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McGraw-Hill/Irwin
Retailing Management, 7/e
Merchandise Management
Managing
Merchandise
Assortments
Chapter 12
Buying
Merchandise
Chapter 14
Merchandise
Planning
Systems
Chapter 13
Retail
Pricing
Chapter 15
Retail
Communication
Mix
Chapter 16
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Questions
How does a staple merchandise buying system
operate?
What are a merchandise budget plan and opento-buy systems, and how are they developed?
How do multi-store retailers allocate
merchandise to stores?
How do retailers evaluate their merchandising
performance?
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Fashion Merchandise
Unpredictable Demand
Difficult to Forecast Sales
Merchandise Budget Plan
Open-to-Buy
The McGraw-Hill Companies, Inc./Lars A. Niki,
photographer
Staple Merchandise
Predictable Demand
Relatively Accurate Forecasts
Continuous Replenishment
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System:
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Basic Stock
Indicates the Desired Inventory Level for Each SKU
More
Backup
Stocks
Needed
with
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85
90
95
100
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Most merchandise
at home
improvement
centers are
staples.
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Inventory available
sales rate
Performance measures
Sales forecasts
Order Point
Order Quantity
When inventory reaches the order point, the buyer
needs to order enough units so the cycle stock
isnt depleted and sales dip into backup stock
before the next order arrives.
Order Quantity = Order Point Quantity Available
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Royalty-Free/CORBIS
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April
May
100.00%
June
21.00%
July
12.00%
Aug
12.00%
Sept
19.00%
15.00%
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Monthly Sales
(Line 2)
Sales % Distribution
1. Month
6 mo. data
April
May
100.00% 21.00% 12.00%
2. Mo. Sales $130,000
$27,300 $15,600
June
July
Aug
12.00% 19.00% 21.00%
$15,600 $24,700 $27,300
Sept
15.00%
$19,500
Monthly sales =
the forecasted total season for the six-month period x monthly sales %
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April
40.00%
May
14.00%
June
16.00%
July
12.00%
Aug
10.00%
Sept
8.00%
Shrinkage
Inventory loss caused by shoplifting, employee theft,
merchandise being misplaced or damaged and poor
bookkeeping.
Retailers measure shrinkage by taking the difference between
1. The inventory recorded value based on merchandise bought
and received
2. The physical inventory actually in stores and distribution
centers
Shrinkage % = $ shrinkage
$ net sales
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Monthly Reductions
(Line 4)
Reduction % Distribution
3. Month %
6 mo. data
April
100.00%
40.00%
4. mo.
reductions $16,500
$6,600
May
14.00%
June
16.00%
July
12.00%
Aug
10.00%
Sept
8.00%
$2,310
$2,640
$1,980
$1,650
$1,320
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June
4.4
July
4.0
Aug
3.6
Sept
4.0
of Inventory
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Steps in Determining
the Stock-to-Sales Ratio
Step 1: Calculate Sales-to-Stock Ratio
GMROI = Gross margin% x Sales-to-stock ratio
Sales-to-Stock Ratio = GMROI/Gross margin %
Assume that the buyers target GMROI for the
category is 123%, and the buyer feels the
category will produce a gross margin of 45%.
Sales-to-Stock Ratio = 123/45 = 2.73
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Steps in Determining
the Stock-to-Sales Ratio Continued
Step 2: Convert the Sales-to-Stock Ratio to
Inventory Turnover
Inventory Turnover = Sales-to-stock ratio x (1 GM%/100)
Inventory Turnover =2.73 x (1 45/100) = 1.50
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Steps in Determining
the Stock-to-Sales Ratio Continued
Step 3: Calculate Average Stock-to-Sales Ratio
Average Stock-to-Sales Ratio = 6 months/Inventory turnover
= 6/1.5 = 4
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Steps in Determining
the Stock-to-Sales Ratio Continued
Step 4: Calculate Monthly Stock-to-Sales Ratio
Monthly stock-to-sales ratios vary in the opposite direction
of sales
To make this adjustment, the buyer considers the
seasonal pattern, previous years stock-to-sales ratios
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BOM Stock
(Line 6)
6. BOM Inventory
6 mo. data
98280
April
98280
May
68460
June
68640
July
98800
Aug
98280
Sept
8000
BOM Stock
= monthly sales (line 2) x BOM stock-to-sale ratio (line 5)
= $27,300 x 3.6
= $98,280
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April
68640
May
68460
June
275080
July
98280
Aug
78000
Sept
65600
The BOM stock for the current month = the EOM stock in
the previous month
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June
48406
July
26180
Aug
8670
Sept
8420
Additions to stock
= Sales (line 2) + Reductions (line 4) + EOM Stock (line 7)
BOM Stock (line 6)
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Open-to-Buy System
The OTB system is used after the merchandise is purchased
Monitors Merchandise Flow
Determines How Much Was Spent and How Much is Left to
Spend
PhotoLink/Getty Images
PhotoLink/Getty Images
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ABC Analysis
An ABC analysis identifies the performance of individual
SKUs in the assortment plan.
Rank - orders merchandise by some performance
measure determine which items:
Contribution Margin
Sales Dollars
Sales in Units
Gross Margin
GMROI
Use more than one criteria
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Evaluating Vendors
A buyer can evaluate vendors by using the following five steps:
1. Develop a list of issues to consider in the evaluation
(column 1)
2. Importance weights for each issue in column 1 are
determined by the buyer/planner in conjunction with the
GMM (column 2)
3. Make judgments about each individual brands
performance on each issue (the remaining columns)
4. Develop an overall score by multiplying the importance of
each issue by the performance of each brand or its vendor
5. Determine a vendors overall rating, add the products for
each brand for all issues
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