1. Staple and fashion merchandise
Buying Systems
Staple and fashion merchandise

2. 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

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

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

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

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

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

8. 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

9. 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

10. 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

11. 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

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

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

14. 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

15. 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.

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

17. 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

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

19. 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

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

21. 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

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

23. 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

24. Reductions to inventory
Markdowns
Employee discounts
Shrinkage

25. 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

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

27. Employee discounts
Type of markdown
Employee benefit

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

29. Common causes of shrinkage
Clerical errors
Physical merchandise losses

30. 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

31. 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

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

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

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

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

36. 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!!