1. Week 3 Finish Chapter 4: Merchandise Planning, Buying, Control, and Profitability Chapter 5: Sourcing Midterm Review FM10211 – Retail Operations

2. FM10211 - Retail Operations2 Planning Provides essential information Leads to meeting Mazur’s 5 “rights” –Right merchandise –Right time –Right place –Right quantities –Right price

3. FM10211 - Retail Operations3 Forecasting Predicting what customers want Quantities Uses as much input as possible –External environmental factors –Internal environmental factors

4. FM10211 - Retail Operations4 External environmental factors Economy Society and culture Technology Political and legal issues Analysis available from a variety of sourcesAnalysis Trend books, etc.

5. FM10211 - Retail Operations5 Internal environmental factors Store records –Sales –Profits Store culture Vendors

6. FM10211 - Retail Operations6 Merchandise Budget Dollar planning –How much money will be spent Unit planning –How many of each type of item will be purchased and kept in inventory –Includes the mix –Considers assortment and qualitative aspects Both usually include dollar amounts and % of net sales

7. FM10211 - Retail Operations7 Inventory Flow Start: beginning of month (BOM) Stock comes in Stock is sold Shrinkage Returns End: end of month (EOM)

8. FM10211 - Retail Operations8 Step 1: Plan Retail Sales Estimate sales Usually use sales history, if available –Increase or decrease, depending on other factors If not available, more research necessary Plan sell-through –Percentage of available merchandise that is sold

9. FM10211 - Retail Operations9 Step 2: Plan Inventory/Stock Based on Sales Plan Must have proper stock to meet sales goals Calculate Beginning of the Month (BOM) and End of the Month (EOM) inventory levels

10. FM10211 - Retail Operations10 Three Stock Planning Methods Basic stock –Minimum level of stock at all times Stock-to-sales ratio (SSR) –Multiply planned monthly sales by ratio to get BOM –Ratio comes from Trade Orgs or sales history Week’s supply –Stock level set to sales for determined number of weeks –Directly related to turnover rate

11. FM10211 - Retail Operations11 Inventory Turnover Also called stock turn The number of times stock is sold and replaced within a period of time High turns means shorter time in inventory Short time in inventory means less inventory costs (This is a slightly simplified version)

12. FM10211 - Retail Operations12 Inventory Turnover Ex. 1: Buy 12 apples, sell one per month –Problems Had to invest in 12 apples at once Money tied up for 12 months Apples can go bad, other inventory issues Ex. 2: Buy 1 apple, sell it, buy another, etc. –Much better! Invest in one apple at a time Money tied up for 1 month Inventory stays fresh

13. FM10211 - Retail Operations13 If apples cost $1 each, then: Ex 1: $12/$12 = 1 turns Ex 2: $12/$1 = 12 turns Inventory Turnover Turnover = COGS of all sales in period Full-stock inventory COGS

14. FM10211 - Retail Operations14 Assortment Planning II Plans the mixture of merchandise Basic stock planning –For basics –Ongoing levels Model stock planning –Based on various factors Fabric Price Style Etc.

15. FM10211 - Retail Operations15 Assortment Terms Breadth of merchandise –Number of different product lines, styles, brands carried –Broad = lots of styles –Narrow = few styles Depth of merchandise –Number of units within a line, style, or brand –Deep = many colors and sizes –Shallow = few colors and sizes

16. FM10211 - Retail Operations16 Step 3: Plan Reductions Rare to sell all inventory at original price Helps clean out inventory to be replaced Various types –Markdowns Promotional or Permanent Adjust price down –Markup cancellation Adjust amount of markup –Discounts For employees and/or special customers

17. FM10211 - Retail Operations17 Step 4: Plan Markup In dollars, retail price minus cost Percentage of cost added to cost to get price Keystone markup –Markup = cost Short markup –Less than keystone Volume and competition are primary factors in determining markup –E.g. Wal-Mart

18. FM10211 - Retail Operations18 Pricing Much more than just considering expenses Consider –Type of merchandise –Competition Strategy –Price range –Price points –Promotionally priced vs. regularly priced –Odd priced vs. even priced –Loss Leader? Pricing is regulated by Federal Trade Commission (FTC)! –Target customer –COGS and expenses

19. FM10211 - Retail Operations19 Step 5: Plan Purchases Now, purchases can be planned Based on –BOM –EOM –Planned Sales –Reductions Open to Buy (OTB) –Planned purchases minus on-order

20. FM10211 - Retail Operations20 Calculations Sales +Reductions +EOM -BOM = Planned Purchases IE: Sales + Reductions + EOM = BOM + Purchases Everything out of MonthEverything into Month

21. FM10211 - Retail Operations21 Six-Month Merchandise Plan *Cost is after taking out markup (this example uses keystone markup)

22. Chapter 5: Sourcing Determining how and where goods bought

23. FM10211 - Retail Operations23 Supply Chain Resources –Manufacturers A/k/a vendors, suppliers, resources Middlemen –Wholesalers A/k/a distributors Buy in large quantities, break down, distribute –Finishers –Drop-shippers –Brokers

24. FM10211 - Retail Operations24 Contract Manufacturing Independent producers Perform aspects of manufacturing –Sewing –Cutting –Finishing Can be exclusive –Only work for a particular company –Pros and cons

25. FM10211 - Retail Operations25 Lead Time Time between order placed and arriving The faster the better Long lead times may be hard to avoid Technology can help –Quick Response –Just-in-time

26. FM10211 - Retail Operations26 Domestic vs. International Domestic Sources –Faster –More expensive –Easier to work with? International Sources –Often less expensive –Longer lead time –Red tape –Ethical issues

27. FM10211 - Retail Operations27 Manufacturing Cost Comparison

28. FM10211 - Retail Operations28 Centralized vs. Decentralized Centralized –One group/individual buys for entire company Decentralized –Buying happens locally –Less common for larger retailers

29. FM10211 - Retail Operations29 Buying Offices Resident Buying Office (RBO) –Located in particular fashion market –Local representative for retailer –Store-owned or independent Independent works for multiple retailers Independent can save money

30. FM10211 - Retail Operations30 Markets Where retailers and manufacturers meet Merchandise Marts –Located in major cities Trade Shows International markets –Largest cities