Merchandising
Is the planning and control of the buying and selling of good and services to help the retailer realize to objectives.
Merchandise Budget
Is a plan of projected sales for an upcoming season, when and how much merchandise is to be purchased, and what markups and reductions will likely occur.
4 Rules in preparing the merchandise budget
Always be prepared in advance of selling season.
Language of budget must be easy to understand.
Planned for a short period of time (six months is norm).
Flexible enough to permit changes.
When Determining the Merchandise Budget: Determining Planned Retail Reductions - 3 types of reductions
Estimate for entire season and monthly
(Examines previous years sales)
Consider monthly holidays and weekends
(Easter; Valentines Day)
Weather forecasts
Inflation
3 Retail Accounting Statements
Income statement
Balance sheet
Statement of cash flow
Income Statement - "profit and loss statement
Provides a summary of the sales & expenses for given time
Monthly, quarterly, seasonally, or annually
Balance sheet -(Slide 12)
Shows financial condition at a PARTICULAR POINT IN TIME
Current Assets
Cash or items that can be converted into cash (short period of time)
Includes:
Accounts Receivable
Prepaid Expenses
Retail Inventories
Networth
(owner's equity) - difference between total assets and total liabilities.
Statement of Cash Flow - Negative Cash Flow
Lists in detail the source & type of all Revenue (cash inflows)
Negative cash flow - outflows exceed inflows
Accounting Inventory System: Cost Method - Retailers using this method
Cost Method- Book valuation of inventory based on the cost of merchandise including freight.
Retailers using this method:
Big-Ticket Items
Few Lines
Infrequent price changesv
Accounting Inventory System: Retail Method
values merchandise at current retail prices
LIFO (Last in, First, Out)
Most recently purchased merchandise is sold first and the old merchandise is sold last.
Merchandise Management
Analysis, Planning, Acquisition, Handling, Control
Of merchandise investments in a retail operation
Gross Margin Return on Inventory
used to analyze the performance of inventory and incorporates how quickly it sells.
Basic Stock Method
requires a base level of inventory regardless of predicted sales volume.
Open To Buy
Dollar amount can CURRENTLY spend on merchandise without exceeding planned dollar stock.
Merchandise Line
Consists of a group of products that are closely related:
Intended for same use
Sold to same consumer group
Fall within a given price range
3 dimensions of the optimal merchandise mix
Variety, Breadth, & Depth
Variety
Number of different merchandise lines a retailer chooses to stock in its store
Battle of the Brands
Retailers brand compete with national brands for shelf space and display location
Consignment
vendor retains ownership of goods until sold
Selection of Merchandise Sources: Past Experience with Vendor
Greatest asset when dealing with a vendor
Vendor Profitability Analysis Statement
purchases made last year, discount from vendor, transportation charges paid, original markup, markdowns, and season-ending gross margin.
5 Types of Vendor Discounts
TRADE DISCOUNT
QUANTITY DISCOUNT
PROMOTIONAL DISCOUNT
SEASONAL DISCOUNT
CASH DISCOUNT
Shrinkage
merchandise that cannot be accounted for due to theft, loss, or damage.
USUSALLY BY:
VENDORS
EMPLOYEES
CUSTOMERS
ORGANIZED CRIME
Interactive Pricing Decisions: Merchandise
ANALYZE ATTRIBUTES OF THE MERCHANDISE
Compared to competing retailers
Value to consumer
Interactive Pricing Decisions: Store Image
A cue a customer uses in determining the retailers image is the retailers price
Profit Oriented Objective - Profit Maximization
Retailer seeks to make as much profit as possible
Skimming: trying to sell at the highest price before
Penetration: enters market with a low price
Status Quo Objectives
Happy with market share
Don't rock pricing policies
Define: Pricing Policies
Rules of Actions or Guidelines that ensure the uniformity of pricing decisions within a retail operation
Should reflect the expectations of Target Market
Can influence patronization
Below Market Pricing Policy
Discounters and wholesalers
Above Market Pricing
High Prices
Non-price factors important to target market
Flexible Pricing
Offering same products & quantities to different customers at different prices
Personal Selling situations
Example: Automobile Dealer
Price Lining
Specified number of price points for each merchandise classification
Multiple Unit Pricing
Price of each unit multiple-unit package is less than individual
Bundle Pricing
Distinct multiple items offered together at a special price
Perceived savings in cost of time
Example: Joseph A. Bank
Bait and Switch Pricing
Advertising a low price product
Once in store, persuade to purchase higher priced product
Markup
the difference between cost of the merchandise and the selling price.
Early Markdown Policy
Move merchandise quickly
Less markdown per unit