Berman rm13 PPT 14

Retail Management: A Strategic
Approach
Thirteenth Edition
Chapter 14
Developing
Merchandise Plans
Copyright © 2018, 2014, 2012 by Pearson Education, Inc. All Rights Reserved
Learning Objectives
14.1 To demonstrate the importance of a sound merchandising
philosophy
14.2 To study various buying organization formats and the processes
they use
14.3 To outline the considerations in devising merchandise plans:
forecasts, innovativeness, assortment, brands, timing, and
allocation
14.4 To discuss category management and merchandising software
Merchandising
Activities involved in acquiring particular goods/ services and making
them available at the places, times, prices, and quantities that enable a
retailer to reach its goals.
Merchandising Philosophy
• Sets the guiding principles for all the merchandise decisions that a
retailer makes
• It should reflect
– Target market desires
– Retailer’s institutional type
– Market-place positioning
– Defined value chain
– Supplier capabilities
– Costs
– Competitors
– Product trends
Product Proliferation Data
• Aldi $620 sales/sq.ft 1,400 SKUS
• Costco $929 3,700
• Stew Leonard’s $1500-$3,750 est. 2,000
• Trader Joe’s $1,750 2,500-3,500
• Average Supermarket $500 47,000
Average Sales Per SKU
• Aldi $5.0 million
• Costco $18.4 million
• Stew Leonard‘s $188,000
(only 5 stores)
• Trader Joe’s $2.4 -$2.9 million
• Winn-Dixie $142,000-$247,000
• With only four stores, Stew Leonard’s has the same bargaining power
per SKU than Winn-Dixie, a chain with revenues 20 times higher that
Stew Leonard’s
Scope of Merchandising Responsibility
• Full array of merchandising functions
– Buying and selling
– Selection, pricing, display, customer transactions
OR
• Focus on buying function only
Figure 14.1 The Unique Merchandising
Philosophy of CarMax
Micro Merchandising
Retailers adjust shelf-space allocations to respond to customer
differences and other differences among local markets.
Cross-Merchandising
Retailers carry complementary goods and services to encourage
shoppers to buy more.
Figure 14.2 Attributes and Functions of
Buying Organizations
Merchandising and Store Functions
Performed (1 of 2)
Merchandising view
• All buying and selling functions
– Assortments
– Advertising pricing
– Point-of-sale displays
– Employee utilization
– Personal selling approaches
Figure 14.3 Performing Merchandising
Functions
Merchandising and Store Functions
Performed (2 of 2)
Buying view
• Buyers manage buying functions:
– Buying
– Advertising
– Pricing
• In-store personnel manage other tasks:
– Assortments
– Point-of-sale displays
– Employee utilization
– Personal selling approaches
Figure 14.4 Store Management versus
Omni/Digital Career Tracks at Macy’s, Inc
Figure 14.5 Considerations in Devising
Merchandise Plans
Forecasts
These are projections of expected retail sales for given periods
• Components:
– Overall company projections
– Product category projections
– Item-by-item projections
– Store-by-store projections (if a chain)
Career: Trend Forecaster, Buyer
Please click URL to view:
https://youtu.be/CQcOmHphL-4
Types of Merchandise
• Staple merchandise
• Assortment merchandise
• Fashion merchandise
• Seasonal merchandise
• Fad merchandise
Staple Merchandise
• Regular products carried by a retailer
– Grocery store examples: milk, bread, canned soup
• Basic stock lists specify inventory level, color, brand, style,
category, size, package, etc.
Assortment Merchandise
• Apparel, furniture, automotive, and other categories for which the
retailer must carry a variety of products in order to give customers a
proper selection
• Decisions on assortment
– Product lines, styles, designs, and colors are projected
– Model stock plan
Fashion and Seasonal Merchandise
• Fashion Merchandise: Products that may have cyclical sales due to
changing tastes and life-styles
• Seasonal Merchandise: Products that sell well over nonconsecutive
time periods
Table 14.1a Factors in Planning
Merchandise Innovativeness
FACTOR RELEVANCE for PLANNING
Target market(s) Evaluate whether the target market is conservative or innovative
Goods/service growth potential Consider each new offering on the basis of rapidity of initial sales,
maximum sales potential per time period, and length of sales life
Fashion trends Understand vertical and horizontal fashion trends, if appropriate
Retailer image Carry goods/services that reinforce the firm’s image
Table 14.1b Factors in Planning
Competition Lead or follow competition in the selection of new goods/services
Customer segments Segment customers by dividing merchandise into established-

product displays and new-product displays
Responsiveness to consumers Carry new offerings when requested by the target market
Amount of investment Consider all possible investment for each new good/service:
product costs, new fixtures, and additional personnel
Table 14.1c Factors in Planning
Profitability Assess each new offering for potential profits
Risk Be aware of the possible tarnishing of the retailer’s image,

investment costs, and opportunity costs
Constrained decision making Restrict franchisees and chain branches from buying certain items
Declining goods/ services Delete older goods/services if sales and/or profits are too low
Figure 14.6 Innovation in Retailing
Figure 14.7 Traditional Product Life
Cycle
Structured Guidelines for Pruning
Products
• Select items for possible elimination on the basis of declining sales,
prices, profits, and appearance of substitutes
• Gather and analyze detailed financial/ miscellaneous data about
these items
• Consider non-deletion strategies such as cutting costs, revising
promotion efforts, adjusting prices, and cooperating with other
retailers
• After making a deletion decision, do not overlook timing, parts and
servicing, inventory, and holdover demand
Figure 14.8 A Selected Checklist
for Predicting Fashion Adoption
Table 14.2a Factors in Planning
Merchandise Quality
Target market(s) Match merchandise quality to the wishes of the desired target market(s)
Competition Sell similar quality or different quality
Retailer’s image Relate merchandise quality directly to the perception that customers have
of retailer
Store location Consider the impact of location on the retailer’s image and the number of
competitors, which, in turn, relate to quality
Table 14.2b Factors in Planning
Merchandise Quality
Profitability Recognize that high quality goods generally bring greater profit per unit
than lesser-quality goods; turnover may cause total profits to be greater for
the latter
Manufacturer versus Understand that, in the minds of many consumers, manufacturer brands
private brands connote higher quality than private brands
Customer services Know that high-quality goods require personal selling, alterations, delivery,
offered etc.
Personnel Employ skilled, knowledgeable personnel for high-quality merchandise
Table 14.2c Factors in Planning
Merchandise Quality
Perceived goods/ Analyze consumers. Lesser quality goods attract customers who desire
service benefits functional product benefits; High-quality goods attract customers who
desire extended product benefits
Constrained decision Face reality. Franchises or chain store managers have limited or no control
making over products, so independent retailers that buy from a few large
wholesalers are limited to the range of quality offered by those wholesalers
Retail Assortment Strategies
• Width of assortment refers to the number of distinct goods/service
categories (product lines) a retailer carries.
• Depth of assortment refers to the variety in any one goods/service
category (product line) a retailer carries.
• An assortment can range from wide and deep (department store) to
narrow and shallow (convenience store).
Figure 14.10 Product Assortment: A Key
to Sales, Regardless of the Retailer
Brands
• Manufacturer (national)
• Private (dealer or store)
• Generic
Make shares and volume
Country 2012 2016
United Kingdom 42% of sales 46
Belgium 41 42
Germany 38 43
Spain 32 50
France 31 35
Sweden 26 31
Denmark 25 32
Finland 25 30
Netherlands 23 29
Norway 19 29
Hungary 18 34
United States 17 17
Table 14.3 The Berman/Evans/Chatterjee
Private Brand Test
Advantages of Private Labels versus
National Brands
• Store loyalty– A 1 percent increase in private label purchasing
increases a retailer’s market share of a household’s purchases by
0.3 percent. A 10 percent increase in private label purchases,
increases that retailer’s market share of that household by 3
percentage points.
• Differentiation strategy- Opportunity to differentiate store on the
basis of recipe, styling, value, features.
• Increased channel power over suppliers— Depends on strength
of private label versus national brand
• Higher profit margins on private labels- 25 to 30 percent higher
(but no return privileges, co-op promotions, slotting fees, and
warehousing support).
Successful Private Label Strategies
• Be a purchasing agent for consumers, not a selling agent for
suppliers
• Develop distinctive products (Trader Joe’s wild salmon in a can,
chocolate-covered sunflower seeds, pretzels with sesame seeds
(instead of salt)
• Co-brand with famous designer (Target with Michael graves,
Mossimo and Liz Lange) or with national brand (Costco and
Starbucks, Jelly-Belly, StonyField)
• Taste and product perfromance testing (Costco, Trader Joe’s,
Aldi)
• Tell a story about the product (ingredients, source, recipe, and
health).
Figure 14.11 Auto Dealers and
Manufacturer Brands
Timing, Allocation Decisions
Timing:
a. Peak seasons.
b. Order and delivery time.
c. Routine versus special orders.
d. Stock turnover.
e. Discounts.
f. The efficiency of inventory procedures.
Allocation:
g. How much merchandise to place on the sales floor.
h. How much merchandise to place in the stockroom.
i. Whether to use a warehouse.
Category Management
• Category management is a merchandising technique used to
improve productivity.
• It is a way to manage a retail business that focuses on the
performance of product category results rather than individual
brands.
• It arranges product groupings into strategic business units to better
meet consumer needs and to achieve sales and profit goals.
• Retail managers make merchandising decisions that maximize the
total return on the assets assigned to them.
Figure 14.13 Applying Category
Management
Merchandising Software
• General Merchandise Planning Software
• Forecasting Software
• Innovativeness Software
• Assortment Software
• Allocation Software
• Category Management Software
JDA Space Planning & Category
Management
Please click URL to view:
https://youtu.be/aRsuXIrkdQg
Figure 14.14 JDA Space Planning
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Retail Management: A Strategic

FACTOR RELEVANCE for PLANNING

Target market(s) Evaluate whether the target market is conservative or innovative

Retailer image Carry goods/services that reinforce the firm’s image

FACTOR RELEVANCE for PLANNING

Competition Lead or follow competition in the selection of new goods/services

Customer segments Segment customers by dividing merchandise into established-

FACTOR RELEVANCE for PLANNING

Profitability Assess each new offering for potential profits

Risk Be aware of the possible tarnishing of the retailer’s image,

FACTOR RELEVANCE for PLANNING

Competition Sell similar quality or different quality

FACTOR RELEVANCE for PLANNING

FACTOR RELEVANCE for PLANNING

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