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5th Edition
PPT 12-1
Chapter 12
Planning Merchandise
Assortments
McGraw-Hill/Irwin
PPT
12-2 Retailing Management, 5/e
Levy/Weitz:
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Merchandise Management
Retail
Communication
Mix
Buying
Systems
Planning
Merchandise
Assortments
Buying
Merchandise
PPT 12-3
Pricing
Merchandise Management Issues
PPT 12-4
The Category
A category is an assortment of items that the
customer sees as reasonable substitutes for
each other: girls’ apparel, laundry detergents,
soup, DVD players.
In merchandise management, we do everything
at the category level.
The category can mean different things to
different retailers.
PPT 12-5
Category Management
Category management is the process of
managing a retail business with the objective of
maximizing the sales and profits of a category.
• Objective is to maximize the sales and profits of the
entire category, not just a particular brand.
Breakfast cereal category vs. Kellogg Corn Flake
Men’s knitted shirts vs. Polo shirts
• One person managing the entire category and
responsible for its success or failure.
PPT 12-6
Category Captain
Selected vendor responsible for managing
assortment of merchandise in a category
• Vendors frequently have more information and
analytical skills about the category in which
they compete than retailers
• Problems
– Vendor category captain may have different goals
than retailer
PPT 12-7
Standard Merchandise Classification
Scheme and Organizational Chart
PPT 12-8
The Buying Organization
Merchandise Group…………Men’s wear
Department………….……….Young Men’s wear
Classification………….……..Pants
Category……………………..Jeans
Stock Keeping Unit (SKU)….Levi, 501, size 36
waist, 32 inseam
PPT 12-9
GMROI
Productivity Measures
Inventory
Input
PPT 12-10
Gross
Margin
Output
GMROI
Inventory Productivity Measures
Combine Gross Margin % and Inventory Turnover (sort of)
Gross Margin% Inventory Turn
GMROI
= Gross Margin x Net Sales
Net Sales
Avg Inventory @ cost
GMROI
= Gross Margin
Avg Inventory (@ cost)
Output (Margin Generated by Sales)
Input (Inventory Investment in Inventory)
PPT 12-11
ROI and GMROI
Asset Productivity Measures
Strategic Corporate Level
Return on Assets = Net Profit
Total Assets
Merchandise Management Level
GMROI
PPT 12-12
= Gross Margin
Avg Inventory @ cost
Illustration of GMROI
PPT 12-13
Gross Margin %, Inventory Turnover,& GMROI for
Selected Department in Discount Stores
PPT 12-14
Calculating Inventory Turnover
Inventory turnover =
Net Sales
Average inventory at retail
Inventory turnover =
Cost of goods sold
Average inventory at cost
Average inventory =
PPT 12-15
Month1 + Month2 + Month 3 +…
Number of months
Inventory Turnover
Month
Retail Value of Inventory
EOM January
$22,000
EOM February
33,000
EOM March
38,000
Total Inventory
$93,000
Average inventory = $93,000 ÷ 3 = $31,000
PPT 12-16
Inventory Turnover and
Sales-to-Stock Ratio
Inventory turnover =
Net Sales
Average inventory at retail
Inventory turnover =
Cost of goods sold
Average inventory at cost
Stock-to-Sales Ratio =
Net Sales
Average cost of inventory
PPT 12-17
Advantages of Rapid Turnover
• Increased sales volume
• Less risk of obsolescence and markdowns
• Improved salesperson morale
• Money for market opportunities
• Decreased operating expenses
• Increased asset turnover
PPT 12-18
Disadvantages of Rapid
Rate of Turnover
• Lowered sales volume
• Increased cost of goods sold
• Increased buying and ordering time
PPT 12-19
Developing a Sales Forecast
• Understanding the nature of the product life
cycle
• Collecting data on sales of product and
comparable products
• Using statistical techniques to project sales
• Work with vendors to coordinate manufacturing
and merchandise delivery with forecasted
demand (CPFR)
PPT 12-20
Total Retail Sales
The Category Product Life Cycle
Decline
Growth
Maturity
Introduction
Time
Strategy variable
Target market
Variety
Distribution
Intensity
Price
Promotion
PPT 12-21
Introduction
High-income
Innovators
One basic
offering
Limited or
extensive
Penetrating
or skimming
Informative
Growth
Maturity
Mass market
Decline
Middle-income
adapters
Some variety
Low-income
and laggards
Less variety
Greater variety
More retailers
More retailers
Wide range
Lower prices
Fewer
retailers
Lower prices
Persuasive
Competitive
Limited
Variations of the
Category Life Cycle
Staple
Seasonal
Sales over many seasons
No
Yes
Yes
Yes
Sales of a specific style
over many seasons
No
No
Yes
Yes
Sales vary dramatically
from one season to the
next
No
Yes
No
Yes
TIME
PPT 12-22
SALES
(Sales against Time)
SALES
Illustration
SALES
Fashion
SALES
Fad
TIME
TIME
TIME
Data Sources for
Developing Sales Forecasts
• Previous Sales History
• Published Sources - Buying Power Index
(BPI), Monthly Retail Trade Report, InfoScan,
Claritas, general retail trade publications like
Stores, WWD and Chain Store Age
• Customer Information
• Vendors and Resident Buying Offices
PPT 12-23
SALES ($000) DOLLARS
Sales for Levi Jeans at
Trendsetters Department Store
450
400
350
300
250
200
150
100
50
0
Fall
sales
Winter
sales
Spring &
summer
sales
YEAR
PPT 12-24
Factors Affecting Sales Projections
Controllable
Uncontrollable
• Promotions
• Seasonality
• Store Locations
• Weather
• Merchandise Placement
• Competitive Activity
• Cannabalization
• Product Availability
• Economic Conditions
PPT 12-25
Collaboration, Planning, Forecasting, and
Replenishment Systems (CPFR)
Systems used by retailers and vendors to work
together to insure that the right merchandise is
at the right place at the right time.
– Benefits both retailers and vendors
– Increases fill rate, reduces stockouts, increases
inventory turns
www.cpfr.org
PPT 12-26
Assortment Planning
Variety is the number of different
merchandising categories within a store or
department
Assortment is the number of SKUs within a
category.
Product availability defines the percentage of
demand for a particular SKU that is satisfied.
PPT 12-27
Assortment Plan for Girls’ Jeans
Styles
T R A D I
T I O N A L
Price levels
Fabric
composition
$20
$20
Reg denim Stonewashed
$35
$35
Reg denim Stonewashed
$45
$45
Reg denim Stonewashed
Colors
Light blue
Light blue
Light blue
Light blue
B O O T
Light blue
C U T
Price levels
Fabric
composition
$25
$25
Reg denim Stonewashed
$40
$40
Reg denim Stonewashed
Colors
Light blue
Light blue
Light blue
Light blue
Indigo
Indigo
Indigo
Indigo
Black
Black
Black
Black
PPT 12-28
Light blue
Size Distribution for Traditional $20
Denim Jeans in Light Blue for a Large Store
SIZE
Length
1
2
4
5
6
8
10
12
14
Short
2
4
7
6
8
5
7
4
2
%
9
17
30
26
34
21
30
17
9
units
2
4
7
5
8
4
6
3
2
%
9
17
30
21
34
17
26
12
9
units
0
2
2
2
3
2
2
1
0
%
0
9
9
9
12
9
9
4
0
units
100%
429 units
Medium
Long
Total
PPT 12-29
Is This Store Heavy on Variety?
On Assortment?
PPT 12-30
Determining Variety
and Assortment
• Profitability of Merchandise Mix
• Corporate Philosophy Toward Assortment
• Physical Characteristics of Store
• Complementary Merchandise
PPT 12-31
Relationship between Inventory
Investment and Product Availability
Inventory investment Dollars
600
500
400
300
200
100
0
80
85
90
95
Product Availability (Percent)
PPT 12-32
100
Cycle and Backup Stock
Units Available
150 -
Order 96
Cycle
Stock
100 Buffer
Stock
50 -
0-
1
2
3
Weeks
PPT 12-33
4