup back toward original retail price.
  • Employee and Special Customer Discounts:
  • $\text{Discounted Price} = \text{Retail Price} \times \left(100\% - \text{Discount \%}\right)$

• Career Corner Highlights (Chapter 6):

  • Lauren Rodgers (Web Analyst, Neiman Marcus, Inc.):
  • Tracks site productivity and online business trends across NeimanMarcus.com, BergdorfGoodman.com, Horchow.com, LastCall.com, and Cusp.com.

Inventory Valuation and the Retail Inventory Method (RIM)

• Book Inventory vs. Physical Inventory:

  • Book Inventory (Perpetual Inventory): Stock value determined from accounting records.
  • Physical Inventory: Actual counting of merchandise on hand.
  • Total Merchandise Handled (Retail) = Opening Inventory + Net Purchases + Net Transfers In + Net Additional Markups + Freight Inward.
  • Total Deductions (Retail) = Net Sales + Net Markdowns + Employee/Customer Discounts.
  • $\text{Closing Book Inventory at Retail} = \text{Total Merchandise Handled at Retail} - \text{Total Retail Deductions}$

• Shortage and Overage Calculations:

  • Shortage (Shrinkage): Occurs when Book Inventory exceeds Physical Inventory.
  • Overage: Occurs when Physical Inventory exceeds Book Inventory.
  • $\text{Shortage \$} = \text{Book Inventory at Retail} - \text{Physical Inventory at Retail}$
  • \text{Shortage \%} = \frac{\text{Shortage \}}{\text{Net Sales \}}
  • Estimated Shortage and Estimated Physical Inventory:
  • \text{Estimated Shortage \} = \text{Net Sales \} \times \text{Estimated Shortage \%}
  • $\text{Estimated Physical Inventory at Retail} = \text{Closing Book Inventory at Retail} - \text{Estimated Shortage \$}$

• The Retail Inventory Method (RIM):

  • Procedure to estimate cost value of ending inventory from retail value.
  • The Seven Steps of RIM:
  1. Calculate Total Merchandise Handled at Cost and Retail.
  2. Calculate Cost Percentage of Total Merchandise Handled:        \text{Cost \%} = \frac{\text{Total Merchandise Handled at Cost \}}{\text{Total Merchandise Handled at Retail \}}
  3. Calculate Closing Book Inventory at Retail (or Estimated Physical Inventory at Retail).
  4. Calculate Cost Value of Closing Inventory:        $\text{Closing Inventory at Cost} = \text{Closing Inventory at Retail} \times \text{Cost \%}$
  5. Calculate Gross Cost of Merchandise Sold:        $\text{Gross Cost of Merchandise Sold} = \text{Total Merchandise Handled at Cost} - \text{Closing Inventory at Cost}$
  6. Calculate Total Cost of Merchandise Sold:        $\text{Total Cost of Merchandise Sold} = \text{Gross Cost of Merchandise Sold} - \text{Cash Discounts Earned} + \text{Alteration Costs}$
  7. Calculate Gross Margin Dollars and Percentage:        $\text{Gross Margin \$} = \text{Net Sales} - \text{Total Cost of Merchandise Sold}$        \text{Gross Margin \%} = \frac{\text{Gross Margin \}}{\text{Net Sales \}}

• Gross Margin Return on Inventory (GMROI):

  • \text{GMROI} = \frac{\text{Gross Margin \}}{\text{Average Inventory at Cost \}}
  • Average Inventory at Cost = $\frac{\sum_{i=1}^n \text{BOM Cost Inventories}_i + \text{Ending EOM Cost Inventory}}{n + 1}$

• Career Corner Highlights (Chapter 7):

  • Ashley Malfitano (Internet Execution Senior Specialist, J. C. Penney Company, Inc.):
  • Manages e-commerce site merchandising, product loading, and online promotions.

The Six-Month Dollar Merchandise Plan

• Structure of the Merchandise Plan:

  • Seasonal dollar control budget balancing sales, stocks, markdowns, and purchases over six months: Spring (Feb–July) or Fall (Aug–Jan).
  • 

• Planning Sales:

  • Planned sales form the foundation of the merchandise plan.
  • $\text{Percentage Sales Change} = \frac{\text{Planned Sales} - \text{Last Year Sales}}{\text{Last Year Sales}}$
  • Sales Curves: Indicate seasonal variations in sales rates across months (expressed in units, dollars, percentages, or ratios).

• Planning Inventory Levels:

  • Stock Turnover:
  • \text{Stock Turnover} = \frac{\text{Net Sales \}}{\text{Average Stock at Retail \}}
  • Weeks' Supply Method:
  • $\text{Weeks' Supply} = \frac{26\,\text{Weeks}}{\text{Desired Stock Turnover}}$
  • $\text{Average Weekly Sales} = \frac{\text{Planned Season Sales}}{26\,\text{Weeks}}$
  • $\text{Inventory Needed} = \text{Average Weekly Sales} \times \text{Weeks' Supply}$
  • Basic Stock Method (Used when Turnover $\le 6$):
  • $\text{Average Stock for Season} = \frac{\text{Season Sales}}{\text{Season Stock Turnover}}$
  • $\text{Average Monthly Sales} = \frac{\text{Season Sales}}{6}$
  • $\text{Basic Stock} = \text{Average Stock} - \text{Average Monthly Sales}$
  • $\text{Planned BOM Stock} = \text{Planned Monthly Sales} + \text{Basic Stock}$
  • Stock–Sales Ratio Method:
  • $\text{Stock–Sales Ratio} = \frac{\text{BOM Retail Stock}}{\text{Monthly Sales}}$
  • $\text{Planned BOM Stock} = \text{Planned Monthly Sales} \times \text{Planned Stock–Sales Ratio}$
  • EOM Stock: Equal to the BOM stock of the following month.

• Planning Markdowns and Purchases:

  • \text{Planned Markdowns \} = \text{Planned Sales \} \times \text{Planned Markdown \%}
  • $\text{Planned Purchases at Retail} = \text{Planned Sales} + \text{Planned EOM Stock} + \text{Planned Markdowns} - \text{Planned BOM Stock}$
  • $\text{Planned Purchases at Cost} = \text{Planned Purchases at Retail} \times \left(100\% - \text{Planned Initial Markup \%}\right)$

• Career Corner Highlights (Chapter 8):

  • Samantha A. Dornan (Planning Analyst, Michaels Stores, Inc.):
  • Develops subclass-level inventory plans, seasonal trend programs, and markdown recommendations.

Open-to-Buy Control, Assortment Planning, and Inventory Replenishment

• Open-to-Buy (OTB) Control:

  • Control tool derived from the merchandise plan to manage purchase commitments.
  • OTB at Beginning of Month:     $\text{OTB at Retail} = \text{Planned Sales} + \text{Planned EOM Stock} + \text{Planned Markdowns} - \text{BOM Stock} - \text{Merchandise on Order}$$\text{OTB at Retail} = \text{Planned Purchases at Retail} - \text{Merchandise on Order}$
  • OTB During the Month:     $\text{Merchandise Needed} = \text{Balance of Sales} + \text{Planned EOM Stock} + \text{Balance of Markdowns}$$\text{Merchandise Available} = \text{Stock on Hand} + \text{Stock on Order}$$\text{OTB at Retail} = \text{Merchandise Needed} - \text{Merchandise Available}$
  • Stock on Hand via RIM: $\text{Stock on Hand} = \text{Total Merchandise Handled} - \text{Total Deductions}$
  • $\text{OTB at Cost} = \text{OTB at Retail} \times \left(100\% - \text{Initial Markup \%}\right)$
  • Correcting Overbought Positions: Increase planned sales/markdowns, reduce stock on hand via RTVs/transfers, postpone orders, cancel overdue orders, increase planned EOM stock.

• Assortment Planning:

  • Projection of merchandise variety and quantity (dollars or units).
  • Basic Stock List (staple goods) vs. Model Stock Plan (fashion goods).
  • Classifications, Subclassifications, SKUs (Stock-Keeping Units), and UPCs (Universal Product Codes).
  • 

• Inventory Replenishment & Periodic Reorders:

  • Reorder Period (RP): Weeks between stock counts.
  • Delivery Period (DP): Weeks between count and arrival on selling floor.
  • Lead Time (LT): $\text{LT} = \text{RP} + \text{DP}$.
  • Rate of Sale (RS): $\text{RS} = \frac{\text{Beginning Inventory} + \text{Receipts} - \text{Ending Inventory}}{\text{RP}}$.
  • Reserve (R): Safety stock.
  • Maximum Quantity (Provision, $M$):     $M = \text{RS} \times \left(\text{RP} + \text{DP}\right) + R = \text{RS} \times \text{LT} + R$
  • Reorder Quantity (Unit OTB):     $\text{Unit OTB} = M - \left(\text{Stock on Hand} + \text{Stock on Order}\right)$
  • Average Stock in Units: $\text{Average Stock} = R + \frac{1}{2}\left(\text{RS} \times \text{RP}\right)$
  • Annual Unit Turnover: $\text{Unit Turnover} = \frac{\text{RS} \times 52}{\text{Average Stock}}$

• Career Corner Highlights (Chapter 9):

  • Jillian Cleary (Associate Merchant, Zales Corporation):
  • Analyzes market trends, item pricing, ROI metrics, and inventory turnover across jewelry categories.

Comprehensive Industry Case Studies

• Chapter 3 Case Studies:

  • Case 1: How Can the Department Increase Profit? (Bobbie Moore, Texas State Univ - San Marcos):
  • Department Manager Karen and Intern Channing evaluate Contemporary Sportswear.
  • July TY vs. LY results: Net sales declined from $\$112,700$ to $\$105,600$; customer returns increased from $2\%$ ($\$2,300$) to $4\%$ ($\$4,400$); profit dropped from $10\%$ ($\$11,270$) to $5\%$ ($\$5,280$) due to expenses rising from $45\%$ to $50\%$.
  • Case 2: Measuring Corporate Social Responsibility through P&L Statement (Gail Baugh & Connie Ulasewicz, San Francisco State Univ / FIDM):
  • Analyzes Macy's Inc.'s 5-point action plan, installing solar power at 40 stores, converting 300 million clear hangers to recycled black plastic, and comparing Brick & Mortar ($\$25.03\,\text{B}$ net sales, $7.9\%$ net profit) vs. Web-Based store ($\$25.0\,\text{M}$ net sales, $17.6\%$ net profit).
  • Case 3: Contemplating New Directions at "The Mad Hatteras" (Holly Lentz, West Virginia Univ):
  • Owner Lauren Asbury considers two expansion options for her 1,500 sq. ft. Wilmington, NC boutique ($\$220,000$ sales, $8.7\%$ returns, $42\%$ expenses, $48\%$ cost of goods).
  • Option 1 (Eco-friendly shop-in-shop): +500 sq. ft., $\$10,000$ fixtures, $\$270,000$ sales, $44.5\%$ cost of goods, $44\%$ expenses.
  • Option 2 (Shoes/Accessories): Same space, $\$252,000$ sales, $10.2\%$ returns, $49\%$ cost of goods, $42\%$ expenses.

• Chapter 4 Case Studies:

  • Case 1: To Buy or Not to Buy (Joshi Preeti, Univ of Kentucky):
  • Buyer Tim Kendall sourcing soft crinkle leather wallets at Canton Fair in Guangdong, China.
  • Yiwu Leather Products: $\$25.25$/unit, $8\%$ cash discount, $15\%$ quantity discount for $>2,500\,\text{units}$, free displays.
  • Shenzhen Leather Export Co.: $\$30.56$/unit, trade discounts $15\%$ & $10\%$, 90-day extra dating.
  • Case 2: Selecting the Best Vendor (Eun Jin Hwang, Indiana Univ of Pennsylvania):
  • Home Decor Boutique owner Elizabeth Oaks and Assistant Buyer Chase Seo replace defective lighting vendor Green Lighting.
  • California Lighting: Trade discounts $5\%$, $15\%$, $10\%$; $2/10, n/30$; FOB Factory.
  • New York Lighting: Trade discounts $10\%$, $5\%$; $5\%$ quantity discount for $>75\,\text{units}$; $8/10\,\text{EOM}$; FOB Factory.
  • Pennsylvania Lighting: $\$500$ rebate for $>\$5,000$; $6/10, n/30$; FOB Factory.
  • Order: 20 Desk ($\$46$), 25 Table ($\$68$), 30 Floor ($\$89$); Total list = $\$5,290$.
  • Case 3: Negotiations at the Footwear Market (Barbara Davis, Univ of Alabama):
  • Footwear buyer Denise (Chasseurs, 10 stores) evaluates 4 vendors for 1,512 pairs across 4 styles.
  • Bella Notte ($3/10, n/30$, $5\%$ markdown allowance); Je Veux ($2/10-50\text{X}$, $5\%$ quantity discount for $>1,200\,\text{pairs}$); Serge ($2/10, n/30$, $2\%$ damage allowance, designer events); Rouge (Net 30, $5\%$ markdown allowance, $2\%$ promotional allowance, POS fixtures).

• Chapter 5 Case Studies:

  • Case 1: How Can the Buyer Determine Average Cost? (Marine Aghekyan, California State Univ - Long Beach):
  • Buyer Jennifer has a $\$10,500$ cost budget for $\$26,240$ planned retail ($60\%$ markup goal): 30 skirts at $\$192$ retail ($\$120$ cost = $\$3,600$), 20 jackets at $\$352$ retail ($\$220$ cost = $\$4,400$). Remaining cost budget: $\$2,500$ for 40 dresses ($\$62.50$ max unit cost). Vendor offers dress at $\$98$ cost ($\$152$ retail = $35.5\%$ markup), exceeding cost budget by $\$1,420$.
  • Case 2: Calculating Initial Markup and Average Markup (Tammy Robinson & Farrell Doss, Radford Univ):
  • Kayla's Specialty Store. 2 doz. sweaters ($\$32$ cost), 3 doz. blouses ($\$24$ cost), 12 skirts ($\$20$ cost, $\$42$ retail), 18 pants ($\$18$ cost, $\$38$ retail). Planned sales $\$325,000$, $35\%$ expenses, $12\%$ markdowns, $4.5\%$ profit $\rightarrow$ Planned IMU = $51.5\%$ $\rightarrow$ Sweater retail = $\$65.98$, Blouse retail = $\$49.48$ $\rightarrow$ Average Group Markup = $52.48\%$.
  • Case 3: Operating a Successful Bridal Business (Wanda K. Cheek, Mississippi State Univ):
  • Bridal boutique in college town (pop. 45,000). Sample dress inventory (80–90 dresses), $60\%$ nonrefundable deposit, 3–6 month lead times. Markup factors: 2.0 keystone, 2.5 factor ($60\%$ retail markup), 3.0 factor. Style #1001 ($\$250$ cost): 2.1 factor = $\$525$ retail ($52.38\%$ IMU), 2.5 factor = $\$625$ retail ($60\%$ IMU), 3.0 factor = $\$750$ retail ($66.67\%$ IMU). Shipping ($\$20$) and alterations ($\$40$).

• Chapter 6 Case Studies:

  • Case 1: Permanent vs. Point-of-Sale Markdowns (Judi Toerge, Academy of Art Univ):
  • Sweater buyer Mercedes (5 specialty stores). 6 SKUs, 5,400 initial buy, $\$115,562$ cost, $\$368,100$ retail ($68.6\%$ IMU). Compares permanent markdown ladder ($30\% \rightarrow 50\% \rightarrow 70\%$ off) vs. POS markdowns.
  • Case 2: Twist of Fate (Laree Waltemyer, Art Institute of York, PA):
  • Buyer Sharon Wayne (Norman's department store, 75 stores) orders 1,350 Mod Girl lilac dresses ($\$13.50$ cost, $\$29.99$ retail) featured in spring booklet. Manufacturing defect (misaligned overlay). Sharon's 3 proposals: 1) RTV all unsold, 2) $75\%$ markdown allowance, 3) $50\%$ markdown allowance + $\$9,000$ future credit. Ultimate resolution: Cancel $\$48,000$ in outstanding orders.
  • Case 3: Cinderella's Shoes (Jaeil Lee, Seattle Pacific Univ):
  • Owners Seung-hee and Nora (Seattle). 1) Sheepskin boots markdown from $\$165$ to $\$39$ ($76.36\%$ markdown). 2) 12 pairs socks ($\$7$ cost, $48.11\%$ markup = $\$13.49$ retail; 9 sold at $\$13.49$, 3 marked down $25\%$ to $\$10.12$; Net sales = $\$151.77$). 3) 24 pairs walking shoes ($\$35.50$ cost, $\$69.99$ retail; 18 sold, 6 remaining repriced to $\$74.99$ $\rightarrow$ Additional markup $\$30.00$ / $6.67\%$; 36 reordered pairs at $\$40.00$ cost, $\$74.99$ retail $\rightarrow$ $46.66\%$ markup). 4) Clark rainboots ($\$22$ cost, $\$56$ MSRP).

• Chapter 7 Case Studies:

  • Case 1: Department Productivity Related to Increasing Inventory Levels (Jeanne Heitmeyer, Florida State Univ):
  • Store Manager Angela Jones compares Women's Sportswear vs. Women's Suits for square footage expansion. Sportswear: $\$345,000$ net sales, $\$285,000$ closing inventory, $\$75,000$ markdowns, $\$10,000$ cash discounts, $49\%$ markup, $\$127,000$ expenses $\rightarrow$ GM = $48.88\%$, GMROI = $1.18$, Profit = $12.07\%$. Suits: $\$290,000$ net sales, $\$315,000$ closing inventory, $\$36,000$ markdowns, $\$13,500$ cash discounts, $\$5,000$ alterations, $62\%$ markup, $\$155,000$ expenses $\rightarrow$ GM = $51.52\%$, GMROI = $1.25$, Profit = $\left(1.90\%\right)$ [Loss].
  • Case 2: Does the Accuracy of Physical Inventory Affect Profit Estimates? (Ann Paulins, Ohio Univ):
  • Global Enterprises Specialty Fashions (Store Manager John). Physical inventory taken Jan (avg. shortage = $4.46\%$) & July (avg. shortage = $2.20\%$). April net sales = $\$525,600$, Total mdse handled = $\$416,700$ cost / $\$947,530$ retail (cost $\% = 43.98\%$), Reductions = $\$539,600$, Expenses = $\$220,752$. Without shortage: Profit = $\$125,502$ ($23.88\%$). With $2.20\%$ estimated shortage ($\$11,563$ retail = $\$5,086$ cost): Profit = $\$120,416$ ($22.91\%$).
  • Case 3: Analyzing Performance with Retail Method of Inventory (Raymond Wimer, Syracuse Univ):
  • Buyer Quinn Coleman (Men's Activewear). Opening inventory $\$256,500$ cost / $\$570,920$ retail; Gross purchases $\$200,000$ cost / $\$380,000$ retail; Freight $\$1,008$; RTV $\$6,500$ cost / $\$12,270$ retail; Net transfers in $\$600$ cost / $\$1,400$ retail; Additional markup $\$800$. Total Mdse Handled = $\$451,608$ cost / $\$940,850$ retail (Cost $\% = 48.00\%$). Net sales = $\$650,000$; Net markdowns = $\$40,000$; Employee discounts = $\$10,000$; Total deductions = $\$700,000$. Closing book inventory = $\$240,850$ retail. Physical inventory = $\$227,500$ retail. Shortage = $\$13,350$ retail ($2.05\%$ of sales). Cost of physical inventory = $\$109,200$. Gross cost of goods sold = $\$342,408$; Total cost of goods sold = $\$339,208$ (Cash discounts $\$3,200$). Gross Margin = $\$310,792$ ($47.81\%$). Operating Expenses = $\$292,500$ ($45.00\%$). Profit = $\$18,292$ ($2.81\%$). GMROI = $2.82$. Activewear outperforms division benchmark (GM $47.81\%$ vs. $46.5\%$, Profit $2.81\%$ vs. $2.0\%$, GMROI $2.82$ vs. $2.53$).

• Chapter 8 Case Studies:

  • Case 1: Markdown Mayhem (Tammy Kinley, Univ of North Texas):
  • Gregory's Department Store (Dept 1000: Missy). Planned sales $\$500,000$, Planned markdowns $\$55,000$ ($11.00\%$), Planned IMU $47.30\%$, Profit $5.50\%$, Turnover $2.3$. Feb actuals: Sales $\$75,125$ ($+0.17\%$), Markdowns $\$8,500$ ($+18.88\%$). March actuals: Sales $\$112,500$ ($+2.27\%$), Markdowns $\$13,580$ ($+252.73\%$).
  • Case 2: Key Sales and Inventory Analysis of a Jewelry Company (Gary Wolf, Fashion Institute of Technology):
  • Fine Fashion Ltd (FF Ltd) London expansion ($1\,\pounds = \$1.62\,\text{USD}$). Part A: Fine jewelry unit turn. Part B: Fashion jewelry inventory Jan $\$291,924$ ($\pounds 180,200$), Feb $\$181,926$ ($\pounds 112,300$), EOM Feb $\$150,822$ ($\pounds 93,100$). Sales: Jan $\$201,204$ ($\pounds 124,200$), Feb $\$159,084$ ($\pounds 98,200$). Returns: Jan $16\%$ ($\$32,193$), Feb $12\%$ ($\$19,090$). Part C: March strategy ($\$3,000$ markdowns, $4.0$ turnover goal, $6.5$ weeks supply).
  • Case 3: Six-Month Merchandise (Dollar) Planning (Lucy Simpson, Univ of Tennessee):
  • Misses Coordinates. Fall sales goal $\$1,892.0\,\text{K}$ ($+11.95\%$ over $\$1,690.0\,\text{K}$ LY), Markdown goal $37.0\%$ ($\$700.0\,\text{K}$ vs. $38.8\%$ LY), Turnover goal $1.90$. Projected July EOM $\$950.0\,\text{K}$.

• Chapter 9 Case Studies:

  • Case 1: Improving Performance in Children's Accessories (Irene Foster, Framingham State Univ):
  • Orchard Creek boutique in Boston (Buyer Melissa Malone). Fall plan ($\$49,320$ sales, $\$11,146$ markdowns, $2.90$ turnover, $61.50\%$ IMU). Oct 1–15 actuals: Sales $\$3,529$ (Planned Oct sales $\$10,439$), Markdowns $\$715$ (Planned Oct markdowns $\$1,338$), On-order $\$2,749$, On-hand Oct 15 $\$22,160$.
  • Case 2: "It Takes a Village" (and maybe better assortment planning!) (Rochelle Brunson, Baylor Univ):
  • The Village bridal registry store (2,400 sq. ft. total, 1,800 sq. ft. registry). Sales drop from $\$600,000$ (Yr 8) to $\$585,000$ (Yr 9) to $\$526,000$ (Yr 10). Annual buying budget $\$310,000$ ($75\% = \$232,500$ on registry). $50\%$ markup. Category mix: Fine China $50\%$ ($\$116,250$), Stainless Flatware $15\%$ ($\$34,875$), Crystal Glassware $10\%$ ($\$23,250$). Competition from big box/dept stores (Target, Bed Bath & Beyond, Lowes) and online registries.
  • Case 3: You, as the Assistant Buyer! First Task: Open-to-Buy Control (Jessica Hurst, Iowa State Univ):
  • Neiman Marcus Dept 817 (Men's Knits and Wovens). Planned sales $\$125,840$ ($+10\%$ over LY $\$114,400$), Planned IMU $47.27\%$. February negative OTB due to initial heavy seasonal shipments.