Pratik Ghosh Asst. Professor(FMS) NIFT-Bengaluru BUYING PATTERNS Pratik Ghosh Asst. Professor(FMS) NIFT-Bengaluru

CENTRAL BUYING The centralization of all buying activities from a central headquarters with the authority and responsibility for the selection and purchase of merchandise limited to buyers of particular merchandise categories

Three Forms of Central Buying •The central merchandise plan •The warehouse and requisition plan •The price agreement plan

THE CENTRAL MERCHANDISE PLAN Central buying assumes complete authority for buying the assortment of goods, pricing, warehousing and distribution to the many stores. • Central make their purchases and have the merchandise delivered to the warehouse. Buyer has an opportunity to check the goods to be sure they have been shipped as ordered

THE CENTRAL MERCHANDISE PLAN ADVANTAGES- •It provides a steady flow of merchandise provides for specialists in each merchandise category •Goods are inspected before delivery •It allows better stock control. DISADVANTAGES- •Adjustment to local conditions is difficult •Cooperation may be lacking •An enthusiastic selling force may be lacking

THE WAREHOUSE AND REQUISITION PLAN • The central buyer arranges for the initial assortment and has the merchandise shipped to the individual stores. Used for staple goods. • The store manager is provided a list of the stock that is inventoried in the warehouse where the central buyer will see it is properly filled. •The store manager has the responsibility for ordering enough merchandise to carry the store through the buying season.

THE WAREHOUSE AND REQUISITION PLAN ADVANTAGES- •Gives the store manger some responsibility in merchandise selection • Reorders or fill-ins are usually filled promptly. DISADVANTAGES- •There is little control over the composition of the merchandise selection. • Poor warehouse control may lead to an imbalance in store inventory.

THE PRICE AGREEMENT PLAN • Central buyer working with vendors and manufacturers will agree on the retail price, color, size, style and assortment of staple types of merchandise as well as the terms of shipping. • The merchandise is illustrated and described adequately in catalog to be given to store manager. • The central buyer is responsible for prearranging the minimum amount of goods to be purchased by the entire chain, keeping the store catalog up to date, adding new items, canceling old items. • The store manager has complete authority for the composition of the stock and orders can be placed directly with the vendors concerned.

THE PRICE AGREEMENT PLAN ADVANTAGES- •It develops a feeling of responsibility on the part of the store manager •Reduces the expense of warehouse and the necessity of keeping detailed records of each unit. DISADVANTAGES- •Problems arise with tardy deliveries and withhigh transportation cost.

THE DOLLAR MERCHANDISING PLAN It is the specific budget that the buyer uses to project both, sales goals and the amount of stock that is required to achieve the goals. Objectives: To satisfy the needs and wants of customer  To earn profit

Planning for the profit Major goals of planning in retail merchandising are: to maintain an inventory enough meet the anticipated customer demand. to time the delivery of purchase so that merchandise is available for sale for customer demand. to keep purchases in line with the store’s ability to pay for them to have funds available for the purchase of new goods when needed.

Earning a profit Net sales are all of the sales that have been made minus ‘customer returns and allowances’. Cost of goods sold: is the amount the buyer has paid for the merchandise that the store has held for that same time period. Gross margin: is the margin of dollars between what the merchandise cost and what it was sold for. Expenses: is the amount of money spent to run the business. It includes salaries, advertising, rent, heat and light. Profit- the amount of money that is left over after all of the merchandise that is offered for sale has been sold and all of the expenses of running the business have been paid

Procedures for Preparing the plan The store’s accounting department supplies the buyer with a planning form several months in advance of the start of the actual buying season On it are figures of the same department’s merchandising operations during the same season last year. These goals are established by the store management, not by the departmental buyers The buyers then using the planning form and his knowledge of market conditions, trends, and demand cycles, prepare figures on anticipated sales, stocks, markdowns, and purchases for his department for the upcoming season.

The plan made by the buyer is then reviewed by his divisional merchandise manager. The merchandise manager then consolidates all the plans made by the buyers of the same division into a divisional plan and submits it to the general merchandise manager. All the plans are reviewed by both, the store’s controller and the general manager or president. When approved, departmental plans are combined into a master plan for the whole store

Steps of dollar merchandise planning The merchandise plan requires an estimate of sales and provision of inventory of proper stock size to support it. The essential figures of a plan are: Planned sales Planned stock Planned markdowns Planned markups Planned purchases

Stock-sales relationships Stores are guided by two stock-sales relationships: Monthly stock sales ratio: The monthly stock-sales ratio uses the no. of months that would be required to dispose of a BOM inventory at the planned rate of sales for the month. It also directly relates stock requirements to the planned sales. Stock-sales ratio = $ BOM stock / $ Planned Sales for month Rate of Stock Turnover: refers to the no. of times that an average stock of merchandise has been turned into sales in any given period . Stock turnover = $ net sales / $ average inventory (In general the rate of stock turnover is higher in women’s apparel than in men’s clothing or home furnishings. It is also higher in departments featuring lower price ranges than in those featuring higher price ranges. )

OPEN-TO-BUY The open-to-buy also known as open-to-receive, serves as a control device to see that purchasing is carried out according to the figures outlined in the six-month merchandising plan. In its simplest form, OTB is calculated by subtracting the merchandise available from the merchandise needed to meet the plan. OTB = Merchandise Needed – Merchandise Available OTB = Planned Sales + Planned EOM Stock + Markdowns - Inventory on Hand – Merchandise on Order

Increasing Open-to-buy Increase the planned sales Increase planned markdowns Reduce the stock on hand Postpone outstanding orders to a later month Cancel outstanding orders Increase the planned closing stock

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