Merchandise Management

• Merchandise management is the analysis,

planning, procurement, handling and control
of the merchandise.
• Merchandising is more than simply the
arrangement of products on the shelf.
 Questions in my mind
• What products should I offer

• What benefits these products would offer to

my customer?

• Do these benefits match the requirements of

the customer?
 Types of Merchandise
• Staple/ basic merchandising
• Fashion Merchandising
• Fad merchandising
• Seasonal Merchandising
 Merchandise Mix
• Merchandise mix represents the full range of
product categories which a retailer offers to
his target consumers
• Key dimensions of Merchandise mix
– Variety
– Assortment
– Support
• Merchandise Variety
– Number of different product lines that a retailer
stocks in the store
• Merchandise Assortment
– Number of different product items that a retailer
stocks within a particular product line
• Merchandise support
– Planning and control of the number of units that a
retailer should have at hand to meet the expected
sales for a particular period
 Merchandise Planning
• Planning and control of the merchandise
inventory of the retail firm in a manner which
balances between the expectations of the
target customer and the strategy of the firm
 Process of Merchandise Planning
• Developing the sales forecast
• Determining the merchandise requirements
• Merchandise control
• Assortment planning
 1. Developing the sales forecast
• A sales forecast usually made for specific
period of time- weeks, season or a year
• Forecasts are typically developed to answer
– How much of each product will need to purchase
– Should new products be added to the
merchandise assortment
– What price should be charged for the product
 Sales forecasts involves the following
• Reviewing the past sales
• Analysing the changes in economic conditions
• Analysing the changes in marketing strategies
of self and the competition
• Creating the sales forecast (product/ category
wise)
 2. Determining the merchandise
requirements
• There are two methods of developing a
merchandise plan
– Top down planning (top management)
– Bottom up planning(individual department
managers work on it)
• It is at two levels
– Creation of merchandise budget
– Assortment plan
• After the sale forecasting exercise has been
completed, inventory levels need to be
planned------merchandise budget is the first
stage where financial plan gives an indication
of how much to invest in product inventories
• Assortment plan on the other hand – details
the merchandise that will be sold in each
product category
• Width or Breadth of Assortment (product
lines)
• Depth of Assortment(variety in every product
line)
• Model Stock Plan: product lines, colors, and
size that are carried by a retailer
 Six –Month Merchandise plan
• The main objective of creating this plan is to
prepare a month-by-month purchasing
schedule
• Points need to kept in mind
– It should be prepared in advance of the selling
season
– Language of budget should be easy to understand
– Budget should be flexible enough
 Key elements of six month
merchandise plan
• Planned sales- are projected sales for that
period

• Planned purchases- - merchandise is to be

purchased any given period

• PP=planned sales + planned reductions +

planned EOM – Planned BOM
• Planned Reductions– markdowns, employee
discounts, Shrinkage

• Markdowns are price reductions due to bad

quality, competition, change in trends

• Shrinkage is the loss of merchandise due to

theft
 Methods of planning
• Stock-to-sales method

• Basic stock method(needs to maintain fixed

amount of inventory all the time)

• Week’s supply method

 Methods of planning
• Stock-to-sales method
= stock on hand EOM/sales for the same month

• Basic stock method

Basic stock = avg stock for the season – avg monthly sales
for the season
BOM= planned monthly sales + Basic stock

• Week’s supply method

= no of weeks in the period /stock turnover rate for the
period
 Stage-III merchandise control
• Open to buy – 1st basing on sales for month
merchandise buying can be adjusted
– 2nd planned relation between stock and sales can
be maintained
• Open to buy ensures
– Limits over buying and under buying
– Prevents loss of sales due to unavailability stock
– Maintain purchases within budgeted limits
 IV Assortment planning
• Determining the quantities of each product
– Range plan
• Number items /options available
– Model stock plan
• product lines, colors, and size that are carried by a
retailer
• Provides precise items and quantities that need to be
purchased for each merchandise
 Merchandise Buying
• Areas to be consider
– Who buys
– What to buy
– How much to buy
– From whom to buy
– When to buy
 process
• Identifying sources of supply
• Evaluating sources of supply
• Negotiating with vendors
• Establishing vendor relations
• Analysing vendor performance
 Sources of merchandise
• Manufacturers and primary producers
• Wholesalers
• Importers
• Agents
 Supplier selection
• Factors to be consider while selecting supplier
– Prices
– Terms
– Deliveries
– Services
 Category Management
• Category management is a retailing and
purchasing concept in which the range of
products purchased by a business organization
or sold by a retailer is broken down into
discrete groups of similar or related products;
these groups are known as product
categories
• Categories are the next level in the
classification scheme.
• Each buyer purchases a number of categories.
– The girls’ size 4 to 6 buyer purchases several
categories, such as sportswear, dresses,
swimwear, and outerwear.
The category management 8-step process
• Define the category (i.e. what products are
included/excluded).
• Define the role of the category within the
retailer.(Priority and importance)
• Assess the current performance.(With overall
turnover)
• Set objectives and targets for the category.
• Devise an overall Strategy.
• Devise specific tactics.
• Implementation.
• The eighth step is one of review which takes us
back to step 1.
 Retail Audit
• WHAT IS RETAIL AUDIT
– Actuals with standards
effectiveness of in-store display and
promotion efforts, and other associated aspects.

Retail audit, which is a vital evaluation tool,

systematically examines and evaluates a
company’s total retailing efforts or a specific
aspect of it.
 PURPOSE
• To study what a retailer is presently doing
• To appraise various performance indicator of a
retailer
• To investigate a retailer’s objectives and
strategies; then examine how it has
implemented those and whether its
organization structure is adequate to
implement those.
 WHAT DOES RETAIL AUDIT INCLUDE

• Store Layout And Visibility Management

• In-Store Management
• Customer Relations And Interface
• Visual Merchandising
• Ambience And Hygiene Management
• Manpower Planning And Responsibility
Allocation
• Sales And Cash Management
Determining When And How Often
The Audit Is Conducted
– Logical Times For Auditing Are End Of The
Calendar Year, Or End Of The Retailer’s Annual
Reporting Year (Fiscal Year), Or When A Complete
Physical Inventory Is Conducted.
– However, Audit Must Be Conducted At Least Once
A Year, Although Some Retailers Desire More
Frequent Analysis.
– Same Period Should Be Fixed To Make Meaningful
Comparisons Of Projections With Actuals And
Then Make Proper Adjustments.
DETERMINING AREAS TO BE AUDITED
HORIZONTAL RETAIL AUDIT analyzes a firm’s
overall performance, from the organizational mission
to goals to customer satisfaction to the retail strategy
mix and its implementation in an integrated and
consistent way. It is also known as a “retail strategy
audit.’
VERTICAL RETAIL AUDIT analyzes – in depth – a
firm’s performance in one area of the strategy mix or
operations, such as, credit function, customer service,
merchandise assortment or interior displays. A vertical
audit is focused and specialized.
 CONDUCTING THE AUDIT

• Management Specifies How Long The Audit Will

Take.
• Prior Notification To The Employees To Compile
Some Data In Advance To Save Time
– With A Disguised Audit (Employees Are Unaware
About Audit Taking Place.)
– With A Non disguised Audit (Employees Know An
Audit Is Being Conducted.) This Is Desirable If
Employees Are Asked Specific Operational Questions
And Help In Gathering Data.
 SOME AUDITS SHOULD BE DONE WHILE THE
RETAILER IS OPEN, SUCH AS
• Assessing Parking Adequacy
• In-Store Customer Traffic Patterns
• Use Of Vertical Transportation
• Customer Relations
OTHERS SHOULD BE DONE WHEN THE FIRM IS
CLOSED, SUCH AS:-
• Analysis Of The Condition Of Fixtures
• Inventory Levels
• Turnover
• Financial Statements
• Employee Records.
 Unit-5

Franchising
• A contractual agreement between a
franchisor (a manufacturer, wholesaler, or
service sponsor) and a retail franchise,
allowing the franchisee to conduct a certain
form of business under an establishment
name and according to a specific set of rules.
• Authorisation granted by a manufacturer to a
distributor or dealer to sell his products

• Franchising is not a business or industry, its a

method used for marketing and distribution of
goods and services
• Franchisor – provider of the franchise

• Franchisee – person who pays for and

purchases franchise from franchisor
Function Franchisor Franchisee
Site selection Overseas Chooses with Approval

Employees Training Hires, Supervises, Pays

Products to be sold Decides Can change only with

approval
Prices Sets/ Recommends Follows

Advertising/Promotions Determines at a national May suggest local

level requirements
 Types of franchising
• Product Franchising
– This franchise concept is similar to a supplier – distributor relationship.
The franchisor is responsible for providing the product and the
distributor is then able to sell the product on
• Business-format franchising
This type of franchise is when the franchisor gives the
rights to trademarks, trade names, business process and the
system in order for the franchisee to sell the product, for a fee.
The franchisor is heavily involved in terms of how the service is
provided and the business is run
 Types of Franchises

• Manufacturer-Wholesaler (coca-cola)

• Business Format (McDonalds, Hilton)

E-Tailing
• E-tailing is the selling of retail goods on the
Internet.
• Short for "electronic retailing," and used in
Internet discussions as early as 1995,
• Term seems an almost inevitable addition
to e-business, and e-commerce
• E-tailing is synonymous with business-to-
consumer (B2C) transaction.
 Ecommerce & E Business

• Ecommerce involves commercial transactions done over

internet.
• Ebusiness is conduct of business processes on the internet.

• Ecommerce is use of electronic transmission medium that

caters for buying and selling of products and services.
• In addition, Ebusiness also includes the exchange of
information directly related to buying and selling of products.
• Ecommerce usually requires the use of just

a Website.

• Ebusiness involves the use of CRM’s, ERP’s

that connect different business processes.

• It is more appropriate in B2C context.
• It is used in the context of B2B transactions.
• Ecommerce involves the mandatory use
of internet.
• Ebusiness can involve the use of internet,
intranet or extranet
 Steps involved in E-tailing
• Customer visit
• Payment online/COD
• Product delivery
• Customer feedback
 Benefits of e-tailing
• It reduces the space occupied by retail outlets in
the real world.
• It gives quick and easy access to a shopping space
at any time and from any place where there is
access to internet.
• It saves time of the customer that is spent on
travelling to a shopping place in real world.
• It creates a new platform for goods from different
parts of the world which could be imported by
placing an order.
 E- Tailers in India

• Flipkart.com
• Infibeam.com
• Myntra.com
• E-bay.com
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