Lecture Notes on Buying Merchandise

Chapter 13: Buying Merchandise

Learning Objectives

The objectives of Chapter 13 include:

  1. Identifying the brand options available to retailers.

  2. Describing how retailers buy national brands.

  3. Listing the issues retailers consider when developing and sourcing store-branded merchandise internationally.

  4. Understanding how retailers prepare for and conduct negotiations with their vendors.

  5. Determining why retailers build strategic relationships with their vendors.

  6. Indicating the legal, ethical, and social responsibility issues involved in buying merchandise.

Brand Alternatives

National Brands (Manufacturer's Brands)

National brands are also known as manufacturer's brands. Examples include prominent brands such as Tide, Cheer, and Downy, which are produced by Procter & Gamble. Umbrella or family brands, such as Kellogg's, Campbell's, and Pepperidge Farm, encompass various products under a single brand name. For instance:

  • Kellogg's Raisin Bran

  • Kellogg's Apple Jacks

  • Kellogg's Frosted Flakes

Store Brands (Private Label Brands)

Store brands, also referred to as private label brands, house brands, or a store's own brands, are distinct from generics. These brands vary in quality and offer multiple price tiers. Examples include:

  • Costco’s signature brands

  • Kroger's higher-end and lower-end store brands

  • Macy’s INC brand

  • Walmart's Great Value and Sam's Choice (low-end store brands)

Generic Brands

Generic brands are targeted at price-sensitive consumers and generally offer no-frills products at discounted prices. They are often packaged in plain black and white without branding, such as products simply labeled "soap" or "detergent." The prevalence of generics has decreased over time due to quality concerns. However, in the prescription drug market, bio-identical generics are common and are often more affordable than name-brand counterparts.

Consumer Behavior with Brands

Consumers may choose between national brands and store brands based on various factors. Stores like CVS often back their store brands, offering generous refund policies to assure customer satisfaction. Additionally, some retailers will offer satisfaction guarantees that include exchanging store brands for the manufacturer's brand should customers be dissatisfied. Consumers are encouraged to consider multiple options, including trying new products across different tiers.

Buying National Brand Merchandise

Trade Shows and Conventions

National brand merchandise can be sourced through trade shows and conventions, which serve as critical networking platforms for buyers and sellers. Examples of major trade shows include:

  • Hardware Wholesalers Meeting

  • Auto Aftermarket Industry Association (AIIA)

  • National Association of Convenience Stores (NAACS)

  • Consumer Electronics Show (CES)

These events allow buyers to see the latest offerings, network, and request product samples. Notably, many purchases are usually finalized after the event, with buyers reviewing samples before making decisions.

Development of Store Brands

Retailers often either own their manufacturing facilities or partner with companies to create store brands. Global sourcing plays an essential role and involves navigating costs, quality control, labor costs, sociopolitical risks, and potential tariffs. The COVID-19 pandemic highlighted difficulties arising from extended lead times and rising transportation costs.

Sourcing Merchandise

Reverse Auctions

Reverse auctions can be effective for sourcing supplies, such as toilet and photocopy paper, where vendors compete to offer the best price. Buyers evaluate bids based on quality and reliability, rather than just the cost.

Negotiation Strategies

Critical negotiation considerations include:

  • Pricing and gross margins

  • Slotting fees for new products

  • Additional market opportunities

  • Terms such as payment deadlines and exclusivity agreements

  • Advertising allowances through co-op advertising strategies, which benefit both retailers and manufacturers.

Partners should strive for solutions that offer mutual gains and foster long-term relationships. Open communication, trust-building, and common goals are essential in these strategic relationships.

Legal, Ethical, and Social Responsibility Issues

Counterfeit Merchandise

Counterfeit products pose a significant challenge and fall under the broader umbrella of intellectual property theft, which also includes trademark and copyright violations.

Different Markets and Legalities

  • Gray market (diverted merchandise) involves products being sold outside their intended markets, often leading to legal complications.

  • Black market merchandise refers to stolen or counterfeit items.Well-known issues include bribery in international business, which poses ethical dilemmas and can result in serious legal repercussions for companies involved.

Corporate Social Responsibility

Corporate social responsibility (CSR) involves businesses actively addressing their ethical, social, and environmental impacts. Examples include:

  • Charitable contributions

  • Fair trade practices, such as Starbucks’ commitment to paying suppliers a living wage

  • Responsible marketing strategies to support minority groups

Greenwashing

Greenwashing refers to misleading claims about environmental sustainability. Companies may superficially promote eco-friendly practices while failing to commit substantively to those principles.

Conclusion

As you review Chapter 13, consider the various brand options retailers have, the complexities of buying national brands, effective negotiation strategies, and the critical legal and ethical issues involved in merchandising. Reflect on the discussion questions proposed throughout the chapter to further enhance your understanding of the material.