1. Buying Merchandise Chapter 13
After setting strategic, assortment and planning goals, this gets into the process of working w/vendors, developing exclusive product, etc.
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Merchandise Management
Managing Merchandise Assortments
Chapter 12
Merchandise Planning Systems
Chapter 13
Buying Merchandise
Chapter 14
This chapter is intended to lead into what the recent and next guests are talking about. What is the actual decision and negotiating process that follows assortment planning and building the OTB plan?
Retail Pricing
Chapter 15
Retail Communication Mix Chapter 16

3. Questions 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? (IMPACT OF CONSOLIDATION)
What legal and ethical issues are involved in buying merchandise? (NOTE: pages not assigned)
Differences not that great between buying nat’l and exclusive brands, many products come from the same vendors

4. Brand Alternatives National (Manufacturer) Brands
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 retailer’s outlets
WHAT’S THE THIRD WAY?
Exclusive Brands
MUDD – TOMMY – ELLE – MANGO –
J.LO – CANDIES – LIZ CLAIBORNE
And many more…with name recognition but only sold by one store
Differentiation strategy as stores consolidate and go national
The Third Way: Exclusive Nat’l Brands (Tommy at Macys…Elle at Kohl’s…many other examples) – only at one store but w/nat’l recognition

5. Evolving Penetration of National vs. Private Label and Exclusive Brands
National Brands
% Store Brands
Wal-Mart
Home Depot
Foot Locker
The Gap
Limited
Marks & Spencer
IKEA
Macy’s
Target
Kohl’s
Extension of this idea: taking what was a widely distributed brand “exclusive” to one store (e.g. MUDD at Kohl’s)

6. Retailers’ branding approach
Similar to national brands, retailers use their name to create a private label for merchandise
The Gap, Victoria’s Secret use a family brand approach
All of private label merchandise is associated with their name
Macy’s uses a portfolio approach
A portfolio of private label brands with different merchandise types (Charter Club, Style & Co., Greendog, INC, The Cellar, Tools of the Trade)
Retailers have evolved from being a collection of brands under one roof to thinking of themselves as a “brand” not just a store
Macy’s “portfolio” of private brands allows them to reach different spaces on their own “grid” (e.g. Style & Co., vs .INC)

7. Categories of Private Brands
Comparable to, even superior to, manufacturer’s brand quality, with modest price savings Wal-Mart’s Sam’s Choice, Kirkland (Costco)
Premium
Target a price-sensitive segment by offering a no-frills product at a discount price
Generic
Imitate the manufacturer’s brand in appearance and packaging, perceived as lower quality, offered at a lower price (DRUG AND FOOD RETAILERS)
Copycat
Focus on emergence of “exclusive co-brands” – vendors like Liz Claiborne have learned to operate in many of these spaces (Lucky vs. Axcess vs. JCP)
Developed by a national brand vendor and sold
exclusively by the retailer
Difficult for consumers to compare prices for virtually the same product (Chaps vs. American Living)
Exclusive co-brands

8. Exclusive Co-Brands Simply Vera by Vera Wang
American Beauty by Estee Lauder
in Kohl’s
Simply Vera by Vera Wang
in Kohl’s
What are the advantages of these kinds of brands?
(DISCUSS: ability to move up avg. price point vs. private label…aspirational…national brand credibility) – specific advantages of cosmetics launch at Kohl’s
Liz Claiborne
In JC Penney

9. Exclusive Brands: A few examples
Again, “privatizing” of nat’l brands extends to well-known names like Chaps, MUDD and Liz Claiborne – Liz being developed by JCP not by LC – store as brand mgr. needs clear POV

10. Relative Advantages of Manufacturer versus Private Brands
DISCUSS why there is an increasing trend toward PL brands before proceeding to next slide (This is ex 14-2 page 388) – use next 2 slides to expand
Margin play? Differentiation? Why else? (KSS shift from 20% to 40% PL has had big impact on margins)

11. Private Labels Advantages Disadvantages
Unique merchandise not available at competitive outlets
Exclusivity boosts store loyalty
Difficult for customers to compare price with competitors
Higher margins on goods often used for promotions
Disadvantages
Require significant investments in design, global manufacturing and sourcing
Need to develop expertise in brand management
Unable to sell excess merchandise
Typically less desirable for customers
DISCUSS: Appropriate strategy for the stores you are studying in project #3?
Discuss in context of intimate apparel – KSS vs. JCP (new brand) – Ambrielle, Moments vs. Maidenform, Bali etc. (also athletic shoes)
WHY is national branding important in these categories? Where does it matter to you?

12. National (Manufacturer) Labels
Advantages
Help retailers build their image and traffic flow
Reduces selling/promotional expenses
More desired by customers
Customers patronize retailers selling the branded merchandise
Large retailers can push some of the margin risk of buying merchandise back onto the vendor
Disadvantages
Lower margins
Vulnerable to competitive pressures
Limit retailer’s flexibility
Exclusive brands esp. developed by nat’l vendors provide some of the advantages of both PL and national labels as well as partnering relationships
(go to WHITEBOARD illustration of Nike vs. Fila)
The McGraw-Hill Companies, Inc./Lars Niki, photographer

13. Buying National (or Exclusive) 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
BUT: “Fast Fashion” trend intended to reduce lead times from six months to three months or less
Buying decision for staple merchandise:
Less frequent assortment changes
Continuous replenishment
This gets into the mechanics of the buying process – as I said, process is really the same whether you are buying nat’l or exclusive brands, the big difference in “process” is whether you are buying trend or staple mdse.

14. National Brand Buying Process
Meet with vendors at corporate offices, vendor’s office or at national trade show
Discuss performance of vendor’s merchandise during the previous season
Review the vendor’s offering for the coming season
May place orders for the coming season
Sometimes they do not buy at market, but review merchandise, return to their offices to discuss with the buying team before negotiating with vendors
EXAMPLES: JCK National Jewelry Show, “Market Weeks”
May “preview” mdse. at buyer’s office before a market week, or work the details afterward (example: market week or JCK)

15. Developing Private Label Merchandise
In-House: Large retailers (e.g., JCPenney, Macy’s, The Gap, American Eagle Outfitters) have divisions specialized in
identifying trends, designing, specifying products
Selecting manufacturers
Monitoring and managing manufacturing conditions and product quality
Acquisition: Limited Brands acquired MAST Industries
MAST
one of the world’s biggest contract manufacturers, importers, distributors of apparel
Have manufacturing operations and join ventures in 12 countries
Also provides private label merchandise for Abercrombie & Fitch, Lane Bryant, New York & Company, Chico’s
Outsource: ex. Li & Fung – “agent” partnered with many specialty retailers and big chains like Kohl’s, Belk and others
NOTE: WITH AN EXCLUSIVE BRAND LIKE CHAPS THE RETAILER IS OFTEN STILL WORKING WITH A NAT’L COMPANY (LAUREN)
I skipped pages but the sourcing business has become more multinational – discuss the role of an “agent” like Li & Fung who is now evolving into a vendor too. (vertical integration)

16. Sourcing Merchandise
After decisions are made on what and how much, private/exclusive merchandise will be acquired.
Designers develop specifications
Sourcing departments find a manufacturer, negotiate a contract, and monitor the production process, or
Use Reverse Auctions to get quality private label merchandise at low prices
BIG ISSUES: Cost of materials and labor, timing
16. Elaborate on the role of an “agent” vs. stores who have their own sourcing arms. Kohl’s (for example) develops its own products, styles, colors etc. but turns the process over to L&F to choose the factories, do QC, manage the logistics of getting goods here.

17. Negotiating with Vendors
Two-way communication designed to reach an agreement when two parties have both shared and conflicting interests.
Collaboration goes way beyond supply chain management to include margin agreements, product decisions, marketing support, etc.
Remaining slides reinforce Jon Kaupla’s presentation. Important to take a negotiating class regardless of whether you are going into retail or something else. So much of the “mechanics” of buying goes beyond the technical aspects of assortment planning, systems, etc. and focuses on relationships. (Consolidation has led to more collaboration on many fronts – from supply chain to mutual financial goals to development of exclusive brands.)
Royalty-Free/CORBIS

18. Planning Negotiations with Suppliers
Consider prior history
Assess current situation
General market conditions
Vendor’s position
Relative power of vendor vs. retailer (NIKE)
Set goals (sales and margin performance)
Be aware of vendor’s goals
Number of people involved
Select an advantageous place
Be aware of deadlines
DON’T CONDUCT A NEGOTIATION WITHOUT A PLAN!
EVERY “MARKET MEETING” IS A NEGOTIATING SESSION
Concept of planning is important, just as in financial planning or assortment planning – these are some issues that need to be considered

19. Negotiating with Vendors Continued
Negotiation Issues
Price and gross margin
Margin Guarantees
Slotting Allowances
Additional markup opportunities
Purchase terms (dating)
Exclusivity
Advertising allowances
Transportation
Most important for a buyer: Agreement
on sales and margin goals, liquidation strategy…GET IT IN WRITING!
Not all of these issues need to be renegotiated every meeting but there needs to be clear understanding, preferably in writing – especially on agreement on GM goals (discuss)

20. Price and Gross Margin Issues
Markdown money
Funds from a vendor to a retailer to cover decreased gross margin from markdowns
Vendors have started resisting retailers who have taken margin allowances without prior agreement
Slotting Allowances
A charge imposed by a retailer to stock a new item (in drugstores and supermarkets among others)
For Retailers
To ensure efficient uses of their valuable space
To determine which new products merit inclusion in their assortment
Manufacturers view them as extortion
WHO HAS THE POWER IN THESE RELATIONSHIPS?
DISCUSS issue of MD money, margin guarantees, etc. Vendors expected to be “partners” even if retailer made the mistake

21. Tips for Effective Negotiations
Have at least many negotiators as the vendor
Choose a good place to negotiate
Be aware of real deadlines
Separate people from problem (don’t personalize!)
Insist on objective Information…deal with facts!
Invent options for mutual gain
Let the other party do the talking
Know how far to go
Don’t burn bridges or assume
Know your “BATNA”
OPEN SHARING OF INFO LEADS TO
AGREEMENT ON MUTUAL GOALS
These are good rules of thumb for ANY negotiation

22. Strategic (Partnering) Relationships
Retailer and vendor committed to maintaining relationships over the long-term and investing in mutually beneficial opportunities
IT’S NOT ABOUT
“US VERSUS THEM”
Important to consider that you may not “win” every issue, need to consider long-term relationships

23. Types of Relationship Vendor Win Lose Win Buyer Lose
Type I-II-III-IV negotiators – EXAMPLES from class
WIN/WIN: Collaboration, cooperation, focus on long-term, builds trust, doesn’t mean “giving in” or “splitting the difference” (big difference from “win at any cost”)
Lose

24. Strategic Relationships
Win-Win Relationships -- Concerned about expanding the pie, not how to divide the pie. NOT about “winning at any cost”
Good example: building a bigger pie (expanding the size of the market)
Retailer
vs.
Vendor

25. Building Blocks for Strategic Partnerships
Mutual Trust
Open Communication
Common Goals
Credible Commitments
TRUST is the glue that holds long-term negotiating relationships together
Requires active listening (take a course!)
Stockbyte/Punchstock Images

26. Building Partnering Relationship
Discrete
One Purchase at a Time
Short-Term
Focuses on Price
Win-Lose Negotiations
Governed by Contracts
Partnering
Anticipate Future
Long-Term
Considers all Elements
Win-Win Collaboration
Governed by Trust
Highlight four stages of partnership building (EXAM)
FOUR STAGES OF BUILDING A PARTNERSHIP:
Awareness  Exploration  Expansion  Commitment