Developing Merchandise Plans Chapter 14 Developing Merchandise Plans RETAIL MANAGEMENT: A STRATEGIC APPROACH, 10th Edition BERMAN EVANS

Chapter Objectives To demonstrate the importance of a sound merchandising philosophy To study various buying organization formats and the processes they use To outline the considerations in devising merchandise plans: forecasts, innovativeness, assortment, brands, timing, and allocation To discuss category management and merchandising software

Merchandising 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

Merchandising Philosophy Sets the guiding principles for all the merchandise decisions that a retailer makes Should reflect Target market desires Retailer’s institutional type Market-place positioning Defined value chain Supplier capabilities Costs Competitors Product trends

Scope of Merchandising Responsibility Full array of merchandising functions Buying and selling Selection, pricing, display, customer transactions OR Focus on buying function only

Figure 14-1: Nike’s Own Store Merchandising Philosophy

Micromerchandising Retailer adjusts shelf-space allocations to respond to customer and other differences among local markets

Cross-Merchandising Retailers carry complementary goods and services to encourage shoppers to buy more

Figure 14-2: Attributes and Functions of Buying Organizations

Functions Performed Merchandising view All buying and selling functions Assortments Advertising pricing Point-of-sale displays Employee utilization Personal selling approaches

Functions Performed (cont.) Buying view Buyers manage buying functions Buying Advertising Pricing In-store personnel manage other tasks Assortments Point-of-sale displays Employee utilization Personal selling approaches

Figure 14-4: Merchandising Versus Store Management Career Tracks

Figure 14-5: Devising Merchandise Plans

Forecasts These are projections of expected retail sales for given periods Components: Overall company projections Product category projections Item-by-item projections Store-by-store projections (if a chain)

Types of Merchandise Staple merchandise Assortment merchandise Fashion merchandise Seasonal merchandise Fad merchandise

Staple Merchandise 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.

Assortment Merchandise Apparel, furniture, auto, and other categories for which the retailer must carry a variety of products in order to give customers a proper selection Decisions on Assortment Product lines, styles, designs, and colors are projected Model stock plan

Fashion and Seasonal Merchandise Fashion Merchandise: Products that may have cyclical sales due to changing tastes and life-styles Seasonal Merchandise: Products that sell well over nonconsecutive time periods

Table 14-1a: Factors in Planning Merchandise Innovativeness RELEVANCE for PLANNING Target market(s) Evaluate whether the target market is conservative or innovative Goods/service growth potential Consider each new offering on the basis of rapidity of initial sales, maximum sales potential per time period, and length of sales life Fashion trends Understand vertical and horizontal fashion trends, if appropriate Retailer image Carry goods/services that reinforce the firm’s image

Table 14-1b: Factors in Planning Merchandise Innovativeness RELEVANCE for PLANNING Competition Lead or follow competition in the selection of new goods/services Customer segments Segment customers by dividing merchandise into established-product displays and new-product displays Responsiveness to consumers Carry new offerings when requested by the target market Amount of investment Consider all possible investments for each new good/service: product costs, new fixtures, and additional personnel

Table 14-1c: Factors in Planning Merchandise Innovativeness RELEVANCE for PLANNING Profitability Assess each new offering for potential profits Risk Be aware of the possible tarnishing of the retailer’s image, investment costs, and opportunity costs Constrained decision making Restrict franchisees and chain branches from buying certain items Declining goods/ services Delete older goods/services if sales and/or profits are too low

Figure 14-6: R&D at Wendy’s

Figure 14-7: Traditional Product Life Cycle

Structured Guidelines for Pruning Products Select items for possible elimination on the basis of declining sales, prices, and profits, appearance of substitutes Gather and analyze detailed financial and other data about these items Consider nondeletion strategies such as cutting costs, revising promotion efforts, adjusting prices, and cooperating with other retailers After making a deletion decision, do not overlook timing, parts and servicing, inventory, and holdover demand

Figure 14-8: Predicting Fashion Adoption

Table 14-2a: Factors in Planning Merchandise Quality RELEVANCE for PLANNING Target market(s) Match merchandise quality to the wishes of the desired target market(s) Competition Sell similar quality or different quality Retailer’s image Relate merchandise quality directly to the perception that customers have of retailer Store location Consider the impact of location on the retailer’s image and the number of competitors, which, in turn, relate to quality

Table 14-2b: Factors in Planning Merchandise Quality RELEVANCE for PLANNING Profitability Recognize that high quality goods generally bring greater profit per unit than lesser-quality goods; turnover may cause total profits to be greater for the latter Manufacturer versus private brands Understand that, for many, manufacturer brands connote higher quality than private brands Customer services offered Know that high-quality goods require personal selling, alterations, delivery, and so on Personnel Employ skilled, knowledgeable personnel for high-quality merchandise

Table 14-2c: Factors in Planning Merchandise Quality RELEVANCE for PLANNING Perceived goods/ service benefits Analyze consumers. Lesser quality goods attract customers who desire functional product benefits; High-quality goods attract customers who desire extended product benefits Constrained decision making Face reality. Franchises or chain store managers have limited or no control over products; Independent retailers that buy from a few large wholesalers are limited to the range of quality offered by those wholesalers

Retail Assortment Strategies Width of assortment refers to the number of distinct goods/service categories (product lines) a retailer carries Depth of assortment refers to the variety in any one goods/service category (product line) a retailer carries An assortment can range from wide and deep (department store) to narrow and shallow (box store)

Figure 14-10: Sephora’s Very Deep Assortment of Cosmetics

Brands Manufacturer (national) Private (dealer or store) Generic

Table 14-3: Private Brand Test Match the Retailer with the Brand Name Bloomingdale’s Arizona Jeans Costco Ol’ Roy Kmart Michael Graves J.C. Penney Martha Stewart Sears Joseph & Lyman Wal-Mart Kenmore Target Kirkland Macy’s Alfani

Figure 14-11: Wal-Mart’s New Approach to Private Brands

Figure 14-12: Daffy’s Distinctive Branding Strategy

Figure 14-13: Applying Category Management

Merchandising Software General Merchandise Planning Software Forecasting Software Innovativeness Software Assortment Software Allocation Software Category Management Software

Figure 14-4a: Shelf Logic Software for Category Management Planning

Figure 14-4b: Shelf Logic Software for Category Management Planning