Chapter 14 Buying Merchandise Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

14-2 Questions ■What branding options are available to retailers? ■Where do buyers meet vendors? ■How do retailers prepare for and conduct negotiations with their vendors?

14-3 Brand Alternatives ■National (Manufacturer) Brands Designed, produced, and marketed by a vendor and sold by many retailers ■Private-Label (Store) Brands Developed by a retailer and only sold in the retailer’s outlets

14-4 Family and Individual Branding Strategies ■Both manufacturers and retailers use family and individual branding strategies ■Family branding – company name associated with the product National – Kellogg’s Frosted Flakes, Ford F150 Private Label – Gap, Victoria’s Secret ■Individual branding – uses individual names for different products it makes National – P & G makes Tide, Crest, Ivory, Jif Private Label – Sears (Kenmore), Macy’s (Charter Club, Martha Steward Collection)

14-5 National (Manufacturer) Labels Advantages ■Help retailers build their image and traffic flow ■Reduces selling/promotional expenses ■Customers patronize retailers selling the branded merchandise ■Large retailers can push some of the financial risk of buying merchandise back onto the vendor Disadvantages ■Lower margins ■Vulnerable to competitive pressures ■Limit retailer’s flexibility The McGraw-Hill Companies, Inc./Lars Niki, photographer

14-6 Private Labels Advantages ■Unique merchandise not available at competitive outlets ■Exclusivity boosts store loyalty ■More flexibility ■Higher margins Disadvantages ■Require significant investments in design, global manufacturing sourcing ■Need to develop expertise in developing and promoting brand ■Unable to sell excess merchandise ■Typically less desirable for customers

14-7 Meeting National Brand Vendors ■Wholesale Market Centers Have a concentration of vendors within a specific geographic location Garment District in New York, Atlanta Merchandise Mart ■Trade Shows Staged at convention centers. Vendors display merchandise in designated areas and have sales reps and company execs available to talk with buyers International Consumer Electronics Show, The Super Show

14-8 Buying Process ■Meet with vendors ■Discuss performance of vendor’s merchandise during the previous season ■Review the vendor’s offering for the coming season ■May place orders for the coming season ■Sometimes they do not buy at market, but review merchandise, return to their offices to discuss with the buying team before negotiating with vendors

14-9 Negotiating with Vendors ■One way in which buyers are evaluated is in terms of the gross margins their product categories generate. ■To get good gross margins, the buyer must get good deals Royalty-Free/CORBIS

14-10 Planning the Negotiation ■Consider history with the vendor ■Set goals ahead of time Price and gross margin Discussion of left over merchandise Terms of purchase Transportation Delivery and Exclusivity ■Plan to have as many negotiators as the vendor ■Plan to negotiate on own turf

14-11 The Face-to-Face Negotiation ■Separate People from the Problem ■Invent Options for Mutual Gain ■Let Them Do the Talking ■Know How Far to Go ■Don’t Assume Anything

14-12 Strategic (Partnering) Relationships Retailer and vendor committed to maintaining relationships over the long-term and investing in mutually beneficial opportunities

14-13 Terms of Purchase ■Trade Discounts Reductions in a manufacturer’s suggested retail price granted to wholesalers and retailers ■Quantity Discounts Cumulative and Noncumulative ■Seasonal Discounts ■Cash Discounts ■Shipping Costs ■Promotional Allowances ■Markdown Money