Chapter 12 Planning Merchandise Assortments PPT McGraw-Hill/Irwin 12-1 Levy/Weitz: Retailing Management, 5/e Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved. The Category A category is an assortment of items that the customer sees as reasonable substitutes for each other: girls apparel, laundry detergents, soup, DVD players. In merchandise management, we do everything at the category level. The category can mean different things to different retailers. PPT 12-2 Category Management Category management is the process of managing a retail business with the objective of maximizing the sales and profits of a category. Objective is to maximize the sales and profits of the entire category, not just a particular brand. Breakfast cereal category vs. Kellogg Corn Flake Men s knitted shirts vs. Polo shirts PPT 12-3 One person managing the entire category and responsible for its success or failure.
Category Captain Selected vendor responsible for managing assortment of merchandise in a category Vendors frequently have more information and analytical skills about the category in which they compete than retailers Problems Vendor category captain may have different goals than retailer PPT 12-4 GMROI Inventory Productivity Measures Combine Gross Margin % and Inventory Turnover (sort of) Gross Margin% Inventory Turn GMROI = Gross Margin x Net Sales Net Sales Avg Inventory @ cost GMROI = Gross Margin Avg Inventory (@ cost) Output (Margin Generated by Sales) Input (Inventory Investment in Inventory) PPT 12-5 ROI and GMROI Asset Productivity Measures Strategic Corporate Level Return on Assets = Net Profit Total Assets Merchandise Management Level GMROI = Gross Margin Avg Inventory @ cost PPT 12-6
Calculating Inventory Turnover Inventory turnover = Inventory turnover = Net Sales Average inventory at retail Cost of goods sold Average inventory at cost Average inventory = Month1 + Month2 + Month 3 + Number of months PPT 12-7 Inventory Turnover and Sales-to-Stock Ratio Inventory turnover = Net Sales Average inventory at retail Inventory turnover = Cost of goods sold Average inventory at cost Stock-to-Sales Ratio = Net Sales Average cost of inventory PPT 12-8 Developing a Sales Forecast Understanding the nature of the product life cycle Collecting data on sales of product and comparable products Using statistical techniques to project sales Work with vendors to coordinate manufacturing and merchandise delivery with forecasted demand (CPFR) PPT 12-9
Data Sources for Developing Sales Forecasts Previous Sales History Published Sources - Buying Power Index (BPI), Monthly Retail Trade Report, InfoScan, Claritas, general retail trade publications like Stores, WWD and Chain Store Age Customer Information Vendors and Resident Buying Offices PPT 12-10 Factors Affecting Sales Projections Controllable Promotions Store Locations Merchandise Placement Cannabalization Uncontrollable Seasonality Weather Competitive Activity Product Availability Economic Conditions PPT 12-11 Collaboration, Planning, Forecasting, and Replenishment Systems (CPFR) Systems used by retailers and vendors to work together to insure that the right merchandise is at the right place at the right time. Benefits both retailers and vendors Increases fill rate, reduces stockouts, increases inventory turns www.cpfr.org PPT 12-12
Assortment Planning Variety is the number of different merchandising categories within a store or department Assortment is the number of SKUs within a category. Product availability defines the percentage of demand for a particular SKU that is satisfied. PPT 12-13 Determining Variety and Assortment Profitability of Merchandise Mix Corporate Philosophy Toward Assortment Physical Characteristics of Store Complementary Merchandise PPT 12-14 Cycle and Backup Stock Units Available 150-100 - 50 - Order 96 Cycle Stock Buffer Stock 0-1 2 3 4 Weeks PPT 12-15