Download - Planning Assortments Chapter 12
PPT 12-1
5th Edition5th Edition
PPT 12-2McGraw-Hill/IrwinLevy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 12Chapter 12
Planning Merchandise Planning Merchandise AssortmentsAssortments
PPT 12-3
Merchandise Management
BuyingSystems
PlanningMerchandiseAssortments
BuyingMerchandise
Pricing
RetailCommunication
Mix
PPT 12-4
Merchandise Management Issues
PPT 12-5
The Category
A category is an assortment of items that the customer sees as reasonable substitutes for each other: girls’ apparel, laundry detergents, soup, DVD players.
In merchandise management, we do everything at the category level.
The category can mean different things to different retailers.
PPT 12-6
Category Management
Category management is the process of managing a retail business with the objective of maximizing the sales and profits of a category.
• Objective is to maximize the sales and profits of the entire category, not just a particular brand.
Breakfast cereal category vs. Kellogg Corn Flake
Men’s knitted shirts vs. Polo shirts
• One person managing the entire category and responsible for its success or failure.
PPT 12-7
Category CaptainSelected vendor responsible for managing
assortment of merchandise in a category• Vendors frequently have more information
and analytical skills about the category in which they compete than retailers
• Works with category Mgr ---Promotion, pricing, brand & product placement on shelves.
• Problems– Vendor category captain may have different goals
than retailer
PPT 12-8
Standard Merchandise Classification Scheme and Organizational Chart
PPT 12-9
The Buying Organization
Merchandise Group…………Men’s wearDepartment………….……….Young Men’s wearClassification………….……..PantsCategory……………………..JeansStock Keeping Unit (SKU)….Levi, 501, size 36
waist, 32 inseam
PPT 12-10
Organization of a Regional Department Store: Rich’s
PPT 12-11
GMROI Productivity Measures
Inventory Gross Margin
Input Output
PPT 12-12
GMROIInventory Productivity Measures
Combine Gross Margin % and Inventory Turnover (sort of) Gross Margin% Inventory TurnGMROI = Gross Margin x Net Sales
Net Sales Avg Inventory @ costGMROI = Gross Margin
Avg Inventory (@ cost)Output (Margin Generated by Sales)
Input (Inventory Investment in Inventory)
PPT 12-13
ROI and GMROIAsset Productivity Measures
Strategic Corporate LevelReturn on Assets = Net Profit
Total AssetsMerchandise Management LevelGMROI = Gross Margin
Avg Inventory @ cost
PPT 12-14
Illustration of GMROI
PPT 12-15
Gross Margin %, Inventory Turnover,& GMROI for Selected Department in Discount Stores
PPT 12-16
Calculating Inventory Turnover
Inventory turnover = Net Sales
Average inventory at retail Inventory turnover = Cost of goods sold
Average inventory at cost
Average inventory = Month1 + Month2 + Month 3 +… Number of months
PPT 12-17
Inventory Turnover
Month Retail Value of Inventory
EOM January $22,000EOM February 33,000EOM March 38,000Total Inventory $93,000
Average inventory = $93,000 ÷ 3 = $31,000
PPT 12-18
Inventory Turnover and Sales-to-Stock Ratio
Inventory turnover = Net Sales Average inventory at retail
Inventory turnover = Cost of goods sold Average inventory at cost
Stock-to-Sales Ratio = Net Sales Average cost of
inventory
PPT 12-19
Advantages of Rapid Turnover
• Increased sales volume• Less risk of obsolescence and markdowns• Improved salesperson morale• Money for market opportunities• Decreased operating expenses• Increased asset turnover
PPT 12-20
Disadvantages of Rapid Rate of Turnover
• Lowered sales volume• Increased cost of goods sold• Increased buying and ordering time
PPT 12-21
Developing a Sales Forecast
• Understanding the nature of the product life cycle
• Collecting data on sales of product and comparable products
• Using statistical techniques to project sales• Work with vendors to coordinate
manufacturing and merchandise delivery with forecasted demand (CPFR)
PPT 12-22
The Category Product Life Cycle
To
tal R
etai
l Sal
es
Introduction
GrowthMaturity
Decline
Time
Introduction Growth Maturity DeclineStrategy variable
Target market High-income Middle-income Mass market Low-income
Innovators adapters and laggardsVariety One basic Some variety Greater variety Less variety
offeringDistribution Limited or More retailers More retailers Fewer Intensity extensive retailersPrice Penetrating Wide range Lower prices Lower prices
or skimmingPromotion Informative Persuasive Competitive Limited
PPT 12-23
Variations of the Category Life Cycle
Fad Fashion Staple Seasonal
Sales over many seasons No Yes Yes Yes
Sales of a specific style No No Yes Yesover many seasons
Sales vary dramatically No Yes No Yesfrom one season to the next
Illustration
(Sales against Time)
SA
LE
S
SA
LE
S
SA
LE
S
SA
LE
S
TIMETIMETIME TIME
PPT 12-24
Data Sources for Developing Sales Forecasts
• Previous Sales History
• Published Sources - Buying Power Index (BPI), Monthly Retail Trade Report, InfoScan, Claritas, general retail trade publications like Stores, WWD and Chain Store Age
• Customer Information
• Vendors and Resident Buying Offices
PPT 12-25
Sales for Levi Jeans at Trendsetters Department Store
050
100150200250300350400450
SA
LE
S (
$000
) D
OL
LA
RS
YEAR
Fall sales
Winter sales
Spring & summer
sales
PPT 12-26
Factors Affecting Sales Projections
Controllable• Promotions• Store Locations• Merchandise Placement• Cannabalization
Uncontrollable• Seasonality• Weather• Competitive Activity• Product Availability• Economic Conditions
PPT 12-27
Collaboration, Planning, Forecasting, and Replenishment Systems (CPFR)
Systems used by retailers and vendors to work together to insure that the right merchandise is at the right place at the right time.– Benefits both retailers and vendors– Increases fill rate, reduces stockouts, increases
inventory turns
www.cpfr.org
PPT 12-28
Assortment Planning
Variety is the number of different merchandising categories within a store or department
Assortment is the number of SKUs within a category.
Product availability defines the percentage of demand for a particular SKU that is satisfied.
PPT 12-29
Assortment Plan for Girls’ Jeans
Styles T R A D I T I O N A L
Price levels $20 $20 $35 $35 $45 $45
Fabric Reg denim Stone- Reg denim Stone- Reg denim Stone-composition washed washed washed
Colors Light blue Light blue Light blue Light blue Light blue Light blue
B O O T C U T
Price levels $25 $25 $40 $40
Fabric Reg denim Stone- Reg denim Stone- composition washed washed
Colors Light blue Light blue Light blue Light blue
Indigo Indigo Indigo Indigo
Black Black Black Black
PPT 12-30
Size Distribution for Traditional $20 Denim Jeans in Light Blue for a Large Store
SIZE
Length 1 2 4 5 6 8 10 12 14
Short 2 4 7 6 8 5 7 4 2 %
9 17 30 26 34 21 30 17 9 units
Medium 2 4 7 5 8 4 6 3 2 %
9 17 30 21 34 17 26 12 9 units
Long 0 2 2 2 3 2 2 1 0 %
0 9 9 9 12 9 9 4 0 unitsTotal 100%
429 units
PPT 12-31
Is This Store Heavy on Variety? On Assortment?
PPT 12-32
Determining Variety and Assortment
• Profitability of Merchandise Mix• Corporate Philosophy Toward Assortment• Physical Characteristics of Store• Complementary Merchandise
PPT 12-33
Relationship between Inventory Investment and Product Availability
Inve
nto
ry i
nve
stm
ent
Do
llar
s
Product Availability (Percent)
600
500
400
300
200
100
080 85 90 95 100
PPT 12-34
Cycle and Backup StockU
nit
s A
vail
able
Weeks
150 -
100 -
50 -
0 - 1 2 3 4
Order 96
Cycle Stock
Buffer Stock