2. 15 Planning to Buy Chapter

3. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Objectives Describe the merchandise planning function. Outline internal and external sources of planning information. Explain factors to be considered in preparing financial and merchandise assortment buying plans. continued

4. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Objectives Describe ongoing inventory management planning. Explain the variables in selecting merchandise sources.

5. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Merchandising Merchandising mainly involves planning, buying, and selling of merchandise – Indirect selling, or nonpersonal promotion, is aimed at a large general audience – Direct selling is the exchange of merchandise to individual consumers in return for money or credit Planning, buying, and selling are the steps of the merchandising cycle

6. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Merchandisers must decide – When a style becomes a fashion – If the fashion is suitable for their retail operation Retail buyers are responsible for purchasing goods for their company to sell at a profit – They plan the merchandise selection and determine quantities and timing for various styles, colors, sizes, prices, and fashion emphasis Industry Facts

7. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. The Merchandise Planning Function The company image must also be considered when selecting merchandise The actual success of the buyers’ choices are decided by customers who accept or reject the merchandise offered for sale The planning function varies with different sizes and types of retail organizations – Small shop owners may also be the buyers continued

8. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. The Merchandise Planning Function For larger retail venues, a buyer might select goods for one department – This is called departmental buying Chain store buyers typically buy only one category classification, such as men’s sweaters, for all stores in the chain – This method is increasing in popularity and is called classification buying

9. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Gathering Planning Information Buyers must place orders months in advance of the selling season They need to accurately forecast what merchandise will appeal to their customers A great deal of information is available to help buyers anticipate customer demand and fashion trends – Internal and external information are valuable

10. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Availability of Internal Information Some of the best merchandising information is obtained within the retail company Past sales records can show – what items were sold – what goods were returned or marked down – what advertising and promotions increased sales Computer information makes the collection and analysis of records fast and accurate continued

11. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Availability of Internal Information Salespeople are a valuable source of product and customer information They can – record customer inquiries or requests – identify potential new products, preferred product assortments, and current stock deficiencies – keep retail buyers informed about changing customer wants continued

12. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Availability of Internal Information Consumer opinions can be learned – by using surveys and customer advisory panels Consumer behavior can be studied by – observing customer reaction to a small sample order of a new product Companies often have fashion bureaus that specialize in forecasting fashion trends to advise the buyers

13. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Availability of External Information Buyers also use these sources of merchandising information – vendors from whom goods are purchased – news learned through networking at trade association meetings and trade shows – trade publications having industry statistics, vendor advertisements, market news, and trends – consumer publications showing fashion trends

14. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Industry Facts Another source of external information is comparison shoppers – They are hired to check and report back to their employers about other retailers – They look at the depth of merchandise assortments, prices, ambiance, and services of competing and noncompeting retailers All types of planning and buying information is available through a hired service for a fee

15. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Preparing Buying Plans Merchandise planning for the future – builds on data from past seasons – should be based on estimated customer demand Retail buyers try to establish an expected rate of sale Stock turnover, or inventory turns, is the number of times the average inventory on hand is sold and replaced in a given period continued

16. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Preparing Buying Plans All information gathered must be translated into a plan – Buyers prepare buying plans that describe the types and quantities of merchandise to purchase for a specific period and a set amount of money Written plans include both financial estimates (in dollars) and merchandise item estimates (in units)

17. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Financial Planning and Control Financial planning results in a dollar merchandise plan, also called a six-month merchandise plan – This is an estimated dollar amount, or budget, for planned stock, sales, and profit for the department for a six-month period – The yearly periods are February through July and August through January continued

18. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Financial Planning and Control Dollar merchandise plans forecast stock values at the beginning of each month to cover sales – An important guideline for this is the stock-to- sales ratio, which shows the dollar sales volume in relation to the dollar value of average inventory Stock turnover and the stock-to-sales ratios are guides to help estimate the amount of stock required in relation to sales continued

19. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Financial Planning and Control Retail companies also limit buyers to a certain open-to-buy (OTB) – Open-to-buy is the dollar or merchandise unit amount that buyers are permitted to order for their stores, departments, or apparel classifications for a specified time period The OTB is a control device that is calculated weekly or monthly

20. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Assortment Planning An assortment plan projects the variety and quantity of specific stock-keeping units to be carried by a store or department – A stock-keeping unit (SKU) is the smallest unit for which sales and stock records are kept – SKUs are important for inventory control and product identification A fashion assortment lists each item by SKU number, including size, price, and color continued

21. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Assortment Planning A basic stock plan is a proposed purchase list composed mostly of commodity goods – Examples: jeans, underwear, hosiery, and men’s dress shirts A model stock plan is composed mostly of fashion merchandise, so it – includes items having strong customer appeal for a limited time – deals with unpredictability and higher risk continued

22. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Assortment Planning Many retailers also keep a never-out list of key items or best-sellers to always have on hand and on display – If these high-demand items are ever out of stock, a permanent loss of sales results Retailers need enough merchandise breadth and sufficient depth to prevent stock-outs. – This is when the store is out of a particular item

23. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Additional Planning Considerations The number of brands to stock is a concern – Substitute products, which can be used in place of each other, rarely increase sales – Complementary products, which supplement or accessorize other products, increase store sales without negatively impacting other products Specification buying is submitting definite specifications to a manufacturer rather than looking for goods already produced continued

24. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Additional Planning Considerations In consignment buying, the supplier retains title to the merchandise until it is sold With memorandum buying, the retailer takes title to the goods received, but unsold goods may be returned after a specified time Regular price-line buying involves writing orders for merchandise at regular price during market times continued

25. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Additional Planning Considerations Advance buying is done well ahead of the desired shipment date and usually involves a lower price for the merchandise Promotional buying is the purchase of items at special low prices to offer at reduced prices Low-price clearance merchandise can be – odd lots—a broken or unbalanced assortment – irregulars—items with small imperfections – closeout goods—discontinued items

26. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Ongoing Inventory Management Older ways of recording sales of specific items—stub-ticket control and card-control— are only used by small retailers Most retailers now use faster and more accurate computerized inventory- management systems – Stock control technology is called electronic point-of-sale (EPOS) equipment continued

27. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Ongoing Inventory Management Retailing is now at the point of vendor- managed inventory (VMI) – Electronic point-of-sale data goes to an apparel maker’s computers to calculate what and how much new inventory is needed in each store In this streamlined supply chain, sales and inventory turnover rates have increased while costs have decreased

28. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. A buyer’s activities include locating and selecting the right vendors, or merchandise suppliers Advantages to buying directly from producers: – The goods are usually the latest styles – Prices are lower – Goods can be made to the retailer’s specifications – Merchandising support is usually available Industry Facts

29. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Selecting Merchandise Resources Wholesalers purchase large quantities of goods from manufacturers, store the goods, and sell small quantities to retailers – They are used mostly for convenience goods Websites and catalogs are used to source goods, usually basic items – Sales catalogs contain item photos or drawings and sometimes fabric swatches – “Video catalogs” may be sent on CDs

30. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Importers Importers’ merchandise is produced overseas, usually in countries with low wage rates – The goods are sold through showrooms in the American market – Foreign producers sometimes have agents in this country that take orders – Mass merchandise retailers buy a great amount of foreign goods from overseas manufacturers

31. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Evaluating Vendor Attributes A vendor’s merchandise must be suited to the retailer’s customer group, price, quality, fit, and fashion level Business policies must be compatible Vendor services might include training of salespeople and promotional assistance – To maximize vendor services, the concept of floor-ready merchandise (FRM) is often specified

32. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Vendor Services FRM means that items shipped to the store are ready to go directly onto the selling floor without additional preparation Turnaround time for orders is an important consideration – Buyers keep files on vendors used through the years with contact information and notes on performance

33. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Selecting Specific Resources Buyers should establish a well-selected group of vendors while being alert for new sources – Key resources or preferred vendor lists are developed for each category of goods – Classification resources are vendors that specialize in certain products A company must consider the number of resources needed to achieve its goals continued

34. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Selecting Specific Resources Buyers should regularly determine if their vendors are keeping pace with ever-changing customer buying patterns A new, efficient method is “e-sourcing” through global online networks to which vendors and retail buyers subscribe – Buyers can send e-mail requests to many manufacturers of specific types of goods

35. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Retailers must decide if they should emphasize designer names, national brands, or their own private label goods – Many designer names and manufacturer brands represent prestige and quality to consumers Name-brand producers often place requirements on retailers who carry their goods Fashion Insights

36. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Brand Names Versus Private Label Merchandise Private label (house brand) merchandise is produced specifically for a retailer and contains the retailer’s trademark or brand As mass merchandisers capture a larger share of retail sales, private label goods gain in popularity – For private label manufacturing, retailers provide specifications and design samples

37. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Offshore Sourcing Offshore sourcing is the term used when – goods are bought from overseas producers or – private label goods are contracted to be made by foreign manufacturing plants Most buyers’ plans include offshore sourcing since the goods are usually cheaper – U.S. apparel producers try to persuade retailers to buy domestically sourced goods to save American jobs

38. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. Offshore sourcing involves risks because – fashion timing is difficult – imports limit the ability of retailers to respond quickly to the market, such as with reorders – communications may be difficult between the retailer and offshore producer because of geographic distances and language barriers Industry Facts

39. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. In Summary Fashion merchandisers must analyze fashion trends and their suitability and timing for a particular retail operation Planning information for buyers includes many sources inside and outside the company Retail buyers use an expected rate of sale so as not to order less or more merchandise than needed continued

40. Permission granted to reproduce for educational use only.© Goodheart-Willcox Co., Inc. In Summary A retailer also needs financial planning and control, a balanced merchandise assortment, and inventory management – Inventory planning ensures enough merchandise for the season, but not too much Buyers find, evaluate, and select the right vendor to produce their merchandise – Offshore sourcing is an option