Session 3 – Practice of Merchandising (Study Notes)

Introduction

  • Merchandising = planning + buying + selling merchandise for a profit
    • Must also integrate pricing & promotion for the goal to be achieved.
  • Key universal requirement: Movement of Goods→Consumer\text{Movement of Goods} \rightarrow \text{Consumer}
    • Know what the consumer wants, when, how much, & price willing to pay.
  • Capital is always invested in merchandise; profit depends on consumer acceptance.

3.1 Levels of Merchandising

  • Occur at three distinct levels of sale:
    1. Wholesale
    2. Retail
    3. Publication / Catalogue
  • Shared characteristics across levels
    • Consumer-oriented decision-making
    • Inventory investment awaiting acceptance
    • Must perform the five key merchandising functions
      Planning  ⇒  Buying  ⇒  Pricing  ⇒  Promoting  ⇒  Selling\text{Planning} \;\Rightarrow\; \text{Buying} \;\Rightarrow\; \text{Pricing} \;\Rightarrow\; \text{Promoting} \;\Rightarrow\; \text{Selling}
Wholesale Level
  • Two broad fields of endeavour
    • Sales
    • Production (Inventory creation)
  • Process flow
    1. Primary market – secure raw materials.
    2. Secondary stage – manufacture finished stock.
  • Transaction initiation: manufacturer/wholesaler approaches retailer.
  • Success benchmark: Rate of sale ≥ pre-season norm (often tied to capacity).
    • Example
    • Capacity: 1,000 garments/week1{,}000\,\text{garments/week}
    • Sales Mar 1 – Jun 10 (≈10 weeks):
      • Plan: 10,00010{,}000 units ⇒ full 2.5-month capacity → “successful season”.
      • Actual 2,0002{,}000 units ⇒ over-production risk → greatest loss = sunk cost in unwanted goods.
    • Marketing proverb: “I didn’t go out of business because I undersold; I overproduced.”
  • Vital merchandiser tasks: balance production with demand; plan, buy raw materials, price, promote & sell to retailer.
Retail Level
  • Mission: sell wholesaler’s goods to ultimate consumer.
  • Unique traits
    • Customer initiates the transaction (pull vs push).
    • Requires breadth of assortment to suit variable tastes; cannot stock only “election winners.”
  • Stock composition principles
    • Wide enough assortment to satisfy individuality.
    • Deep inventory on absolute winners (high appeal) & promote them aggressively.
  • Merchandiser decisions
    • Depth of buy, timing, & advertising frequency, all aligned with
    • Store policies
    • Target customer profile
  • Resulting activities mirror wholesale stage but are consumer-facing.
Publication / Catalogue Level
  • Media that publicise styles, fashions, colours.
    • Trade journals, fashion magazines, seasonal catalogues, internet pages.
  • Two audiences
    1. Trade publications → industry professionals.
    2. Fashion publications / catalogues / websites → consumers and retailers & wholesalers.
  • Influence & activities
    • Fashion shows, in-store events, contests, hangtags, ad blow-ups.
    • Can create or accelerate trends → drives merchandise movement.
  • Merchandising functions at this level
    1. Planning seasonal themes.
    2. Buying specific merchandise to feature.
    3. Selling/Promoting those ideas to the market.

3.2 Places of Fashion Merchandising

  • Practised within three main organisational contexts:
    1. Retail Stores
    2. Buying Offices (Resident Agents)
    3. Factories
  • Regardless of place, the core five functions remain the same.
Retail Stores
  • Historical lineage: from ancient Greek/Roman shops → medieval markets → modern boutiques (1960s symbol of fun & individuality).
  • Constraints
    • Limited space, price lines, budget, & customer base.
  • Critical merchandising decisions
    1. Assortment balance
    • Breadth (style variations) aligns with preferences.
    • Depth (units per style) set via careful forecasting.
    1. Choice of nationally branded vs private-label goods
    • Pros: good markup, known quality, reputable maker, proven specs, strong customer reception.
    • Cons: large minimums strain budget & variety; compete with big-box chains carrying same brands.
    1. Pricing policy
    • Limited price zones to suit core clientele.
    • Builds store image & encourages rapid turnover.
    1. Customer-service edge: personal selling, alterations, delivery, gift-wrap.
    2. Sales promotion on a budget
    • Window & interior displays, flyers, postcards, accurate customer list maintenance.
Buying Offices (Resident Buying Offices – RBOs)
  • Located in major markets, represent member stores.
  • Essence: service agent, not just a “buying” entity; sometimes called “representatives.”
  • May provide central buying / unit-control for a department under contract.
  • Structure
    • Multiple departments to handle specific buyers + garment types.
    • e.g. Ladies’ Outerwear – Buyer: BHS (UK).
  • Role of merchandiser
    • Build & sustain relationships with multiple factories.
    • Negotiate best capacity–quality–price combo.
    • Frequent factory visits; joint problem-solving wins loyalty & future favours.
Factories
  • Merchandising function similar to buying office but
    • Smaller scope (few buyers, limited garment categories).
    • Bound by existing machinery ⇒ product specialisation.
    • Heavy-duty machines → jackets/jeans.
    • Fine-fabric machines → lingerie.
  • Capacity strategy
    • Fewer buyers → larger dedicated capacity per buyer → deeper partnerships.
    • May seek extra orders via buying offices or sub-contract overflow to other factories.
  • Merchandiser duties vary with contract basis:
    1. FOB (Freight on Board) – cost up to loading on vessel.
    2. DDP (Delivered Duty Paid) – FOB + freight + duty + inland transport to buyer’s DC.
    3. CIF (Cost, Insurance & Freight) – FOB + freight + insurance; excludes duty & inland transport.
    4. CM (Cut & Make) – buyer supplies fabric & trims; factory charges only for cutting & sewing.
    5. CMP (Cut, Make & Packaging) – CM + packaging cost.
    6. CMT (Cut, Make & Trims) – CM + trims (no packaging).

Ethical, Philosophical & Practical Implications

  • Overproduction wastes resources, highlights need for accurate forecasting → sustainability.
  • Boutique movement shows consumer desire for individuality vs mass standardisation.
  • Small retailers leverage service & curation to compete with giants.
  • Transparent Incoterm agreements (FOB, DDP, etc.) affect cost visibility, risk allocation & global trade fairness.

Numerical / Statistical Highlights

  • Manufacturer example: 1,000 units/week1{,}000\,\text{units/week} capacity.
    • Planned seasonal sales =10,000=10{,}000 units (Mar 1–Jun 10).
    • Scenario: only 2,0002{,}000 units sold ⇒ 80%80\% capacity unused ⇒ financial loss.
  • Capacity allocation logic in factories: fewer buyers ⇒ more available lines per buyer ⇒\Rightarrow stronger relationships.

Key Takeaways for Examination

  • Memorise the three levels (Wholesale, Retail, Publication) & three places (Retail Store, Buying Office, Factory).
  • Understand function emphasis at each level/place:
    • Wholesale → sales + production; avoid overproduction.
    • Retail → consumer initiation, assortment breadth/depth; manage branded vs private label.
    • Publications → theme planning & promotion; influence trends.
    • Buying Office → service liaison; multi-factory coordination.
    • Factory → capacity management, specialised products, Incoterm costings.
  • Be able to cite examples, advantages/disadvantages, & basic cost term definitions (FOB, CIF, CM, etc.).