Combined TTLS Retail merchandising II.docx

MINISTRY OF COMMERCE & INDUSTRY GOVERNMENT OF INDIA

M B A- Fashion Merchandise and Retail Management

SEMESTER – 2

RETAIL MERCHANDISING II

HANDBOOK

FDDI/FMRM/TTLM/MBA-103

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PREPARED BY: N.B.LAL REVIEWED BY: HOD:

MR. A K SHARMA

FDDI SCHOOL OF RETAIL MANAGEMENT


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Table of Contents

UNIT

Unit-1

TOPIC

Range Structure Planning

PAGE

3

Unit-2

Types of buyers

9

Unit-3

Merchandising in an export house

41

Unit-4

Resident Buying Offices

49

Unit-5

Making the purchase

54

Unit-6

Merchandiser’s role in an organization from vendor

68

contact to merchandise delivery

Unit-7

Additional Roles and responsibilities of a

75

merchandiser

Unit-8

Merchandising Math


83

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Unit-1

Range Structure Planning

The Range Structure Plan is a combination of budgetary and strategic criteria for the purpose of creating a shopping list for merchandiser. It ensures that the selected range as defined in the range plan confirms to the financial and strategic targets. It also ensures that selected range and subsequent stock commitment is well balanced and that the OTB does not run out before some important core part of range has been bought.

Buying Cycle: The buying cycle is a series of events that lead up to the start of the trading season. Stages in Buying Cycle: Planning, Sourcing, Ranging, Review &Ordering Planning: Range structure planning takes place before stock commitments are made. It

involves defining the buying strategy, budgetary planning, and range planning. Sourcing: It involves visits to trade Shows, making foreign /domestic market trips, new

product development and sampling to compare and contrast various product alternatives. Ranging or Range Planning: It involves range plan compilation to illustrate and define the

range and final product selection. The range plan is often accompanied by store layout plans and other visual merchandising details. “Range structure plan outlines the planned buy, whereas the range plan defin es the actual buy.” Review and Ordering: Review of proposed range plan by management before ordering and

allocation of stock begins. Live presentation of final range is made to buying management and sales management with product samples before the start of season.


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Components of Range Structure Planning Range Profile Range width & Stock Depth Average Selling Price Margin Mix Sales Density Range Profile: Range profile is also called the right merchandising mix. It includes-

Price assortment: The “good, better, best” principle.

Style assortment: Contemporary, middle of the road, or traditional. Customer appeal: Age, socio-economic and lifestyle groups. Merchandiser should consider how many product options are there in each category and in what proportion. Range width & Stock Depth: Range should be wide enough to offer the consumer real

choice without causing product duplication and confusion. Inventory should be enough to cover display stock to be presented to consumer and backup stock on account of supplier’s

lead time etc. Average Selling Price : It is an assumed figure based on the Average selling price achieved

in the same trading period the previous year after adjustments either due to conscious decision to move up or down market or other factors like inflation etc. Margin Mix: Higher risk (High fashion, seasonal or previously untried) product should carry

a relatively higher margin to offset any markdowns required. Safe, core basic product with a proven track record of sales success may carry a lower margin. Sales Density: It means the expected sales per square foot. Merchandiser should see whether

the level of space productivity is acceptable – i.e. do the anticipated sales and the margins achieved justify the space occupied?


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The Planning Process : The planning process uses the input of a number of budgetary & strategic assumptions to create new range criteria. Inputs Sales, stock turns, planned margin, achieved

Outputs Number of units

margin, gross profit, average selling price Units per option,

Number of options

Building the Range Structure Plan

Step1: Review of trading history for the same season the previous year. Step2: Review of current trading performance. Step3: Building the future plan Stages in Building the Range Structure Plan

Stage 1: Budgetary Plan Stage 2: Units & Option Plan Stage 3: Space Plan Budgetary Plan: Refers to the information predefined in buying budget like-

The sales plan for the season The average stock value The planned and achieved margin requirements The gross profit Units & Option Plan (Assortment dimensions): It requires two assumptions-

-The average selling price; and -The average number of units per option


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Based on above assumptions following critical values are calculated •

The total number of units=Total Stock Value/Average selling price

•

The total number of stock options=Total Units/Assumed number of units per option

Example

Description

Pre-defined

Average selling

Assumed

Calculated

$9.99

price Units per options Total stock Value

20 $10,000

No. of Units

10,000/9.99=1001

No. of Options

1001/20=50

Space Plan: How much space will one product option require for display? Following factors

need to be considered•

Floor Area-Space in store may be measured in square feet or square meter.

•

Fixtures-How much space do the fixtures occupy and non selling space required to allow access to the fixture.

•

Facings-Optimum number of options which can be displayed per facing.

Range Planning and Product Development Two major aspects of range planning are- identification of range needs based on Competitors, Market Information, Sales History and Styles & Trends orientation and selection or development of product to meet the identified range needs


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Identification of range needs Undertaking detailed sales analysis to identify the "Stars” & the “dogs” in the existing range and the factors responsible for their success or failure-is it their colour, size, price point, material, style or a combination of two or more factors? Poor performing products should be replaced by new product introductions as per range refreshment policy. Range refreshment policy is specific to a company or department. It provides a basis for

alterations in existing merchandise range. For e.g. fashion retailers may change 80% of their range each season while home ware retailer may change only 10%. If the product range is completely new, information from suppliers or trends within the industry can be analysed. Range Boards: Customers buy products based on their physical appeal and value for money.

It is therefore vital that buyers are always aware of the physical attributes of all products dealt by them. However it is impractical to have all the current products available in an area close to buyer’s desk. So the range boards comprising of photographs of every product arranged by style and/or price point are used to provide an overview of product range. These help new buyers to learn a product range quickly and to visualize how the new products are developing within the context of overall range. Analysing the Competitors

Product range should appeal to the target customer and at the same time should be sufficiently differentiated from the competitor’s to ensure that customers are attracted to our

stores. A thorough knowledge of what competitors are selling currently is thus necessary. A close study of competitor’s range also points out the omissi ons in buyer’s current range. Following Information might be required for competitor’s analysis •

Number of product lines being handled

•

Lowest price point

•

Highest price point

•

Prices of comparable products


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•

Key Strength areas-Range display, clear point of sale signage etc.

•

Key Weakness areas-For e.g. Poor packaging etc.

•

Promotional activities undertaken

•

Key changes from previous review: For e.g. Introduction of new range, removal of old ranges etc.

Analysing Market Information Current Market Trends:

Economic trends can be monitored through press and industry. Fashion trends can be identified by looking at designer stores, magazines or at trade fairs.

Product Orientation For Product Sourcing And Development (Deciding the type and

style of new product) The product orientation will illustrate the key styles, themes and colour palette for the season. It provides a visual direction to the buyer of the style and colours of the products to be developed. This also ensures that all the buyers are working on the same criteria so that final range is well coordinated and appears as one cohesive offer. The Range Pyramid

A progression from dividing the range into core and fashion is to divide it into sections with a range pyramid. For exampleCore Range: Basics like white T-Shirt. Fashion element: It will change more frequently. Leading Edge: It is included to attract customer’s interest and to create media hype. It may

attract a higher margin because of higher risk involved.


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Product Development Vs Product Sourcing Advantages

Product

Disadvantages

Exclusive range

Cost of resource development

Development

Different from competition

Longer lead time

Develop the brand identity

Min. orders required may be higher Origination (Tools, new

No price comparison

moulds etc.) charges

Product Sourcing

Lesser lead time

No differentiation from competition

No Tooling/origination

Little or no exclusivity

charges No Cost of resource

Prices are easily comparable

development Immediate availability

Little customer loyalty

Practicalities of product Development Briefing the Designer: Designers need to be briefed about•

No. of individual products

•

Target retail/cost price

•

Material, sizes, functions

•

Display/Packaging criteria

•

Manufacturing restrictions like minimum quantities etc.

•

Where will the product fit into manufacturing range?

•

Does the product have to coordinate with anything else?

•

Cost of development in terms of production time and tooling cost.


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•

Minimum quantity needed to be produced

•

Timescale for development

•

If any design feature needs to be changed to make the design more feasible economically or practically without losing its core elements.

Assessing Supplier Capabilities: Following capabilities of suppliers need to be

considered•

Supplier’s staff resources

•

Supplier’s manufacturing facilities

•

Time Available: Advance planning is required to allow buyer complete freedom in choice of manufacturer. As supplier may charge lesser price but may take more time than at buyer’s disposal. An alternative source at higher cost ma y have to be taken in

such case. Assessing cost effectiveness:

Development cost and/or minimum order requirement should not be disproportionate to the anticipated product sales, otherwise the product should be sourced rather than developed and can be made to appear exclusive with changes in packaging and labeling. Sampling:

Product may look great on sketch board but disastrous when finally produced. It is therefore not unusual for first sample to be rejected and subsequently modified. Supplier should be made aware of this eventuality from the outset to avoid any confusion at a later date. Trialing: Product is tried i.e. test marketed prior to going into full production to avoid any

losses later. Advantages of trialing

Buyer gets an idea about product performance before committing to higher quantities and do not have to discontinue existing product. This leads to better product decisions with lower risk.


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Disadvantages of trialing:

Since only a small quantity is produced, production cost per unit is higher. Moreover, the trial may not give a proper indication of actual sale pattern. Competitors may see and copy new development. Results of trial therefore have to be interpreted correctly. Packaging: A good packaging should-

Enhance the product appeal Convey vital information to the customer Protect the product in transit and in store Must confirm to environmental laws Product Specifications: Clear product specifications help in avoiding confusion during

actual approval of sample and later final delivery. Buyer must always ensure that the supplier signs off the specification to prove that they agree to all the details. They may otherwise question the accuracy of the specifications if a dispute arises. Product specifications must include for example Details of physical properties of the product, Size and material content and Weight and weave construction

Buying seasons and their significance in product planning Timings of Purchase: Purchase timings will depend on the type of store format. For example The Traditional Retailers, who subscribe to “fashion- first “concept try to have latest merchandise in the beginning of the year. They go for early purchase to ensure early delivery. This requires purchasing as early as six months in case of domestic markets and one year in case of overseas purchases. This early purchasing goes with the risk of vagaries of fashion cycles and whims of fashion consuming public. Traditional Retailers not with fashion orientation do not need to buy early. This reduces

the risks associated with early buying. Off Price Retailers do not plan the timings of purchase. They scout the market just about

every day looking for bargains and close-outs.


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Seasonal Factors New ranges are introduced at certain time of the year assuming that weather will be as normal. Clothing producers have often found that their merchandise is subject to vagaries of nature. Summer/winter have either arrived too early or lasted longer or even appear not to have arrived at all. This leads to loss of profits either due to shortage of stock or heavy discounting to get rid of leftover “end of season” stock. It is thus necessary to look at several

years together to avoid the extreme vagaries of nature. Different parts of year are suitable for different types of merchandise-

October/November for clothing April/may for school clothing October-December for Gifts Marriage season for Jewellery May- June for holiday merchandise. Regional Factors

This annual cycle of merchandising differs between countries and even within them, particularly relating to cultural customs like holidays, and seasonal issues like climate and local sporting and recreation. Merchandising also varies within large retail chains, where stores in places like Kashmir might carry snow blowers, while stores in Goa, Kerala and Pondicherry might instead carry beach clothing and barbecue grills all year. Coastal-area stores might carry water skiing equipment, while ones near mountain ranges like Auli in Garhwal would likely have snow skiing and snowboarding gear if there are ski areas nearby. Example of a typical retail cycle

In the United States for example, the basic retail cycle begins in early January with merchandise for Valentine's Day, which is not until mid-February. Following this, Easter is the major holiday, while springtime clothing and garden-related merchandise is already arriving at stores, often as early as mid-winter. Mothers Day and Fathers Day are next, with graduation gifts (typically small consumer electronics like digital cameras) often being marketed as "dads and grads" in June (though most semesters end in May). Summer FDDI/FMRM/TTLM/MBA-103

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merchandise is next, including patriotic-themed products with the American flag, out by Memorial Day in preparation for Independence Day (with Flag Day in between). By July, back-to-school is on the shelves and autumn merchandise is already arriving, and at some arts and crafts stores, Christmas decorations. By September, the summer merchandise is on final closeout and overstock of school supplies is marked-down some as well, and Halloween (and often even more of the Christmas) merchandise is appearing. As the Halloween decorations and costumes dwindle in October, Christmas is already being pushed on consumers, and by the day afterward retailers are going full-force with advertising, although the "official" season does not start until the day after Thanksgiving. Christmas clearance sales now begin even before Christmas at most retailers, and continue on to as little as New Year's Day or as long as February. Typical Seasons •

Autumn/Winter or Fall / Winter

•

Spring/Summer

•

Monsoon

•

Mid-season ranges

An Example of Retail Buying Sequence for Autumn and winter Season Early September: Analysis of last year’s range starts, to identify good and bad sellers based

on performance and average weeks' cover. Average week’s cover is an indication of the rate at which merchandise is selling and the

number of weeks it would take to sell out completely at this rate. The merchandise analysis is done by style, fabric, colour and price points. Supplier’s performance is analysed by line (rate of sale, prices, and profitability), quality and

reliability. Forward trends in terms of new ideas, colours, fabrics etc. are analysed with the help of in

house design studio staff and colour and fashion forecasters.


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The actual plan will be built up around improvements in existing range, addition to existing product lines and incorporation of new products into the range.

Late September:

Initial presentations of range ideas for basic approval are done. Further research for concept development Initial buyer-supplier meetings to exchange ideas and determine direction Sampling & alteration process begins. October:

Second stage screening is conducted. Product development continues. Visits are made to fabric fairs Supplier development continues November to the end of January:

Product development is finalised. Test marketing of proposed new range is planned. Sampling, negotiations with suppliers are started culminating in agreement on prices. Range meetings are held with top management for approval of final ranges. Sealed samples are taken. Work begins on accurate buying figures and phasing of deliveries. Since range plan at this stage will feature certain styles as experiments or test lines, they may carry more risk. Flexibility should therefore be built into range plan to purchase more of them if they prove to be successful. February : FDDI/FMRM/TTLM/MBA-103

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Prices are finalised. Liaison on contract preparation begins Development of in-store and other promotional ideas start taking shape. April-May-June:

Chasing Production Quality checks Monitoring progress Feedback from above is used in continual review process. July-August:

The first phase of range is launched in stores. Phases of delivery according to preplanning is set (Usually at every six to eight weeks) Retail Calendar-

Earlier, retailers used a normal calendar to report monthly sales. This calendar did not serve the correct purpose as numbers of Saturdays and Sundays which contribute increasingly large percentage of sales, vary from month to month and also year to year. Therefore a calendar that maintained the same number of weekends in comparable months was desired and the 45-4 calendar was developed during an informal inter-industry discussion in the 1930’s. Many stores

began

using

the

4-5-4

calendar

in

the

1940’s.

The 4-5-4 calendar is based on 4 weeks – 5 weeks – 4 weeks format and enables sales comparability. The layout of the calendar lines up holidays and ensures the same number of Saturdays and Sundays in comparable months. Hence, like days are compared to like days for sales reporting purposes. 53-Week Year

The layout of the 4-5-4 calendar (52 weeks x 7 days = 364 days), results in one remaining day each year, and clubbed with the occurrence of leap year, it becomes necessary to add a 53rd week to the end of the calendar for sales reporting purposes. This occurs approximately every five to six years1995, 2000, 2006, and 2012 are all 53-week years. If, after laying out the entire 52-week calendar starting in February, for any given year, there are four or more days left in next January during the 53rd week, then a 53rd week is added. For example in the 4-5-4 calendar for 2004-2006, there were only three days remaining in FDDI/FMRM/TTLM/MBA-103

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January after the 52nd week (January 29-31) in 2005. However, in 2006 there are four days remaining in January so a 53rd week is added on to the end of that year. For comparability purposes, the 4-5-4 calendar restates a 53-week year in the subsequent year by pushing each week of the 53-week year back one week, thereby ignoring the first week of the financial year. The benefit in doing so is to align holidays, which account for a significant percentage of retailers’ sales. An alternative approach is to not restate and instead ignore the

53rd week of sales for comparability. 4-4-5 Calendar

Both calendars create 52 perfect weeks (53 in a leap year). The only difference is the 4-5-4 calendar starts in February (4 wks), March has 5 weeks, and April has 4 weeks and so on... The 4-4-5 calendar's fiscal year starts in January. The difference is only in the way one breaks up the 13 week quarters. The 4-4-5 calendar is used by the retailers where seasonal or inventory fluctuations are not witnessed.


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Preplanning Checklist •

Sales History

•

Emerging Trends

•

Pricing

•

Competitors

•

Balance, cohesion and synchronization

Range Planning Software

Merchandise range planning software enables merchandisers and planners to build an assortment plan that will satisfy customers within the constraints of the financial plan and store space. Using sophisticated merchandising software helps them to find the most profitable mix of products. FDDI/FMRM/TTLM/MBA-103

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Merchandise range planning software also moves planners beyond merely making ad hoc decisions based on previous comparative seasons. It marries science to the art of merchandise range planning by calculating choice productivity and considering fixture and store capacity/space. Once science has seeded the plan, the planners can apply their unique knowledge of their business, customers, market trends and competition to the plan before it is committed. The benefits of using merchandise range planning include improved planner productivity, the right balance of assortment breadth and depth within the financial constraints and, if all goes as planned, financial targets are hit and customers are delighted. Selecting the Best Software for Merchandise Range Planning

Possibly the most essential consideration when selecting the best software for merchandise range planning is the software’s integration with other departments. For example, buyers will demand that the range is innovative and attractive to potential customers, while merchandisers will want the plan to achieve a high level of sales and margin. Merchandise range planning software should therefore be sufficiently versatile to allow buyers and merchandisers to formulate plans according to budget and space restrictions, measure the impact of adjustments to the original plan, and use the software to meet objectives defined during the financial planning process. By being able to highlight specific issues such as potential stock outs or over stock situations, the best software for merchandise range planning will guide users to approve the acquisition of additional inventory so that the right level of stock is always in the right place at the right time to meet product demand from customers. JustEnough’s Merchandise Range Planning Software

R etailers face a huge challenge to satisfy today’s ever more unpredic table and demanding customers - who want and expect their favorite retailers to have exactly what they’re looking for in stock and also a wide selection to choose from. FDDI/FMRM/TTLM/MBA-103

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This challenge is becoming ever more complex, with multiple shopping channels and customers armed with mobile devices allowing them access to more information than ever before; and consequently we have included the following features in our merchandise range planning software:



Range Framework: A range framework feature gives planners the opportunity to select the number of options they wish to include in their planning criteria to adjust the breadth and depth within the assortment



Localized Range Variations: The localized assortment feature adds versatility to the software in order to adjust results from the merchandise range planning software to account for localized variations.



Store Clustering: The store clustering feature groups stores together based on physical store attributes and past performances in order that plans can be more effectively aligned with the preferences of customers.



Review Range/Assortment Rollup: A review range and assortment rollup feature generates results relating to purchasing, sales, revenues and margins for each product in the assortment range.


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Unit-1

Review Questions

1. Discuss various components of Range structure planning.

2. Discuss all three stages of building a range structure plan.

3. Define a Buying Cycle and discuss its various stages.

4. Write a detailed note on practicalities of product development during range planning. Also differentiate between Product sourcing and Product development based on their advantages & disadvantages.

5.

What do you understand by identification of range needs? Elaborate.

6.

How do buyers of fashion stores, non fashion stores and off price stores time their purchases?

7. How do seasonal and regional factors affect the timings of purchase and formation of buying cycles?


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Unit-2

Types of buyer

Buyer’s duties and responsibilities vary according to the operational format s/he is working

for. Operations can be broadly categorized as followsTraditional Retail Organisations Discount Operations Off Price Retail Organisations Off site Retail Operations Resident Buying Offices

Traditional Retail Organisations -Department Stores Department Stores can be categorized as both Store Chains & Single Unit Independent Stores and Full Line Department Stores & Specialized Departmental Stores. Full Line Department Stores: They Offer a wide range of merchandise assortment of hard

goods and soft goods both such as apparel & accessories, furniture, tableware, electronics, furnishings etc. It may also offer non-merchandise departments such as travel centers and beauty parlors Specialized Departmental Stores: They restrict their offering to a large assortment of one

or two merchandise classifications. They are generally upscale operations specializing in fashion apparel and accessories for men, women, and children.

Table of Merchandising Operations in a typical Department Store Line Positions

Chief Executive Officer General Manager Merchandising Divisional Merchandise Manager Buyers Assistant Buyers FDDI/FMRM/TTLM/MBA-103

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Staff Positions Fashion Director: All of information concerning Fashion Trends in terms of silhouette,

colour, fabrication etc. is assessed and brought to the notice buyer for use in buying plans. Comparison Shopper: This individual scouts the Competitor s’ advertisements and

collection to determine if there are any price conflicts between the companies. In many companies, this responsibility is assigned to Assistant buyer. Testing Bureaus: Merchandise is put to certain tests to determine reliability and ensuring

quality checks. Control Division: The division deals with the accounting matters. Buyer’s role is limited to

making certain that purchased items are properly charged along with taking care of concerns like discounts, delivery charges etc.Unless there are discrepancies with vendors these are mostly routine tasks.

Branches of a Department Store Flagship Store: Main Store where major operations take place and most of the sale is

effected. Branch Store: As the suburban populations grow, branch Stores are opened to accommodate

the needs of consumers of that area. Some of the variations found in branches that differ from flagship stores are-Population Differences, Merchandise Differences, and Price Point Variations. Population Differences: When expansion takes place into suburban markets, the population

is likely to be different in various aspects like- Careers, Lifestyles, Unmarried/Single household, Married without children, Married with a small family. Focus of store’s merchandise requirements therefore might differ from those of flagship store. Merchandise Differences: There should be a representation of merchandise carried by flagship store although assortment might be different. For e.g. smaller inventory for

career dresses, more merchandise oriented towards leisure like garden furniture etc. These considerations will make the merchandise assortment more appropriate for maximizing the branches profits. Price Point Variations: Flagship operation carries a wide range of price points as their

clientele base is usually made up of different family income ranges. FDDI/FMRM/TTLM/MBA-103

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In suburban branches there is often a more homogeneously grouped population in terms of income. It is therefore unwise to carry same price points in the same quantities as the flagship store .Price points must be appropriate for the needs of specific clientele . For e.g. higher price points if clientele served is more affluent.

Chain Organisations: A group of stores of essentially the same type, centrally owned, and with some degree of centralization .Chains include retailers that have as few as two units and as many as hundred. They include Specialty stores, super markets, drugstores etc.

Types of centralized buying: Buying in case of chain organizations can be rightly termed as central buying. It may take place in following three formsCentral Merchandising method Warehouse requisition method; and Price agreement or rate contract method Central Merchandising method Under this method, the buyer located at corporate head

office has full responsibility for selection and purchase of merchandise for all the stores. Each store receives only what is considered fit by the central buyer. Purchase decisions are based on past sales history of each store. This requires the scientific collection and analysis of sales and inventory data from each store. The main drawback of this approach is the lack of enthusiasm on part of store operations management in pushing the merchandise, they had no role in selecting and the blame game between merchandising and operation personnel in case of slow selling merchandise. Warehouse requisition method Under this method also the buyer located at corporate

head office assumes full responsibility for selection and purchase of merchandise for all the stores based on past sales history. The merchandise is however ordered at the warehouse and store managers may requisition only those items which they think will sell at their individual locations. The system is advantageous from several angles like-it eliminates the unnecessary items from individual store inventory. More so as the lead time involved reduces drastically since the requisitioned items are readily available at the warehouse and are not to be sourced afresh. This release precious commercial space at the store location which can be better utilizes as a selling space instead of being blocked as stockrooms of the store.


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The plan is quite useful for the FMCG, medicine and other super bazaar type operations but not for fashion merchandise as they have a short shelf life and no time can be wasted in first storing them in a warehouse before reaching the point of sale. Price agreement or rate contract method Under this plan, central buyer still selects the

assortment to be carried by all the stores, decides upon the vendors, and negotiates the prices and other terms and conditions with them. After this a detailed list of various suppliers/vendors along with the list of approved items and their final negotiated prices is sent to each store. The individual store managers then directly place the orders to the vendors for the merchandise suitable for their stores and receive supplies directly from the vendor. The system is advantageous in the sense that it reduces the lead time for the supplies, does not burden the store with unnecessary non salable inventory and still retains the advantages of mass purchasing of central buying. The only major drawback of central purchasing is adjusting the merchandise selection according to local conditions due to diversity of climate, tastes and culture of different regions especially in a country like India, but this can be offset with the large technological advancement enabling the central buyer to access and analyse a whole wealth of data from each location. Another disadvantage is lack of enthusiasm and technical knowledge amongst the sales staff about the merchandise they had no say in deciding upon. This problem can be tackled by encouraging proactive interaction between sales personnel and merchandisers. Snap Shot

The Great Debate: Centralized or Distributed Purchasing By Richard Losch on February 28th, 2011 For as long as I can remember this debate and internal struggle has taken place in companies with multiple production sites, or those with a headquarters operation and remote production. Who


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should own the purchasing function? The pros and cons of both scenarios are substantial. The following are a few of the most common points of the argument. Centralized procurement offers the opportunity to maximize buying power and

leverage. Especially with transactional print work where volumes can vary greatly from location to location, centralized management can monitor and match inventory across locations, balancing usage and reducing waste. It assures that a consistently lower price exists across locations. The biggest negative is that centralized procurement is often not keyed in to the different needs and requirements of production facilities and their processes. (I have never yet seen two locations that have the same operating process or equipment across the board.) Centralized efforts are also removed from the dynamics of rapidly changing project schedules and the quantities of the work in each operation (longer support cycles). Finally there is the risk of getting too much dependent on too few. Decentralized procurement is close to the action and should be on top of the l ocal production

demands and therefore more responsive. They know what materials and supplies have worked best in their equipment, which should give the best overall cost and quality results. Information on inventory receipts, usages and quantities should be real time for the site. Buyers develop real relationships with the suppliers. One of the negatives is that different sites or divisions may be buying the same thing but paying different prices for it. There are multiple supplier contacts and more orders and payables overall for the organization to handle. There is probably no good information about total spend across the enterprise. Companies have adopted many different approaches to resolving this debate. In some cases certain products which are in the highest spend category or capital goods are controlled centrally, while the normal operating supplies are managed locally. Some organizations have used central staff to qualify suppliers and local organizations are free to buy from approved suppliers. Others have set up the procurement organization so that there are local buyers but they report to a centralized head of purchasing who establishes the policies and strategy for the purchasing organization in support of the operating company. These can all be good choices, and each organization needs to develop the compromise that maximizes the benefits of each approach for them. Some organizations have even chosen to turn over major purchasing efforts to a third party who promises to use their technology and buying power to save the enterprise money. At the core of the centralized vs. distributed debate is one common element: Communication.

Communication is the key to being able to optimize any companies’ procurement program. A rigorous approach to documenting and communicating requirements and specifications for each production location’s purchasing spend is the first step. Where is the spend data coming from, and where is it maintained? Once this is firmly understood, then developing reports and sharing them in a timely and consistent manner will provide significant opportunities even if the process is not automated. Automation merely provides the opportunity to handle more data faster. This is all


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easier said than done because many times the core of communication issues reside in the culture of the organization. Divisions or facilities are often competing with each other by design, and therefore not willing to share information they feel gives them an advantage. Ending the debate and optimizing the purchasing function in an organization must begin with a strong mandate from the top of the organization, but then be implemented with a cross f unctional effort from the bottom up to assure the cultural issues do not present an insurmountable barrier. Focusing on communication and process improvement can yield rapid results without increasing spending or turning over the control to a third party.

Table of Organization: Similar to a typical Departmental Store but unlike branch Stores of

Department Store which generally operate from Flagship Store, the chain operates from a corporate head quarters where decision making for all the units takes place. Some divisions especially important for Chain Organisations are as followsReal estate and construction Warehousing Supplies and Equipment Real estate and construction

Researches regarding population trends, income, family size, competition, and other factors are undertaken to evaluate the new site under consideration. •

Renovations or facelifts are undertaken to either entirely alter the unit or merely give the store a fresh look that will appeal to customers. Warehousing

•

Merchandise is mostly received at a central location for redistribution to individual stores.

•

In larger chains there might be regional warehouses so that merchandise may reach different geographical locations in time.

•

Common functions include-checking incoming goods, marking them, and entering accurate merchandise description and quantities for proper record keeping. Supplies and Equipment


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•

The various supplies and equipments that are needed to keep the store in good working order like light bulbs, wrapping paper, merchandise hangers must be purchased and distributed as per needs.

Single Unit Independent Store: Generally, specialty stores like children’s wear, boutiques selling higher priced fashion merchandise, etc. •

The proprietor is often a multitalented individual performing various tasks like purchasing the merchandise , determining selling price, hiring employees, selling to customers, etc.

•

The number and type of people employed are determined by the size of business, role played by the owner and the products offered for sale.

Buying for Off-Site Retail Operations (Catalogue, Home shopping Networks, e-Tailing)

Catalogue Retailing •

Catalogue Retailing by traditional Departmental Stores: As a standard practice

buyers merely select some of the merchandise present in store for insertion in catalogues. Some of the major retailers create a separate catalogue division with a full merchandising team. These stores also come out with catalogue offerings that are available only through catalogues and not through store. Sometimes more than one type of catalogue is featured, with each marketed for different purpose. For e.g. Christmas book, Linen catalogue, Home catalogue etc. •

Catalogue Retailing by Non Brick and Mortar Companies: Some of these

companies feature full line of merchandise while others restrict their offerings to a narrower product base. Sometimes they open stores also, on a limited basis to cater to the traditional customers. They target the customers who prefer to shop from home due to time limitations or other conveniences. •

Customer Perception: Catalog customers and store shoppers have different interests

and •

buying patterns.

A retail customer needs the entire shopping experience, browsing from one department to

another, one store to another, interacting with other people.S/he wants

to be able to touch the products, to see every side and angle, and try them on. Sometimes her/his buying ritual is necessary to make a decision — at times it's the FDDI/FMRM/TTLM/MBA-103

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approval or disapproval of a sales person or fellow shopper that encourages her response. •

The catalog shopper, on the other hand, doesn't need to feel the product. In fact, the idea of going from department to department or store to store, perhaps taking clothes on and off or trying to visually place a decor item in living room or kitchen, is daunting.

•

Catalogs and Websites can coordinate complementary products — for instance, showing a sweater, skirt, scarf, bag, and shoes on one model in motion, or including a table, lamp, chair, picture frame, throw pillow, and rug in one lifestyle shot. So the catalogue customer gets a good idea of how the product will look on him/her or how it will enhance his/her home. S/he prefers shopping on his/her own schedule, and s/he responds to the convenience. S/he relies on the copy to inform her of the products' sizes and dimensions and their benefits and uses.

•

Core catalog product attributes: Just as the catalog and retail store customers are

different, the products offered in brick-and-mortar establishments and catalogs and Websites are different. Some of the attributes to consider before including an item in a catalogue are•

Uniqueness or exclusivity Vendor reliability Inventory volume Realistic lead times Packaging that meets the warehouse and transportation requirements Trendiness or timeliness Follows a theme Meets the mission statement and niche

Buyer’s duties and responsibilities: •

A merchandiser should ask several questions about any product s/he is considering, such as:

•

Does it have the ability to sell from a photograph? Does it meet carrier shipping(transportation) criteria? Does it have more than one use? Is sizing or fit easy or a challenge? Does it tell a story, can it be romanced?


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•

Catalogues are widely distributed. So buyer must keep in mind much broader merchandise requirements than brick and mortar structures. The merchandise has to appeal to clients spread over a vast geographic area.

•

Merchandise must feature a price advantage-Buyer must therefore be a talented negotiator.

•

Buyer must make certain that the vendors represented in the catalogue will provide the goods in a timely manner during the period for which catalogue will be used, Otherwise sales as well as goodwill might be lost

Home Shopping Network •

For people who do not have time to shop in store and do not find the pictures in catalogues informative enough, shopping on T.V has been the answer. Audience is shown a number of goods available for their purchase. The format involves someone showing the specific features or displaying it on a live model. Well known personalities also come to sell their own product lines. Often merchandise featuring a bargain orientation is displayed. Usually a schedule is featured that shows when specific merchandise categories will be aired. For e.g. Fashion coordinates at 1 O’

Clock, Ideas to beautify home at 2, and so forth.

Some Motivational Devices •

Those wanting additional information may interact with representatives or sometimes even celebrities about specific items. On-screen merchandise inventories are shown and the pieces still available for sale keeps changing as the sales are made. This encourages the doubter to buy quickly or face a sell out sign.

Buyer’s duties and responsibilities: •

All the factors as in case of catalogue retailing.

•

A careful visual inspection.

•

Evaluating the effective on screen appearance.

•

Effect of featuring the merchandise on live models.

•

Major players in the Indian market


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•

HomeShop18, a 24-hour shopping channel from Network18, which is said to have clocked around Rs 300 crore in sales last year and will look to double that in the coming year.

•

The Star CJ Network - a joint venture between STAR Asia and the South Korean home shopping company CJ Shopping Co. Ltd - is also in the process of launching a 24x7 home shopping offer.

E-Tailing: With easy and economical access to internet, e-tailing has become an important tool for business. People can be presented with merchandise that they will often be unable to find in their areas. Even if the merchandise is available locally, prices on internet are often better. Now traditional retailers have also entered the arena. Some Motivational Devices •

Some sites are interactive ones where customer’s queries can be addressed and

immediate response given. •

Some gimmicks specific to internet features can be made like a3-D silhouette is created based on information provided by customer about hair colour, height and body proportions. Then in a sort of electronic dressing room, the customer can outfit the model to see how certain fashions will look. Buyer’s duties and responsibilities:

•

All the factors as in case of catalogue retailing and home shopping.

•

Given the unlimited customer base that reaches the far corners of the globe, buyers are able to purchase the much broader assortment in terms of product and price points.

•

Must negotiate lowest prices as price advantage over traditional brick and mortar stores is one of the USPs.

•

Timely inventory replenishment to ensure timely supply.

SHOPPING TIP LIST

Trust your instincts. If you don’t feel comfortable buying or bidding for a particular

product, you shouldn’t do it. Be knowledgeable about Web-based auctions. Take special care to become familiar not only with the rules and policies of the auction site itself but with such legal terminology concerning warranties, refund policies and so on, of the seller’s items. FDDI/FMRM/TTLM/MBA-103

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Double check pricing. Be suspicious of prices that seem to be too low. You might want to comparison shop. Find and read privacy policy. Carefully review the information the seller is gathering from you and how the information will be used. If the site doesn’t have a privacy policy, you may want to reconsider the purchase. Review return, refund, shipping, and handling policies and other legal terms. If these policies are not readily available, you should be contacted via e-mail or telephone as to where you can find them on the site, or they should be provided in writing. Check that the Internet connections are secure. Before placing the order and providing payment information, check the icons and software programs to make sure that security software is in place. Use the safest way to pay on the Internet. A credit card is the best method. Print the terms. Print out the terms and the date of the transaction and include conditions, warranties, item description, company information, and e-mail addresses that indicate confirmation. Save it until you receive your purchase and are satisfied with it. Insure the safe delivery of the item. If no one will be at home to receive the shipment, ask for it to be delivered to an office or other place where you can receive it. Inspect your purchase. Examine the merchandise immediately, and if you see any problems contact the seller at once. If a refund is warranted notify the seller in writing.

Courtsey:www.safeshopping.org

CASE PROBLEM 1

The fanfare that has surrounded the use of Internet Web sites as tools to reach broad audiences has caused a wealth of merchants, from the industrial giants to the smaller companies, to enter E-tailing.The Shopping Bin, an off-price fashion merchant, has been in business for the past fifteen years and is considering the plunge into this type of retailing. Initially, the company made its mark with the opening of its first brick-and mortar operation in a small shopping center on the outskirts of Baltimore,MD.With its significant success in that market, the Shopping Bin expanded its operation through the introduction of five additional stores, each of which is located in either Maryland or Virginia.These stores too have handsomely performed as profitable units for the company. FDDI/FMRM/TTLM/MBA-103

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The nature of the off-price business is one that depends upon opportunistic purchasing at wholesale prices that are far below the traditional costs. By resorting to this buying concept, the company is able to resell the merchandise to consumers at extremely attractive prices.The only hitch in this type of retailing is that reorders are not possible, leaving the inventories to be replaced with different merchandise. Even if a product is a “hot item,” it is unlikely to be replenished.While this type of merchandising philosophy is extremely successful in brickand-mortar venues, the introduction of a Web site to sell the shopping Bin’s merchandise on the Internet has met with some resistance from the members of the management team. John Matthews, general merchandise manager for the company, believes that for an off-price operation to enter E-tailing, the disadvantages outweigh the advantage. Specifically, he feels that opportunistic buying will prevent merchandise continuity. Joy Green, divisional merchandise manager for women’s clothing, feels that this should not be an obstacle and that

the company should proceed with the opportunity to enter the E-commerce arena. She says that there is always merchandise available in the marketplace at closeout prices, and this should provide sufficient proof for the sense of starting an on-line division. She feels this should not be the deterrent for this potentially new endeavor. At this point, the Shopping Bin has yet to make a final decision relating to the viability of Internet retailing. Questions

1. Is John Matthews’ point of view realistic? Why? 2. Is Joy Green’s rationale overly optimistic, or is it an appropriate reason to pursue the new venture? 3. If the hot sellers can’t be reordered, is there a way that they can be easily replaced on the Web site without causing prohibitive expenses for the company? Courtsey:(http://www.prenhall.com/divisions/ect/app/Diamond_temp/source_files/dia76827_ch02.pdf )


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Buying For Discount Operations What is a discount store?- “Any store that sells 60 per cent to 70 per cent of its merchandise

at 15 per cent to 25 per cent or more, below the maximum retail price, all through the year, qualifies to be a discount store,” -Mr. Gibson G. Vedamani, CEO of Retailers Association of

India.

Strategy: Supplying quality merchandise at a lower price Classification of Major Discount Operations Merchandise generalists: Offer value shopping for a variety of personal and household needs like clothing, appliances, garden instruments etc. Specialty Discounters: Restricts its offering to one major classification of merchandise like

electronic discounters, furniture, toys and home improvement items etc. Warehouse Operations: Most of them primarily deal in a wide assortment of food products

along with a comparatively small selection of high volume clothing, linen, electronics, cameras and pharmaceuticals. Access to these stores is allowed only to members who must pay an annual fee in order to avail of these bargains.

Merchandising Philosophies Discounter operates on the concept of selling merchandise at a price lower than the full markup. By working at these lower prices, the sales volume is generally greater than if full retail prices are charged. Since low markups have to be charged on manufacturer’s brands, the difference is usually

made up on private brands that are available only at its outlets. Merchandise is sold in bundles or combo offers where private or lesser known brands are clubbed with national brands.

Product acquisitions Buyers for discount retail operations are major purchasers in terms of volume. These purchases are made from national manufacturers, lesser known producers, market specialists and Developers of private brands. National Manufacturers

The advantage of being able to offer nationally advertised and therefore better recognised brands and labels, at value prices gives the discount retailer an edge. Although buyers for discount stores have to pay the same price as traditional stores , they are given special


Page 36

considerations like-promotional allowances, delivery priority, or waver of shipping charges, in lieu of lower charges due to large volume they are ready to commit. Lesser Known Producers

The markups achieved on national manufacturer ’s brands are generally low. Therefore discounters augment their better known brands with lesser known brands as the latter may be marked at a higher margin, and therefore bolster company’s average markup.

Vendors whose goods have not somehow gained national attention, yet make a perfect fit into company’s merchandise mix, should b e located.

Another advantage is incentives from manufacturers in the form of Promotional allowance, free shipping, extended payment periods etc. Market Specialist

They are Industry specialists whose task is to locate merchandise from vendors that will satisfy the needs of potential clients i.e. retailers. Their job is to bring together buyers and sellers. They can be divided into two groups-Resident Buying Offices -Merchandise Brokers Resident Buying Offices:

They often serve the fashion apparel and accessories market. Their major function is to locate vendors with desirable merchandise that will satisfy the needs of retailers they represent. They help vendor to locate potential customers and buyer to locate quality merchandise which is otherwise a difficult and time consuming venture. They charge their retail clients a fee for their services. Merchandise Brokers:

Their merchandise offerings are not restricted to fashion apparel and accessories. Often products of this nature are for closeouts that the vendor wishes to dispose off in a timely manner. Fee for their services is paid by the vendors. Developers of Private Brands

Their inclusion takes the competition out of the equation, and thus enables the retailer to gain higher markup than those charged for nationally branded items that are also carried by competing discounters.


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Giant discounters develop their own subsidiary divisions for the purpose while for small retailers this task is left to outside manufacturers.

Timing of the Purchase If product is brought into store much before the shopper is willing to buy, then purchase bills become payable long before the sales are made. If the goods arrive too late potential sales will be lost. The discounter must deal with different purchase time tables according to the type of goods that will be incorporated in the inventory•

Regular product purchases are made whenever the season opens.

•

For own brands also planning and purchasing must coincide with the dates set by leading vendors in the wholesale market.

•

For manufacturer’s closeouts, timing is of an opportunistic nature i.e. whenever the

bargains become available. Independent Small Discount Retailers •

Buyer is generally the owner him/herself.

•

Low operating costs

•

Reduced rentals in off- the- beaten- path locations

•

Positive word of mouth

•

Preference of some shoppers of the comfort of a small store with personalized attention to the impersonal environment generally found in major discount chains

•

They go directly to national manufacturers, seek out lesser known producers, visit trade fairs, and utilise the services of RBOs.

Specific priorities of buyers for discount operations Vendor Relationships:

Gaining the competitive price advantage and ensuring that they will be treated fairly in terms of prompt delivery, return privileges etc.


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Acquisition of “Off -Limit” Merchandise:

Manufacturers are reluctant to sell to the discounters because their pricing practices might discourage the traditional retailers. Discount buyer must be able to convince the seller that he or she would abide by some stipulations that would not affect the sales of the traditional stores like-Commitment not to advertise the brand or remove the labels or identifying tags

Indian Scenario Consumers got their first taste of deep discount retailing with the entry of My Dollar Store in Mumbai in 2004 from Sankalp Retail Value Stores. Today, there are as many as 50 My Dollar Stores across the country with 50 more planned for fiscal 2009-10, said Mr. Soumitra Ghatak, CEO, My Dollar Store. •

Analysts say, the opportunity in the discount retailing space will peak at Rs 30,000 crore by 2012 and Indian retailers have massive ramp up plans to capitalise on this trend.

•

Future Group is gearing up to double its Big Bazaar footprint from 89 outlets to 170

across the country, by 2010 end. •

Subhiksha, which offers up to 25 per cent discounts is ramping up from 1,380 stores

to 2,200 by March 2010. •

“Nearly 20 per cent to 25 per cent of revenues of most brands comes from discount sales” averred Mr. Rajesh Seth, vice-president Marketing, Brand Factory (Future Group).

•

Brand Factory sells surplus merchandise of various brands at discounts ranging up to 50 per cent, along with great service and ambience, he added. The company has plans to ramp up to 50 outlets by 2010 from 6 at present.

•

Mega mart from Arvind Mills , a medium format discount store offering year-round

discounts ranging up to 65 per cent has a presence in 32 towns with 85 outlets. •

It recently opened a large format store spanning 50,000 sq. ft in Chennai.


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•

“We are planning to open five larger format M ega marts this year, with the second outlet opening in Pune” said Mr. J. Suresh, CEO, Brands & Retail Division, Arvind

Mills Ltd. Coupon Mall from Prateek Lifestyle Ltd is yet another large format discount mall

offering discounts up to 50 per cent on over 140 brands. Present in Bengaluru and Raipur, the company plans to ramp up with Coupon Mall launches in Mumbai, Hyderabad, Delhi NCR and Kolkata this year.

Snapshot FDDI/FMRM/TTLM/MBA-103

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As organized retailing takes off in India, so do discount chains by Deepti Chaudhary First Published: Tue, Mar 04 2008. 12 28 AM IST

Expansion mode: The LOOT plans to invest Rs100 crore by March 2009 to expand i ts footprint across the country. The group currently has 30 stores and plans to raise the number to 100 within a year.

Updated: Tue, Mar 04 2008. 12 28 AM IST

Bangalore:Mayank C., a 27-year-old engineer, loves shopping and confesses to indulging in

retail “therapy” every fortnight.

Nothing unusual really, except that Mayank never steps into the upmarket outlets near his home. Instead, he travels the 10km it takes to get to a discount mall.


Page 41

“Why should I spend Rs3,800 for the same Reebok shoes that I can get for Rs2,400 here?” he

reasons. Turns out, Mayank is not alone among India’s young shoppers looking for famous brands at

reduced prices. Expansion mode: The LOOT plans to invest Rs100 crore by March 2009 to expand its footprint across the country. The group currently has 30 stores and plans to raise the number to 100 within a year. With half of the country’s population under 25 and two -thirds

under 35, the knowledge and aspiration for international brands is on the rise as is the quest for bargains. Even as branded retail itself is starting to take off, there is already alr eady a surge in branded discount outlets in India. A year ago, there were some three prominent discount retailers in the country, but in the last few months, there have been four new entrants and, they are all on an expansion spree. Pantaloon Retail (India) Ltd’s Brand Factory, Arvind Mills Ltd’s Megamart, Vishal Megamart, the discount store chain of Vishal Retai l Ltd, and Provogue (India) Ltd’s Promart

have been the most prominent players in the field. A number of relatively newer players, such as The Loot (India) Pvt. Ltd, which operates The LOOT outlets, Krishna Group’s The Grab Store and Prateek Apparels Pvt. Ltd’s Coupon

have started in the last few months. Some 45% of branded products are estimated to be sold at discounted rates. Brand discount retailers typically offer 25-80% discount on products through the year and insist they do not sell counterfeits or factory seconds, or products typically rejected by stores. They claim they are able to buy at reduced prices as they purchase odd sizes, end-of-season surplus items and, often, make payments in cash to the manufacturer or distributor. The products generally generall y include formal and semi formal as well as casual c asual clothing, footwear and accessories. FDDI/FMRM/TTLM/MBA-103

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The most visible Indian and international fashion brands at discount outlets include Reebok, Nike, Adidas, Van Heusen, Arrow, Levis, Lee, Pepe Jeans, Allen Solly, Reid and Taylor, Wrangler, Puma and Louis Phillip. The size of the country’s retail industry is estimated to be Rs12 tri llion, of which about

Rs55,000 crore is contributed by the organized sector. Pantaloon Retail, which currently has six Brand Factory stores, plans to have 40-45 stores in the two years. Megamart, which has 91 stores, plans to have 200-250 stores in four-five years, by investing Rs400-500 crore. It also plans to have 30-35 large format stores with a size of about 50,000 sq. ft. The Grab Store currently has one store and plans to have 50 stores by March next year. The company’s company’s marketing head Snigdha Kar says each store would have

an investment of Rs90 lakh. The LOOT plans to invest Rs100 crore by March 2009 to expand its footprint across the country. It currently has 30 stores and plans to raise the number to 100 within a year. Prateek Apparels, which has two stores, plans to set up 50 more discount malls by 2010 at a cost of Rs400-500 crore, according to Sudeep Menon, director, Prateek Lifestyle. “As the retail industry is booming, everyone wants to follow the precedent of a successful format,” says Jay Gupta, managing director, The LOOT.

Brandhouse Retails Ltd, the brand-specific retail unit of apparel company S. Kumars Nationwide Ltd, is also planning to enter ent er multi-brand, large-format, large-f ormat, discount outlets. outlets . Meanwhile, the country will also see its first chain of discount malls, to be called Stadia Supercenters, soon. Retailers say although the profit margins of a discount retail format are much less than a full priced retail store, the higher hi gher sales volumes in a discounted disc ounted format compensate the th e cash flow. The profit margin in a discount retail chain is 6-10% says Ganesh Raman, marketing head, Megamart. He refused to divulge the profit margin of full priced retail stores. The discount retailers, however, agree that success would not come easily to them. “So many pe ople are trying to avail the opportunity, but the success of a retailer lies in his ability and capacity for sourcing, manufacturing and designing of the apparel,” says Menon.


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But discount retailers are already facing stiff competition from exclusive factory outlets, seconds’ stores and seasonal sales at regular stores. “When it comes to positioning, discount retailers do not pose a threat t o us. People who are

fashion-conscious and want to buy products when they are in vogue will anyway come to us. But yes, they are a threat when it comes to value share and wallet share. If a customer gets the same product at lesser price, it is obvious that they will go for cheaper options,” says Govind Shrikhande, chief executive officer of Shopper’s Stop, a multi -brand retailer.

Shoppers such as Shruti Sharma have tried discount retailers, but find the lack of a full range — especially especially of sizes —a problem. “Small size fits me,” she says. “But I can only find large and extra large-sized clothes here. The shoes here are available at 40% discount, but none is in size less than foot size six.” As a result, discount stores won’t necessarily eat into market share of other retailers, says

Purnendu Kumar, associate vice-president, KSA Technopak, a management consulting firm. “Discount outlets are what we can call as working capital solution for brands owners,” he says. “The discount stores sell products, which are mostl y leftovers, or at least a season old.

The customers get to buy them at a cheaper rate, so where does the question of cannibalism come from.”

Kumar predicts discount retailing will grow at the 25-30% and would become more specialized in future.

Buying for Off-Price Retail Operations The Concept : Off-price retailers sell clothing and accessories from major-label brands at a significant discount. These companies take advantage of overruns, canceled orders, and forecasting mistakes made by their counter-parts in the full-price retail sector. When a major designer produces more clothing than it can sell through specialty retailers or department stores, or a store can't move all of the items in a particular line, the excess inventory is sold at a 20%-60% discount to an off-price retailer. The company passes these savings onto consumers, marking up goods by a lower percentage than full-price stores and instead building their operating operati ng margins by moving a high volume v olume of inventory quickly, quic kly, at rock bottom prices.


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Discount Store

Off Price

Discounter pays usual wholesale price and

Purchase the goods below the regular

sells at a lower markup.

wholesale price and pass the savings on to the consumer.

Works on a lower markup and makes up for

Markup is generally the same as

It by selling in large volumes.

traditional

stores

-

lower

prices

coming from the savings received from off price purchasing

Factors to be kept in mind: Timing

In fashion merchandising, where seasons are short and often unpredictable, manufacturers and designers try to unload the leftovers after supplies to traditional stores, to make room for next seasons merchandise line. Off Pricers wait till new lines have been shipped to traditional stores and then set out to visit the same vendors to make the deal. When the opportunity arises for purchase at rock bottom prices the deal is consummated. Merchandise acquired at lower prices is generally well after the season has started. However since merchandise is already in vendor’s inventory, it is available for immediate delivery, at a

reduced price. So even though the selling period is shorter, the price attraction should make it sell quickly. If the selling season ends, the unsold merchandise is packed away to be brought out for the next appropriate selling period. Buyer must therefore ascertain if the goods have sufficient staying power to be carried over to next selling season.


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Assortment

Off Price buyer’s purchase decisions are not based on specific colours, size or style

allocations (preplanned Model Stock), but on price. Buyer will purchase only discounted goods that fit into stores general concept even if they are in incomplete size ranges or assorted colours. Off price buyer is willing to purchase a large quantity of remainder of vendor’s inventory for

a style, in colour and sizes that are in vendor’s stock and therefore gets the supplies at much lesser wholesale price. Pricing

Off price merchants also markup their merchandise to levels that rival the traditional department stores. But since they buy at lower prices they are able to pass it on to client at lower prices. The only difference an off price retail customer must suffer are-inability to buy early in the season, not so comfortable shopping environment and limited services. Indirect Purchasing

Off-price stores also use outside market specialists or resident buyers to cover the market as daily examination of wholesale market (vital to the success of off pricer ) is not easy for buyer due to distance from vendor and various tasks required of him to be performed at the store.

Concessions to Vendors In order to gain access to the merchandise of leading designers and manufacturers Off Pricers need to accept certain special conditions from them such as Label Removal

Often manufacturers of national or designer brands insist on removing the label of discounted merchandise to protect traditional retail chain which has paid the full price.Off price retailer in such cases points to some other features that allow for easy identification like-lining of garment or buttons featuring a designer logo.


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The shopper at Off Price store is often an expert in recognizing the name of manufacturer. They visit department store to learn what is in fashion and then scout Off Pricers for getting the same/similar item at lower prices.

Transportation

F.O.B facility normally available to traditional retailer is often not extended to off price purchaser as the vendor has already agreed to severe reduction in price. The cost of shipping therefore is to be absorbed by the retailer in such cases. They make their own arrangement like private transport or own trucks. Terms of payment

Since wholesale price is considerably reduced, payment has to be made earlier than traditional retailer.In this way seller gets the money to meet immediate expenses and retailer gets merchandise at a price that will make it more appealing to the customer. Location of Retail Outlet

The Off Price merchants usually locate themselves far away from traditional department stores . As a result traditional retailer’s clientele does not remain in the same vicinity as the

off price outlet. This practice helps both type of retailers. Promotional Considerations

Off Price retailers are often bound by the vendor’s demand not to advertise the famous labels.

They therefore restrict their ads to generalities as-”20% to30% lower than normal prices” or “Famous designer labels for less” Unconditional Purchasing

Condition of sale is often as is where is basis without any consideration for specific colour and sizes(Job lots assortment) and once purchased, goods cannot be returned to vendor.

Traditionalists As Off Price Purchasers In certain cases prices have to be reduced due to various reasons even by traditional department stores resulting in a lower markup then expected initially. Traditionalists FDDI/FMRM/TTLM/MBA-103

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therefore also try to get advantage of off price merchandise to gain an overall higher markup i.e. to improve maintained markup positions. SNAPSHOTS (“Category Killers in Europe - A Retail Format for the Future”, European Retail Digest, Spring 1996)

An off-price chain offers brand – names and designer labels and sells them at a low price in an efficient, limited service environment. An off-price store buys other retailers’ cancelled orders, manufacturers’ irregulars and overruns and end-of – season

items for a fraction of their original wholesale prices. Due to this pattern of opportunistic buying, the same type of merchandise may not be in stock when customers visit the store. Typically, different bargains will be available on each visit. Their inventory turnover is far higher than that of departmental stores. The most crucial aspect of the strategy for off-price chains involves buying merchandise and establishing long-term relationships with suppliers. Three special types of off-price retailers are outlet, closeout, and single-price retail stores.

Over the past few years, the sales growth of off-price retailers has slowed. The challenge is from an increase in sales and promotion in department stores, consumers being more fashionable, brand name merchandise in department stores at the same discounted prices offered by off-price retailers. Also, more sophisticated inventory management systems have reduced the amount of excess production that can be bought by off-price retailers. Therefore the manufacturers have sought opportunities to apply this successful format in foreign markets, particularly in the UK. By the early


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1990s, the UK market appeared to be attractive for the introduction of factory outlet centres for a variety of reasons. First, the growth of retail formats in out of town locations (superstores, retail parks, and regional centres) was conducive to a fourth wave of development. Second, this trend to out of town shopping coincided with the rise of discounting formats, creating a climate suitable for the growth of value retailing. Third, the relaxation of planning guidelines in the 1980s and early 1990s allowed the development of new out of town retail formats. • Factory Outlet Stores:

Outlet Stores are off-price retailers owned by manufacturers or by department or specialty store chains and are frequently referred to as factory outlets. A factory outlet is a manufacturer – owned store selling manufacturer closeouts, discontinued merchandise, irregulars, cancelled orders, and sometimes, in season, first quality merchandise. They closely resemble shopping centres, both in terms of size, layout, and in carefully controlled tenant mix, with manufacturers operating separate units on a single co-coordinated site. Additional amenities include car parking, restaurant and leisure facilities. Factory outlet stores are located out of town, lowering development and operating costs and the distribution channel for certain categories of merchandise is shortened, cutting out the functions and profits of traditional retailers. The manufacturers have various interests in outlet stores. 11 It helps in the disposal of surplus stock due to unreliable accounts, late payers, and cancelled orders. It allows a manufacturer to control where its discounted merchandise is sold. A manufacturer chooses out-of – the-way locations, depressed areas, or areas with low sales penetration of the firm’s brands, whereby the factory outlet revenues are unlikely to FDDI/FMRM/TTLM/MBA-103

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affect the sales at manufacturers’ key specialty and department stores. A

manufacturer can decide on store visibility, set promotion policies, remove labels and be sure that discontinued items and irregulars are disposed of properly. • Closeout Retailers:

Closeout Retailers are off-price retailers that sell a broad but consistent assortment of general merchandise as well as apparel and soft home goods. • Single Price Retailers:

Single Price Retailers are closeout stores that sell all their merchandise at a single price. ( http://www.iimahd.ernet.in/publications/data/2004-08-05pksinha.)

Companies that Sell Off-price Retail Products The Big Three TJX Companies (TJX) is the largest North American off-price retailer, in terms of revenues

and market cap, and it dominates the East Coast market in the United States. TJX had $17B in revenues in 2007. Ross Stores (ROST ) is TJX's closest competitor, focusing on West Coast markets. Ross had

just under $5B in revenues in 2007. Big Lots (BIG) has a similar market share to Ross Stores, and operates 1400 stores in 47

states.

Other Off-price Retail Stores Syms Corp (SYM) operates 34 off-price stores in the Eastern and Midwestern United States. Stein Mart (SMRT ) and Chico's FAS (CHS) target fashion-conscious, value-seeking 35-60

year old women with above average annual household incomes as their core customers. FDDI/FMRM/TTLM/MBA-103

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Filene's Basement (BSMTQ) sells discounted branded and private label merchandise at

prices significantly below traditional department store prices. DSW (DSW) sells dress, casual, and athletic footwear at discounted prices.

Online Off-price Retailers Overstock.com (OSTK) offers a huge range of discounted goods at its online e-commerce

site, from bathroom and kitchen products to sports apparel and jewelry. Blue fly (BFLY) offers a selection of over 350 discounted designer brands on its website. Amazon.com, eBay.com etc. featuring bargain prices or bidding opportunities have lately

included fashion merchandise into their offerings. DesignerOutlet.com is one such site selling overruns of current season fashion merchandise

that is purchased off price.


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Unit-2

Review Questions

1. Discuss roles and responsibilities of various line and staff positions of the merchandising department of a typical department store.

2. Discuss the differences between flagship stores and branch stores of a retail organisation. 3. Write a detailed note on the factors a buyer should keep in mind while buying for an Off-site store. 4. Write a detailed note on the factors a buyer should keep in mind while buying for an Off-price store. 5. Differentiate between a Discount Store and an off-price store. Also discuss various factors their buyers should keep in mind while making purchases.

6. Write a detailed note on Discount and off price retailing in India.

7. How chain store operation differs from flagship operations.

8. What factors the buyers of catalogue retailer and home shopping network retailers should keep in mind while taking merchandising decisions.

9. Discuss (a) Central Merchandising method, (b) Warehouse requisition method; and (c) Price agreement or rate contract method


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Unit-3

Merchandising in an export house

BASIC INTRODUCTION Merchandising in an export house is a process through which products are planned, developed, executed and presented to buyer (Customer of export house). Merchandisers have to negotiate with the buyers on pricing, workout delivery schedules and investigate for future buyers. It also includes directing and overseeing the development of product lines from start to finish. Thus in an export house, merchandising is a combination of business and technical aspects. Overall we can say that merchandising is the core department of the entire industry.

Merchandising activities Communication with the buyer After the head of the Export House, merchandiser is the first person who meets the buyer and remains in the constant touch with him/her thereafter. It is one of the most important functions performed by the merchandiser. The buyer contact has to be kept at both pre and post shipment stages. From the time of initiating the contact to making the sale, then procuring the orders, getting samples approved and following up on production, buyer contact is maintained. It is because of his/her link with the buyer that the merchandiser is synonymous asa buyer’s representative within the organization, and similarly to the buyer he represents his own organization. Thus the success of an export organization largely depends on the efficiency of the merchandiser’s ability to handle and maintain buyer contact. Co-coordinating pre development activities Merchant get protos made in the sampling department and reviews it with the buyer. Once request for the development sample is placed and the first patterns begins taking shape, initial costing is done, to estimate the price of the selected item. To be able to carry out this function successfully and efficiently a merchandiser needs to understand and know his buyers requirements completely and thoroughly. The merchandiser must, therefore be aware of the characteristics of the buyer and the end consumer from the point of view of market segment, price points, age groups, fashion preferences. Apart from this, he/she must also be able to gauge the seasonality of the product and therefore understand color trends, style, silhouettes and fabric forecast. To be able to do this


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he/she requires having thorough source market and product knowledge I order to be able to advice and update the buyer on the latest developments and possibilities. Above all, through the entire process of carrying out this function he/she has to constantly keep the commercial viability of his product in perspective.

COSTING The most important activity for the merchant is to estimate correctly and negotiate for the cost of production before the buyer sent out its PO .During the pre development stage an initial costing occurs to get an idea of the garment cost likely to be incurred per piece. These cost include general raw material cost manufacturing cost washing cost markup cost etc. Once the production sample is approved, final costing is done accurately using fabric averages from the CAD, cost of t rims etc. Costing agreement includes manufacturers cost based on cost of the various raw materials used, and the operating cost of the company etc. Some of the cost components are as followsMaterials: fabric, lining, thread, trims Labour: direct expenses, factory overheads, ware housing and transportation Packing cost: tags, labels, hangers, pins, bags, cartons etc. Overheads: sewing, administrative, financing and interest, returns and allowances Trade discounts & Taxes The merchant first calculates the net weight(weight of the area of pattern pcs + wastage+ collars+ pockets+ patches etc) and then the gross weight(net weight+ cost of trims+ threads+ labels etc) to reach the cost of raw materials. Other cost like those of markup etc. are then added. The company itself normally standardizes these markups keeping in mind the price competition in costing and the profit planning of the organization. At the same time, it is necessary to bear in mind the buyer’s price point requirements and his (the buyers) end consumer as well. Order receiving When the development samples are approved the buyer sends his purchase order. Purchase order gives the firm the authority to seek out raw material for the production process. Co-coordinating post development activities Sampling for the first pre- production samples now begins. The buyer along with the purchase order sends all details for his product in form of spec sheets. These are updated whenever the samples are reviewed for changes. PP meeting occurs for perfecting the styling and fit. The merchant gets the final patterns made from highly skilled pattern master and sample garments are made for layout and FDDI/FMRM/TTLM/MBA-103

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fit approval from the buyer .This is the time between a styles is accepted for the line and when a style is ready for the sewing floor If the samples are not approved they are sent for corrections. When the buyer is satisfied with fit and lay out, s/he sends grading instructions. Following the measurements specified in the graded spec sheet, the CAD develops graded patterns and garments are stitched in all sizes. This is called a size set, which contains all the assorted sizes of the ordered style. It is sent for buyer’s appraisal for every size and if his requirement seems to be fulfilled, s/he sends back a medium sample with an approval seal and a go ahead to start the bulk sample. The sealed sample becomes the final pre production sample. At every stage it is the responsibility of the merchant to get the fabric and the trims arranged for all sample make-up as per the needs. He keeps in constant touch with the buyer and communicates his instructions to the sampling and other departments. He maintains the style package and updates it every time the buyer makes any changes. Selling and booking of orders: Following the functions of product development and pricing the next area of function for a merchandiser is the actual selling of a product range or “getting the buyer to buy”. Buying meetings are held with the buyer either in the country of origin of the products, or, on

sales trips abroad. Participation in trade fairs, buyer- seller meets and other marketing techniques are used to gain orders. Selling is also done through various buying representations of the buyer within the country. Production follow- up: - Once the orders are booked the merchandiser is required to follow- up on production. Because of the level of interface between the buyer and the merchandiser, the merchandiser is best equipped to instruct the production department about the product requirement of the buyer. The merchandiser is also required to keep the buyer up-to-date on the status and progress of his order through the production process through weekly updates. Quality control: - As the merchandisers interface with the buyer is frequent and ongoing, it therefore becomes the merchandiser’s responsibility to ensure that the product meets with the buyers quality requirements. The merchandiser is required to do random quality checks on the merchandise at various stages of production. However, at all times he has to control quality from a commercial viability angle.


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Key requirements for export merchandising Patience and interpersonal skills – Since one has to manage buyers/buying houses as well as factories/various vendors and with no definite time schedule, this becomes a must. Eye for detail – One small missing detail could lead to the cancellation of an order. Cost management – Margins are low and it is reducing day by day. Hence, it is very important to cut cost – this indirectly increases profit. Time management – Late delivery means “air shipment”, and hence, additional cost. In the case of Wal-Mart, they have a ship window (basically a week), after which the purchase order (PO) automatically gets cancelled. There is no scope of negotiation. Quality management – Poor quality means shipment reopening, rechecking, or even cancellation.


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Structure & Working of Merchandising Department Marketing and merchandising team consists of merchandiser and marketing personnel working under a profit control; head. Teams are formed according to the buyers they handle. Senior merchandisers have responsibilities of product development and co-coordinating with the buyer regarding the garment styles that meet buyer’s expectations in regard to the quality and price point. Junior merchandisers have the responsibility of handling the paper work and follow-ups, detailing with buyers, overseas communications etc. once the order is placed it is their duty to complete the necessary paper work, provide break down information to all other departments and get samples approved for fit colour and quality. There are two types of merchandisers Marketing merchandisers or Buyer Merchandisers: They act as a link between the buyer and the manufacturer. Main function of marketing merchandisers is o

Product development

o

Costing

o

Ordering

They have the responsibility of ensuring that the product is developed as per the requirements of the buyer. So in between they have the responsibility of sourcing, sampling and communication with the buyer. Production merchandisers: They are a link between production unit and buyer merchants. They have the responsibility of ensuring that the production goes as per the schedule and as per the requirements of main Buyer. Main functions of product merchandisers are o

Product development

o

Market and product analysis

o

Selling the concept

o

Booking orders

o

Confirming deliveries


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o

Designing and sampling

o

Costing

o

Raw material

o

Flow monitoring

o

Production follow ups

o

Payment follow ups

o

India offers incentives to revive merchandise exports BY ARUP ROYCHOUDHURY NEW DELHI Wed Dec 26, 2012 3:49pm IST 

Mobile cranes prepare to stack containers at Thar Dry Port in Sanand in Gujarat October 1, 2012. CREDIT: REUTERS/AMIT DAVE/FILES

(Reuters) - India announced incentives to revive growth in exports on Wednesday as it looks to narrow a trade deficit that has put the country's current account balance and currency under pressure. As part of the package, the government extended a 2-percentage-point interest subsidy on rupee-denominated export loans for labour-intensive and small-scale industries by one year to the end of March 2014 to cushion the impact of weak demand in developed economies.


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Commerce and Industry Minister Anand Sharma also extended the interest subsidy to the engineering sector, which has been the biggest contributor to Indian exports. However, he did not quantify the monetary value of these incentives. "They are directly linked to productivity, job creation and job sustenance," he said. "A sharp decline in labour-intensive sectors is adversely impacting employment sectors, job creation." Merchandise exports, which make about one-fifth of India's economy, have grown just once in the last nine months. The underperformance of the sector has exacerbated the pain for Asia's third-largest economy, which is battling its worst slowdown in a decade. Economic growth for the current fiscal year that ends in March is forecast to be 5. 7-5.9 percent, the country's slowest since 2002/03. Sharma said falling exports were a "matter of concern" that, coupled with a high import bill, had left the country with a worryingly high trade deficit. India's exports fell by 5.95 percent between April and November from the same period of last year, leading to a trade deficit of $129.5 billion. That contraction has cast doubt on the government's exports target of $360 billion for fiscal 2012/13. "Our export performance has also to be viewed in the backdrop of the global slowdown, particularly the developments in Europe," Sharma said. "The (exports) contraction is directly linked to that." The widening trade gap has swollen India's current account deficit to a record high and pushed the rupee sharply lower. The current account gap stood at 3.9 percent of gross domestic product (GD P) in the April-June quarter, the latest period for which data are available, slightly lower than an all-time high of 4.5 percent the previous quarter. Economists at Nomura expect the deficit to have hit a new high of 4.9 percent of GDP in the July-September quarter due to high non-oil imports.


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The deterioration in the current account deficit caused the rupee to be one of the worstperforming currencies in Asia this year and increased the country's reliance on volatile capital inflows to fund the shortfall. (Writing by Rajesh Kumar Singh; Editing by John Chalmers and Ron Popeski)


Page 60

Unit-3

Review Questions

1. Discuss the main roles and responsibilities of a merchandiser working for an Export House. 2. Discuss structure and working of merchandising department of an export house. 3. What key competencies an export merchandiser must possess in order to work efficiently?


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Unit-4


Resident buying office is a business that provides advisory and purchasing services to the retailers. They are located in wholesale markets so that they can quickly assess the pulse of the market and make the necessary purchases as directed by their client stores.

Necessity for Resident Buying Office Representation When a chain retail organization wants to keep in close touch with market trends and cannot do so with just its headquarters buying staff, these offices, usually situated in important merchandise centers (sources of supply) provide valuable data and contacts.

General Services Offered by Resident Buying Offices

Sourcing Services

Bill Of Quantities Preparation

Purchase Management Services

Material Procurement

Services


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Low Cost Sourcing Solution

Reverse Auction Services

E Sourcing Services

Apparel Sourcing Services

Online Procurement System

Coal Procurement

Consultancy

Apparel Service Provider


Textile Buying Agent

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Proximity to wholesale markets Goods from all of the world’s resources, which might be better priced and better styled, might not have representation at a particular location. Cost of travel to the distant shores may also be prohibitive and time taken may not be practical. Affiliation with resident buying offices makes off-shore merchandise readily available to the retailer.

Communication regarding changes in the market place Changes in market place are communicated to the client retailer in time. For e.g. d elays in shipping from a specific vendor or local changes affecting the supplies from a particular location. Notification about best selling items Opening up of a new vendor featuring a line that would fit perfectly into a buyer’s merchandise mix may not come to the notice of buyer specially representing smaller, less important retailer. Resident buying offices often send fliers regarding best selling items of the season not already recorded in store buyer’s inventory list. Fliers may contain information about recommended item, the vendor’s name, the wholesale price and the names of the stores that have had success with it. Above in formations help the buyer assess the store’s potential for the item. Assessment of economic conditions When economic conditions indicate an increase in consumer confidence, inventories may be expanded while under adverse conditions a tightening of inventories may be required. Most retailers are not in a position to maintain a separate staff to check on the economic factors affecting them. They rely on resident buying offices for such information. Buying Merchandise Placing Initial Order : Merchandise that is purchased for first time is called Initial order. They are usually the responsibilities of the store buyer. However in certain cases resident buyers also place the initial order. Reorders: Replenishment of an item that is sold out. Since such items are likely to be in demand elsewhere also, their timely supply is sometimes difficult. Because of locational advantage and powerful position, RBOs can better motivate the vendor to give these orders priority status. Special Order : Special orders are for the merchandise not usually carried by the store. Since store buyer may not be having expertise in such merchandise these special orders may more easily be accomplished by RBOs.


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Cancelling Orders Finding new resources Recommending hot items Following up orders Group Buying Handling complaints and adjustments Assisting during market week Planning promotional activities Providing global market information Developing private label products Researching

Types of Resident Buying Offices •

The Private Office

•

Cooperative Ownership

•

The Independent Office

The Private Office Retailers of enormous size with specific needs maintain their own buying offices. As for retailers specializing in unique, unusual, highly priced offerings catering to extremely limited mostly affluent market or high volume sellers, affiliation with outside buying houses would be impractical. Cooperative Ownership These types of offices are owned, operated, and controlled by a group of retailers having some common interest in terms of merchandise assortment or price points but not in direct competition with each other. This type of resident buying office provides more exclusivity and attention at relatively lower price than the private office. This also helps in exchange of information from counterparts in same business. The Independent Buying Office This type of buying office caters to relatively smaller retailers without large investments. Through FDDI/FMRM/TTLM/MBA-103

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membership of independent buying office small retailer can also gain access to same timely information as a giant retailer having own private office. Being part of a group, represented by RBO, bargaining position of small retailer also improves. Resident buying offices provide large volume of business to vendors. So, they can arrange preferential delivery for member retailers. Resident buying offices can provide their private labels to their member retailers eliminating price cutting from competitors. Retailer enjoys the luxury of placing smaller orders keeping their inventory low while still getting efficient supply.

Organisational Structure The titles of the buyers/merchandisers employed by large RBOs generally follow the pattern of the stores they represent. The only difference is that responsibilities of those in the employ of RBOs are primarily advisory in nature while the store buyers are decision makers.

Selection of a Resident Buying Office by Retailer Following points are to be kept in mind by a retailer while selecting a resident buying office. Client Rosters: Stores in RBO’s roster must be non competing to avoid direct competition. Services Offered: The retailer must assess its service needs and then select the RBO that most closely fulfills those needs. Cost of Membership: The selection should be made so that the store is properly serviced at an affordable price.


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Unit-4

Review Questions

1. What general and specific services are offered by resident buying offices to their clients? 2. What client specific services are offered by resident buying offices to their clients? 3. How will you differentiate resident buying offices on the basis of ownership? 4. What factors should be kept in mind by a retailer while selecting a resident buying office. 5. Under what circumstances buying office representation becomes necessary?


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Unit-5

Making the Purchase

Purchasing in Domestic Market Vs Purchasing in Foreign Market

Purchasing in Domestic Market •

Purchasing in the wholesale Market

•

Purchasing at the retailer’s premises

Purchasing in the wholesale Market Planning for the visit: Timing and interval of the visits depend on the nature of goods, the store’s proximity to the

market, and the season of the year and business conditions. Advance planning regarding six month plans, Model Stock plans, Price point adjustments,

Changes in pricing policies, vendor analysis, dollar allocations and any other qualitative and quantitative decision making etc. Assistance from Market Specialists is usually taken for-

Making personal arrangement for buyer, Making known buyer’s arrival in important trade papers, Prescreening the collections in advance of the buyer’s arrival.


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The Market Visit: Calling on the Market Specialist: Here the buyer is given a schedule indicating general

meetings, events, individualized conferences, fashion show presentations and market appointments. General meeting: Topics such as price changes market conditions , changes if any in

government regulations , private label offerings , overview of fashion changes like styles, colours, silhouettes and fabrics etc. Individualized Conferences: RBO’s sampling of the market offerings in terms of the styles

offered in bread and butter lines, styles available from lesser known resources, merchandise produced under the RBO’s private label. Visiting the Resources: Visiting the resources for which appointment has been set.

Recording particular styles for possible incorporation into eventual purchase requisitions after comparing all the merchandise in the market. Taking numbers: Recording particular styles for possible incorporation into eventual

purchase requisitions after comparing all the merchandise in the market.

Purchasing at the retailer’s premises •

Vendors send their sales representatives to visit buyers who have either not been to the market or to sell the items recently introduced to the line.

•

These visits help the buyer to get an item that might have been overlooked during market visit.

•

The buyer also gets more time to concentrate on the merchandise which is not possible during hectic schedule of market visits.

Disadvantage: Lack of Exclusivity : Often the stores visited by Road Sales People are in direct

competition with each other. Exclusivity is therefore not guaranteed. Conditions should therefore be put into the purchase order that merchandise will not be offered to other stores in the same trading area. In super markets however such visits are routine.


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Purchasing Through Catalogue •

Useful for product lines that do not change rapidly.

•

Provide opportunity to examine the vendor’s offering at convenient time.

•

Vendor pressure resulting in unwarranted purchases is eliminated.

•

Various catalogues from competing suppliers can be compared simultaneously. Disadvantages

•

Do not allow buyer to inspect actual item.

•

Colours may be different.

•

Fabrics might not feel as expected.

•

Quality might not be as good as the illustration conveyed.

Purchasing in Foreign Market Government’s Role in importing merchandise •

Government Trade Agreements

•

Quotas

•

Tariffs/Duties

Government Trade Agreements General Agreements on Tariffs and Trades (GATT):

Ultimate goal is to eliminate trade barriers among the participating countries by reducing tariffs and quotas. This pact benefits the buyer with equal chance to assess the markets all over the globe. In 1993 the GATT was updated (GATT 1994 ) to include new obligations upon its signatories. One of the most significant changes was the creation of the World Trade Organization (WTO). The 75 existing GATT members and the European Communities became the FDDI/FMRM/TTLM/MBA-103

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founding members of the WTO on 1 January 1995. The other 52 GATT members rejoined the WTO in the following two years (the last being Congo in 1997). Since the founding of the WTO, 21 new non-GATT members have joined and 29 are currently negotiating membership. There are a total of 153 member countries in the WTO. Whereas GATT was a set of rules agreed upon by nations, the WTO is an institutional body. The WTO expanded its scope from traded goods to trade within the service sector and intellectual property rights. Although it was designed to serve multilateral agreements, during several rounds of GATT negotiations (particularly the Tokyo Round) plurilateral agreements created selective trading and caused fragmentation among members. WTO arrangements are generally a multilateral agreement settlement mechanism of GATT. World Trade Organization Agreement: The World Trade Organization (WTO) is an

international organization designed by its founders to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1947. The World Trade Organization deals with regulation of trade between participating countries; it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements which are signed by representatives of member governments and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (1986-1994). The WTO has 153 members, representing more than 97% of total world trade and 30 observers, most seeking membership. The WTO is governed by a ministerial conference, meeting every two years; a general council, which implements the conference's policy decisions and is responsible for day-to-day administration; and a director-general, who is appointed by the ministerial conference. The WTO's headquarters is at the Centre William Rappard, Geneva, Switzerland Major purpose is to guarantee that global trade commences smoothly and predictably and encourage investments by nations in other countries.


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It has formulated a system of legal parameters for global trading among member nations. The ministerial Committee based in Geneva meets every two years to make decisions and settle trade disputes. Tariffs

Tariffs or duties are imposed to protect domestic industry which might be unable to compete with those from other countries. Duty imposed on merchandise is a percentage of appraised value. Rates of duty vary according to merchandise classification and the country of origin. Duty free status is also applicable for specific items. Quota

A quota is the set amount of merchandise that a country’s government allows to be imported in a particular category for the protection of domestic producers. There are two types of quotas-Absolute quotas and Tariff rate quotas. Importers should carefully consider the implications of the rules of duty and quota. The rules and regulations governing tariff and quotas are so complicated that services of experts are advised. Reasons for purchasing foreign merchandise •

Lower Costs

•

Better Quality-Either due to natural resources or due to craftsmanship

•

Greater profit-Higher markup can be placed because of exclusivity factor.

•

Prestige-Couture designs from Paris, Bone china from UK, Suits from Savile Row Mercedes-Benz from Germany etc

•

Non availability in own country.


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Problems related to acquisition of foreign merchandise Delivery-Delays due to unforeseen reasons. Quality variations-Order is placed by sample, description, or illustration and actual

merchandise delivered may differ from what was anticipated. Return of such merchandise is difficult for fear of shortages on the selling floor, besides the time, distance and expenses involved. Reorders -Due to longer lead time, reorder within same selling period is normally not feasible

especially for fashion merchandise. Size Discrepancy-Measurements vary from country to country. Money Allocation-Advance payment is often demanded by the vendor , resulting in tying up

of capital for long periods as orders may sometimes take as long as one year to deliver. Time Involved-Covering foreign markets requires more time. Capital Risk -Due to fluctuations in the rate of exchange of international currency , A

purchase which could be considered a bargain at the time of placing order could become highly uneconomical by the time delivery is made. Actual Cost Determination-Landed cost might be much more than the cost quoted by the

vendor as various other components like transportation cost ,duty/tariff ,insurance , packing ,warehouse charges etc.have to be added to it. Political Unrest - War in Iraq. Global disfavor - Child Labour, Swadeshi etc.

Methods Used In Purchase Of Foreign Goods: Choice of method to be used depends upon-

Size of retailer, Proportion of imported goods in total merchandise mix, Time at buyer’s

disposal Size and distance of Foreign Market and Cost involved.


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Following methods are used-

Visits to Foreign Markets Foreign Resident Buyers Commissionaires - In mainland European jurisdictions, a person who acts in their own name for the account of a principal. The principal is contractually bound to deliver (through the commissionaire) the goods sold to the customer; the commissionaire is contractually bound to the principal to remit the price received to the principal. No relationship is created between the customer and the principal. The commissionaire is remunerated by commission, and paid by the principal. This relationship is similar to that of an agent for an undisclosed principal in the UK. Importers Import Fairs Import Buyer Qualifications Language and culture: Buyer should have the basic ability to greet the seller, communicate

key points of purchase and avoid linguistic faux pas. Computational Skills: In imports it is often necessary for buyer to complete a detailed

importing flow chart that begins with the factory price of merchandise and concludes with the retail price. Comprehension of trade terms

Planning the Trip Abroad:

Arrangement of letter of Credit Itinerary Planning Arranging travel documents, medical insurance and hotel arrangements etc.


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Agent Contacts All arrangements as in case of domestic purchasing

Important trade fairs

GITEX Dubai The GITEX is one of the most important trade fairs in the Arab Emirates in the field of electronics. Trade Show Contact: [email protected] www.gitex.com

Sweets Middle East Dubai Trade Show Contact: [email protected] www.sweetsmiddleeast.com

INDEX Dubai Trade Show Contact: [email protected] www.indexexhibition.com

Location: Dubai International Convention & Exhibition Centre Sheikh Zayed Road PO Box 9292 Dubai, UAE Tel.: +971 (0)4 3321000 Fax: +971 (0)4 3318299


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How To Import Goods From Overseas For Your Online Store

STEVE C

Recently, one of my readers asked for some details involving importing goods, dealing with customs and paying importation taxes. The process may seem complicated at first but isn’t really that bad once you’ve gone through the process once.

Importing your goods from overseas is the best way to obtain quality products at rock bottom prices. But as with all good things, there are several logistical issues you have to work out in order to be successful.

In this article, I’ll try to provide a brief overview of what to expect when importing goods

from overseas along with some details and tips on how to get your goods shipped directly to your place of business.

Photo by Ronnie44052

What To Expect When Importing 

Long Lead Times – Most overseas vendors won’t even begin making your products

until you actually place an order and put down a small down payment to cover the cost of materials. Depending on the nature of your items, expect to wait anywhere from one to four months to get your products manufactured. Very rarely will any vendor actually FDDI/FMRM/TTLM/MBA-103

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carry any significant inventory so you must plan ahead. When we order the linens for our online store, the lead times are typically 3 months long so we really have to plan ahead and anticipate demand. 

A Hefty Minimum Order – If you are ordering products to be manufactured overseas,

expect to place a pretty large minimum order. Every manufacturer will have their own minimums but don’t be embarrassed to ask before ordering. If you are just starting out,

take whatever you consider a large order and multiply that number by 10. 

Payment Terms – Most if not all manufacturers expect to be paid by wire transfer.

Usually, you have to put down a certain amount of money upfront to cover the initial costs and then pay the balance once the items are ready to be shipped. There are escrow services available to handle payment issues, but in general, transactions go much faster when there’s mutual trust between you and your vendor. Of course, you’ll have to

establish this trust over time. 

Quality control – Quality will be an issue in the beginning. In general, it will take

several iterations in order for you to get your products exactly the way you want them. 

Language Barriers – Many vendors in Asia will not speak English very well. But as

long as you keep your communication along the lines of email, things will go much smoother. Most vendors are able to read English much better than they can understand the spoken language.

Preparing For Your Shipment

So you’ve ordered your products and they are finally ready to be shipped to you. What now?

There are two main ways to get your goods into your home country, by air and by sea.

But before you initiate your shipments, make sure you ask for the following documents from your vendor. These will be required in order to clear customs. 

A Commercial Invoice – The declared value of the items



A Packing List – What you are importing



A Detail Sheet – Outlines how the products are manufactured so customs can determine

the duty classification 

Bill of Lading


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Shipping By Air

Shipping your items by air is by far the easiest option but also the most expensive. Expect to pay between 5-6x more to ship by air versus shipping by sea.

Personally, we use DHL for all of our international air shipments. Our vendors all have accounts with DHL and shipping with them is a breeze because they take care of everything.

Basically, the vendor provides DHL with all of the materials mentioned above and then DHL will transport all of your goods directly to the address that you specify. If this is your first time importing goods from overseas, you will be contacted by customs to provide your social security card or a company id number. Just have this information handy once your goods have shipped and you are all set.

DHL will also send you a bill so that you can pay any and all duties associated with your imported goods.

Shipping By Sea

Shipping by sea is a much bigger headache but totally worth it if you are importing a large volume of goods. As mentioned before you can easily save between 5-6x off of shipping by air.

The key to accepting shipments by sea is to hire a good customs agent. This is absolutely required especially if this is your first time importing by sea. Do not try and do things on your own unless you know exactly what you are doing.

This is what the customs agent will take care of for you. 

Customs Documentation – They will take care of any and all documentation required in

the entire process 

Customs Entry – They will take care of getting your goods from the port directly to

your office 

Customs Duty – They will take care of calculating and billing you for any duties

associated with your goods.


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

You are required to buy a bond that acts as insurance Customs Single Entry Bond – You with Customs in the event you should default on the customs duties. Your customs agent will take care of this for you .

Of course all of these services come at a cost. For our last shipment, we paid over 300 dollars to our agent but it was worth every penny. We got our goods through customs swiftly and without hassle.

To give you an idea of the savings, our last shipment would have cost 1600 dollars by air, but by sea it only cost us 250 + 300 30 0 = 550 dollars. Overall, we saved about 3x. 3 x. The tradeoff was that it took over 3 weeks to receive our shipment as opposed 4 days by air.

MANAGE FOREIGN SUPPLIERS

Trading with foreign suppliers raises a number of issues you may not be familiar with from trading within Canada. Typically, these include language differences, new payment methods and increased paperwork requirements. However, with a little research and planning these challenges are easily overcome. Widening your purchasing to the international market can give you a significant competitive advantage. Using foreign suppliers can lower your input costs and give you access to specialised goods and materials that may not be available in Canada. This guide contains basic information. It outlines the differences you need to take into account when starting to trade abroad. It takes you through the key steps in finding and selecting foreign suppliers, and explains what to look for in terms of payment methods and drawing up contracts. 

The challenges of sourcing abroad



Finding foreign suppliers



Choosing a foreign supplier



Building solid relationships with foreign suppliers



Methods of paying foreign suppliers FDDI/FMRM/TTLM/MBA-103

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

Drawing up contracts with foreign suppliers THE CHALLENGES OF SOURCING ABROAD

Trading with foreign businesses differs from trading within Canada. New challenges are raised by the distances involved, by variations between countries, and by rules that govern international trading. Legal considerations It's not safe to assume that the same rules will apply abroad as in Canada. Factors to consider include: 

whether there are import or export restrictions at either end of the transaction



whether technical standards in your supplier's country meet Canadian requirements



who is liable if a product causes harm or loss



whether your imported goods infringe any intellectual property rights



who bears insurance costs at each stage of transit A well-drafted written contract will help to avoid disagreements or disputes. See the page in this guide on drawing up contracts with foreign suppliers. Other considerations There is a range of other factors you should bear in mind:



Language differences matter. It's not just a question of communication - make sure any

labelling or other printed materials are error-free. 

Payment methods for international transactions are a bit more complicated. See the page in

this guide on methods of paying foreign suppliers. 

Shipping procedure proceduress are also more complex, given the increased distances and the need to

cross borders. 

Understanding the business and social practices of your supplier's country can help build trust and develop relationships. However, remember that Canadian consumers may judge you on the business practices of your suppliers.



Think about how many suppliers you need. If you have too few you risk suffering supplychain disruption if they have problems. If you have too many your managerial burden will increase.


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The origin of your goods can affect the level of duty you pay. Some goods attract a preferential rate of duty, dut y, so you need to check where your supplier's sup plier's raw materials have come co me from. Visiting suppliers is the best way of doing this. FINDING FOREIGN SUPPLIERS SUPPLIERS

As with finding a domestic supplier, careful research is key to identifying foreign suppliers. You will have to identify countries to trade with, as well as individual suppliers within those countries. Identifying suitable countries For most goods and materials you can choose to import from a wide range of countries. Expect a trade-off between prices and levels of regulation and protection. Suppliers in developing countries may be cheaper but it may be more difficult to resolve any problems. Factors that should shoul d influence your decision decis ion include: 

familiarity with the country - knowing your target country and having contacts within your

sector there makes doing business easier 

communication - if you (or your employees) don't speak the local language, check that

English is widely spoken by businesses, or whether there are translators and interpreters available 

level of development - it's generally easier to trade with developed countries than with developing developin g ones



how far away the country is - this affects shipping costs, the length of your trading cycle, and the ease of visiting suppliers if necessary



levels of existing trade with Canada - high volumes suggest other businesses have successfully chosen the route you're considering Identifying suitable suppliers There are many sources of information about potential suppliers, including:



our Strategic our Strategic Information Centre



trade associations for your sector



other importers in your sector





banks' trade services departments d epartments overseas trade visits and exhibitions FDDI/FMRM/TTLM/MBA-103

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

your target countries' embassy in Canada



membership organisations for businesses trading between Canada and your source countries Trade-services suppliers Remember you may need secondary suppliers to help with the trading process, such as freight forwarders or import agents to handle shipping and customs-related formalities and documentation. CHOOSING A FOREIGN SUPPLIER

You should have the same priorities in mind when selecting a foreign supplier as when choosing a Canada-based one. You need to get the right price and quality, while making sure the supplier can be relied upon to meet high standards consistently. The reliability of your supplier is crucial. While a competitive price is also important, make sure that low prices don't come with unacceptable compromises on quality or on the level of service you'll receive. The main stages in the supplier-selection process are: 

drawing up a shortlist



comparing the short-listed suppliers on the basis of value for money, reliability and creditworthiness



visiting the suppliers, if possible, to see their operations



deciding which of the suppliers to work with Value for money Make sure that you're happy with the price and quality the supplier is offering. Get a written quotation.

Ask for a sample based on your specification to make sure the supplier is capable of producing what you need. need . Reliability It's important to research supplier reliability. If possible, visit the supplier. Look at their work and their production system. Find out as much as you can about the supplier. Talk to: 

any Canadian references the supplier can give you FDDI/FMRM/TTLM/MBA-103

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

Canadian importers with experience in the market



trade associations and other importers in your sector



member organisations for Canadian businesses trading with the market You should also check the reliability of any sub-contractors your supplier may be outsourcing work to. Creditworthiness Financial checks of foreign suppliers can be difficult due to a lack of accessible financial information. See if your bank's international trade team can carry out a status query - a query into the company's financial standing on your behalf. Be cautious - avoid advance payment or long-term contracts until you trust the supplier. See the page in this guide on methods of paying foreign suppliers. BUILDING SOLID RELATIONSHIPS RELATIONSHIPS WITH FOREIGN FOREIGN SUPPLIERS

Trust is a crucial element of any supplier relationship. While it can take time and planning to build a solid relationship relation ship with foreign suppliers, supplie rs, doing so makes it more likely likel y that you'll do increased business with them. It may even enable you to negotiate more favourable terms. Build trust gradually The key is to build the trading relationship slowly. Initially you should leave nothing to chance. Draw upwritten contracts that are clear and unambiguous. See the page in this guide on drawing up contracts with foreign suppliers. Typically your first contracts with a new supplier will be on a project-by-project or shipment by-shipment basis. As the relationship relati onship develops you may move to longer contract periods pe riods and potentially be able to negotiate ne gotiate better terms. An important part of building trust is learning how things work in your supplier's country. Are there important cultural and social differences, or differences in the way business is done? Communication Communication is an obvious potential obstacle when dealing with foreign suppliers. Even simple actions such as routine telephone calls can be complicated by factors such as time differences and low-quality phone connections.


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Face-to-face meetings are likely to be infrequent, but they can be vital to the trust-building process - so plan them carefully. In addition, there are potential language barriers. Which language will you use with your supplier? Do you have enough foreign-language speakers in your workforce? Do these employees have the skills they'll need to deal with your suppliers? Would it help to use local interpreters, especially for key meetings, to avoid misunderstandings? Monitor, review and adapt Make sure you monitor key aspects of the new supplier relationship. This will make it easy to identify areas for possible improvement. Schedule progress reviews with the supplier. If there have been any problems, decide together how to resolve them. If everything has been working smoothly and profitably, you may want to extend the level of business you're doing together. METHODS OF PAYING FOREIGN SUPPLIERS

There are four main methods for paying foreign suppliers for the goods you import from them - or for receiving payment if you're exporting abroad: 

Advance payment. The supplier only ships goods once payment has been received.



Letters of credit . The importer's bank guarantees to pay when presented with a set of

specified export documents by the supplier - the bank guarantee increases the cost of this method. 

Documentary collection . When goods are shipped, the supplier sends the export documents

to the importer's bank. These documents are only given to the importer when payment has been made. 

Open account trading . The supplier ships goods to the importer, and asks for payment

within an agreed period. Minimise payment-related risks For importers, the risk decreases as you move down the list above. Advance payment is the riskiest - there is a chance you'll pay but never receive the goods. Open account trading is the least risky - you only pay after receiving the goods.


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For exporters, however, the risk increases as you move down the list. So while you might prefer open account trading, your overseas supplier may want advance payment. Letters of credit and documentary collections offer some protection to both parties by involving their banks as intermediaries in the process. The International Chamber of Commerce has established rules governing documentary credits worldwide. The Uniform Customs and Practice for Documentary Credits (UCP500) is a set of internationally accepted rules on the issue and use of letters of credit. These rules are commonly used by banks in commercial transactions worldwide. As they are incorporated into contracts voluntarily, the rules are flexible, but once applied to any documentary credit, they are binding on all parties to the credit, unless specifically modified or excluded by the credit. Match payments to cash flow needs Payment methods can have a major impact on your cash flow position. Most banks offer import finance packages to bridge the period between paying for your imports and receiving payment when you sell them on to your customers. Bear in mind that payment methods and terms are frequently a matter of negotiation. For example, you might offer a supplier a letter of credit in return for an extended 75-day payment period to match your cash flow requirements. DRAWING UP CONTRACTS WITH FOREIGN SUPPLIERS

There are many sources of potential confusion between an importer and a foreign supplier, from language difficulties to differences in business practices. Drawing up a clear written contract is the best way to avoid problems. If disagreements do arise, they will be easier to resolve if you have a written contract rather than a verbal agreement. Your contract should make all aspects of the trading process as clear as possible - what will happen, when it will happen, and exactly what each party is responsible for at each stage. There are standard trading practices and systems to help you agree on key issues. Incoterms are an internationally recognised set of trading terms used in contracts of delivery. Special trade-related payment methods reduce the risks and uncertainties of international trade. FDDI/FMRM/TTLM/MBA-103

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What to include

Key things to cover in a contract with a foreign supplier include: 

Goods. Specify what goods are being bought, noting any legal or technical rules with which

they must comply. 

Price. How much will you pay? In which currency? At which exchange rate?



Payment method. When and how will payment be made? See the page in this guide on

methods of paying foreign suppliers. 

Delivery. How will the goods be transported to you?



Trading terms. Use Inco terms to specify exactly who is responsible for shipping costs,

duties, and customs-related formalities. You can find out about Incoterms on the International Chamber of Commercewebsite. 

Insurance. Be clear about who bears what risks - e.g. loss or damage - at each stage of the

process. 

Potential problems. Include procedures that would be implemented if a dispute arises, e.g. if

one party's error causes delays or losses for the other. 

Service level agreement. Define the level of service your supplier must provide.



Legal jurisdiction of the contract. If there is a dispute, where would legal proceedings be

heard? Bear in mind that the contracts you enter into with a supplier will evolve with your trading relationship. While early contracts might be on a shipment-by-shipment basis, longer-term contracts might follow as familiarity and trust develop. Original document, Manage overseas suppliers, © Crown copyright 2009 Source: Business Link UK (now GOV.UK/Business) Adapted for Québec by Info entrepreneurs


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Unit-5

Review Questions

1. What assistance a market specialist should provide to the client buyer during latter’s market visits? 2. Discuss various problems related to acquisition of foreign merchandise. 3. Discuss advantages and disadvantages of buying at retailer’s own premises vis-à-vis purchasing through catalogues. 4. Write a detailed note on government’s role in importing merchandise from abroad. 5. Elaborate upon the need of sourcing merchandise from abroad.


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Unit-6

Merchandiser’s role in an organization from vendor contact to merchandise delivery

Selecting merchandise resources: Many factors might be considered while selecting a

source likeCompatibility of the merchandise Offered in terms of price points, style and consumer

preference. Vendor’s Distribution Policies: Exclusivity to avoid competition. This may however

require placing large Orders. Promotional merchandise policies : Preference in closeout deals so that bottom line can be

bettered in case of special sales events. Advertising Allowances: To stretch the advertising budget, contribution from vendors is

sought. The concept is known as cooperative advertising . Shipping and Inventory Maintenance : Ability to handle large orders, willingness to fulfill

even small orders and Speed of delivery for orders and reorders. Competitive Pricing: Other factors being equal best priced merchandise should be chosen. Adherence to Purchase Order : Vendors should religiously adhere to the parameters set by

buyers.

Periodic evaluation of resources

Periodically the buyer must weigh and measure the contribution of each resource in every price point. A number of records are kept for the purpose likeResource Diaries: Important information about each resource like type of merchandise

offered, location, contact people, importance to store, terms of purchases made in the past etc. is maintained in loose leaf files. This need to be updated on regular basis.


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Principal Resource List: The document lists company’s principal resources ranked by the

total purchasing done with each resource. It gives a trend of growth or decline with each vendor on a seasonal or annual basis. Any decline in relative growth of a supplier requires further determination as to whether the resource should be replaced or problem could be rectified. Vendor Analysis Forms: This features a presentation of gross margin for each style of each

vendor. Other Information Used For Vendor Evaluation:

Ability of vendor to meet delivery dates Pricing Accuracy Substitution history Return history Handling of adjustments Terms of purchase Compliance with shipping instructions Adherence to special requests Time frame for reorders Establishing Vendor relationships

To receive favourable treatment from dealer following is importantOrders should be placed early to provide sufficient time to vendor for delivery. Cancellations of order should be avoided. Payments should be made promptly.

Merchandise returns should be avoided. Unfair price cutting creating problems for vendor’s other clients should be avoided. Confidential Information about a vendor should not be divulged to his competitors. FDDI/FMRM/TTLM/MBA-103

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Classification of resources Manufacturers

By the elimination of middlemen delivery can be expedited and better prices can be obtained. and merchandise can be tailored to retailer’s specifications. Due to minimum order requirement, only big retailers are able to take advantage of direct buying. Small retailers may however pool their orders by forming buying groups. Wholesalers:

Allows for small inventory. Retailers can buy vast assortment of different manufacturers under one roof. Prices are generally higher to provide for wholesalers profit and r etailer’s margin is lower. Rack Jobbers:

No outlays of money until the products are sold. No risk of markdowns. No time is needed to make purchase Store’s employees are not concerned with merchandise handling.

Timing the purchases

Traditional retail stores go for Fashion-first concept. Stores Which want to keep low inventory, however prefer Hand-to-mouth buying . Off price retailers follow opportunistic buying practices.


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Negotiating and writing the orders Cash Discounts: Reductions in selling price awarded to retailers for prompt payment of

their bills. 2/10 n/net 30=2% discount if paid within 10 days and no discount if paid within 30 days, after which interest may be charged. 8/10 EOM=8% discount if paid within 10 days after the end of month of date of invoice. 8/10/net30 ROG =8% discount if paid within 10 days after the end of month of date of delivery. 8/10/30-60X=8% discount if paid within 70 days after the end of month of date of delivery. Trade Discount : Different trade discounts are offered to different type of customers based

on business classification of that customer like-another manufacturer, a wholesaler, a retailer or sometimes an ultimate consumer. Quantity Discounts: Offered as an incentive for buyer to place larger orders. However

overbuying of an item can result in a markdown wiping of the benefits of Quantity discount. Seasonal Discount :Seasonal products are offered on discount for buying prior to the

beginning of season. Buyer must assess his/her storage capacity as well as capital requirements. Buyer must also guard against problems related to early purchase like early selection of colour, price changes and OTB. Advertising Allowance: Vendors pay up to one half of the costs of retailer’s advertisement

for vendor’s products. Post Dating: Negotiating for additional period of time before bill becomes due and still

takes advantage of cash discount. This enables the retailer to sell some of the merchandise before payments must be made. Transportation Cost: Buyer should try to negotiate with the buyer to share the

transportation cost as it forms a part of cost of merchandise. Size of Shipment: It is less expensive to ship a full container load than a partial one. Buyer

should consider the timing of purchase so that one large order can be placed instead of many smaller ones. FDDI/FMRM/TTLM/MBA-103

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Timing of delivery: Ordering should be done far enough in advance to take advantage of

low cost transportation as rapid transportation like airfreight or courier is costlier than slower modes of transportation like waterways or railways. Selection of Carriers: Best choice should be made after comparing the rate schedules of

different carriers. Packing Considerations & Insurance Protection:

Different options should be considered as also the party who will bear the cost-Vendor or retailer. Anticipation :

Extra discount if bill is paid before the end of the cash discount period otherwise simple discount. Anticipation=Net cost X [Prime interest rate/100] X [Unused discount days/360] An invoice of the amount Rs.1000 dated 8/6 carries the terms 5/10/net 30, anticipation allowed. The prime rate is established at 12%, and the invoice is paid on 13/6.Find the net amount paid to the vendor.

How to Negotiate Setting Limits: Amount of merchandise needed in terms of value as well as units for a

profitable season. Justifying the Offer

Special sale to be held by the store New designs may present some risk Merchandise is being late in the season Splitting the Difference


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Breakthrough Negotiating

What’s at stake?

Who are you up against? How prepared are you? The Tactics of negotiations

Know your bottom line Know your vendor’s objectives

Listen very carefully Create a win/win/win scenario Dance with give and take Never be the first to mention a number Know your bottom line

Know the vendor/product history Prioritize your objectives Don’t be satisfied with the Status Quo - be prepared to ask for more

Convert weaknesses into strengths Know when to walk away Know your vendor’s objectives

Do your homework with due diligence Are you working with someone who can authorize a concession? Bear in mind that most sales people are on commission. Listen very carefully

Listen with all your senses FDDI/FMRM/TTLM/MBA-103

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Pick up on non-verbal cues Silence can be golden Avoid negotiating via e-mail Create a win/win/win scenario for-Me - You - Us

Vendors are human too Long-term partnerships tend to evolve into proprietary product development Best products tend to come from existing vendors Existing vendors are less expensive to work with

Dance with “give and take”

Avoid tug-of-war games and ultimatums Know what would be “nice to have” and what you “must have”. Don’t take it personally

Develop patience It’s not just about price

Trading concessions Vive la difference

Cultural Appearances Geographic Gender Get to know the person, always show respect and allow them to save face.


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Never be the first to mention a number

First person to mention a number loses! Answer a direct question indirectly Consider the package Writing the Order

Written order is a type of contract. It should therefore be written with extreme care. It is practically easier for accounts and godown personnel if all departments use the same form. It should be made in sufficient number of copies for proper processing at different departments. Legal conditions should be clearly set forth. Following up the Order

A tab can be kept by direct visits, through RBO, or contacts by telephone, fax or e-mails . Vendors might have genuine problems like late delivery of raw material. Vendor may have affected delivery to a more favoured retailer. Vendor Relationship Management

Vendor recognition & awards Shared strategies Passing the ball. Establishing Future Vendor Relationships

Remaining loyal to a vendor Not indulging in unnecessary merchandise returns Prompt payments. All points elaborated in establishing vendor relationship


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Snap Shot

Top 3 Vendor Management Trends for 2014 published in Industry Trends on January 28, 2014

Vendor management is a crucial process in maintaining a successful retail operation. It’s critical that retailers develop excellent relationships with their

vendors to ensure constant access to the latest and greatest revenuedriving products. Communication is the key to these productive relationships – by effectively communicating, both parties will be able to maintain agreements, make responsive changes when needed, and understand what goals need to be met. A retailer that has a strong relationship with their vendors thanks to effective management and frequent, thoughtful communication will be quicker to identify and make available for sale products that are mostcoveted by their customers. Here are some new vendor management trends to monitor in 2014: 1. Technology-Induced Flexibility

One of the top vendor management trends is increased flexibility offered by vendors to retailers. As more and more information goes digital thanks to innovations like inventory and product availability data hosted in the cloud, vendors are providing with more direct access to their entire selection of goods available for sale. This increased flexibility in many cases will lead to retailers having greater access to external, or vendor-owned inventory, which will help them drive revenue growth by making available for sale inventory that is housed by


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their vendors and shipped on-demand. Advances in business management technology is helping retailers automate drop-ship and just-in-time order fulfillment processes, leading to retailers spending more time growing their product catalog, and less time managing orders. 2. Retailers Will Be More Vigilant in Guarding Against Data Breaches

Data security is a big issue for many retailers, as has been illustrated by the various high-profile security breaches that have occurred recently at major retail establishments. Retailers who leverage external vendors to drop-ship orders are at risk of having customer data exposed in the event of a data breach, which will drive changes in vendor management by retailers looking for more protection for the customer data they do transmit to vendors for purposes of fulfillment. Those in management roles at retailers may seek to raise the security standards for doing business with their respective product fulfillment and 3PL logistics partners to mitigate security risks. 3. On-Boarding Vendors Will Rely More on Automation

When it comes to on-boarding new product vendors, expect more automation. Amazon has been at the forefront of having vendors “self serve” their inventory and product offerings to Amazon’s vast customer

network through their proprietary seller portal. Retailers looking to stay ahead or simply keep up with the retail juggernauts like Amazon will seek to implement automation of their own when signing up new vendors, in order to facilitate an increase in the speed-to-market with which they can sell a new line of product(s) from a new vendor in order to stay competitive. Having the right vendor and purchase order management solution from a technology perspective will be more and more critical to retailer success as the automation trend continues to grow in retail.


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Unit-6

Review Questions

1. What factors would you consider while selecting a source for merchandising? Write a note on periodic evaluation of merchandise resources. 2. Differentiate between Cash Discount, Trade Discount and Quantity Discount. 3. What factors should be kept in mind to ensure good vendor relations. 4. List and explain major issues a merchandiser should negotiate with vendor apart from price before actually placing the order. 5. Write short notes on (a) Advertising allowance,(b) Post Dating & (c) Anticipation.


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Unit-7

Additional Roles and responsibilities of a merchandiser

The Key Merchandising Competencies •

Effective communicator

•

Appropriate interpersonal skills

•

Advanced numerical capabilities (To work out budgets, understand sales figures, prices, markups etc.)

•

Ability to translate customer’s wants into specific products.

•

Ability to work in a team

•

Itinerant-Should love traveling.

•

Awareness of general economic conditions to anticipate consumer buying patterns.

•

Resourcefulness, Good judgment, self confidence, Quick decisions, Ability to take risk and marketing skills.

Roles & Responsibilities Line Functions: These are mainstream activities fundamental to an organisation’s mission. In Retail context they include Merchandise buying, selling, pricing and store operations. Staff functions: These are not directly involved in merchandising department ’s mainstream activities but support or advise line functions. For example fashion forecasting, comparison shopping, vendor bill verification lab testing, quality control etc. Separation of buying and Selling Paul Mazure identified buying and selling as related activities and proposed merchandising functions to include (1) Merchandise procurement and (2) store level activities like customer service and Stock keeping. As single store operations evolved into multi unit chains, these functions became separated . Buying FDDI/FMRM/TTLM/MBA-103

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became a corporate level function while merchandise presentation and inventory management became a store level function. Contemporary Buyer’s functions Corporate Functions & Field Functions Corporate Functions These functions are performed within a company’s central organisation or corporate office. Such functions include –Buying, Finance, and Sales Promotion etc. Field Functions: These are the functions which are performed in a remote or satellite operation like stores or vendors locations. Main Functions of buyers •

Buying

•

Planning

•

Budgeting

•

Pricing

•

Distribution

•

Product Development

•

Developing Private level Programme

•

Disseminating Information

•

Advertising, Special Events Etc.

Buying functions include composing assortments that will appeal to target customers in terms of price, quality and individual taste, obtaining best possible goods at lowest possible price, and Pricing them low enough to be competitive with other retailers yet high enough to meet organisation’s profit goals. Buying functions for Fashion goods involve higher risk than for basic goods such as Hosiery as it is based on uncertain predictions of consumer acceptance of new styles.


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Buying for basic goods are often just reorders of historically best selling brands, styles, colours and sizes. Planning involves projecting sales and inventory based on an analysis of sales history, current market trends, and performance objectives of the retailer. This requires determining what should be bought, deciding on the quantity of each item, selecting resources and determining the appropriate time for the merchandise to be made available to customers. Planning is a statistical function requiring analytical aptitude and ability to make multidimensional decisions on part of buyer. Distribution (Allocation) Allocating arriving shipments of merchandise to individual stores based on each store’s capacity, current sales trend s and inventory levels and correcting stock imbalances in store. Product Development: Determining the product to be developed internally with store’s private label to inculcate some uniqueness to their product offer. This requires the buyer to determine what their customers want and suggest the styles that might be created to be included in inventories. This requires establishing specifications for the design, production and packaging of goods. Contracting manufacturers or company owned factories to manufacture the goods according to specifications. In very large organisations there might be company owned factories that do their own manufacturing. Need for developing private labels

Helps getting around the problem of competitor’s pricing.

Allows the store to stock goods that none of its competitors carries and therefore can’t be comparison shopped. Require very little selling or other promotional expenses for the manufacturer and therefore available to retailer at more economical rates allowing higher than normal markup. No manufacturer’s interference in merchandise returns, setting of retail prices and timing &

amount of markdowns.


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Width and depth of private label

Department Stores and many traditional chain store organizations do not use private labels extensively. Many off price retailers incorporate pvt. Labels to some extent. They attract customers by manufacturer’s brands while motivating them to buy some of their own labels. Some stores carry entire inventory consisting of private labels. The store’s name and private

label it carries becomes one and same in this case. Methods of Acquisitions •

Direct Outside Sources

•


•

Company Owned Production

Direct Outside Sources National Manufacturers : They produce goods under their own labels as well as for

retailer’s private labels.

Advantages: As producers maintain good standards for their own products, the private label assortments feature the same quality. Private label Manufacturers : They deal exclusively in items produced for retailer’s p rivate

labels and brands. Advantage: They design the goods according to the retailer’s specifications coupled with

their own expertise and deliver the finished goods to retailer. Resident Buying Office Acquisitions

They develop the product for the exclusive use of their clients within a geographical location. This type of acquisition generates exclusivity within a certain radius. Very little effort is required by the retailer towards product development.


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Especially beneficial for small retailers who are unable to develop their own programmes. Company Owned Production

By eliminating profit margins of outside manufacturer’s and contractors , the costs are

reduced and can be passed on to customers resulting in greater profits. Factories work exclusively for retailer and therefore able to tailor the products according to their specific needs. Better quality control can be ensured. Retailing and manufacturing however require different expertise and initial as well as running costs for company owned productions are high. Buyer’s Role in Product Development

Traditionally buyers made their purchases from vendors who produced the merchandise that best suited their (buyer’s) needs.

For buyers who work for retail organisations incorporating private labels, product development and acquisition is also part of job. Buyers are not designers who create the styles and models yet they provide their own inputs to designers. By virtue of their interaction with vendors as well as clientele , buyers know what market has to offer and what customer needs require satisfaction. Through regular scanning of manufacturer’s and designer’s lines ,they know what is being

offered in terms of price , style , fabrics and colours etc. Buyers also take their clues from popular events such as films , stage shows , room settings in a magazine etc. Buyer must always be on a lookout for something exciting from which idea can be taken. Many retail buyers and Store personnel have gone on to become Designers due to knowledge gathered by them as buyers. For example, Parry Ellis-Designer from Store Buyer and Ralph Lauren-Designer from Store Sales Person


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Introducing a private label programme

Creating of separate departments in the store to feature the private line. Interior and window visual presentations to dramatise the private labels. Extensive advertising campaigns in a multimedia approach Customer give aways such as carry bags, pens etc emblazoned with private label signatures. Sales training for employees so that customer’s questi ons can be answered quickly and

satisfactorily. Fashion shows and informal modeling of the item Shopping bags that display the new labels. Naming the private labels The company name or Image builders The company name: Store brand or umbrella brand or Image builders: Using names that

are reminiscent of designer signatures, Exotic locations, regions that impart a particular image, legendry personalities or sporty sounding labels or a particular era.

Buyers Role in planning Advertising, Special Events, and visual merchandising Advertising classifications: Promotional advertisements & Institutional advertisements Promotional advertisements: Promotional advertisements are used to draw customer’s attention to a particular style, a special sale or a particular designer’s offerings. Intention of promotional advertising is to bring immediate attention to the product in the hope that it will increase business. Institutional advertisements: These ads concentrate on improving retailer’s image by focusing on company services, association with charitable organisations, raising consumer awareness on social issues etc. They do not bring immediate results or focus on a particular buyer’s merchandise but they are long term investments. Combination advertisements: They combine both the institutional and promotional concepts. For example sales ads with national or environmental or social overtones are released.


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Cooperative Advertising: In this type of advertising vendor also contributes in retailer’s advertising expenses. Vendor contribution is called allowance. Amount paid by vendor is usually based on the size of purchase order. Motivation for purchase should however never come from the size of allowance. The Promotional Budget Apportioning the allocated funds for advertising and other promotional Endeavour's, ensuring that the budget lasts for the designated period as well as covers all the outlets.

Visual Merchandising: Buyer’s role in visual merchandising is not only selecting the merchandise that needs to be featured but also to provide guidelines for Store decor, signage, and display fixtures, setting standards for presenting merchandise, developing planograms or floor layouts. Designing new stores or renovating existing ones. Organizing formal displays, deciding about placement of merchandise on the selling floor and overall designing of the sales arena to augment the goods offered for sale. It also involves deciding the lighting that focuses on the goods and signage that is strategically placed. Department managers should also be properly schooled in the basics of visual presentations so that they do not have to wait for visual team to visit in case immediate changes are required.

Special Events: Promotional Events & Institutional Events Promotional Events are special events used to sell specific merchandise by organizing fashion shows, arranging special appearances by celebrities or demonstrations by vendor representatives. Buyer is responsible for making contacts, and develops the promotional concepts. Institutional Events are not necessarily designed to promote specific merchandise but to increase overall traffic and to promote the store’s image by generating customer interest. For e.g. Festival window displays. Buyers do not play specific roles in the events but are required to-ensure adequate inventory levels, decide about the Markdowns and arrange for special holiday merchandise etc.


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Retail Event Ideas Getting traffic into your retail store requires marketing, press coverage and clever ideas that compel people to make the effort to head to your store. A successful event also gives you a chance to track visitors and further market to this group during the rest of the year. When planning an event, make sure you focus on both creating a memorable event with your goods beautifully displayed and providing helpful, willing staff who help close the sale. Contests People love contests and the bigger the contest, the better. The key to a successful contest event is holding it over a short period of time and using a kickoff day to start the contest. Decorate your retail space with colorful balloons and other decorations and turn the contest kickoff day into a party. Create a welcoming atmosphere by offering small cups of beverages and snacks and put on a large display showing the winning items. Make sure people fill in entry forms for the contest so you can continue to market to them after the event. Once the contest is decided, inform the press about the winner so you gain added coverage about your business. Demonstrations With the goal of getting foot traffic into your store, consider offering demonstrations of your products as well as noncompeting products from businesses in your area. The businesses you invite to give the demonstration will love participating and may reciprocate, or likely send customers your way in the future. Plus, you get much needed foot traffic. Better yet, encourage a few stores in your immediate area to offer demonstrations on the same day, then collectively advertise and invite the press to list the upcoming event and cover it, too. Thrift Store Sale Ideas Thrift store sale ideas can be successful if they are developed based on the interests of your staff and local community. Ongoing promotions attract frugal shoppers who can become the main source of revenue in the retail business. Discover clever methods of using selective discount programs and sales events to boost profits in your thrift store. 'Yard Sale' Extravaganza Host a "yard sale" that helps local residents and small businesses generate extra revenue simultaneously. Rent tables and vending space to people who have clothing, crafts, antique furniture or related items to sell at your store. Rearrange your thrift store to accommodate a large number of customers, if possible. Allow vendors to rent booth spaces both indoors and outdoors to increase your profit margin. Charge higher vending fees for indoor spaces to cover any utility expenses your thrift store incurs during the yard sale. Friends and Family Discounts Implement a discount program for thrift store employees and their families to build a loyal customer base. You can apply this discount using a variety of methods


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including employee coupon books or custom printed discount cards. Extend the discount program to local businesses and residents who donate merchandise to your thrift store. Rewarding donors by providing them with discounts on their subsequent purchases can help maintain a stable inventory of new and used goods in the store. Friends and family discounts are thrift store sale ideas that can also be used as incentives for employees who work at your business during the holiday season. Theme Sales Offer significant discounts on all purchases made at your thrift store on specific days of the week. Develop catchy themes for these weekday or weekend sales to help local resident identify with these events. Schedule your storewide discounts to occur on a weekly or monthly basis. Theme Ideas for Promotions A marketing promotion to bring in potential customers needs to be enticing enough so that people will go out of their way to visit to your business. You cannot feasibly give items away all the time, but you can dangle the chance of getting something for free to get the customer to stop by. Once the customer comes through the door, your promotional theme needs to stand out and lure them to buy your products. Weather Theme Have a weather theme for a promotion, equipped with all the things to fight off the elements. Use clouds that have a silver lining for your biggest giveaway prizes or discounts. Umbrellas, sunglasses and ice scrapers can be integrated into your promotional theme as giveaways. A promotion using weather gives you so many options. If you run a business with big-ticket items, use the weather as a game of chance for your promotion. Run a special for one week in which any item sold during that time will be eligible to be fully refunded if it snows or rains more than a specific amount on a date you pick. Take out an event insurance policy in case this does happen to cover your losses. Have "lightning sales" that are announced at random times to your customers while they are in the store. Carnival Theme Have an old-fashioned carnival-themed promotion for your business. No matter what you are selling, you can use the "wheel of chance" for your customers to spin before their purchase. The wheel can offer all type of discounts off a purchase, with a very small area on the wheel for the big discount or even making the merchandise free.


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Giveaways can be cotton candy, popcorn and balloons for the kids with the discounts for the adults. Depending on how much work you want to put into this promotion, the choices can get as big as a dunking booth for prizes and pony rides to keep the kids busy. Good Neighbor Theme Recognizing good neighbors is a promotional theme that will work well in a restaurant or grocery store setting. Instead of the customer winning a prize for just himself or herself, with each purchase customers can nominate a person in their neighborhood who has been a helpful or a good neighbor. A weekly grand prize drawing provides two winners, the person being recognized for good deeds and the person who nominated them. Advertise the winners in the newspaper each week. It is great way to get your business name out there and works well as an advertisement. It's a "feel-good" promotion that promotes your business and people in your community. Time-Sensative Promotions Create time-sensitive promotions that restrict discounts to a specific set of hours during the day. Limited time offers encourage customers to make their purchasing decisions quickly. Clearance Sale A clearance sale is a special event or sale held by a retail business to sell excess goods at deeply discounted prices. Some consumers view clearance sales as an opportunity to stock up on low-cost products, and others believe clearance sales are a way for a retail store to get rid of merchandise customers will not pay regular price for. Objectives of organizing a clearance sale are-

Selling Excess Inventory By definition, a clearance sale is intended to "clear out" excess inventory of products. Sometimes companies order too much of a given product, expecting higher demand than they get. In some industries, retailers may have the option of returning unsold products to the distributor or manufacturer for a refund or purchase credit. But in many cases, if a retailer has excess product that it cannot sell at regular price, it holds a clearance sale to close out the extra merchandise.


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Make Room for New Merchandise Another common reason for a clearance sale is that new merchandise is coming into the store and the retailer has to make room. This is especially true in seasonally driven industries, such as fashion and apparel. Clothing lines are constantly updated to accommodate new fashions and trends, and consumers generally demand the latest fashion and apparel. Thus, when a clothing retailer is preparing for incoming product lines, it often must hold a clearance sale to sell remaining product. Sell Expiring Products Some products have expiration dates or are perishable, and clearance sales are held to collect whatever revenue is possible before the product is thrown out. Many fresh produce and other food products are examples of perishable foods that are either sold by a certain point or are disposed of. Retailers might have a clearance sale before they perish. Other items, such as over-the-counter medicines, have expiration dates. Companies periodically have clearance sales to sell these items at discounted prices before they are expired and no longer are marketable. Liquidation Sale An extreme example of a clearance sale is what is known as a liquidation sale. For casual consumers, a liquidation sale means a retailer is going out of business and clearing out all inventory. But The Closeout Industry website points out that many retailers use liquidation sales as a common promotional event to create quick turnover of inventory. For instance, a mattress store might get access to a truckload of discounted mattress inventory and hold a liquidation event to indicate it wants to quickly get rid of that inventory. To customers, this implies a good deal. To the retailer, they want to quickly turn a profit on their lower-cost inventory to invest it in new inventory. Promoting the clearance sale Nothing beats the lure of something that's less expensive for a limited amount of time. And, while the idea of a sale may seem a bit blasé to some, technological advances have made sales events more potent than ever before. For example, if you maintain a database of customers, contact them via an e-mail newsletter to let them know of upcoming sales events and other promotions. To further boost foot traffic, urge them to pass along your e-mail to others. That's not only effective but exceedingly cost efficient, as you're not dropping money on mass mailings that only saturates the uninterested. "Offers that come with a sense of urgency are always effective to get customers to come to stores," says Irene Dickey of the University of Dayton's School of Business Administration.


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How to Host a Special Customer Sale Event at Your Retail Store The key to keeping customers is making them feel important. These customers like to be recognized. One of the best ways of recognizing them is with a sale aimed at your existing customer traffic. You can easily host a Special Customer Event. These easy steps will outline your sales strategy and will boost your image in the eyes of your customers. Invitation: Send your steady customers and special clients a letter inviting them to your special sale. Choose a date no more than two weeks away and schedule it during your regular store hours. Your invited customers and walk-in trade both benefit from the event. Letter: Keep your invitation short and simple. Make the letter personal as though you were inviting a friend over to the shop for a celebration. Give the date, time and directions. Draw a map. Theme: Have a theme for this event. Choose your shop's anniversary, a holiday, a local festival or an unusual shipment. Give away balloons or door prizes. Merchandise: Mark your sale merchandise with tags relating to your theme. Tie balloons or decorations to selected sale tables and mark prices way down. Pull out all the stops to get rid of your clearance stock. Set up a clean display for the latest shipments. Spirit: Show your excitement about this sale in your letter, your displays and in your personal enthusiasm. Talk up your event as the date approaches and be sure your regular customers get the message. Note: This is an event for treasured customers. It is a special sale to show appreciation for their loyalty and reward them with low prices on special merchandise. Ideas for a High End Retail Sales Event Even high-end retail must be placed on sale occasionally, but simply putting a "Sale" banner in your store window won't set you apart from the other retailers. If you get creative with some promotional ideas, you can make your existing customers feel appreciated and broaden your customer base to include new buyers. You will also strengthen your store's reputation for quality and service. Gentlemen's Night: Hold a "Gentleman's Night" before a holiday such as Karwa Chauth, Diwali or Valentine's Day. Provide snacks . If you have a jewelry store, hire models to showcase pieces that are currently popular. A clothing or lingerie store can hold a mini-fashion show. Offering a personal shopper to help men select items to purchase can increase your sales during the event.


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Educational Seminar: Whether cosmetics, jewelry, home décor or fine cookware, most customers appreciate learning about products and how to use them. For cosmetics, hire a top make-up artist to talk about new products and teach women how to apply them. Offer facials for both men and women with the latest skin care products. For jewelry, you might have a gem specialist talk about fine gems and how to appraise them. You can also offer free appraisals or jewelry cleanings. Serve refreshments and offer private consults. Silent Auction:Announce that you are holding a silent auction for charity, offering select pieces from your collection. With every purchase your customers make, they can enter a drawing to have their favorite charity named beneficiary of the evening's charitable proceeds. Send invitations to frequent customers and encourage them to invite a friend. New customers can reserve a spot. Prepare a gala evening in your store, with refreshments, hors d'oeuvres and music. During the auction, display specially-priced items for purchase.

Objectives of Sales Promotional events Sales promotion is a tool used to achieve most of the five major promotional objectives Building Product Awareness – Several sales promotion techniques are highly effective in exposing customers to products for the first time and can serve as key promotional components in the early stages of new product introduction. Additionally, as part of the effort to build product awareness, several sales promotion techniques possess the added advantage of capturing customer information at the time of exposure to the promotion. In this way sales promotion can act as an effective customer information gathering tool (i.e., sales lead generation), which can then be used as part of follow-up marketing efforts. Creating Interest – Marketers find that sales promotions are very effective in creating interest in a product. In fact, creating interest is often considered the most important use of sales promotion. In the retail industry an appealing sales promotions can significantly increase customer traffic to retail outlets. Internet marketers can use similar approaches to bolster the number of w ebsite visitors. Another important way to create interest is to move customers to experience a product. Several sales promotion techniques offer the opportunity for customers to try products for free or at low cost. Providing Information – Generally sales promotion techniques are designed to move customers to some action and are rarely simply informational in nature. However, some sales promotions do offer


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customers access to product information. For instance, a promotion may allow customers to try a fee-based online service for free for several days. This free access may include receiving product information via email. Stimulating Demand – Next to building initial product awareness, the most important use of sales promotion is to build demand by convincing customers to make a purchase. Special promotions, especially those that lower the cost of ownership to the customer (e.g., price reduction), can be employed to stimulate sales. Reinforcing the Brand – Once customers have made a purchase sales promotion can be used to both encourage additional purchasing and also as a reward for purchase loyalty (see loyalty programs below). Many companies, including airlines and retail stores, reward good or “preferred” customers with special promotions, such as email “special deals” and surprise price reductions at the cash register. Sales promotion-Classification Sales promotion can be classified based on the primary target audience to whom the promotion is directed. These include: Consumer Market Directed - Possibly the most well-known methods of sales promotion are those intended to appeal to the final consumer. Consumers are exposed to sales promotions nearly everyday, and as discussed later, many buyers are conditioned to look for sales promotions prior to making purchase decisions. Trade Market Directed – Marketers use sales promotions to target all customers including partners within their channel of distribution. Trade promotions are initially used to entice channel members to carry a marketer’s products and, once products are stocked, marketers utilize promotions to strengthen the channel relationship. Business-to-Business Market Directed – A small, but important, sub-set of sales promotions are targeted to the business-to-business market. While these promotions may not carry the glamour associated with consumer or trade promotions, B-to-B promotions are used in many industries. Developing a Sales Promotion Schedule Companies use sales promotions to help them introduce their products to consumers and ensure that current customers remain loyal to the brand


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Sales promotions include product sampling, coupons, rebates, contests, events and premiums. Offering consumer incentives to try products has been shown to increase sales and brand awareness, for small and large companies. Successful sales promotions are planned strategically using a sales promotion schedule. Develop a list of sales promotion goals based on your company's overall business goals for the year. Create goals that focus on ways to get your product in front of your target market and intrigue them enough with your product benefits, that they're motivated to try your product, and share their experience with friends and family. Assign a promotional activity to each goal you set forth to accomplish. Promotional activities can include offering discount coupons to customers, setting up a sampling booth at a local store, hosting a contest or attending trade shows to network with potential clients and vendors. Review the previous year's promotion schedule and results to see if there are any previous sales promotions that made a positive impact on your business and incorporate them into the sales promotion schedule for the New Year, if applicable. Use a spreadsheet program, including Microsoft Excel or Open Office Math, to create a sales promotion schedule for your business. A spreadsheet format will allow you to include detailed information about each sales promotion you have in place, beyond just including the date. Include the following columns on your blank spreadsheet: date of promotion, promotional activity, items needed, expected cost, actual cost, person(s) responsible, expected outcome, actual outcome and notes. Bold each column heading, so that it stands out on your spreadsheet. Under the date column, list the date for each sales promotion activity you have planned for your promotional campaign. Once you've entered the dates, go back through the spreadsheet to fill in the other essential information for each promotional activity. Review a 12-month calendar and pay special attention to seasonal time frames, holidays celebrations and events that may be able to coincide with your sales promotions and apply them to your schedule. Store your final sales promotional calendar in a central location, so that other members of your team have access and are abreast of the plan


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Advise the production and distributions teams of your sales promotion dates and plans, so they can have products created, in stock and ready to be shipped to customers. Give them the average response rate you expect for each promotion you plan to ensure there's enough inventory available

Disseminating information Need: Store people who interface with retailers do not necessarily have the good understanding of the product as they are more concerned with store operations. It is therefore the buyer’s job to help the sales personnel understand the products displayed on the selling floor. Types of product information needed for dissemination Styles: Advantages of a style like where and when are these appropriate for use, and their potential for a long life are the information needed for efficient selling of the merchandise. By explaining to the customer the rationale behind each styling, and how it will better serve their fashion needs, a sale might be easier to be made. Colour: The buyer should pass on information about how new colour offerings might be incorporated into existing wardrobes , how the new style could be coordinated with old and how these new colours might enhance the individual’s appearance. Other information: Types of fabrics and fibers, Care, Quality, Operating techniques, Servicing, Warrantees & Guarantees, Special power requirements and Adaptability under different environments. Communication techniques used by Buyers to reach retailers Store Visits: During store visits store managers/associates are able to ask questions that have been raised by customers. They are able to point to the items that need further inclusion. As store level personnel's voices are also heard and their morale boosted. Telephone: With more and more number of stores in a retail chain it has become difficult to frequently visit individual stores in the chain. Telephone is quick and serves the need in case of questions about reorders, availability of goods, Concerns with care of merchandise and FDDI/FMRM/TTLM/MBA-103

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complaints about product performance. Telecalls however cannot answer queries about specific items that need to be seen in order for a problem to be solved. Fax: Enables the buyer to transmit images as well as photographs and drawings of merchandise to the store personnel. It can be used round the clock without the intended recipient being present at the same time. E-mail: It is the quickest and efficient system for exchange of information and may be used using as online service or in case of large retailers using in-house servers. Bulletin Boards: Bulletin boards are placed at strategic locations like time clocks to disseminate information like- tear sheets to inform the associates about the advertisement released so that they can be ready for potential traffic. Information about temporary markdowns, incentives that could increase the sales etc. is also displayed on bulletin boards. Video conferencing: Buyer shows each item and discusses its merits. The store personnel learn about the details of the goods, the fabric, unusual construction, methods for laundering and cleaning, style importance to the season, and any other selling points that will help answer potential questions from shoppers.

Evaluating Buyers: Buyers performance is evaluated in terms of sales, inventory levels and ultimate margin results. Sales: Sales performance of a buyer is evaluated In terms of money, in terms of units and in terms of Sales per square foot. Inventory Levels: Stock turnover (Number of times in a period the average amount of inventory on hand is sold) and merchandise left in the inventory past the selling period/selling season are some of the yardsticks on which buyer’s performance is judged. Margin Results: Initial Markup, Maintained Markup and their contribution in Company’s Profit goals are ultimate indicators of a buyer’s performance.


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Unit-7

Review Questions

1.Discuss various factors considered for evaluating buyers. 2. Discuss various methods of acquisition of merchandise for Private label development. 3. Elaborate the need of disseminating information for a retail merchandiser. What type of information is needed to be disseminated and what communication techniques can be used to reach the retail operation staff? 4. Differentiate between line functions and staff functions of a merchandising department of a retail organisation. Also write a note on key merchandising competencies. 5. Discuss the specific role of merchandiser in (a) planning, (b) buying, and (c) allocation. 6. Write a detailed note on buyer’s involvement on product development. 7. Discuss merchandiser’s role in planning special events and advertising.


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Unit-8

MERCHANDISING MATHS

QUANTITATIVE VENDOR RELATIONS Wholesale Price: wholesale price is the price at which retailer procures the merchandise. A retailer must also concentrate on Structural dimensions (Terms of Sales), besides observable costs (Number expressed in terms of Dollars/Rupees) and pricing policies of retailer. Structural Dimensions of cost (Terms of Sales) -Time component & Convenience component. Time component: Specific dates and amount to be paid to the vendor. Convenience component: Geographical point at which title to the merchandise is transferred from the vendor to the retailer.

Cash Discounts A reduction in vendor’s billed cost price for paying the invoice before the expiration of the specific time frame of cash discount period. Significance of the cash discount: Cash Discount can be treated as a loan from the retailer to the vendor for which retailer gets the interest. Therefore, even a 2% discount if payment is made 20 days earlier (2/10/net 30)comes out to be 36% per anum, which is huge by any yardstick. Annual Interest Rate = [360XCash Discount%]/ [Net Payment Date-Cash Discount Date] Application Exercise: Convert cash Discount to annual interest rates according to 3/15/net 30, 4/10/net 30, 8/12/net 30, 2/10/net 60, 2/30/net 60, 3/10/net 120 respectively. Cash Discount Loading It is the practice of intentionally increasing the billed cost of the invoice to allow a theoretical greater percentage of cash discount. The essential objective is to establish a standardized cash discount percentage, which in turn permits the retailer to analyse and compare the net costs quoted by several vendors on similar merchandise offerings.


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Loaded cost=Net cost / [100%-Loaded discount percentage] Application Exercise: A retailer receives following quotations from three vendors offering similar merchandiseVendor A $195 2/10/net 30 Vendor B $198 5/10/net 30 Vendor C $201 8/10/ net 30 Find the actual net cost & loaded net cost for each quotation subject to a loaded cash discount of 8%. Anticipation Anticipation is an additional discount taken by the merchant for the payment of an invoice prior to the end of cash discount period. The dollar amount of anticipation discount is based on the number of days remaining between the actual date of payment and the last date of cash discount period. It is usually availed on net cost (billed cost-Cash discount) Anticipation=Net cost X [Prime interest rate/100] X [Unused discount days/360] Application Exercise 4: An invoice of the amount Rs.1000 dated 8/6 carries the terms 5/10/net 30, anticipation allowed. The prime rate is established at 12%, and the invoice is paid on 13/6.Find the net amount paid to the vendor.

Dating Dating specifies the time at which the payment for the merchandise becomes due to the vendor. Essentially, there are only two timeframes that serve as reference points for the retailer’s financial obligations to the vendor- Present or the future Immediate Dating: Immediate or cash dating requires the retailer to make payment for the merchandise either upon receipt of goods or prior to its shipment. Following three terms normally cover the concept of datingC.O.D: Cash on delivery C.W.O: Cash with order C.B.D: Cash before delivery


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Future Dating: Future dating specifies some point of time that defines the cash discount period and final date for the payment of the total billed cost of the merchandise. Significance for retailer: More the time gained between receipt of goods and payment to the vendor, more is the merchandise converted into cash, reducing the burden of payment and increasing the turnover and gross margin. Types of future Dating Ordinary Dating E.O.M Dating R.O.G Dating Extra Dating

Transportation Arrangement Manner and location in which the title to the purchase is transferred from vendor to the retailer have bearing on-The cost of transportation, and the filing of claim in the event of damage, loss, or non-delivery of merchandise. Above concepts, have bearing on the retailer’s cost levels and therefore profitability. Transportation terms

Transportation

Title

Freight

Freight born

Goods in

Filing

Terms

transfers at

paid by

by

transit owned

of

by

claim by

FOB factory

F

R

R

R

R

F

V

V

R

R

F

V

R*

R

R

S

R

R

V

V

freight collect FOB factory freight prepaid FOB factory freight prepaid and charged back FOB store


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freight collect FOB store

S

V

V

V

V

S

R

V#

V

V

F=Factory

S=Store

R=Retailer

V=Vendor

freight prepaid FOB store freight collect and allowed

Key

OPEN-TO BUY (OTB) Open-to-buy may be conceptually defined as the difference between the planned merchandise required (at retail) for a given accounting period, and the value of goods already owned or available, where merchandise required is the sum of planned sales, EOM stock and retail reductions and merchandise available is the sum of BOM Stock, merchandise received during the period and goods already on order. Functions of OTB : Planning and Control Device and a Diagnostic Tool

As a Planning and Control Device

By specifically defining the relationship between the merchandise required and available at any given date within an accounting period, the OTB performs a control function as it-Maintains purchases within financial limits of merchandise budget -Allows merchant to conserve purchase budget to (1) reorder fast selling items, (2) take advantage of off price merchandise, and sample new vendor lines. -Enhances turnover and gross margin by reducing markdowns and increasing sales.


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As a Diagnostic Tool

-OTB can be used to analyse and evaluate the overbought and under bought situations. Overbought Situation: Situation when OTB amount seems to be lesser than needed for

balance of the sale period is defined as overbought. This may happen due to following factors-Planning errors like inaccurate sales forecast and failure to recognize fashion trends. -Buying errors like late issuance of purchase orders, purchase of inferior merchandise in terms of quality, fashion, price, size range, and colours etc. -Promotional errors -Timing errors like receipt of merchandise either too late or too early in the season. Consequences of overbought situation: Above errors may result into following consequences -

Increase in unplanned markdowns Decrease in maintained markup and gross margin Decrease in turnover ratio Decrease in OTB for succeeding period Decrease in operating profits Remedial activities to correct the overbought situation

Explore the possibilities to increase the sales Increase the markdowns Attempt to return some overstocked merchandise to the vendor Transfer such stock to another selling unit of the same organization Cancel or Postpone outstanding orders for current delivery to a later period. As a last resort, change the value of EOM if sales for coming period appears to be underestimated or immediate merchandise requirements outweigh the more distant need for a strict inventory control.


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Under bought situations: Situations where more merchandise is required than can be

ordered and processed during the remaining portion of the period is said to be under bought. This may occur due to following-An unexpected success in achievement of sales volume. -The failure to place orders in time to meet the planned merchandise requirements

Determination of Open-to-buy as the first of the month or the beginning of an accounting period OTB= [EOM Stock + Planned sale + planned reductions] – [BOM + Outstanding orders] Practical Application Exercise

Find the merchant’s open to buy as of June 1 from the following data -

BOM Stock

23000

EOM Stock

25000

Planned Sales

12000

Reductions

1000

Stock on order for delivery in June

5000

MEASURES OF INVENTORY PRODUCTIVITY -GMROI & STOCK TURNOVER Retail success should not be measured on sales performance alone. The key to any successful retail profitability is to convert the inventory into cash for the highest possible profit, as quickly as possible, then buy more inventories and turn it into cash as quickly as possible. Inventory, in general constitutes, 70% to 80% of financial assets of a retailer. So it only follows that sales, profitability and cash flow are directly related to management of inventory resources productively. Retail Inventory productivity can be defined as the amount of sales and gross profit dollars an inventory investment generates over a given period of time, usually a year.


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The most basic measures of inventory productivity are inventory turnover and gross margin return on investment (GMROI). •

Both inventory turnover and GMROI are measures of the productivity of on-hand inventory, so the sales made from non on-hand inventory, such as special orders, needs to be excluded from the calculation.

•

Both inventory turnover and GMROI is stated as an annual turnover. However, the period being measured does not necessarily have to be a 12 month period. In seasonal items, inventory turnover and GMROI may be measured for a period of a few months, with the result being “annualized” for comparison purposes.

Retail Inventory Turnover Study of Inventory turnover answers the most basic of questions li ke- How many times was inventory turned into cash, bought again and turned into cash again? It’s not enough to know sales volume or inventory levels, it’s critical to relate sales to inventory investment. A sales volume of $1,000,000 a year on an average inventory of $500,000 is one thing, but on an average inventory of $200,000 it’s quite another! It’s the difference between turning your inventory over twice and turning it over five times. Inventory turnover = Sales (at retail value) / Average Inventory Value (at retail value) Or Inventory turnover =Cost of Goods Sold / Average Inventory Value (at cost) Practical Application Exercise: A candy department had an opening inventory of Rs. 8000 on June1 and closed the period on June 30 with an inventory of Rs. 7200.Sales for the June amounted to Rs. 2300.Find the turnover for the month. Advantages of Rapid Turnover -Return on inventory investment is increased. -Operating expenses or inventory carrying costs are decreased. -Markdowns and shortages are decreased. -The sales volume is enhanced-due to newer and more complete assortment, reorder of


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unexpectedly fast selling items and acquiring of off price merchandise. -Cash flow is increased. Limitations of Rapid turnover policy -Cost of merchandise is increased due to higher transportation cost and non availability of quantity discounts etc. -Inventory ordering cost is increased

GMROI Gross Margin Return On Inventory is a business tool which acts as a measure of profitability. It takes Gross Margin and Inventory into consideration and the result is the indicator of a category’s success or failure. Higher the GMROI, higher the inventory productivity.

GMROI= (How much is made per sale X How long it takes to sell it) ÷ (How much was invested into it)

GMROI helps determine profit generating and nonprofit generating categories. These categories may be classified as STARS - high margin and high inventory turn CASH COWS - low margin and high inventory turn QUESTION MARKS - high margin and low inventory turn DOGS - low margin and low inventory turn

How to Improve GMROI? There is no hard and fast rule as to what inventory turnover or GMROI should be. Every business is unique. GMROI may however be improved by working on following areasIncreasing the price: Higher margins ensure better profitability, but higher margins require higher price points. In a competitive market, prices play a major role in determining the acceptability of the


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merchandise. Hence any increase in prices of any category should be supported with appropriate marketing activities. Reduce Markdowns: Wrong pricing often leads to heavy markdown and affects the profitability. Reduce Cost: Reducing the procurement cost of merchandise eventually increases the margins and consequently the profitability. Reducing Average Inventory: Efficient inventory management will improve the inventory turnover and reduce the average inventory carried by a retailer at a given point of time. Merchandising process should be made more efficient to minimize the markdowns and cost of goods sold. It’s not just about reducing inventory; it’s rather about generating more sales with fewer inventories.

Gross Margin Return on Inventory (GMROI) = Gross Margin $ /Average Inventory @ Cost

OR

Gross Margin Return on Inventory (GMROI) = Gross Margin % / Inventory Turnover

Gross Margin Return on Inventory (GMROI) = (Gross Margin % X Inventory Turnover) ÷ (100%Markup%) *Gross Margin = Net sales-Total cost of goods sold Example: If sales for a season is Rs 10,00,000 with average inventory maintained being Rs 2,00,000.Calculate GMROI if markup is 50% and Gross Margin is 40%.

MARKUPS Relation between buying price and selling price is referred to as markup and largely determines profit. Markup decisions must consider markdowns shortages, expenses and profits. Cost of the merchandise is a stationary factor and therefore should be cleverly negotiated while retail price is a variable factor governed by various non controllable factors and influences purchase or rejection of merchandise by the shopper.


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Markup percentages are commonly calculated on retail price. Although the cost method of calculating markup is still used by some retailers, it is considered old fashioned. •

Markup percentage on Retail =[Markup(Rs.)/Retail Price(Rs.)]X100

•

Markup percentage on cost=[Markup(Rs.)/Cost Price(Rs.)]X100

Practical Application Exercise: An item costs Rs 10 and is sold for Rs.18. Calculate Markup percentage on retail and markup percentage on cost. Markup Percentage on a group of items To achieve maximum profit, same estimated initial markup percentage is not applied to all purchases. Therefore purchases are evaluated on an overall basis. Markup% on entire purchase= [Total Markup (Rs.)/Total Retail (Rs.)] X100 Practical Application Exercise : A buyer ordered 10 Jackets at a cost pri ce of Rs.2400 each and 6 trousers @Rs.4000 each. She decided to retail the former @Rs. 5000 each and later @ Rs. 7500 each. What is the markup % on this entire purchase?

Markup Percentage on a group of items having same cost price but varying Retail Price Practical Application Exercise :150 handbags were bought @ Rs.1125 each.50 pieces out of these were retailed @Rs.2000 each , 75 pieces for Rs. 2400 each and balance for Rs. 2750 each . What is the markup % on this entire transaction?

Markup Percentage on a group of items with varying costs but same retail price Practical Application Exercise: A retailer offers a special promotional price of Rs.26 each on Pens on the occasion of Republic day. The assortment consists of 75 pieces that cost him as follows15 Pc. @ Rs. 10 each 40 Pc. @ Rs.12.50 each 20 Pc. @ Rs. 16 each Calculate Markup % on this group of merchandise.


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Types of Markups Initial Markup: Initial Markup is the difference between the cost of merchandise and the original or first retail price. Initial markup is planned in advance to ensure a favourable gross margin figure that will cover expenses and provide a reasonable profit. Reductions in initial markup due to markdowns, shortages employee discounts and alteration costs etc. should be anticipated. Initial Markup is expressed in either money terms or percentage terms and is usually calculated for both. It is expressed as a percentage of aggregate original retail price and not on the price at which the merchandise is sold. Establishing an Initial Markup •

Forecast the total sale for the season or year.

•

Estimate the required expenses and price reductions needed to reach the goal.

•

Set a profit goal.

•

Add the Estimated expenses, price reductions and profit to obtain Dollar Markup.

•

Determine original or first retail price by adding the planned reductions and planned sales.

•

Compute the markup percentage by dividing the dollar markup by the original price and multiplying by 100.

Calculating Initial Markup % when Gross margin % and Retail reduction % are known Initial Markup Percentage = [Gross Margin % + Retail Reductions %]X100 ÷ [100 %( Sales) + Retail Reductions %] •

Gross Margin %=Expenses % + Profit %

•

Retail Reductions = Markdowns + Shortages

•

A Store has a gross margin of 42.3% and retail reduction of 15%. Find initial markup

+ Employee Discounts

percentage. •

Finding Initial Markup percentage when Gross margin and Retail reductions are k nown


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Initial Markup percentage= = [$ Gross Margin + Retail Reductions] X100 ÷

[$ Sales + $ Retail Reductions]

Practical Application Exercise: A store plans a sale of $1,000,000, retail reductions of $150,000, and requires a gross margin of $423,000.What should be the initial markup percentage? Cumulative Markup: Cumulative markup is the markup percentage achieved on all goods available for sale from the beginning of a given period. It is an average Markup because it is the markup percentage obtained on the accumulated inventory at the beginning of the given period plus the markup of all the new purchases received. Cumulative Markup in Dollars =Cumulative retail price of all merchandise handled ( i.e. opening inventory + net purchases )- Invoiced cost of merchandise(including transportation) Cumulative Markup in %=( Cumulative Markup in Dollars) X100÷ (Cumulative retail price in Dollars) Practical Application Exercise : On February 1 , a boy’s clothing department has an opening inventory of $200,000 at retail with markup of 49%. On July 31, the new purchase season to date amounted to $1,350,000 at retail with a 49.9% markup. Find the cumulative markup % achieved. Maintained Markup: Maintained Markup is the difference between net sales and the cost of merchandise sold. While initial markup must be planned in advance, it is not customary to plan a maintained markup as it is the result of unpredictable merchandising activities. MMU%=Initial MU%-Retail Reduction% X (100%-Initial Markup %) Practical Application Exercise: A Store planned an initial Markup of 49.8% and retail reductions of 15%.What are the maintained markup? Gross Margin GM%= [Sales-Total cost of goods sold] X100÷Net Sales Total Cost is arrived at by deducting cash discounts and adding alteration / workroom costs to the gross cost of goods. Averaging or Balancing Markup: A buyer’s skill is truly tested by the ability to achieve a predetermined markup percentage over an entire season or year although the merchandise is purchased and sold at different prices during the season resulting in differential markups. FDDI/FMRM/TTLM/MBA-103

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These differences can be the result of competition, special promotional merchandise offered by resources, private branding, import regulations etc. Averaging markup means adjusting the proportion of goods purchased and sold at different markups to achieve the desired aggregate markup for an individual purchase or for a certain period. This is done by balancing below average markups with above average markups. Averaging costs when retail and Markup percentages are known •

Find total planned retail =(No. of Pcs. X retail price per piece )

•

Find total cost of total planned retail by using the formula-

•

Find cost of purchase till date =(No. of Pcs. X cost price per piece )

•

Find purchase balance in units and dollars by subtracting purchase till date from planned

Retail=Cost + MU% of Retail

retail. •

Find average cost of purchase balance=$cost on balance/Purchase balance number of units

Practical Application Exercise :For a special sale a men’s sports wear buyer plans to promote a $25 vest. Consequently the buyer decides to buy 500 vests, and wants to achieve a 52% markup . If the 100 vests are already bought at a cost of $10.75 each ,What should be the average cost of the remaining pieces. Averaging retail when costs (Two or more) and MU% (uniform) are known •

Find total cost and total units of purchase

•

Find total retail using total cost and total MU% by using the formula-Retail=cost + MU% of Retail

•

Find Average Retail Price= Total Retail Price ÷ Total units purchased.

Practical Application Exercise At the end of the season ,a swimwear manufacturer offered a retailer 50 two piece solid colour suits costing $16.75 each, 75 nylon tank suits costing $12.75 each and 40 one piece skirted suits that cost $14.75 each. The average retail Price per unit was based on the buyer’s goal of 49% markup. What would be the average retail price of each swimsuit?


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Limitations of Markup% as a guide to profit A markup percentage is a useful guide for analysis and comparison. However expenses are paid in dollars and profit is reinvested or taken to bank in dollars. Therefore during declining sales a MU% initially deemed appropriate may prove to be insufficient for profits or expenses. A good buyer recognizes that the dollar markup figure should not be ignored while attempting to achieve a fixed markup percentage. Additional Markup: An additional markup is the type of price adjustment that raises the price of inventory already in stock. This might be necessitated due to various reasons like-Imparting prestige to brand; Rise in wholesale price index or wrong calculations at the time of original pricing.

Repricing of merchandise Planning Reductions: Pricing adjustments are made to either increase or decrease the original retail price placed on merchandise. While upwards revisions are rare, downward revisions are done very often on a significant portion of sales. Downward differences are also known as retail reductions and include-Markdowns, Employee discounts and Shortages. Mark downs: Lowering or reducing of the original or previous retail price on one item or a group of items is known as the process of Markdowns. The amount by which the retail value has been lowered is called the $ markdown. Markdown is expressed as a percentage of net sales figures. Purpose of Mark downs: To stimulate the sales of the merchandise to which the customers are not responding satisfactorily. To attract customers to store by offering bargains. To meet the competitive prices. To create special promotions or sales. To provide open to buy money to purchase new merchandise.


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Causes of Mark downs: By analyzing the causes of markdowns a merchandiser can try to minimize them-Buying errors; Pricing errors; Selling errors etc. Buying errors Overbuying in quantities; Unbalanced buying- sizes, colours etc.; Buying of poor styles, quality , material and colours; Poor timing in ordering of goods; Accepting merchandise that is contrary to order or has been shipped late. Pricing errors Setting the initial price too high; Poor timing of launch; Prices not being competitive; Calculated risk of carrying prestige merchandise Selling errors Poor Stock keeping; Careless handling resulting in soiled and damaged goods; Failure to display merchandise advantageously; Uninformed Sales personnel Miscellaneous Special sales from stocks-Off price promotions Multiple sales etc.; Broken assortments-remnants; Necessary price adjustments Timings of Markdowns Accurate timing of markdowns help reduce the amount of markdowns needed. Markdowns should be effected when merchandise becomes slow selling; a new fashion is introduced or prices are lowered in general. Amount Of Markdowns-Determining the price at which the merchandise can be cleared quickly .It is difficult to generalize the amount of markdowns because right price depends on :The reasons for the reductions; The nature of the merchandise; The proper moment during the selling season; The quantity on hand; The original markup

Some Rules to Be Considered While Repricing: The markdown should be sharp enough to- Move a considerable quantity; Attract customers who rejected the merchandise at its original price; Appeal to customers belonging to next price zone. Small markdowns are ineffective


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Small successive markdowns may increase the total loss Markdowns should not be large enough to invite customer suspicion Calculating Markdown in Rupees Markdown = Original Retail Price-New Retail Price Markdown in Rupees = Present Retail Price X % off Calculating Total Markdown in Rupees when a second markdown is taken Total Markdown in Rupees = First total markdown +Second Total Markdown Practical Application Exercise The buyer for men’s wear had a group of 50 jackets priced at Rs 2250 reduced to Rs 1750 as they were moving slowly.40 Jackets were sold at this price . Later on the remaining pieces became shop soiled and were decided to be sold @Rs 1000 each. Calculate total markdown in Rupee terms if all the pieces were sold out eventually. Calculating Markdown Percentage Markdown%= [Markdown /sales] X100 Practical Application Exercise In March, A store had sales of Rs.50, 000.The markdowns taken during the month totaled Rs 5000.What was the markdown %. Calculating Markdown Percentage on a group of Items Markdown% = [Markdown in Rs. /Total sales at group’s selling prices] X 100 Practical Application Exercise A buyer had a group of 100 belts marked at $16 each . At the end of the season 15 belts remained unsold and had to be reduced to $10 each , at which they were sold out. What is the markdown %? Markdown Cancellations: The restoration to the former retail price or rising to a higher retail price of a markdown price is known as a markdown cancellation. Cancellations may occur after special sales from stock if the remaining merchandise is repriced upwards. Markdown Cancellation= Higher Retail Price – Markdown Price Practical Application Exercise After a special sale on Valentines day a buyer marked up the remaining 12 pieces of bracelets to original price of Rs. 250 , which had been reduced to Rs. 199 for the occasion. What was the amount of the markdown cancellation.


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Gross markdown = Markdown per piece X No. of merchandise available for sale. Net Markdown=Gross Markdown-Markdown Cancellation Practical Application Exercise A buyer reduces 75 pieces from $50 to $43 for a one day sale. After the sale the remaining 28 pieces were marked up to the original price and were sold out at that price. Find Gross markdown Mark down cancellation and Net markdown. EMPLOYEE DISCOUNT: Reduction given to employees on the retail price is called employee discount. This reduction is generally stated as a percentage of the retail price. Sometime a ceiling is fixed on the maximum value of discount an employee is entitled to during the financial year. It must also be recorded for accuracy of book inventory figure under retail method of inventory because it lowers the value of merchandise. Practical Application Exercise A store grants its employees a 15% discount on all retail items to a maximum amount of discount of Rs.3000 in a year. A Sales Associate makes following purchases in a year#104---------Rs.5000 #203---------Rs.3000 #500---------Rs. 1500 Calculate the amount paid for the above items. Markup cancellation: Markup cancellation is a downward price adjustment that offsets an originally inflated markup to a more rational level .This might be necessitated due to non acceptance of a newly introduced fashion or style or a style becoming out of fashion etc. Price Change Procedures: An efficient system of reporting and recording price changes is important for facilitation of review of price adjustments; accurate calculation of inventory records and Identification of shortages etc. A buyer authorized price change form must clearly mention•

Classification on which price must change

•

Store locations where price must be changed

•

If the change is permanent or temporary


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•

Old retail price

•

New retail price

•

Reason for repricing

Relationship of price change to Profit Price changes have an impact on company’s margins and profits. For e.g. Markdowns reduce the retail price, causing a decrease in gross margins which reflects further in a decrease and/or elimination of profits besides, causing discrepancy between book inventory and physical inventory Shortage/Overage. Shortages & Overages Shortage: When book inventory is more than the physical inventory. Overage: When book inventory is less than the physical inventory. Causes: Internal or external theft; Error by scanning machine; discounted merchandise being sold at original price etc. Control: Clear communication; Centralized command in case of price revision; Adequate theft prevention measures.


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Unit-8

1.

MERCHANDISING MATHS

(a) A buyer ordered 10 Jackets at a cost price of Rs.2400 each and 6 trousers @Rs.4000 each. She decided to retail the former @Rs. 5000 each and later @ Rs. 7500 each. What is the markup % on this entire purchase? (b) A buyer had a group of 100 belts marked at $16 each. At the end of the season 15 belts remained unsold and had to be reduced to $10 each, at which they were sold out. What is the markdown %?

2. (a)150 handbags were bought @ Rs.1125 each.50 pieces out of these were retailed @Rs.2000 each , 75 pieces for Rs. 2400 each and balance for Rs. 2750 each . What is the markup % on this entire transaction? (b) After a special sale on Valentine’s Day a buyer marked up the remaining 12 pieces

of bracelets to original price of Rs. 250, which had been reduced to Rs. 199 for the occasion. What was the amount of the markdown cancellation? 3. What do you understand by structural dimensions of cost? Explain with the help of examples. 4. What is the significance of cash discount in terms of annual rate of interest? Convert cash discount term of 4/10/net 30 into annual interest rate. 5. What do you understand by loading in the context of cash discounts? If a retailer receives following quotations from three vendors offering similar merchandiseVendor A $195

2/10/net 30

Vendor B

$198 5/10/net 30

Vendor C

$201 8/10/ net 30

Find the actual net cost & loaded net cost for each quotation subject to a loaded cash discount of 8%. 6. What do you understand by loading in the context of cash discounts? An invoice of the amount Rs.1000 dated 8/6 carries the terms 5/10/net 30, anticipation allowed. The prime rate is established at 12%, and the invoice is paid on 13/6.Find the net amount paid to the vendor. 7. What do you understand by dating in the context of payment of vendor’s invoice? Also discuss immediate and future dating concepts in detail. FDDI/FMRM/TTLM/MBA-103

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8. Explain following terms in detail- FOB factory freight collect, FOB factory freight prepaid, FOB factory freight prepaid and charged back, FOB store freight collect, FOB store freight collect and allowed. 9.

Define open-to-buy and discuss its functions as a planning and control device and a diagnostic Tool in detail.

10. What do you understand by overbought situation in a retail organisation? What are its consequences and how can they be remedied? 11. What is under bought situation? What are the reasons leading to this situation? If a retailer has following inventory situation, find its open to buy in the beginning of current monthBOM Stock

23000

EOM Stock

25000

Planned Sales

12000

Reductions

1000

Stock on order for delivery in June

5000

12. Discuss the role of GMROI and Stock turnover as measures of inventory productivity. What are the advantages and limitations of rapid inventory turnover? If sales for a season is Rs 10,00,000 with average inventory maintained being Rs 2,00,000.Calculate GMROI if markup is 50% and Gross Margin is 40%. 13. What do you understand by initial markup? What points should be kept in mind while establishing an initial markup. A store plans a sale of $1,000,000, retail reductions of $150,000, and requires a gross margin of $423,000.What should be the initial markup percentage? 14. What do you understand by cumulative markup? What points should be kept in mind while establishing an initial markup. Find the cumulative markup % achieved if on February 1, a boy’s clothing depart ment has an opening inventory of $200,000 at

retail with markup of 49%. On July 31, the new purchase season to date amounted to $1,350,000 at retail with a 49.9% markup. 15. What do you understand by maintained markup? A Store planned an initial Markup of 49.8% and retail reductions of 15%.What are the maintained markup? 16. What do you understand by Markdowns? What are the usual causes of markdowns? 17. What do you understand by Markdowns? What is the purpose of markdown exercise? FDDI/FMRM/TTLM/MBA-103

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Combined TTLS Retail merchandising II.docx

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