BUYING MERCHANDISE

By: Karan Deshpande(40)Martin Carvalho(45)Praveen Kamath(55)Sanket Kulkarni(65)Rishikesh Dange(61)Rahul Dundge(58)

WHAT IS MERCHANDISE? The activity of promoting the sale of goods at retail.

Merchandising activities may include display techniques, free samples, on-the-spot demonstration, pricing, shelf talkers, special offers, and other point-of-sale methods.

According to American Marketing Association, merchandising encompasses "planning involved in marketing the right merchandise or service at the right place, at the right time, in the right quantities, and at the right price."

 

TYPES OF BRANDS

National brands

Also known as manufacturer brands. These are the products designed, produced and marketed by a vendor and sold to many retailers. Eg. Colin

Private-Label Brands

Also known as store brands, house brands or own brands. These products are developed and managed by retailers. Eg. Clean mate

Licensed brands

These are the brands for which the owner of a well known brand name enters into a contract with a licensee to develop, produce and sell the branded merchandise. Licensees may be either:

1. Retailers who license the name and then contact with manufacturers to produce the licensed products or

2. A third party that has the merchandise produced and then sells it to retailers.(E.g., GAP)

PRIVATE LABELED V/S NATIONAL BRANDS

Buying from vendors of National Brands can help retailers build their image & traffic flow & reduce their selling/promotion expenses.

Retailers buy National Brands because the retailers’ customers have some loyalty to the brand & patronize retailers selling the branded merchandise & ask for it by name.

This loyalty towards a brand is developed because customers know What to expect from the products, like them, & trust them.

Offering private labels has its Plus points like:Store LoyaltyStore Image Traffic FlowRestrictions & Differential Advantages.

Minus Points like:Selling & Promotional ExpensesWell known & highly desirable private labels can enhance the retailers image & draw customers to the store.

Another reason private labels are attractive to customers is their low prices, i.e., 10 to 18% less expensive than national brands.

Private labels do not have restrictions on their displays and promotions, or price imposed by the national brand vendors which might conflict with the retailers strategy and profits.

Finally, Gross Margin Opportunities may be greater.

Create customer awareness & develop a favorable image for their private label brands.

If private label merchandise doesn’t sell, the retailer cannot return the merchandise to the vendor or resell it to an off price retailer.

BUYING NATIONAL BRAND MERCHANDISE

This section reviews how the retail buyers of national brand merchandise meet with vendors, review the merchandise they have to offer, and negotiate the terms of the purchase.

MEETING WITH VENDORS.

Buyers “go to the market” to see the variety of available merchandise and make buying decisions.

1. Wholesale Market Center:- For many types of merchandise, particularly fashion apparels and accessories, buyers regularly visit with vendors in established market centers. Wholesale market centers have permanent vendor showroom that retailers can visit throughout the year.

2. Trade Shows :- It provides opportunity for buyers to see the latest product and styles, and interact with vendors.

NEGOTIATING WITH VENDORS.

How buyers negotiate with vendors.

1. Knowledge is power.

2. Issues:-

1) Prices and Gross Margin

2)Special Margin enhancing opportunities

3)Terms of purchase

4)Delivery and exclusivity

5)Advertising allowances

6)Transportation

TIPS FOR EFFECTIVE NEGOTIATION

1. Have at least as many negotiations with the vendor:- Retailers have a psychological advantage at the negotiation table if the vendor is outnumbers. At the very, the negotiating teams should be of equal number.

2. Choose a good place to negotiate:- From a psychological perspective, people generally feel more comfortable and supervisory, feel more comfortable and confident in familiar surroundings.

3. Be Aware of Real Deadlines

4. Separate People from the Problem

5. Insist on Objectives Information:-the best way to separate people from the business issues is to rely on objective information.

7) Invent options for mutual gain:- Inventing multiple options is part of the planning process, but knowing when and how much to give, give up, requires quick thinking at the bargaining table.

8) Let them do the talking:- There is natural tendency

for one person to continue to talk if the other person involved in the conversation doesn’t respond. If used properly , this phenomenon can work to the negotiator’s advantage.

9) Know how far to go:-There is a fine line between negotiating too hard and walking away from the table with less than necessary.

10) Don’t burn bridges

11) Don’t assume:- Many issues are raised and resolved in any negotiating session. To be certain there are no misunderstandings, participants should orally review the outcomes at the end of the session.

BUYING PRIVATE-LABEL MERCHANDISE

Buying & Selling Private-Label Merchandise is a strategic decision that can involve a significant investment.

Retailers that offer significant amount of private-label merchandise have large departments with people specialized in identifying trends, designing & specifying products, selecting manufacturers to make the products, maintaining a world wide staff to monitor the conditions under which the products are made, & managing facilities to test the quality of the manufactured products.

REVERSE AUCTIONS Rather than negotiating with manufacturers to produce

the merchandise, many retailers are now using reverse auctions to get quality label merchandise at low price.

Auctions conducted by retail buyers of private label merchandise are called reverse auctions because there is one buyer, the retailer and many potential sellers, the manufacturing firms.

However, retailer is not required to place an order with the lowest bidder.

The retailer can choose to place the order at a price from that vendor the retailer feels will provide the merchandise at timely manner & at specified quality.

In reverse auctions, retail buyers provide a specification of what they want a group of potential vendors to bid on. The competing vendors then bid on the price at which they are willing to sell until the auction is over.

GLOBAL SOURCING An important issue facing large retailers that to design

& contract for production of Private-Label Merchandise is to select for a manufacturer.

Barriers to international trade are diminishing.

Retailers are now considering sources of production from across the globe.

COSTS ASSOCIATED WITH GLOBAL SOURCING DECISIONS

Retailers use production facilities located in developing economies for much of their private-label merchandise because of very low labor costs in these countries.

To counter balance the lower acquisition costs, however there are subtle expenses that increase the costs of sourcing private-label merchandise from other countries.

These costs include foreign currency fluctuation, tariffs, longer lead times, increased transportation costs.

MANAGERIAL ISSUES ASSOCIATED WITH GLOBAL SOURCING DECISIONS

While the cost factors associated with global sourcing are easy to quantify, some more subjective issues are quality control, time to market and social/political factors.

When sourcing globally, its harder to maintain consistent quality standards than when sourcing domestically.

Quality control problems can cause delays in shipment and adversely affect the retailers image.

SUPPORT SERVICES FOR THE BUYING PROCESS

Resident buying offices These are located in major market centers that provide

services to help retailers by merchandise. As retailers have become more sophisticated, the third party

resident buying offices have become less important.

Internet exchanges These are the providers for internet based solutions and

services for retailers. The software and services offered by these exchanges help

retailers, manufacturer's reduce cost and improve efficiency by stream lining and supply chain process.

They provide an opportunity for vendors and retailers to interact electronically.

STRATEGIC RELATIONSHIPS

A strategic relationship, also called a partnering relationship, emerges when a retailer and vendor are committed to maintain a relationship over a long term and investing in opportunities that are mutually beneficial to the parties.

MAINTAINING STRATEGIC RELATIONSHIPS

Mutual trust

Open communication

Common Goals

Credible Commitments

BUILDING PARTNERING RELATIONSHIPS

The development of strategic relationship tensed to go through a series of phases, they are:

Awareness

Exploration

Commitment

THANK YOU

http://www.zenithresearch.org.in/images/stories/pdf/2011/Dec/zijmr/27_VOL%201_ISSUE8_ZEN.pdf CHAP 15 PG 480