Retail Merchandising is the process of developing, securing, pricing, supporting and communicating the retailers merchandise offering.

Merchandising- Definition
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.
Primary Functions of Merchandising?

It means offering the right quantity of the right product in the right place at the right time !!

Steps In The Retail Merchandising Process

1. Developing the sales forecast. 2. Develop the merchandise mix and establish the merchandise budget. 3. Build the logistic system for procuring the merchandise mix. 4. Price the merchandise offering. 5. Organize the customer support service and manage the personal selling effort. 6. Create the retailers advertising, sales incentive and publicity programs.

What is merchandise mix ?

The total number of products a retailer offers in his store
Small and large retailers are required to make decisions about thousands of individual items from hundreds of vendors. If the buying process is not organized in a systematic orderly way chaos will happen. Hence we describe how merchandise is organized by categories for buying purpose.

Analysis of past sales and trends Planning merchandise assortments Acquisition of merchandise

Merchandise Hierarchy
The merchandising hierarchy is a disciplined Division way of grouping the merchandise mix at different levels, starting from a high-level grouping to the lowest level of the stock keeping unit-(SKU). The grouping may at Department times have even more than four-five levels.

Merchandise Heirarchy

Apparel

Supermarket

Electronics

Men's

Ladies

Kid's

Accessories

Category

Shirts

Trousers

suits

Under Garments

Sub Category

Full Sleeve Formals

Half Sleeve

Brand

Arrow

V.Heusen

Louie Phillip

Polo

Merchandise Hierarchy

Style

Button Down Collar

Cut Away Collar

Options SKU Size 4 40,42,44,46 color 4 white blue green yellow Design 3 solid stripe bold price 3 650,750, 1000

The merchandising hierarchy is a disciplined way of grouping the merchandise mix at different levels, starting from a high-level grouping to the lowest level of the stock keeping unit-(SKU). The grouping may at times have even more than four-five levels.

THE COMPONENTS OF THE MERCHANDISE MIX

Variety /Category/product lines/Breadth/Width of assortment

Merchandise Variety - Category

(# of product lines)

Merchandise Assortment /SKUs

(# of product items)

Merchandise Support
(#of product units)

refers to the number of distinct goods/service categories (product lines) a retailer carries.

SKU
A 40 size white shirt of solid design at the price-point of 750 having a button down collar of the Arrow brand in the full sleeves sub-category or sub class of the shirts category belonging to the mens department of the apparel division in a retail organization is a SKU.
Level hierarchy will be diff for various product category, for supermarket,the levels will be: Division : Food Dept: Packaged food Category: Sauces Sub-category: Tomato Brand: Maggi SKU: 250g, 500g, 1kg.

Assortment /Depth of assortment/options/SKU

Depth of assortment refers to the variety in any one goods/service category (product line) a retailer carries Is the number of SKUs with in a merchandise category. Stock keeping unit is the smallest unit available for keeping inventory control. In soft goods merchandise an SKU means size, color, and style.

Assortment plan
Is a list of merchandise that indicates in general terms what the retailer wants to carry in a particular merchandise category. An assortment can range from wide and deep (department store) to narrow and shallow (box store)

Different optimal variety and assortment strategies possible!!

Narrow Variety/Shallow Assortment Vending machines Newsstands Door-to-door Wide Variety/Shallow Assortment Variety Stores General Stores Discount Stores Narrow Variety/Deep Assortment Specialty Stores Wide Variety/Deep Assortment Full-line Department Stores

Merchandise Mix Strategies

Retailers are limited by the amount of money available for the merchandise and the space in the store. They need to decide how much backup stock to carry for each item.the more back up stock ,the less likely they are to run out of particular item. On the other hand if they carry a lot of backup stock they will have less money available to invest in a deeper assortment or in more categories

Retail Assortment Strategies

Standard Merchandise Classification Scheme and Organizational Chart

Merchandise Group

Click to edit Master title style

Chairman MerchandiseOriented partner Sr. vice pres merch mgr Womens ready-to-wear

Planning Group
V.P. Planning

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Department

Second level
Div. merch Div. Third level merch manager manager Mens suits, Fourth level Mens sportsslacks, dress wear, Polo shirts

Sr. vice pres merch mgr Mens, chlds, intimate apparel Div. merch manager

Sr. vice pres merch mgr Cosmet, shoes, jewelry, access. Div. merch manager Childrens apparel Buyer Infants

Sr. vice pres merch mgr Soft home furn., kitchen

Div. merch manager Intimate apparel Buyer Little boys

Div Dir.. Planning

Classification
Buyer Preteen accessories

Fifth level
Buyer Girls

Young mens, boys apparel Buyer Toddlers

Buyer Girls Size 7-14 Dresses

Mgr. Planning

Size 4-6 Swimwear Outerwear

Category
Sportswear

SKU
08/21/97 08/01/97
Girls Levi jeans, sz 5, stone washed blue, straight leg

Irwin/McGraw-Hill

4
The McGraw-Hill Companies, Inc., 1998

Assortment Plan for Girls Jeans

Styles Price levels Fabric composition Colors T R A D I T I O N A L $45 $45 Reg denim Stonewashed Light blue Light blue

$20 $20 Reg denim Stonewashed Light blue Light blue

$35 $35 Reg denim Stonewashed Light blue Light blue

B O O T Price levels Fabric composition Colors $25 $25 Reg denim Stonewashed Light blue Indigo Light blue Indigo

C U T $40 $40 Reg denim Stonewashed Light blue Indigo Light blue Indigo

Black

Black

Black

Black

The Product Life Cycle

Total Retail Sales

Decline Growth Maturity Introduction

Time
Strategy variable Target market No of products Distribution Intensity Price Promotion

Introduction
High-income Innovators One basic offering Limited or extensive Penetrating or skimming Informative

Growth
Middle-income adapters Some variety More retailers Wide range Persuasive

Maturity
Mass market Greater variety More retailers Lower prices Competitive

Decline
Low-income and laggards Less variety Fewer retailers Lower prices Limited

Types of Merchandise
Fad merchandise Fashion merchandise Staple merchandise Seasonal merchandise

Fad

Recognizing and Identification of fad in its earliest stages and immediately locking up distribution rights for the merchandise is important. Also, to identify the peak of the product life cycle so it can bail out all merchandise before it gets stuck in the warehouse

Fashion

Is a category of merchandise that last for many seasons. Sales can vary dramatically from one season to the next. Also called BASIC MERCHANDISE are category which are in constant demand over extended period of time . Regular products carried by a retailer Grocery store examples: milk, bread, canned soup Basic stock lists specify inventory level, color, brand, style, category, size, package, etc. Merchandise bought by consumers Year in and year out

Staple

Seasonal

Is inventory whose sales fluctuate due to seasonal influences in the year.

Variations of the Product Life Cycle

Fad
Sales over many seasons No

Fashion
Yes

Staple
Yes

Seasonal
Yes

Sales of a specific style over No many seasons

No

Yes

Yes

Sales vary dramatically from one season to the next

No

Yes

No

Yes

SALES

SALES

Illustration (Sales against Time)

SALES

TIME

TIME

TIME

SALES TIME

The forecasting and inventory management systems used for fads and fashion merchandise and staple merchandise is different.

Managing fashion merchandise is tricky as there is no history of SKUs. But in staple merchandise there is rich sales history for each SKU.

With all this information retailers develop their sales forecast.

Developing a Sales Forecast

Previous sales volume Reading published sources Analyzing customer information Shopping at the competition Utilizing vendors

PLANNING MERCHANDISE ASSORTMENT

Must organize the merchandise mix as to the number of different product lines (categories) carried. Must decide on options: Brands Sizes Colors Material Styles Price points

PLANNING MERCHANDISE ASSORTMENT

Goal is to ensure that product choice meets targeted consumer needs Must carefully plan the number of units to have on hand to meet the expected sales for the brand, size, color combinations Must develop merchandise lists 1. Basic Stock List (staple items) 2. Model Stock List (fashion items) 3. Never Out List (key items and best sellers)

CONTROLLING MERCHANDISE ASSORTMENT

Involves monitoring and adjusting the types of product lines that are added and dropped from the merchandise mix Two widely used methods to control assortment and support: 1. Inventory turnover: rate at which the retailer depletes and replenishes stock 2. Open-to-buy:amount of new merchandise a retailer can buy during a specific time period without exceeding planned purchases for the period

RETAIL MERCHANDISING
MERCHANDISING Termed as the planning, buying and selling of merchandise It is an integral part of retailing and is also one of he most challenging functions Retailers often say, GOODS WELL BOUGHT ARE HALF SOLD.

MERCHANDISE MANAGEMENT Termed as the analysis, planning, acquisition, handling and control of merchandise investment of retail operation

ANALYSIS Analysis is required because a retailer needs to understand the needs and wants of his target audience PLANNING It is necessary to plan since the merchandise to be sold in future must be bought in advance ACQUISITION Merchandise to be sold in retail store, needs to be procured from others either from distributors or manufacturers

HANDLING It is necessary to determine where merchandise is needed and ensure that the merchandise reaches the required stores at he right time and the right condition CONTROL As the function of retailing involves spending money for acquiring of products, it necessary to control the amount of money spent of buying

RETAIL MERCHANDISING
Process of merchandise management includes the developing of strategies to ensure that the right product Is bought at the right price Is available at he right place At the right time In the right amount In order o satisfy he needs of the target customer No one in retail can avoid any contact with merchandising activities Merchandising is the day-to-day business of all retailers As inventory is sold, new stocks need to be purchased, displayed and sold Hence merchandising is often said to be at the core of retail management FACTORS AFFECTING THE MERCHANDISING FUNCTIONS
SIZE OF THE ORGANIZATION MERCHANDISING FUNCTION ORGANIZATION STRUCTURE TYPE OF STORE MERCHANDISE TO BE CARRIED

METHODS OF INVENTORY PLANNING

1. The Basic Stock Method

This method is used when the retailer believes that it is necessary to have a given level of inventory on hand at all times Basic stock is the minimum amount of inventory that needs to be maintained for a product, category or store, even during times of low sales

Basic Stock = Average stock for the season average monthly sales for the season where Average monthly sales for the season = Total planned sales for the season Number of months in the season

Average stock for the season = Total planed sales for the season Estimated Inventory Turnover Rate for the season
Beginning of Month (BOM) stock = Planned Monthly Sales + Basic Stock

Illustration : Using the basic stock method, calculate BOM inventory for the month of January, given the following information Planned sales for January : 30,000 Average monthly sales : 25,000 Average monthly inventory : 40,000 Basic stock = 40,000 25,000 = 15,000 BOM stock = 30,000 + 15,000 = 45,000
2. The Percentage Variation Method This method is used when the stock turnover rate is more than six times a year The basic premise is that this method of inventory planning is that inventory levels should reflect the actual sales

It is calculated as under :

BOM Stock = Avg stock for the season x [ 1 + (Planned Sales for the month / Avg monthly sales)]

Illustration: Using the Percentage Variation Method, calculate the BOM inventory for the month of January, given the following information
Planned sales for the month of January Average monthly sales Average monthly inventory : 30,000 : 25,000 : 40,000

BOM Stock = Avg stock for the season x [ 1 + (Planned Sales for the month / Avg monthly sales)] BOM stock = 40,000 = 40,000 = 40,000 = 40,000 = 44,000 x x x x [1 + 30,000/ 25,000)] (1 + 1.2) x 2.2 1.1

3. Stock to Sales Ratio Method This method is very easy to use, but it requires the Retailer les ratio. It involves the maintaining of the inventory levels at a specific ratio to the sales This ratio tells he retailer how much inventory is needed at the beginning of the month, to support the months estimated sales

Stock-Sales ratio = Value of Inventory / Actual sales Planned BOM inventory = Stock-Sales Ratio x Planned Sales

Illustration: Using the ales Ratio Method, calculate the BOM inventory for the month of January, given the following information Stock to sales Ratio = 1.4 Planned sales for the month of January : 20,000 Planned BOM inventory = 1.4 x 20,000 = 28,000
Stock Turnover Rate An effective measure of the speed with which products or merchandise moves in and out of a retail store for a given period It is a measure of efficiency and is usually calculated for a period, of six months or a year It is calculated using the following formula Planned Sales (for a period) ---------------------------------------------------- = Stock turnover Planned average Inventory (for the period) The stock turnover rate is a measure of efficiency Every department usually has its own stock turnover rate as different merchandise need different speeds of selling From the managements perspective, the stock turnover indicates the level of capital usage ie. Turning money into inventory, inventory into money and then repeating the process again