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RETAIL FINALS 1
LECTURE 8
| Term | Definition |
|---|---|
| Merchandise Management | Process by which a retailer offers the correct quantity of the right merchandise in the right place at the right time and meets the company’s financial goals. |
| 1. Set clear goals and objectives 2. Analyze your sales and inventory data 3. Plan your assortment and allocation 4. Monitor and adjust your budget | Merchandise Management and Investment Portfolio Management |
| 1. Set clear goals and objectives | S-Specific, M-Measurable, A-Achievable, R-Relevant, and T-Time-based |
| 2. Analyze your sales and inventory data | By analyzing your historical and current data, you can identify the best-selling and worst-selling products, categories and locations. You can also spot the trends, patterns and fluctuations in your demand and supply. |
| 3. Plan your assortment and allocation | CATEGORIZATION IS KEY! |
| Store Categorization | Categorize store based on your overall contribution to TOP LINE |
| Product Categorization | Categorize products based on sales and margin contribution |
| NOOSE | “Never out of stock” |
| Standard | Product which are giving growth in terms of top line but not as of margins are concerned |
| Slow Movers | Product which are not showing good momentum, the objective should be to have an effective markdown strategy for them |
| NDP (New Product Development) | New product development to be introduced as a replacement of Slow Movers. |
| 4. Monitor and adjust your budget | Track your sales, inventory, expenses and compare them with your goals and objectives. Evaluate your merchandising performance, and identify the strengths and weaknesses of your strategy. |
| True | Merchandising is not a one-time event but a continuous process. |
| (BUYING ORGANIZATION) Merchandise Group | Managed by a general merchandise manager (GMM), senior VP |
| (BUYING ORGANIZATION) Department | Managed by a divisional merchandise manager (DMM) |
| (BUYING ORGANIZATION) Classification | A group of items targeting the same customer type, such as girls' sizes 4-6 |
| (BUYING ORGANIZATION) Category | Each buyer manages several merchandise categories (e.g sportswear, dresses, swimwear...) |
| (BUYING ORGANIZATION) SKU (Stock Keeping Unit) | The smallest unit available for inventory control size, color. style |
| Category Management | 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. |
| Category Captain (e.g. P&G, Nestle, Unilever) | The selected vendor responsible for managing a category. He is generally the highest performing vendor, supplier, manufacturer in a particular category. He works with the retailer to provide consumer data, in their category and increase overall profit. |
| True | Vendors frequently have more information and analytical skills about the category in which they compete than retailers |
| ◦ The merchandise they buy ◦ The price at which the merchandise is sold ◦ The cost of the merchandise | Merchandise managers have control over |
| ◦ Operating expenses ◦ Human resources ◦ Real estate ◦ Supply chain management ◦ Information systems | Merchandise managers do not have control over |
| GROSS MARGIN RETURN ON INVENTORY (GMROI) | -measures the efficiency with which your retail operation transforms inventory into gross profit. -can tell you how well your inventory is working for you, acting as a leading indicator of how healthy your operations are |
| GROSS MARGIN RETURN ON INVENTORY (GMROI) | - tells you how much gross profit you are making for every cent you’re investing in inventory. - a key performance indicator that show whether a retail business is on track to become profitable or not. |
| Gross Margin (Profit) / Average Inventory Cost | GMROI Formula |
| - vicinity of 2 or 3 is a good rule - aim to have a GMROI above 1. - A GMROI below 1 indicates they’re selling at a loss | What is a good GMROI for retailers? |
| Stock-to-Sales Ratio | It represents the relationship between your inventory value and your total sales. Its objective is to monitor the capital allocated to inventory, as compared to the company’s sales volume in a given period. |
| True | The lower the I/S ratio, the more efficient the company is in allocating capital to its inventory. |
| Inventory Turnover | helps assess the buyer’s performance in managing merchandise inventory. It can decrease GMROI |
| Staple (Basic) Merchandise Categories | Predictable Demand History of Past Sales Relatively Accurate Forecasts • Continuous demand over an extended Ime period • Limited number of new product introductions • Hosiery, basic casual apparel • Easy to forecast demand • Continuous replenishment |
| Fashion and Trend Merchandise Categories | Unpredictable Demand Limited Sales History Difficult to Forecast Sales • In demand for a relatively short period of time • Continuous introductions of new products, making existing products obsolete • Athletic shoes, laptop computers, women’s apparel |
| 1. Forecasting sales 2. Developing an assortment plan 3. Determining the appropriate inventory level | Merchandise Management Process |
| • Understanding the nature of the product life cycle • Collecting data on sales of product • Using statistical techniques to project sales • Work with vendors to coordinate manufacturing and merchandise delivery with forecasted demand | DEVELOPING A SALES FORECAST |
| Assortment plan | a list of the SKUs that a retailer will offer in a merchandise category and reflects the variety and assortment that the retailer plans to offer in a merchandise category |
| Variety (breadth) | the number of different merchandising categories within a store or department |
| Assortment (depth) | the number of SKUs within a category |
| Product availability | having the merchandise available when the customer needs it. |
| true | The higher product availability, the higher the amount of backup stock necessary to ensure that the retailer won’t be out of stock on a particular SKU when consumers demand it |
| 1. Fluctuations in demand 2. Lead Ime for deliver from the vendor 3. Frequency of store deliveries | PRODUCT AVAILABILITY |
| 1.Flow of Staple Merchandise 2.Determining the Level of Backup Stock 3.Automated Continuous Replenishment 4. Inventory Management Report 5. Order Point 6. Order Quantity | ESTABLISHING A CONTROL SYSTEM FOR MANAGING INVENTORY |
| 1.Flow of Staple Merchandise | inventory for which the level goes up or down |
| 2.Determining the Level of Backup Stock | consider lead time |
| 3.Automated Continuous Replenishment | comparing sales using POS system/terminals |
| 4. Inventory Management Report | provides information about the inventory management for staple category. indicates the decision variables of the buyer |
| 5. Order Point | amount of the inventory which the quantity available shouldn’t go or else the item will be out of stock before the next order arrives |
| 6. Order Quantity | when inventory reaches order point, the buyer or system needs to order enough units to ensure product availability |
| loose sales and customers | If the backup stock is too low |
| scare financial resources will be wasted on needless inventory that could be more profitably invested in more variety or assortment | If the backup stock is too high |
| • Higher product availability (service level) retailer wishes to provide to customers • Greater the fluctuation in demand • Longer lead Ime from the vendor • More fluctuations in lead Ime • Lower vendor’s Fill rate | DETERMINING THE LEVEL OF BACKUP STOCK |
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