Merchandise Management Notes

Merchandise Management Overview

Learning Objectives

• Understand the merchandise management organization and performance measures.

• Contrast merchandise management processes for staple and fashion merchandise.

• Describe how to predict sales for merchandise categories.

• Summarize the trade-offs for developing merchandise assortments.

• Describe how multistore retailers allocate merchandise to stores.

• Review how retailers evaluate the performance of their merchandise management decisions.

Merchandise Management Organization

• Merchandise Groups:

  • Managed by General Merchandise Managers (GMMs).

• Departments:

  • Managed by Divisional Merchandise Managers (DMMs).

• Classification:

  • Stock-Keeping Unit (SKU).

Managing Merchandise Categories

• Definition of Merchandise Category:

  • The planning unit for merchandise management.

• Ways to Manage Categories:

  • Category Management:

  • One buyer or category manager oversees the category.

  • Common in grocery stores.

  • Category Captain:

  • A retailer's partner who helps in managing the category.

Performance Measures

Evaluating Merchandise Management Performance

• Sales-to-Stock Ratio:

  • Typically measured on an annual basis.

  • Most accurate method: Measure inventory levels at the end of each day and divide by 365.

  • Alternative method: Take end-of-month inventories for several months and divide by the number of months.

Example Calculation:

• End-of-Month Inventory:

  • January: $22,000

  • February: $35,000

  • March: $38,000

  • Total: $93,000

  • Average = Total/3 = $31,000.

Improving Gross Margin Return on Investment (GMROI)

• Goals to improve GMROI include:

  • Improve Inventory Turnover:

  • Achieved through reducing inventory or increasing sales.

  • Strategies include:

    • Keeping existing SKUs but reducing backup stock.

    • Buying merchandise more frequently in smaller quantities.

    • Increasing sales without a proportional increase in inventory.

  • Increase Gross Margin:

  • Increasing prices, reducing cost of goods sold, and decreasing customer discounts.

Merchandise Planning Processes

Types of Merchandise Management Planning Systems

• Staple Merchandise:

  • Basic merchandise with continuous replenishment processes.

• Fashion Merchandise:

  • Seasonal merchandise that requires different management strategies.

Forecasting Category Sales

Sales Forecasting for Staple Merchandise

• Historical Sales Use:

  • Adjustments must be made for controllable and uncontrollable factors:

  • Controllable Factors:

    • Store hours, prices, promotions, product placement.

  • Uncontrollable Factors:

    • Weather, economic conditions, pandemics, competitor actions, vendor actions.

Developing an Assortment Plan

Trade-offs in Merchandise Assortments

• Assortment Plan Components:

  • Variety or Breadth:

  • Total number of different merchandise categories offered.

  • Assortment or Depth:

  • Total number of SKUs within a category.

Example of Assortment Plan for Girls’ Jeans

• Styles: Skinny

• Price Levels:

  • $20, $20, $35, $35, $45, $45.

• Fabric Composition Options:

  • Distressed, Rinsed wash.

• Color Options:

  • Light blue, Indigo, Black.

Setting Inventory and Product Availability Levels

• Product Availability:

  • Backup stock (buffer stock/safety stock).

  • Service levels indicate availability.

  • Trade-offs among variety, assortment, and product availability need to be managed.

Control Systems for Managing Inventory

Inventory Management for Staple Merchandise

• Key Considerations:

  • Desired product availability influenced by fluctuations.

  • Vendor’s lead time and fill rate.

  • Establishing order points and order quantities.

Merchandise Budget Plan for Fashion Merchandise

• Reflects dollar amounts of merchandise to be delivered monthly based on sales forecasts.

• Accounts for planned employee and customer discounts.

• After selling season, compare performance to plans to assess success.

Allocating Merchandise to Stores

Allocation Process

• Factors Influencing Allocation:

  • Annual sales figures, product characteristics, and depth of assortment.

• Geodemographics:

  • Characteristics of the store's trading area are considered for merchandise allocation, which may vary across stores in the same chain.

• Timing of Allocations:

  • Influenced by seasonality, consumer demand, and paycheck cycles.

Analyzing Merchandise Management Performance

Evaluating Merchandise Plans

• Sell-Through Analysis:

  • Compares actual sales to planned sales to assess the need for more merchandise or price adjustments.

  • Evaluates availability of markdown funds.

Key Performance Indicators

• Gross Margin Return on Investment (GMROI):

  • A high GMROI reflects strong gross margin and effective inventory turnover strategies.