B UYING M ERCHANDISE By Rechinda Bryant and Rick Nunez

Q UESTIONS What branding options are available to retailers? How do retailers buy national brands? What issues do retailers consider when buying and sourcing private-label merchandise internationally? How do retailers prepare for and conduct negotiations with their vendors? Why are retailers building strategic relationships with their vendors? What legal and ethical issue s are involved in buying merchandise?

B RAND A LTERNATIVES National Brands(manufacturer) 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 retailers outlets

P RIVATE -L ABEL B RANDS Private –Labels Store Brands House Brands Own Brands Premium Brands Wal-marts Sam s choice Generic Brands No frills Copycat Brands Walgreens brand

S PECTRUM OF N ATIONAL VS. PRIVATE LABEL % Store Brands The Gap Macys Limited Target Marks and Spencer IKEA National Brands Wal-Mart Home Depot

E XCLUSIVE BRANDS

R ELATIVE ADVANTAGES OF MANUFACTURER VERSUS PRIVATE BRANDS

B UYING NATIONAL BRAND MERCHANDISE Buying decision for fashion apparel/accessories: 5-6 times a year Many months before delivery Withhold open-to-buy (OTB) for new items with fashion change Buying decision for staple merchandise: Less frequent Continuous replenishment

M EETING NATIONAL BRANDS Wholesale market centers: National markets (New York), Regional Markets (Dollars, Atlanta, Miami), Trade Shows Frankfurt Book Fair, Las Vegas Consumer Electronics Show International Exchanges Worldwide Retail Exchange Meeting Vendors at Your Company

D EVELOPING AND SOURCING PRIVATE - LABEL MERCHANDISE Larger retailers offer a significant amount of private-label merchandise: JCPennys, Macys, The Gap Identifying trends, designing, specifying products Selecting Manufacturers Monitoring and managing manufacturing conditions and product quality Limited Brands acquired Mast Industries One of the worlds biggest contract manufactures, importers, distributors of apparel Have manufacturing operations and join in 12 countries Provides private-label merchandise Lane Bryant New York & Company

L I AND F UNG S E VOLUTION OF SUPPLY CHAIN MANAGEMENT The Supply Chain Manufacturing Control Shipping Control Factory Sourcing Raw Material Sourcing Product Development Consumer Needs Consumer Wholesaler/ Retailer Product Design Local Forwarding Consolidation Forwarder Consolidation Customs Clearance

S OURCING MERCHANDISE Reverse Auctions Only one buyer and the retailer has many potential sellers the manufacturing firms Global sourcing Tariffs taxes placed by government on imports

S UPPORT SERVICE FOR B UYING MERCHANDISE Two services available to buyers Resident buying offices Organizations located in major market centers Retailers have own buying offices in other countries Retail exchanges Provides internet-based solutions and service for retailer Provide a virtual meeting place buyers and vendors Soft ware and services to help retailer, manufacturers, and trading partners

K NOWLEDGE I S P OWER The more you know, the easier it is for you to get a better deal and the harder it is for someone to get the better of you. Knowing what kinds of deals your competitors are getting from retailers can be hard to get, but it can be great leverage.

M ARK DOWN MONEY Mark Down Money Funds vendors give retailers to cover lost gross margin dollars due to markdowns.

N EGOTIATION I SSUES Prices and gross margins Get as much as you can for as little as possible without being a complete jerk. Margin Guarantees Retailers want a guarantee from the vendor that if the merchandise does not move they will get markdown money. Vendors will work with retailers on this but they will want a guarantee that the retailer will push the product. Slotting Allowances A slotting fee is something the vendor pays the retailer to get them to try a new and unproven product. This will only last for a short amount of time, normally only a few months.

N EGOTIATION I SSUES Additional Markup Opportunities Your vendor may have extra inventory they want to unload, they may offer you a great deal for it, but you need to make sure it will work for you. Terms of purchase Are you going to get everything right now or do you want to order X amount per month? Exclusivity As a retailer you if you can get a big name item only to be sold at your chain, you can mark it high and use the customers brand loyalty. The trick is getting the vendor to want to be exclusive with you.

N EGOTIATION I SSUES Advertising Allowances When the vendor helps you advertise with a co- op campaign, or and advertising budget. Transportation Whos going to pay for the shipping? You might be able to get a better price per unit if you do, but it all about what kind of deal you can get.

T IPS FOR EFFECTIVE NEGOTIATING Have as many negotiators as the vendors do. You dont want to be out numbered, take some friends. Choose a good place to negotiate. I recommend a neutral location, in your building you have the advantage and they know it, pick a place you will both me comfortable. Make an offer that they cannot refuse.

T IPS FOR EFFECTIVE NEGOTIATING Aggressive negotiations Be aware of real deadlines. Time is money. Be aware of the other persons deadlines, if they cant get it done in time with you, they will find someone who will. Separate the people from the problem If you have a business problem, and you have established a friendship with the vendor rep, dont try to get a because were friends deal. Its only going to stress the relationship.

T IPS FOR EFFECTIVE NEGOTIATING Insist on objective information. If you know your vender has provided markdown money to your competitors and they dont want to give it to you. You may need to call them out. Invent options for mutual gain. If you are in a deadlock, look for alternative options to make everyone happy. Let them do the talking. When you ask for something and they say no, keep quiet, the silence will make them uncomfortable. The one who breaks the science first will lose. How far to go There is a fine line but you need to find it. Its the line between pushing to hard and not pushing hard enough.

T IPS FOR EFFECTIVE NEGOTIATING Dont burn you bridges Dont be a rude jerk, remember you want to do business with your vendor again, be firm in negations but dont make them mad. Dont Assume Orally review your outcome, you dont want any surprises and they neither do they.

S TRATEGIC R ELATIONSHIPS A strategic or partnering relationship occurs when a retailer and a vendor establish a long term relationship and invest in options that benefit both companies. This gives the a competitive advantage over other companies. Mutual Trust If you can trust them and they trust you, you will get more done because you will not be fighting over prices as much and there will be a greater information. Open Communication Your venders can be a valuable assets if you let them know what's going on.

S TRATEGIC R ELATIONSHIPS Common goals When talking with your vender, let them know what your goals are, a good vender will help you get there. Credible commitments A credible commitment is going to involve you spending money to better your vendor and vise versa.

B UILDING P ARTNERING R ELATIONSHIPS These are the four stages of building a relationship with your vendor. Awareness The process of you finding out about them or them finding out about you. Exploration The process of exploring the potential benefits of a relationship between retailer and vendor. At this stage the retailer will start to make purchase with the vendor to see if they work good together and see how the products move. Expansion The two companies have established that they work well together and move towards goals of a long term relationship. Commitment If the relationship has been working good the companies move into the commitment stage where they begin to make investment to help further the other companies. They also will establish long term goals. This stage is a little more common in the manufacturer vendor side as opposed to retailer vendor. The reason being its a more complicated relationship.

T ERMS AND CONDITIONS OF PURCHASE The Robinson-Patman Act was put in place in 1936 to protect the mom and pop shops from the chain stores. Also known as the anti chain store act, it prevents a vendor from offering a different deal to a chain store then other retailers. They still are allowed to make deals on shipping.

R ESALE P RICE M AINTENANCE Resale Price Maintenance or RPM is a requirement from vendors to retailers establishing a bottom line on merchandise. They cannot mark it down below the manufacturers suggested retail price or MSRP. RPM has been an on again off again thing since the Sherman Act was passed almost 100 years ago. Recently RPMs where ruled by the Supreme Court to not be an automatic anti-trust violation. It was designed to prevent free riding Free riding is when a company goes to all the work and expense of demonstrating the quality of the product and then you go buy it from someone else for less because that retailer did not have to pay to demonstrate it to you. This is why no matter where you go Apple products are always expensive.

C OMMERCIAL B RIBERY Commercial bribery is exactly what you think of when you think of doctors and pharmaceutical companies. They wine and dine you, take you on trips or just pay you money. As long as the buyers manger is aware of what's going on its legal. * Side note… an A on my assignment will cost you $20. please send the money to my Paypal account KIDDING!

C HARGEBACKS A chargeback occurs for a number of reasons. But the bottom line is that the vendor messed up somehow and the retailer deducts the cost of the mistake off of the payment. Vendors dont like this because once the invoice is stamped paid its hard to get the rest of the money.

B UYBACKS Buybacks, also know as stocklifts or lift-outs occur when a retailer buys inventory, this can occur in two ways. First the vendor buys back their own slow moving product. Second is they buy there competitors product to make room for there own, this is illegal but its hard to prove.

C OUNTERFEIT M ERCHANDISE Counterfeit merchandise is anything trademarked or copyrighted that is made and sold without permission. A trademark is any word, graphic, phrase or logo that is used to identify a brand. A copyright protects original works such as art or designs. Popular counterfeited items would be things like CDs, DVDs, or fashion accessories.

G RAY M ARKETS & D IVERTED M ERCHANDISE Gray market goods are the items that are sold out of country for a lower price then they are sold in the US, some retailers might go purchase their merchandise out of country and bring it back in to resell. Diverted merchandise is when a large store has access product that they in turn sell to a smaller store. Vendors try to prevent this in a number of ways, one of them is to sign a contract with the retailer and with the wholesaler that they will use the vendor as a supplier, any violation will mean a permanent loss of business with the vendor.

E XCLUSIVE D EALING A GREEMENTS Exclusive dealing agreements are agreements between a retailer and a vendor to not carry any products offered buy a competing vendor. If you violate this agreement they may pull their product off your shelves, raise your prices, or you may loose you franchise.

T YING CONTRACT A tying occurs when a vendor requires a retailer to carry an item even if they do not desire it. They are only illegal when they substantially reduce the competition or create a monopoly.

R EFUSAL TO DEAL Companies have the right to pick and choose who they want to work with. The only time this can get turned into a legal issue is if the failure to sell seems anticompetitive.

A SSIGNMENT 1 Make a video of power point of National Brand vendors or Private label chose two and explain what they are and where you can find them(try to pick stores in town) National brands vendors Trade shows Wholesale market Private label brands Premium brands Generic brands Copycat brands Exclusive co brands National brands

A SSIGNMENT 2 Do a quick Video on describing three or four of the following Legal and ethical issues. Commercial Bribery Chargebacks Buybacks Counterfeit Merchandise Gray Markets & Diverted Merchandise Exclusive Dealing Agreements Tying contract Refusal to deal Keep it between 4-7 minutes.

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