Planning and evaluating your Product Range

Product choice Planning your product range is a critical element of retailing. In addition to carrying a range of products that meet the needs of your target market (see ‘Manage Merchandise and Store Presentation’ in the electives for more information), your range must also be profitable. This is a complex process that involves combining marketing principles and financial management concepts to achieve your goals

Merchandise Plans Before determining how much to buy and when to buy it, you must compile a Merchandise Plan. This plan must take the following into account: planned sales for the period under review (6 months) planned reductions (markdowns, discounts,) planned inventory holdings planned purchases for the review period (up coming events).

Merchandise plans should be developed for the entire store and then broken down into departments and/or merchandise classifications. They should be in dollars and units. This ensures that individual lines reflect price points in line with the market segments. For example, if you only calculated dollars, you could end up with fewer units if you selected price points above the target market segments. To make these calculations effectively, product classifications should be broken down into sub-classifications. This breakdown should include sizes, colours, fabrics and styles. The objective is to ensure that there are enough units on hand (as well as dollars) to meet the planned sales of each product.

Sales Records After a spa has been in business for a while it generates records of previous sales figures. These records assist in the planning process and generally include: any planned promotions/sales - Mothers Day special events – Melbourne Cup holidays - including back to school climatic conditions – new season releases your competition’s activities current and future trends - business trends, style/fashion trends last year’s sales - by classification/sub-classification wherever possible last year’s promotions and any factors that may have applied

Planned Sales The past sales records provide a useful base for developing your planned sales for the next period. By comparing the % of sales you achieved in each product classification to the total sales achieved during that period you can decide if the same levels of sales are achievable in this period or if you should change them up or down. The outcome of this comparison provides you with some of the information you need to begin planning your purchases and stock holdings for the new trading period

Planned Reductions Like past sales figures, planned reductions are useful when developing your merchandise plan for the new trading period. If used well, they can help you to minimise the potential slow or dead stock you may hold in the store. This enables you to rationalise your stock levels over a period of time. Planned reductions include Markdowns and Discounts, etc. They are usually planned based on: historical information - stock losses, theft existing stock problems - damaged, off season surpluses, odd sized merchandise, etc

Planned Inventory Planned inventory aims to ensure that there is sufficient opening stock to cover the projected sales for the month. Use your historical data to identify previous stock levels and calculate your stock holding levels to the sales of each classification achieved during that period. This stock to sales ratio figure gives you an indication of the desired stock level for each classification and a guide for planning your inventory holding for the month

Calculating stock to sales ratio To calculate the stock to sales ratio, take the stock figure of each classification at the beginning of the month and divide it by the net sales for the month. Example;- Stock at beginning of month $72,000  (at selling price) Net sales for month  $48,000  (at selling price) Stock to Sales Ratio1.5 This figure should be applied to the planned sales to arrive at the stock requirements for the new sales period. Then total the desired and planned range to ensure it is in line with the planned inventory and ratios

Planned Purchases Having planned sales, sales reductions and inventory by month and by classification you can plan your purchases. This is sometimes referred to as ‘the open to buy’. It identifies what purchases you will need to make during the month to achieve your planned sales. After planning your purchases for the month you can plan your deliveries, as you require the merchandise over the month. This will assist you to pay invoices by their due dates. It also helps you to take advantage of the suppliers credit terms.

For example, receiving stock too far in advance of sales can result in insufficient funds to pay bills and receiving stock too late can lose sales for the store. Open to buy is the dollar amount you spend on inventory in a given period. It is calculated by: CALCULATING OPEN TO BUY ADD Planned Sales For The Month TO Planned Inventory At End Of Month Planned reductions would be added to planned sales and the planned closing inventory LESS Merchandise On Hand (at start of month) Merchandise On Order (due that month) EQUALS Open To Buy Figure For the Month

Express all figures as either cost price or selling price - do not use some cost figures and some selling figures Example (Cost Inventory) Planned inventory for 30 June= $38,000  (at cost) Plus planned sales for June= $23,000  (at cost) Equals= $61,000 Less Inventory on hand at June 1= $40,000  (at cost) Plus merchandise on order ($12,000)= $52,000  (at cost) Open to buy=   $9,000    (at cost)

Adjusting Open to Buy It may be necessary to adjust the open to buy figures in line with actual sales and actual purchases as trading conditions change. For example, if sales are down or purchases exceed your open to buy, adjust next month’s closing inventory. If you trim next month’s budget, you should allocate more to open to buy. Otherwise you will be under stocked and lose sales.

Timing Purchases and Deliveries The safest way to buy is to wait until the goods are sold and then re-order. In many cases this is not possible because any delay in delivery can be critical. So you are left with two alternatives: forecast your rate of sales on the item to cover the lead time and the period you wish to buy for sell floor stock and reorder sold goods. The problem is that ‘floor stock’ must be kept ‘fresh’ to avoid tired looking stock and to keep up with model changes or new fashions in fabrics, colours, styles, etc. The best method will depend on your type of merchandise. Ensuring that floor stock is kept fresh also requires buying skill to ensure that when you decide to quit a line, the replacement is on the floor within hours to avoid loss of sales (particularly if it's your best seller).

The main principle is to re-order when stocks are down to the minimum safe quantities. For example, a particular line has a delivery delay of 5 weeks. The sales forecast is 10 per week, the stock on hand is 25, the stock on order (due now) is 30 and the undelivered customer orders are 5. Uncommitted stock on hand 25 Less undelivered 5 = 20 Add stock on order 30 The present cover in units is 50 At a rate of 10 sales per week there is 5 weeks of stock. As the delivery delay is 5 weeks, you should order NOW

Order Quantities Retailers should have at least 1 week’s cover at all times. Building on the previous example weeks lead time @ 10 units = 50 1 week cover @ 10 units = 10 Total required 60 So we should order 10 units immediately! When ordering goods in specifically for a customer, it is essential to use a preferred supplier to ensure regular deliveries. Casual suppliers may have no reason to stick to delivery times.