15 Planning to Buy Chapter - PowerPoint Presentation

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15

Planning to Buy

Chapter

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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

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Objectives

Describe ongoing inventory management planning.Explain the variables in selecting merchandise sources.

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MerchandisingMerchandising mainly

involves planning, buying, and selling of merchandiseIndirect selling, or nonpersonal promotion, is aimed at a

large

general

audienceDirect 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

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Merchandisers must decideWhen a style becomes a fashion

If the fashion is suitable for their retail operationRetail 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

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The Merchandise Planning Function

The company image must also be considered when selecting merchandiseThe

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

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The Merchandise Planning Function

For larger retail venues, a buyer might select goods for one departmentThis 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

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Gathering Planning Information

Buyers must place orders months in advance of the selling seasonThey need to accurately

forecast what merchandise will

appeal to

their customersA great deal of

information is

available to help buyers anticipate

customer demand

and fashion

trends

Internal and external information are valuable

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Availability of Internal Information

Some of the best merchandising information is obtained within the retail companyPast 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

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Availability of Internal Information

Salespeople are a valuable source of product and customer informationThey 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

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Availability of Internal Information

Consumer opinions can be learnedby using surveys and customer advisory panelsConsumer 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

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Availability of External Information

Buyers also use these sources of merchandising informationvendors 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

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Industry Facts

Another source of external information is comparison shoppers They are

hired to

check and

report back to their employers about other retailersThey 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

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Preparing Buying PlansMerchandise planning for the future

builds on data from past seasonsshould be based on estimated customer demandRetail

buyers try to establish an

expected rate

of saleStock turnover

, or inventory turns, is the number of times the average inventory on hand is sold and replaced in a given period

continued

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Preparing Buying PlansAll information

gathered must be translated into a planBuyers 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)

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Financial Planning and Control

Financial planning results in a dollar merchandise plan, also called a six-month merchandise planThis is an estimated dollar amount

, or budget, for planned stock, sales

, and

profit for the department for a six-month periodThe

yearly

periods

are February through July

and August through January

continued

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Financial Planning and Control

Dollar merchandise plans forecast stock values at the beginning of each month to cover salesAn

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

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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

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Assortment PlanningAn 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

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Assortment PlanningA basic

stock plan is a proposed purchase list composed mostly of commodity goodsExamples: 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

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Assortment PlanningMany 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

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Additional Planning Considerations

The number of brands to stock is a concernSubstitute 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

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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

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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 beodd lots—a broken or unbalanced assortment

irregulars—items with small imperfections

closeout goods—discontinued items

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Ongoing Inventory Management

Older ways of recording sales of specific items—stub-ticket control and card-control—are only used by small retailersMost retailers now use faster and more accurate computerized inventory-management systems

Stock control technology is called electronic point-of-sale (EPOS) equipment

continued

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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

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A buyer’s activities include locating and selecting

the right vendors, or merchandise suppliersAdvantages to buying directly from producers:The goods are usually the latest stylesPrices are lower

Goods can be made to the retailer’s specifications

Merchandising support is usually available

Industry Facts

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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 goodsWebsites 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

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ImportersImporters’ merchandise is

produced overseas, usually in countries with low wage ratesThe 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

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Evaluating Vendor Attributes

A vendor’s merchandise must be suited to the retailer’s customer group, price, quality, fit, and fashion levelBusiness 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

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Vendor ServicesFRM means that items shipped to

the store are ready to go directly onto the selling floor without additional preparationTurnaround time for orders is an important consideration

Buyers keep files on vendors used through the years with contact information and notes on performance

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Selecting Specific Resources

Buyers should establish a well-selected group of vendors while being alert for new sourcesKey resources or preferred vendor lists are

developed for

each category

of goodsClassification resources are vendors that specialize in

certain products

A company must consider the number of resources needed to achieve its goals

continued

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Selecting Specific Resources

Buyers should regularly determine if their vendors are keeping pace with ever-changing customer buying patternsA 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

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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

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Brand Names Versus Private Label Merchandise

Private label (house brand) merchandise is produced specifically for a retailer and contains the

retailer’s

trademark

or brandAs 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

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Offshore SourcingOffshore sourcing

is the term used whengoods are bought from overseas producers orprivate label goods are

contracted to

be made by foreign manufacturing

plantsMost 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

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Offshore sourcing involves risks becausefashion timing is difficult imports limit the ability

of retailers to respond quickly to the market, such as with reorderscommunications may be

difficult between the retailer and

offshore producer

because of geographic distances and language barriers

Industry Facts

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In Summary

Fashion merchandisers must analyze fashion trends and their suitability and timing for a particular retail operationPlanning information for buyers includes many sources inside and outside the companyRetail buyers use an expected rate of sale so as not to order less or more merchandise than needed

continued

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In Summary

A retailer also needs financial planning and control, a balanced merchandise assortment, and inventory managementInventory 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