Staple and fashion merchandise Buying Systems Staple and fashion merchandise

Buying systems for staple merchandise Provide info to buyers concerning: Sales velocity Inventory availability Amount on order Inventory turnover Sales forecast Quantity to order per SKU

Basic components of a staple ordering system Basic stock list Inventory turnover Product availability Forecast Order point Order quantity

Basic stock list Most basic component Describes each SKU Summarizes inventory position Quantity on hand + quantity on order=quantity available

Inventory turnover Turnover is net sales/average retail inventory Can look at inventory for a specific item or SKU

Product availability The percentage of demand for an item a retailer wishes to fulfill

Forecast Simple trend analysis Exponential smoothing New forecast = old forecast + a(actual demand – old forecast)

Order point Quantity below which inventory should not dip below, or item will be out of stock before the next shipment arrives Order point = [(demand/day)(lead time + review time)]+ backup stock

Order point practice problem James is the replenishment buyer for the hosiery department of a small discount chain. He checks his inventory once a week, and orders take five days to arrive once placed. The store typically sells 12 pair of men’s tan socks each day. Backup stock is 24 pair. What is the order point for men’s tan socks? 12(7 + 5) + 24=168

Buying systems for fashion merchandise Incomplete information Objectives Maintain adequate assortments Regulate the dollar investment of stocks in relation to sales to obtain a satisfactory balance

Starting point: planned sales Planned sales=Last year’s sales (% increase or decrease) To determine, consider: Last year’s sales Fashion trends Economic trends Local conditions Market factors Previous growth rates

Another consideration: turnover Stimulates sales Reduces markdowns Lowers cost of goods sold Decreases expenses Interest Merchandise taxes Operating expenses

Turnover How often, on average, merchandise cycles through a store

Calculating turnover If average retail stock and sales for the period are known Turnover= net sales for a period/average retail stock for the same period

Turnover practice problem For the year, the infants’ department had net sales of $2,000,000. The average retail stock during this period was $500,000. What was the rate of stock turn? $2,000,000/500,000= 4. net sales for a period/average retail stock for the period.

Calculating average stock when planned sales and turnover are known Average retail stock= planned sales for a period/turnover rate

Practice problem The hosiery department planned sales of $3,000,000 with a stock turn of 5 as the goal. What should be the average stock carried for the period under consideration? Average stock = planned sales/turnover rate. Average stock = $3,000,000/5 = $600,000

Calculating average stock Average retail stock = (sum of beginning inventories + ending inventory for a given period)/ number of inventories

Stock-sales ratio Used to balance planned monthly sales with planned monthly stocks Vary from month-month depending on seasonal factors Historical figures, or published figures

Calculating stock to sales ratio Sales to stock ratio = retail stock at a given time/sales for the period

Practice problem On February 1, the boys’ wear department had a retail stock of $120,000. The planned sales for this month were $20,000. Find the stock-sales ratio for the month of February. Stock-to-sales ratio= $120,000/$20,000= 6

Calculating BOM stock When planned sales and stock-sales ratio are known BOM stock = planned monthly sales * stock-sales ratio

Practice problem The fabric department planned sales of $40,000 for the month of July. Experience in the department showed an 8.2 stock-sales ratio was successful. What should be the planned BOM stock for July? BOM stock = planned sales * stock-sales ratio=$40,000 * 8.2 = $328,000

Reductions to inventory Markdowns Employee discounts Shrinkage

Markdowns Reductions in initial selling price Objectives Stimulate sales of merchandise to which customers are not responding satisfactorily Attract customers by offering bargains Meet competitive prices Provide open-to-buy money to purchase new merchandise Create special promotions

Causes of markdowns Buying errors Pricing errors Selling errors Off-price promotions or multiple sales Broken assortments

Employee discounts Type of markdown Employee benefit

Shrinkage Reductions in inventory caused by shoplifting by employees or customers, by merchandise being misplaced or damaged, or by poor bookkeeping

Common causes of shrinkage Clerical errors Physical merchandise losses

Planned purchases Planned EOM stock + planned sales for the month + planned markdowns for the month total merchandise requirements for month - planned BOM stock planned purchase amount for month

Practice problem From the following planned figures for the lingerie department, calculate the planned purchase amount for June: Planned stock June 1 $ 38,000 Planned sales for June $ 100,000 Planned markdowns for June $ 5,000 Planned stock for July 1 $ 40,000 Planned June sales $100,000 + EOM stock (July 1) $40,000+ planned markdowns 5,000= total merchandise requirements 145,000- planned BOM stock (June 1) 38,000 = $107,000

Open-to-buy Amount of unspent money available for purchasing merchandise OTB for the balance of the month

Calculating open-to-buy at the beginning of the month Planned purchases - merchandise on order Open-to-buy

Practice Problem If planned purchases for June are $107,000 and merchandise on order is $52,000, what is the OTB for June?

Calculating open-to-buy for the balance of the month Planned purchases - merchandise received to date - merchandise on order Open-to-buy

Converting to cost Planned purchases at cost= planned purchases at retail (1-MU%) OTB at cost= OTB at retail (1-MU%) This is how much you can actually spend!!