1. RETAILING
MANAGEMENT
RETAILING
MANAGEMENT
5th Edition

2. Buying Merchandise Chapter 14 McGraw-Hill/Irwin
Levy/Weitz: Retailing Management, 5/e
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

3. Merchandise Management
Planning Merchandise Assortments
Retail Communication Mix
Buying Merchandise
Buying Systems
Pricing

4. Merchandise Branding Strategies
Manufacturer (National) Brands
Designed, produced, and marketed by a vendor and sold by many retailers
Private-Label (Store) Brands
Developed by retailer and only sold in retailer’s outlets
Licensed Brand
Developed by licensee and right sold to either manufacturer or retailer

5. Spectrum of National vs. Private Label
National Brands
% Store Brands
Wal-Mart
Home Depot
The Gap
Limited
Marks & Spencer
IKEA
Macy’s
Target

6. Relative Advantages of Manufacturer versus Private Brands
Type of Vendor
Impact on Store Manufacturer Private-Label
Brands Brands
Store loyalty ? +
Store image
Traffic flow
Selling and promotional
expenses
Restrictions
Differential advantages
Margins ? ?

7. Private Labels Advantages
Unique merchandise not available at competitive outlets
Difficult for customers to compare price with competitors
Higher margins
Disadvantages
Need to develop expertise in developing and promoting brand
Unable to sell excess merchandise
Typically less desirable for customers

8. Manufacturer (National) Labels
Advantages
More desired by customers
Resell excessive merchandise
Don’t need skills and people to develop and promote merchandise
Disadvantages
Lower margins
Vulnerable to competitive pressures

9. Most Recognized Apparel and Accessory Manufacturer Brands

10. Most Recognized Apparel and Accessory Private Label Brands

11. Examples of Private-Label Brands

12. Examples of Private-Label Brands

13. Examples of Private-Label Brands

14. Examples of Private-Label Brands

15. Private Label Options Bargain Branding Copycat Branding
no-frills product at a discount price.
Copycat Branding
imitates the manufacturer brand in appearance and trade dress
Premium Branding
private label at a comparable manufacturer-brand quality.
Parallel Branding
private labels that closely imitate the trade dress and product attributes of leading manufacturer brands.

16. Issues in International Sourcing of Private Label Merchandise
Country of Origin Effects
Costs
Foreign Currency Fluctuations
Tariffs
Supply Chain Efficiency and Inventory Carrying Costs
Transportation costs
Quality Control

17. Regulations Affecting the Costs of Importing Goods
World Trade Organization
NAFTA
Maquiladores
Free Trade Zones

18. Managing International Sources
Quality Control
More difficult to maintain quality standards
Human Right Issues
Need to Build Strategic Partnerships

19. Domestic vs. International Sourcing
Higher cost of merchandise
Shorter lead times – easier to use quick response systems
Easier to control human rights issues and quality control
Customer preferences for domestic manufactured products
International
Lower cost
Longer lead times
More control problems

20. Connecting with Vendors Going to Market
Internet Exchanges
Wholesale Market Centers
Trade Shows
Resident Buying Offices
Meeting Vendors at Your Company

21. Functions Provided by Internet Exchanges
Product Directories
Use of Reverse Auctions
Collaboration in Planning – CPRF Software
General Information about Trends

22. Types of Exchanges Consortium Exchanges Private Exchanges
Transora
Worldwide Retail Exchange
GobalNetXchange
Private Exchanges
Independent Exchanges

23. Online Reverse Auctions
A market institution with an explicit set of rules determining resource allocation and prices on the basis of bids from market participants.
Why reverse?
Vendors bid for buyer’s business
Price falls
One buyer, multiple vendors
Sealed vs. open bid auctions

24. Reverse Auctions B S B
Reverse Auction B S
Traditional Auction B S S

25. Reverse Auctions in Retail Buying
Online vs. physical differences
Reduced contact cost
Instant feedback
Bidder anonymity
The retailer’s goals
Gain competitive pricing
Open vendor base
Improve negotiation process
Maintain valuable relationships
V is straddled w/old Ford supply base, has not kept up with mkt pricing
Open – English Auction, common value, downward

26. Price Path on Open-Bid Auction

27. Issues in Using Reverse Auctions to Buy Products
Private vs. Collaborative Auctions/Exchanges
Fixed Cost High for Software
Standardized Software  Less Need for Collaborative Exchanges
Collusion
Consideration of Quality Differences from Bidders
Impact on Supplier Relationships
Used Primarily for Non-Resale Products – Carpet, Fixtures

28. Negotiating with Vendors
Two-way communication designed to reach an agreement when two parties have both shared and conflicting interests.

29. Planning Negotiations
Consider prior history
Assess current situation
General market conditions
Vendor’s position
Power of vendor
Set goals
Be aware of vendor’s goal’s
Number of people involved
Select an advantageous place
Be aware of deadlines

30. Issues to Negotiation
Markup opportunities from excess from vendor’s excess merchandise
Purchase terms
Transportation costs
Delivery times
Exclusivity
Advertising allowances

31. Types of Negotiations
Vendor
Win
Lose
Win
Buyer
Lose

32. Win - Lose Negotiation
Can be good in the short run and bad in the long-run
Short-term solution-- person you are negotiating with can’t lose all the time
Might degenerate into LOSE - LOSE

33. Lose - Lose Negotiation
Wastes time and energy
No relationships established
Objectives not met

34. Win - Win Negotiation Collaboration Doesn’t mean “giving-in”
Cooperation
Enhances vendor trust
Long-term relationship

35. Guidelines for Negotiations
Separate people from problem
Insist on objective criteria to evaluate performance
Invent options for mutual gain
Let the other party do the talking
Know how far to go

36. Negotiating Tips Be aware of time Location -- comfortable
Keep negotiating participants even
Be patient
Let him/her mention a figure
Don’t be afraid to say “no”

37. Negotiating Tips Don’t over negotiate Don’t assume
Visualize the negotiation
Timing is everything
Always leave the door open
Maintain self-esteem

38. SUMMARY
Planning is critical
Knowledge is power
A person will only do what is right for him/her

39. Strategic (Partnering) Relationships
Retailer and vendor committed to maintaining relationships over the long-term and investing in mutually beneficial opportunities

40. Strategic Relationships
Win – Win --Concerned about expanding the pie, not how to divide the pie
vs.
Vendor
Retailer

41. Building Blocks for Strategic Partnerships
Mutual Trust
Open Communications
Common Goals
Credible Commitments

42. Developing Trust: Capability or Competence
Salespeople demonstrate competence when they can show that they know what they are talking about.
Requires knowledge of:
The customer
The product
The industry
The competition

43. Stages in Building Strategic Relationships
Awareness
Exploration
Expansion
Commitment

44. Legal and Ethical Issues
Contractual Disputes
Chargebacks
Commercial Bribery
Slotting Allowances
Buybacks
Counterfeit Merchandise
Gray Markets and Diverted Merchandise
Exclusive Territories
Exclusive Dealing
Refusal to Deal
Tying Contracts

45. Chargebacks
A practice used by retailers in which they deduct money from the amount they owe a vendor.
Two Reasons:
merchandise isn’t selling
vendor mistakes
Can be a profit center
one senior executive at a large department store chain was told to collect $50 million on chargebacks

46. Commercial Bribery
A vendor or its agent offers to give or pay a retail buyer “something of value” to influence purchasing decisions.
A fine line between the social courtesy of a free lunch and an elaborate free vacation.
Rule of thumb - accept only limited entertainment or token gifts.

47. Slotting Allowances Fees paid by a vendor for space in a retail store.
Currently aren’t legal.
Retailers argue that they are a reasonable method for ensuring that their valuable space is used efficiently.
Manufacturers view them as extortion.
$9 billion or 16% of all new product introduction costs in grocery industry.

48. Buybacks Used to get products into retail stores. Two scenarios:
Retailer allows a vendor to create space for its goods by “buying back” a competitors inventory and removing it from a retailer’s system.
Retailer forces a vendor to buyback slow-moving merchandise.

49. Counterfeit Merchandise
Goods made and sold without the permission of the owner of a trademark, a copyright, or a patented invention that is legally protected in the country where it is marketed.
Major problem is counterfeiting intellectual property.

50. What to do About Counterfeiters
Trademark,copyright, and/or patent products in the countries in which they’re sold.
US government is engaged in bilateral and multicultural negotiations and education to limit counterfeiting. (WTO)
Take steps to protect yourself.

51. Gray-Market and Diverted Merchandise
Gray- Market Merchandise possesses a valid U.S. registered trademark and is made by a foreign manufacturer but is imported into the United States without permission of the U.S. trademark owner.
Not Counterfeit.
Is legal.
Diverted Merchandise is similar to gray-market merchandise except there need not be distribution across international boundaries.

52. Gray-market and Diverted Merchandise: Taking Sides
Discount stores argue customers benefit because it lowers prices.
Traditional retailers claim important service after sale will be unavailable
May hurt the trademark’s image.

53. Avoiding the Gray-Market Problem
Require customers to sign a contract stipulating that they will not engage in gray marketing.
Produce different versions of products for different markets.

54. Exclusive Territories
Granted to retailers so no other retailer in the territory can sell a particular brand.
Benefits vendors by assuring them that “quality” retailers represent their products.
Assure retailers adequate supply.
Grants retailers a monopoly.
Illegal when they restrict competition.

55. Exclusive Dealing Agreements
Occur when a manufacturer or wholesaler restricts a retailer into carrying only its products and nothing from competing vendors.
Illegal when they restrict competition.

56. Tying Contracts
An agreement that requires the retailer to take a product it doesn’t necessarily desire to ensure that it can buy a product it does desire.
Illegal when they lessen competition.
Ok to protect goodwill and quality reputation of vendor.

57. Refusals to Deal
Suppliers and retailers have the right to deal or refuse to deal with anyone they choose.
Except when it lessens competition.

58. Terms of Purchase Discounts Shipping Terms and Conditions
Trade (Functional) Discounts
Chain Discounts
Quantity Discounts
Seasonal discounts
Cash discounts
ROG and EOM dating
Anticipation discounts
Shipping Terms and Conditions

59. A Sample Price List Price to Wholesaler Price to Retailer Quantity
per Order Discount Price Discount Price
% $57* % $70
* Based on a $100 suggested retail price.

60. Example of a Cash Discount
Nov 1 Dec 1 Jan 1
Date of Invoice days days
1% discount Full amount
Due

61. Example of ROG Dating ROG Dating Nov 1 Nov 15 Dec 15 Jan 15
Date of Merchandise days ROG 60 days ROG
invoice arrives 1% discount Full amount
due

62. Example of EOM Dating EOM Dating Nov 1 Dec 1 Jan 1 Feb 1
Date of 30-day discount days EOM 60 days EOM
invoice period begins % discount Full amount
due

63. Example of EOM Dating, Grace Period
Oct 25 Nov 1 Dec 1 Jan 1 Feb 1
Date of day days EOM 60 days EOM
invoice discount 1% discount Full amount
period due
begins

64. Example of Extra Dating
Nov 1 Dec 1 Jan Feb Mar Apr 1
Date of day day days Full
invoice discount Extra Extra amount
period discount % discount due
begins period
begins

65. Alternative Shipping Terms and Conditions
Owns Merchandise
Pays Freight in Transit and
Charges Files Claims (If Any)
F.O.B. origin, freight collect Retailer Retailer
F.O.B. origin, freight prepaid Supplier Retailer
F.O.B. destination, freight collect Retailer Supplier
F.O.B. destination, freight prepaid Supplier Supplier