Chapter 13 Merchandise Planning -- Part 2 --

McGraw-Hill/Irwin Retailing Management, 6/e

Copyright 2007 by The McGraw-Hill Companies, Inc. All rights reserved.

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Merchandising
Activities involved in acquiring particular goods and/or services and making them available at the places, times, and prices and in the quantity that enable a retailer to reach its goals.

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Merchandise Management Issues

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Types of Merchandise Buying Systems

Fashion Merchandise Staple Merchandise Unpredictable Demand Predictable Demand Limited Sales History History of Past Sales Difficult to Forecast Sales Relatively Accurate Forecasts

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(2) Merchandise Planning for Fashionable Merchandise

Steps in Developing a Merchandise Budget Plan Set margin and inventory turn goals Seasonal sales forecast for category Breakdown sales forecast by month Plan reductions markdowns, inventory loss Determine stock needed to support forecasted sales Determine open to buy for each money

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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

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Forecasting Fashion Merchandise Categories

Retailers develop fashion forecasts by relying on: Previous sales data Personal awareness Fashion and trend services Vendors Traditional market research
Focus Group Interview Depth Interview

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Merchandise Budget Plan

Plan for the financial aspects of a merchandise category Specifies how much money can be spent each month to achieve the sales, margin, inventory turnover, and GMROI objectives. Not a complete buying plan--doesnt indicate what specific SKUs to buy or in what quantities.

Royalty-Free/CORBIS

Six Month Merchandise Plan for Womens Casual Slacks

------------6 months 1 2 3 4 5 6 7 8 April 21% 27,300 40% 6,600 3.6 98,280 68,640 4,260 Spring May 12% 15,600 14% 2,310 4.4 68,640 68,640 17,910 -------------June 12% 15,600 16% 2,640 4.4 68,640 98,800 48,400 ------------July 19% 24,700 12% 1,980 4 98,800 98,280 26,160 Summer August 21% 27,300 10% 1,650 3.6 98,280 78,000 8,670

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------------Septembe r 15% 19,500 8% 1,320 4 78,000 65,600 8,420

Sales % Distribution to Season Monthly Sales Reduction % Distribution to Season Monthly Reductions BOM Stock to Sales Ratio BOM Inventory EOM Inventory

100% 130,000 100% 16,500 4 98,280 85,600 113,820

Monthly Additionals to Stock

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Evaluate Merchandise Budget Plan

GMROI, inventory turnover, and the sales forecast are used for both planning and control. After the selling season, it is important to determine how well the classification actually performed compared to the plan for control purposes. Several additional questions must be answered to evaluate the buyer's performance.

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Open to Buy
Monitors Merchandise Flow Determines How Much Was Spent and How Much is Left to Spend

Buyer knows how much to spend in each month (based on merchandise budget plan), buyer must keep track of spending.

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Six Month Open to Buy

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Calculating Open-to-buy for the Current Period Open-to-buy for a month = Actual EOM planned inventory Projected EOM inventory Projected EOM inventory = Actual BOM inventory + Monthly additions new merchandise + On order merchandise to be delivered Sales plan merchandise sold Monthly reductions plan.

CASE 20 Nolans Finest Foods -- Category Management --

McGraw-Hill/Irwin Retailing Management, 6/e

Copyright 2007 by The McGraw-Hill Companies, Inc. All rights reserved.

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Nolands
Nolans Finest Foods is a full-service retailer that offers shoppers the convenience of one-stop shopping at its high-end food-and-drug combo stores in the San Francisco Bay area. In the face of high competition, Nolans is experimenting with category management. Nolans does a pilot study in shampoo category. Knock out the slow sellers perspective.

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Nolans
Question1: What are the national sales trends in the shampoo category?
Total U.S. Supermarket Dynamics: Shampoo 52 Weeks Category Brands Private Label Generic % Active SKUs 1,974 1,714 241 19 % New SKUs 15% 16% 12% n/a # SKUs Handled 235 229 5 1 $ $ $ $ SKU Dollar Velocity 1.64 1.65 1.33 1.00

Exhibit 1 There has been a dramatic increase in the % New Stock Keeping Units. Overall (Category), there has been a 15% increase. Specifically, Brands have increased by 16% and Private label by 12%. Only Generics remained the same with no measured increases or decreases.

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Nolans
Question1: What are the national sales trends in the shampoo category? Exhibit 2 Shampoo Dollar Share has remained relatively stable with a minor gain in the Mass Merchant Trade Channel (+1.8%), and modest percentage losses in the Food and Drug Channels (-1.2%, -0.6% respectively). Shampoo Dollar Share
Trade Channel Food Drug Mass Market 12 M Last Year 51.7% 25.6% 22.7% 12 M This year 50.5% 25.0% 24.5% Change - 6.2% - 0.6% + 1.8%

Shampoo Growth
Trade Channel Food Dollar Sales % Change Compared to a Year ago 0.9%

Drug
Mass merchant

4.2%
8.1%

Exhibit 3 Outlines Shampoo Growth based on the Dollar Sales % change versus a year ago. The Mass Merchant Trade Channel experienced the greatest gain (+8.1%), which was followed by the Drug Channel (+4.2%). The Food Channels gain was a mere (+0.9%).

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Question2: What are the differences in shampoo sales trends at Nolans compared with national trends?
Exhibit 4 How Nolans shampoo sales compared to the rest of the market. The Dollar Sales Percentage change in the Shampoo category for the Market (All food stores) has increased very slightly over a 52week period (+0.7%) and moderately declined over the most recent 13 weeks (-3.5%). Although the national figures are far from impressive, even on an annual basis, Nolans fared far worse. Over a 52-week period the retailers Dollar Sales Percentage sharply declined (-9.7%), and the last 13 weeks have been worse (-19.6%).
Dollar Sales: Percent Change versus a Year Ago
Market 13 weeks Total dollar sales Health Beauty Dept. Shampoo category 0.1 1.5 - 3.5 52 weeks 1.2 4.2 0.7 Nolan's 13 weeks - 10.6 - 8.5 - 19.6 52 weeks - 4.5 - 4.3 - 9.7

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Question 3: What would be causing these differences?

Exhibit 5: Competitive Price Comparison for Shampoo between Nolans and competitors suggests that Nolans pricing may be one factor, but it probably isnt the primary cause for the decline. Only the Mass Merchandiser consistently charges less for shampoo products than Nolans.

Competitive Price Comparison for Shampoo: Counts of Items Showing Differences from Nolans
Nolan's Competition is higher Competition is same Competition is lower Competition does not carry 0 103 0 0 Food#1 87 0 16 0 Food#2 0 59 44 0

Mass Merch

Chain Drug

0 0 103 0

101 0 2 0

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Question 3: What would be causing these differences?

Brand Importance Report for Shampoo: Nolans Foods versus Remaining Market for 13 weeks
Remain Mkt Rank 1 3 4 2 6 5 Chain Cat. Impt. 14.5 10.3 8.6 7.6 5.8 4.1 Rem. Mkt. Cat. Impt. 13.0 9.4 6.2 11 3.7 4.6

Description Clean & Soft 1st Impressions Mane Tame Bargain Bubbles Silky Style Elegance

Chain Sales
$108,826 77,672 64,446 56,864 43,198 30,869

Chain Rank
1 2 3 4 5 6

Remain Sales
$512,345 370,341 244,160 433,300 147,773 181,075

Chain Mkt Share

17.5% 17.3 20.9 11.6 22.6 14.6

Exhibit 6: Brand Importance Report for Shampoo illustrates that Nolans brand emphasis are marginally different than the rest of the market, but not so much.

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Question 3: What would be causing these differences?

Product Mix Summary Report: Shampoo Dollar Sales 13 weeks

Description Clean & Soft 1st Impressions

Chain Sales $108,826 77,672

Chain Rank 1 2

Remain Mkt Rank 1 3

Remain Sales $512,345 370,341

Chain Mkt Share 17.5% 17.3

Chain Cat. Impt. 14.5 10.3

Rem. Mkt. Cat. Impt. 13.0 9.4

Mane Tame
Bargain Bubbles Silky Style Elegance

64,446
56,864 43,198 30,869

3
4 5 6

4
2 6 5

244,160
433,300 147,773 181,075

20.9
11.6 22.6 14.6

8.6
7.6 5.8 4.1

6.2
11 3.7 4.6

Exhibit 7: Product Mix Summary Report illustrate that Nolans product mix are marginally different than the rest of the market, but not so much so that these could be to blame in any significant way, if at all.

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Question 3: What would be causing these differences?

Exhibit 8 Slow Seller Report , which features data describing what Nolans worst selling shampoo UPCs are, provides the greatest insight into the problem of any of the information that is currently available.

Slow Seller Report: Shampoo for Nolans Foods, 13 Weeks versus a Year Ago

Chain Sales Golden JJB Lq T 3 oz. 1st Imprs. DF ND Lot. 11 oz. Gentle GLD Lq. 11 oz. Golden AV Lq. T 3 oz Suds PB Lq. 8 oz. Silky Style X-B Lq.18 oz. $3 10 11 12 14 14

Chain Mkt. Share 9.9% 0.7% 100.0% 22.4% 6 1.6

Rem.Mkt. Growth -51.2 -59.4 -100.0 13.2 107.1 -65.6

Chain Growth -50.0 -99.4 9.6 -69.2 2.9 -99.5

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Nolans
Question 4: A plan of action.
Based on the information that is presently available, the only logical action to take, at least initially, would be to follow Hal Jeffreys advice. His knock off the slow seller approach involves replacing the slow selling UPCs with new products and or increasing shelf space for existing products.

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You can all go home!