1. Retail Merchandising is the process of
developing, securing, pricing ,supporting
and communicating the retailer’s
merchandise offering.
It means offering the right product
at the right time at the right price
with the right appeal!!

2. Merchandise Management
• Analysis
• Planning
• Handling
• Control

3. The process of merchandise planning
1.Developing the sales forecast:
• Review past sales
• Analyze economic conditions
• Analyze the changes in the sales potential and marketing strategies
2.Determinig the merchandise requirements
• The creation of Merchandise Budget:
1)The sales plan,
2)The stock support plan,
3)The planned reductions
4)The planned purchase level
5)The gross margins
• Types of merchandise

4. The process of merchandise planning
3.The Merchandise Control:
 Open to buy
4.Assortment Planning:
 Determine the quantity of each product. Details of color, size
brand, materials

5. Merchandise Management Issues

6. PRODUCT PROFIT
• The profit margin a product earns is a well
established performance measure
– Gross margin (mark-up)
• The difference between cost and selling price
– A mark-down is a price reduction that reduces the
gross margin

7. PROFITABILITY
• The profit a product generates depends on:
– gross margin
– rate of sales
• GMROI (Gross margin return on investment)
allows a retailer to compare the performance of
products with different % profit margins and
different sales turnover
• GMROI=Gross Margin/Average inventory at cost

8. Types of Merchandise
• Fad
• Staples
• Fashion

9. Types of Buying Systems
Staple Merchandise Fashion Merchandise
Predictable Demand Unpredictable Demand
History of Past Sales Limited Sales History
Relatively Accurate Forecasts Difficult to Forecast Sales

10. Staple Merchandise Buying System
Monitor Compare
Forecast Order Inventory
SKU Sales and
Merchandise to Basic
Sales Inventory
Stock List

11. Considerations in Determining
How Much to Order
• Basic Stock Plan
• Present Inventory
• Merchandise on
Order
• Sales Forecast
– Rate of Sales of SKU
(Velocity)
– Seasonality

12. Basic Stock List
Indicates the Desired Inventory Level for Each SKU
– Amount of Stock Desired
Lost Sale Due
to Stockout
Cost of Carrying
Inventory

13. Relationship between Inventory
Investment and Product Availability
600
Inventory investment Dollars
500
400
300
200
100
0
80 85 90 95 100
Product Availability (Percent)

14. Cycle and Buffer Stock
150 -
Order 96
Cycle
100 - Stock
Units Available
50 -
Buffer
0- Stock
1 2 3 4
Weeks

15. Forecasting Demand
Forecasting -- extrapolating the
past into future using
statistical and mathematical
methods
Objectives:
– Ignore random
fluctuations in demand
– But be responsive to
real change

16. Order Point
• Order point = the point at which inventory
available should not go below or else we
will run out of stock before the next order
arrives.
• Assume Lead time = 0, Order point = 0
• Assume Lead time = 3 weeks, review time =
1 week, demand = 100 units per week
• Order point = demand (lead time + review
time) + buffer stock
• Order point = 100 (3+1) = 400

17. Merchandise Budget Plan
• Plan for the financial aspects of a
merchandise category
• Specifies how much money can be spent each
month to achieve the sales, margin, inventory
turnover, and GMROI objectives.
• Not a complete buying plan--doesn’t indicate
what specific SKUs to buy or in what
quantities.

18. Steps in Preparing Plan
• Forecast Six Month Sales for Category
• Breakdown Total Sales Forecast into Forecast for each Month
• Plan Reductions for Each Month
• Determine Beginning of the Month (BOM) Stock to Sales
Ratio
• Calculate BOM Inventory
• Calculate EOM Inventory
• Calculate Monthly Additions to Stock

19. Open to Buy
• Monitors Merchandise Flow
• Determines How Much Was Spent and
How Much is Left to Spend

20. Open to Buy
Limits overbuying and under buying
Prevent loss of sales due to unavailability
Maintains purchase within the budgeted limits
Reduce markdowns which may arise due to
excess buying

21. Open-to-buy for Past Periods
Projected EOM stock = actual EOM stock
Open-to-buy = 0
There is no point in buying merchandise for a
month that is already over.

22. Open-to-Buy for
Current Period (I)
• Projected EOM stock =
• Actual BOM stock
• + Actual monthly additions to stock (what was
actually received)
• + Actual on order (what is on order for the
month)
• - Plan monthly sales
• - Plan reductions for the month

23. Open-to-Buy for
Current Period (II)
• Open-to-buy =
• Planned EOM stock (from merchandise
budget plan)
– Projected EOM stock (based on what is really
happening)

24. Analyzing Merchandise Management
Merchandise Performance
– ABC Analysis
– Sell Through Analysis
Vendor Analysis
– Multiattribute Method

25. ABC Analysis Rank Merchandise
By Performance Measures
Contribution Margin
Sales in Units
Gross Margin
GMROI
Use more than one criteria

26. ABC Analysis for Dress Shirts
C 100
10% 90 Sales
B
20% 80
70
60
Percentage of Sales Dollars
A 50
70% 40
30
20
10
0
No Sales
10 20 30 40 50 60 70 80 90 100
A B
5% 10% 65% C 20% D
Percentage of Items

27. ABC Analysis
Rank - orders merchandise by some
performance measure determine which
items:
– should never be out of stock.
– should be allowed to be out of stock
occasionally.
– should be deleted from the stock selection.

28. Sell Through Analysis Evaluating Merchandise Plan
A sell-through analysis compares actual and planned sales to determine
whether more merchandise is needed to satisfy demand or whether price
reductions are required.
13-28

29. Evaluating a Vendor:
A Weighted Average Approach
n
Ij *P ij = Sum of the expression
i 1
= Importance weight assigned
I j to the ith dimension
= Performance evaluation for
Pi jth brand alternative on the
jth issue
1 = Not important
10 = Very important

30. Evaluating a Vendor:
A Weighted Average Approach
Performance Evaluation of Individual
Brands Across Issues
Importance
Evaluation Brand A Brand B Brand C Brand D
Issues of Issues (I) (Pa) (Pb) (Pc) (Pd)
(1) (2) (3) (4) (5) (6)
Vendor reputation 9 5 9 4 8
Service 8 6 6 4 6
Meets delivery dates 6 5 7 4 4
Merchandise quality 5 5 4 6 5
Markup opportunity 5 5 4 4 5
Country of origin 6 5 3 3 8
Product fashionability 7 6 6 3 8
Selling history 3 5 5 5 5
Promotional assistance 4 5 3 4 7
Overall evaluation = 290 298 212 341
n
I j * P ij
i 1