Case assignment retail mgmt
I have uploaded the first PowerPoint summarizing information on COVID impacts on retail consumer behavior. along with the case, which is due on October 28. Be sure you review the PowerPoint first, then read the case. I will post information on the format for writing the case in a few days. Note: information from the PowerPoint will be on Exam
COVID 19 Impact on Retailing
Mary Anne Doty
MKT / MGT 445 Retail Management
Fall 2020
COVID 19 Impact on Retailing
Part I: COVID Impact on Consumers and Retail Consumer Behavior (CH 4 and 5)
Part 2: COVID Impact on Retail Operations (CH 9, 15, 16)
Part 3: COVID Impact on Retail Merchandise – both supply and demand issues (CH 11, 12)
Research Early in the Pandemic Anticipated Changes in Buying Behavior
“Growth Opportunities for Brands During the COVID-19 Crisis” by Knowles, Ettenson, Lynch and Dollens, MIT Sloan Management Review (May 5, 2020) reports on purchasing two weeks after stay-at-home directives.
1,233 US adults were surveyed to report on shopping activities in the US.
Research examined store choices, timing of shopping, purchase of new brands and reasons.
Research findings
Reduced shopping frequency and increase in amount bought
Stocking up on nonperishables and hard-to-find items
Willingness to try online and delivery modes of purchase
Loss of interest in status-driven purchases
Interest in how companies are treating their employees
Willingness to try new brands and new retailers
Three Factors Influencing Retail Shoppers
Economic Influences
Shortages in Availability
Lifestyle Changes from Lockdown
Factor 1: Economic Influences
High unemployment rates still undercount the impact on self-employed and part-time workers not eligible for unemployment benefits.
Seven months after initial pandemic news, unemployment remains at highest levels in decades, near 8% in September from 14% in April.
Millions at the bottom of the income scale cannot afford food or housing
Economic Pain is Not Spread Evenly Across the Population in the US
Little/No Income Reduced Income No Change
Self-employed Receiving Unemployment Retired
Non-essential One spouse still working Work from
industries Home
Undocumented Business owners with reduced Selected
workers sales industries
Industries Most Effected – Most Layoffs
Airlines, hotels, conventions, rental cars
Hospitality – bars and restaurants
Grooming – hair, nails, massage, dog grooming
Wedding industry – photographers, caterers, florists, venues
Attractions – theatres, movies, concerts, sports
Day care providers
Retail stores – non grocery
K-Shaped Recovery
The economic recovery from the pandemic is causing uneven outcomes between workers at the top and those at the bottom
Lower-wage jobs are slower to recover than higher-wage jobs
Some employment in face-to-face services will not come back
Factor 2: Shortages
Lean supply chains, hoarding, and reliance on imports have resulted in shortages in merchandise for both bricks-and-mortar stores as well as eCommerce
Some shortages have evened out over the past 7 months, while other items remain on back order.
The result is that retailers can’t sell what they don’t have in stock, even when customers are willing and able to buy.
Shortages
Toilet paper, paper towels, hand sanitizer
Health care equipment, such as thermometers, blood pressure cuffs,
Office equipment and supplies for working from home (headphones, laptops)
Bicycles, workout clothes
Meat (temporary), flour, non-perishables
Canning supplies
Factor 3: Lifestyle Changes
Sprint (initial stay-at-home) mentality has become a longer-term marathon mindset as society settles in for a long change.
Travel sharply reduced, including business, vacations, family visits
Closure of bars, restaurants, health clubs, entertainment to slow the spread of the virus
Children learning at home due to school closures – women are especially impacted and employment opportunities lag without childcare
Offices closed indefinitely – using technology to work from home
Long term social distancing
2020 What’s Out?
Going to bars
Eating inside restaurants
Crowded sports and entertainment venues
Participation in gyms and indoor/contact sports
Movies or arts events
F2F shopping for entertainment
Dressing up
Professional work clothes
Commuting and buying gasoline
Cruises, airline travel, hotels
Haircuts, nail salons, massages
Big weddings, funerals, family reunions
2020 What’s In?
Consuming alcohol at home
Backyard social distancing with a small number of people
Baking at home
Walking / riding a bike and other safe types of exercise
Zoom for work, church, school
Livestreaming concerts and events
Puzzles, crafts, games
Facemasks and handwashing
Take out food – including fine dining
Comfort clothes
Home improvement – furnishings, yards, gardening, remodeling projects
Grocery delivery or pickup instead of in-store shopping
eCommerce
Interactive Effect on Retailing
Substitutions
Substituting categories of budget items for other priorities (shift priorities)
No new clothing to afford food/rent, new floors instead of vacation travel, etc.
Substituting new brands for preferred items out of stock (response to shortages)
Discovering new products, generic, etc. (ie buy whatever toilet paper is available)
Substituting other retailers for preferred retailers (closed / condensing trips)
Buy everything at Kroger instead of multiple stores; Buy hand sanitizers and cleaning products at office supply store because grocers are sold out
Bottom line – brand loyalty and store loyalty may suffer
Where do Retailers Go From Here?
Recognize that the longer the social distancing lasts, the more likely these changes in behavior will be permanent
Change your merchandise mix to meet new/evolving needs
Less reliance on sales forecasting assumptions from the past
Evolve in what and how you deliver value to customers
Re-segment and target the market based on changes in income, lifestyle and needs.
Post COVID-19 Case
The Clubhouse: Merchandise Management in Uncertain Times
By Mary Anne Doty, Texas A&M University – Commerce
Christopher Montgomery, founder of The Clubhouse specialty men’s clothing store, faced a dilemma in early June as he evaluated his merchandise orders for the last half of 2020 and beginning of 2021. Following 2 months of being closed as a non-essential business, Christopher had reopened in mid-May to try and make up lost sales during his state’s stay-at-home order. Some of his merchandise was made-to-order, “bespoke” clothing that normally required a two-or three-month lead time for the exclusive fabrics. Nearly all fabrics were made abroad, and the supply chains had stopped or slowed down during the worldwide pandemic. The same was true of a majority of his ready-to wear merchandise. Most of the brands he carried were made in Italy, hard hit in the pandemic. These items set The Clubhouse apart from other competitors since his exclusive agreement with vendors meant no other stores in the region could offer their clothing.
Retail Strategy
The Clubhouse opened in Lexington, Kentucky in early 2012, following a successful pop-up store during holidays. Located in an upscale neighborhood of renovated old homes-turned-trendy boutiques and cafes, The Clubhouse sold more than clothing. It sold a unique experience and lifestyle in addition to the combination of custom suits and sports coats, and high-quality brands rarely found outside of New York and California. The store features a bourbon bar and sophisticated vinyl records, along with personalized service. Christopher’s good looks and fashion sense are among his biggest advantages as he personally serves his customers.
This is a small business that thrives due to his high customer satisfaction and high profit margins. In addition to the owner, the store employed two tailors (one for custom clothing, one for alterations), a salesman, and a bookkeeper. Suits average over $2000 each, although a bespoke suit with really expensive fabric can be much higher. Made-to-measure sportscoats start at around $650 but can be priced at $3,000 or more depending on the fabric. Customer measurements are kept on file to facilitate quick ordering in the future.
In addition to selling seasonal dress and sport clothing, The Clubhouse also carries a variety of accessories, including belts and shoes, cologne, shirts, and ties. The only inventory available online is the two co-branded collections of ties celebrating the Breeder’s Cup annual horseracing event and the Lexington Polo Club (priced at an average of $175 per tie).
For promotion, Christopher relies heavily on social media, particularly Facebook, Twitter and the company’s website. Brand image is enhanced with sponsorship advertising in the program at exclusive sporting events (Polo Club), cultural events, balls and galas that his customers enjoy.
Target Market
Customers are successful men from Central Kentucky who tend to be in their late-30s or older. Demographically they have high incomes and represent a variety of backgrounds: physicians and bank presidents, attorneys and entrepreneurs, successful business people and horse farm managers, even the state university basketball coach. Clothing is sold for numerous social events, from football tailgate parties to charity fundraisers, country club parties, and especially horse racing fans celebrating Keeneland Racetrack and Churchill Downs meets. Some of the merchandise is appropriate for business as well as leisure.
Competitive Advantages and Disadvantages of The Gentleman’s Shoppe Strategy
The major advantage that Christopher enjoys is that he knows his customers personally and enjoys a high degree of customer loyalty. He has records of their measurements and previous items sold, which puts him in a position to be a personal shopper for most of them. Especially important in a time of high unemployment and economic fears, Christopher’s customers are less affected by the economic downturn or job loss.
Disadvantages, aside from lost sales during the shutdown that affected other specialty clothing stores, include a limited online sales platform (only used for specialty ties), the death of one of the tailors from COVID-19, and changes in customer tastes or needs as a result of continuing restrictions in their social lives.
Reopening Plan
Once businesses were allowed to reopen, Christopher made sure customers felt safe entering his store. For the first few months, hours were limited. The public could shop between noon and 4 pm, 5 days a week. Appointments could be made for one-on-one attention between 10 am and noon, and later between 4 and 6 pm, also Monday through Friday. Christopher hoped to sell his spring inventory during late May and June, along with merchandise ordered before the shut-down. Fabric and clothing aren’t perishable in the same way as food, but seasonal items would have to be marked down if they weren’t sold by mid-summer. For example, clothing was ordered to be worn to Derby and graduation parties, along with racing seasons that did not allow spectators. Large gatherings were still discouraged, including church attendance and crowded restaurants and bars. Even though the reasons for buying a new sport coat or tie might not be happening, Christopher’s marketing campaign sold hope for future fun: “People Will Dress Up Again”.
Business has been steady in the initial reopening weeks but uncertainty about the future makes ordering difficult. Will there be a college football season and resulting parties, or will the Southeastern Conference decide to defer football until the next season? Will there be Derby parties for the rescheduled race in September? Will customer worries about the economy result in fewer clothing purchases? If people work from home, do they need business suits?
Merchandise management requires ordering the right items in the right quantity and sizes, in the right place and time to meet financial goals. Money is invested in inventory, which must be sold to pay expenses and provide resources to order for future sales. Inventory that doesn’t sell must be marked down in price to speed up financial returns and keep the cycle going. In ordinary times, sales forecasting doesn’t require a lot of adjustment to prices and inventory, particularly for staple merchandise. For fashion merchandise, timing is more important because late arriving items may not sell at full price. Orders must be placed in June or July to have sufficient inventory for the big selling season in December.
Opportunities to Consider
In spite of uncertainty about the retail environment, Christopher has identified several options to consider as he allocates money and plans for 3Q, 4Q and beyond.
1. Christopher can upgrade his business website to include off-the-rack items in his eCommerce platform. This could include both moderately priced merchandise, such as belts and ties, along with clothing such as shirts and sweaters that don’t require alterations.
2. The store could expand high quality casual for working from home, such as cashmere sweaters and fine wool slacks, as well as sports clothing for golf (an activity that is compatible with social distancing).
3. The store could continue a focus on clothing for social events, assuming a fall/winter return to parties, football and horse racing.
4. If a new tailor is found, the store can offer a line of masks made with expensive fabric purchased for custom clothing that wasn’t made.
5. If another lockdown occurs, Christopher could increase personal shopper services for his best customers. This tactic would protect the business in a lockdown since clothing could be selected and delivered without the store being physically open to customers.
Discussion questions
Write a summary of the key problems Christopher faces in ordering merchandise for fall. Include discussion of these questions in your summary. Then conclude with your evaluation of two opportunities you would recommend and justify your choices.
1. Why is it difficult for The Clubhouse to rely on data from previous years’ sales in planning for 3Q and 4Q inventory levels?
2. Does it matter whether what type of merchandise planning system Christopher is using? For example, is most of his inventory considered a staple or fashion?
3. How does the brand strategy impact the merchandise ordering process?
4. Which categories or opportunities should Christopher emphasize for the end of 2020 and beginning of 2021?
5. Are there any strategies that will help the store survive if both business and social activities are restricted later in 2020?
6. What insights about consumer retail behavior after COVID (PowerPoint) can you apply to the dilemma for The Clubhouse as they plan their inventory for late 2020 and early 2021?
CHAPTER 11
Managing the Merchandise Planning Process
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All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
Learning Objectives 1 of 2
Learning Objective 11-1 Explain the merchandise management organization and performance measures.
Learning Objective 11-2 Contrast the merchandise management processes for staple and fashion merchandise.
Learning Objective 11-3 Describe how to predict sales for merchandise categories.
Learning Objective 11-4 Summarize the trade-offs for developing merchandise assortments.
©McGraw-Hill Education.
Learning Objectives 2 of 2
Learning Objective 11-5 Illustrate how to determine the appropriate inventory levels.
Learning Objective 11-6 Analyze merchandise control systems.
Learning Objective 11-7 Describe how multistore retailers allocate merchandise to stores.
Learning Objective 11-8 Review how retailers evaluate the performance of their merchandise management decisions.
©McGraw-Hill Education.
Merchandise Management
Process by which retailer attempts to offer the appropriate quantity of the right merchandise, in the right place, and at the right time.
Buyers
Divisional merchandise managers (DMMs)
General merchandise managers (GMMs)
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Merchandise Management Overview 1 of 5
Learning Objective 11-1 Explain the merchandise management organization and performance measures.
The Buying Organization
Merchandise group
Managed by a GMM
Department
Managed by a DMM
Classification
Stock-keeping unit (SKU)
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EXHIBIT 11-1 Illustration of Merchandise Classifications and Organization
Jump to long description in appendix
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Merchandise Management Overview 2 of 5
Merchandise Category – The Planning Unit
Ways to Manage Categories
Category management has one buyer or category manager
Grocery stores
Category captain has vendor help manage category
Merchandise management tasks easier for retailer
Can increase profits
Antitrust considerations
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A merchandise category is an assortment of items that customers see as substitutes for one another
7
Merchandise Categories
The chilled drink department consists of several categories.
© Aardvark/Alamy Stock Photo
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Merchandise Management Overview 3 of 5
Evaluating Merchandise Management Performance
GMROI
High GMROI achieved with gross margin and inventory turnover
Jump to long description in appendix
©McGraw-Hill Education.
Merchandise managers have control only over what merchandise they buy (i.e., their merchandise inventory, but not the cost of other assets such as cash, accounts receivable, or fixtures).
9
EXHIBIT 11-2 Illustration of GMROI
Jump to long description in appendix
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Merchandise Management Overview 4 of 5
Evaluating Merchandise Management Performance continued
Measuring Sales-to-Stock Ratio
Typically done on annual basis
Most accurate: measure inventory level at end of each day and divide sum by 365
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11
Sales-to-Stock Ratio
The bakery department in a supermarket typically has a high sales-to-stock ratio and a low gross margin.
© milanfoto/E+/Getty Images
©McGraw-Hill Education.
Estimating Inventory By Dividing the Sum of Several EOM Inventories By the Number of Months
Month End-of-Month Inventory
January $22,000
February 35,000
March 38,000
Total $93,000
Average (Total/3) $31,000
©McGraw-Hill Education.
Merchandise Management Overview 5 of 5
Improving GMROI
Improve Inventory Turnover (Sales-to-Stock Ratio)
Reduce inventory or increase sales
Keep existing SKUs but reduce backup stock
Buy merchandise more often, in smaller quantities
Increase sales but don’t increase inventory proportionally
Increase Gross Margin
Increase prices
Reduce cost of goods sold
Reduce customer discounts
©McGraw-Hill Education.
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EXHIBIT 11-3 Merchandise Planning Process
Jump to long description in appendix
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Merchandise Planning Process
Learning Objective 11-2 Contrast the merchandise management processes for staple and fashion merchandise.
Types of Merchandise Management Planning Systems
Staple merchandise
Basic merchandise
Continuous replenishment
Fashion merchandise
Seasonal merchandise
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Forecasting the sales for fashion merchandise categories is much more challenging than doing so for staple categories.
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Merchandise Planning Systems
Staple merchandise categories are those categories that are in continuous demand over an extended time period, whereas fashion merchandise categories are in demand only for a relatively short period of time.
© Jay Laprete/Bloomberg via Getty Images and © Donato Sardella/Getty Images
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Forecasting Category Sales 1 of 3
Learning Objective 11-3 Describe how to predict sales for merchandise categories.
Forecasting Staple Merchandise
Use of historical sales
Adjustments for controllable and uncontrollable factors
Can control when store opens and closes, prices, special promotions, placement of merchandise
Can’t control weather, economic conditions, new product introductions by vendors, competitor’s actions
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Forecasting Category Sales 2 of 3
Forecasting Fashion Merchandise Categories
Previous sales data
Market research
In-depth interview
Focus group
Fashion trend services
Vendors
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Forecasting Category Sales 3 of 3
Sales Forecasting for Service Retailers
Offerings perish at end of day, not end of season
Empty seats on an airplane
Take reservations
Make appointments
Sell advance tickets
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Developing an Assortment Plan 1 of 3
Learning Objective 11-4 Summarize the trade-offs for developing merchandise assortments.
Category variety and assortment
Assortment plan
Variety
Breadth
Assortment
Depth
©McGraw-Hill Education.
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An assortment plan is the set of SKUs that a retailer will offer in a merchandise category in each of its stores and from its website.
EXHIBIT 11-4 Assortment Plan for Girls’ Jeans
1 of 2
Styles Skinny Skinny Skinny Skinny Skinny Skinny
Price levels $20 $20 $35 $35 $45 $45
Fabric composition Distressed Rinsed wash Distressed Rinsed washed Distressed Rinsed wash
Colors Light blue Light blue Light blue Light blue Light blue Light blue
Indigo Indigo Indigo Indigo Indigo Indigo
Black Black Black Black Black Black
©McGraw-Hill Education.
EXHIBIT 11-4 Assortment Plan for Girls’ Jeans
2 of 2
Styles Boot-Cut Boot-Cut Boot-Cut Boot-Cut
Price levels $25 $25 $45 $45
Fabric composition Distressed Rinsed wash Distressed Rinsed washed
Colors Light blue Light blue Light blue Light blue
Indigo Indigo Indigo Indigo
Black Black Black Black
©McGraw-Hill Education.
Developing an Assortment Plan 2 of 3
Determining variety and assortment
Editing the assortment
Retail strategy
Costco has very few SKUs
Best Buy has many SKUs
Assortments and GMROI
Breaking sizes
©McGraw-Hill Education.
Costco’s Limited Assortment
Costco offers a limited assortment at low prices, increasing its inventory turnover and lowering its costs.
© John Greim/LightRocket via Getty Images
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Developing an Assortment Plan 3 of 3
Determining variety and assortment continued
Complementary merchandise
Add more SKUs to increase accessory sales
Effects of assortment size on buying behavior
Large assortment gives more opportunity for customer finding what they want
Large assortment provides more informative shopping experience
Large assortment appealing to customers who seek variety
SKU rationalization programs
Physical characteristics of the store
©McGraw-Hill Education.
More space is needed to display categories with large assortments. In addition, a lot of space is needed to display individual items in some categories, and this limits the number of SKUs that can be offered in stores
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Setting Inventory and Product Availability Levels
1 of 2
Learning Objective 11-5 Illustrate how to determine the appropriate inventory levels.
Model Stock Plan
Each SKU in assortment plan buyer wants available for purchase in each store
Different stock plans for different store sizes
©McGraw-Hill Education.
EXHIBIT 11-5 Model Stock Plan for Girls’ Jeans
Length 1 2 4 5 6 8 10 12 14
Short % 2 4 7 6 8 5 7 4 2
Units 9 17 30 26 34 21 30 17 9
Medium % 2 4 7 6 8 5 7 4 2
Units 9 17 30 26 34 21 30 17 9
Long % 0 2 2 2 3 2 2 1 0
Units 0 9 9 9 12 9 9 4 0
Total 100%
429 Units
©McGraw-Hill Education.
Setting Inventory and Product Availability Levels
2 of 2
Product Availability
Backup stock (buffer stock)
Safety stock
Product availability
Level of support (service level)
©McGraw-Hill Education.
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EXHIBIT 11-6 Inventory Investment and Product Availability
Jump to long description in appendix
©McGraw-Hill Education.
Establishing a Control System for Managing Inventory 1 of 5
Learning Objective 11-6 Analyze merchandise control systems.
Control Systems for Managing Inventory of Staple Merchandise
Flow of Staple Merchandise
Cycle stock
Base stock
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EXHIBIT 11-7 Merchandise Flow of a Staple SKU
Jump to long description in appendix
©McGraw-Hill Education.
Establishing a Control System for Managing Inventory 2 of 5
Control Systems for Managing Inventory of Staple Merchandise continued
Determining the Level of Backup Stock
Desired product availability
Greater fluctuation, more backup stock required
Lead time from vendor
Fluctuations in lead time
Vendor’s fill rate
©McGraw-Hill Education.
Backup Stock
Lowe’s carries more backup stock of its popular white paint than its specialty colors like melon.
© Scott Eells/Bloomberg via Getty Images
©McGraw-Hill Education.
Establishing a Control System for Managing Inventory 3 of 5
Control Systems for Managing Inventory of Staple Merchandise continued
Automated Continuous Replenishment
Perpetual inventory
Inventory Management Report
Order Point
Order Quantity
©McGraw-Hill Education.
However, it is difficult to achieve fully automated continuous replenishment of staple merchandise because of errors in determining the actual inventory.
The inventory management report indicates the decision variables set by the buyer, such as product availability, the backup stock needed to provide the product availability, the order points, and quantities, plus performance measures such as planned and actual inventory turnover, the current sales rate or velocity, sales forecasts, inventory availability, and the amount on order.
35
EXHIBIT 11-8 Inventory Management Report for Rubbermaid SKUs
Jump to long description in appendix
©McGraw-Hill Education.
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Establishing a Control System for Managing Inventory 4 of 5
Control Systems for Managing Inventory of Fashion Merchandise
Merchandise budget plan
Amount of merchandise in dollars that needs to be delivered each month
This is based on the sale forecast
Includes planned employee and customer discounts
Level of inventory needed to support sales
©McGraw-Hill Education.
37
EXHIBIT 11-9 Six-Month Merchandise Budget Plan for Men’s Casual Slacks
Jump to long description in appendix
©McGraw-Hill Education.
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Establishing a Control System for Managing Inventory 5 of 5
Control Systems for Managing Inventory of Fashion Merchandise continued
Open-to-Buy System
Present inventory level
Purchased merchandise delivery schedules
How much has been sold to customers
©McGraw-Hill Education.
39
Open-to-Buy
Open-to-buy is similar to keeping track of the checks you write. Buyers need to keep track of the merchandise they purchase and when it is to be delivered so they don’t buy more (overbuy) or less (underbuy) than they have money in their budget to spend each month.
© jwohlfeil/iStockphoto/Getty Images
©McGraw-Hill Education.
Allocating Merchandise to Stores 1 of 2
Learning Objective 11-7 Describe how multistore retailers allocate merchandise to stores.
Amount of Merchandise Allocated
Based on annual sales
Physical characteristics of merchandise
Depth of assortment
Level of product availability
©McGraw-Hill Education.
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Allocating Merchandise to Stores 2 of 2
Type of Merchandise Allocated
Geodemographics of store’s trading area considered
Timing of Merchandise Allocation
Seasonality differences
Consumer demand differences
Paycheck cycle
©McGraw-Hill Education.
EXHIBIT 11-11 Apparel Size Differences for the Average and Specific Store in a Chain
Jump to long description in appendix
©McGraw-Hill Education.
EXHIBIT 11-12 Sales of Capri Pants by Region
Jump to long description in appendix
©McGraw-Hill Education.
Analyzing Merchandise Management Performance 1 of 3
Learning Objective 11-8 Review how retailers evaluate the performance of their merchandise management decisions.
Evaluating the Merchandise Plan Using Sell-Through Analysis
Sell-through analysis
Compares actual and planned sales
Determines if more merchandise needed
Determines if price reductions necessary
Markdown money
©McGraw-Hill Education.
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EXHIBIT 11-13 Example of Sell-Through Analysis
WEEK 1 WEEK 2
Actual-to-Plan Actual-to-Plan
Stock
number Description Plan Actual Percentage Plan Actual Percentage
1011 Small White silk V-neck 20 15 -25% 20 10 -50%
1011 Medium White silk V-neck 30 25 -16.6 30 20 -33
1011 Large White silk V-neck 20 16 -20 20 16 -20
1012 Small Blue silk
V-neck 25 26 4 25 27 8
1012 Medium Blue silk
V-neck 35 45 29 35 40 14
1012 Large Blue silk
V-neck 25 25 0 25 30 20
©McGraw-Hill Education.
Analyzing Merchandise Management Performance 2 of 3
Evaluating the Assortment Plan Using ABC Analysis
ABC analysis identifies performance of individual SKUs in assortment plan
SKUs rank-ordered by sales, gross margin, inventory turnover, GMROI
Reveals 80-20 principle
SKU items classified
©McGraw-Hill Education.
Analyzing Merchandise Management Performance 3 of 3
Evaluating the Assortment Plan Using ABC Analysis
Evaluating Vendors Using the Multiattribute Method
Weighted score for each vendor
Develop list of issues to consider
Determine importance weights for each issue
Make judgments about each individual brand’s performance on issue
Develop an overall score by multiplying importance of each issue by performance of each brand or its vendor
Add scores for each brand for all issues to get overall rating
©McGraw-Hill Education.
EXHIBIT 11-14 Multiattribute Method for Evaluating Vendors
Jump to long description in appendix
©McGraw-Hill Education.
Key Terms 1 of 9
ABC analysis An analysis that rank orders SKUs by a profitability measure to determine which items should never be out of stock, which should be allowed to be out of stock occasionally, and which should be deleted from the stock selection.
assortment The number of SKUs within a merchandise category. Also called depth.
assortment plan A list of merchandise that indicates in very general terms what should be carried in a particular merchandise category.
backup stock The inventory used to guard against going out of stock when demand exceeds forecasts or merchandise is delayed. Also called safety stock or buffer stock.
base stock The inventory that goes up and down due to the replenishment process. Also known as cycle stock.
©McGraw-Hill Education.
Key Terms 2 of 9
basic merchandise Inventory that has continuous demand by customers over an extended period of time. Also known as staple merchandise.
breadth In merchandise planning, the variety in the number of subcategories carried within any particular merchandise category. Also known as variety.
breaking sizes Running out of stock on particular sizes.
buffer stock Merchandise inventory used as a safety cushion for cycle stock so the retailer won’t run out of stock if demand exceeds the sales forecast. Also called backup stock or safety stock.
category captain A supplier that forms an alliance with a retailer to help gain consumer insight, satisfy consumer needs, and improve the performance and profit potential across the entire category.
category management The process of managing a retail business with the objective of maximizing the sales and profits of a category.
©McGraw-Hill Education.
Key Terms 3 of 9
classification A group of items or SKUs for the same type of merchandise, such as pants (as opposed to jackets or suits), supplied by different vendors.
continuous replenishment A system that involves continuously monitoring merchandise sales and generating replacement orders, often automatically, when inventory levels drop below predetermined levels.
cycle stock The inventory that goes up and down due to the replenishment process. Also known as base stock.
department A segment of a store with merchandise that represents a group of classifications the consumer views as being complementary.
depth The number of SKUs within a merchandise category. Also called assortment.
editing the assortment Selecting the right assortment of merchandise.
©McGraw-Hill Education.
Key Terms 4 of 9
fashion merchandise Category of merchandise that typically lasts several seasons, and sales can vary dramatically from one season to the next.
fill rate The percentage of an order that is shipped by the vendor.
focus group A marketing research technique in which a small group of respondents is interviewed by a moderator using a loosely structured format.
in-depth interview An unstructured personal interview in which the interviewer uses extensive probing to get individual respondents to talk in detail about a subject.
lead time The amount of time between recognition that an order needs to be placed and the point at which the merchandise arrives in the store and is ready for sale.
©McGraw-Hill Education.
Key Terms 5 of 9
level of support A measure used in inventory management to define the level of support or level of product availability; the number of items sold divided by the number of items demanded. Service level should not be confused with customer service. Also called service level.
markdown money Funds provided by a vendor to a retailer to cover decreased gross margin from markdowns and other merchandising issues.
merchandise budget plan A plan used by buyers to determine how much money to spend in each month on a particular fashion merchandise category, given the firm’s sales forecast, inventory turnover, and profit goals.
merchandise category An assortment of items (SKUs) the customer sees as reasonable substitutes for one another.
merchandise group A group within an organization managed by the senior vice presidents of merchandise and responsible for several departments.
©McGraw-Hill Education.
Key Terms 6 of 9
merchandise management The process by which a retailer attempts to offer the right quantity of the right merchandise in the right place at the right time while meeting the company’s financial goal.
model stock plan A list of fashion merchandise that indicates in very general terms (product lines, colors, and size distributions) what should be carried in a particular merchandise category; also known as a model stock list.
multiattribute analysis A method for evaluating vendors that uses a weighted average score for each vendor, which is based on the importance of various issues and the vendor’s performance on those issues.
open-to-buy The plan that keeps track of how much is spent in each month and how much is left to spend.
order point The amount of inventory below which the quantity available shouldn’t go or the item will be out of stock before the next order arrives.
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Key Terms 7 of 9
perpetual inventory An accounting procedure whose objectives are to maintain a perpetual or book inventory in retail dollar amounts and to maintain records that make it possible to determine the cost value of the inventory at any time without taking a physical inventory.
product availability A measurement of the percentage of demand for a particular SKU that is satisfied.
safety stock The inventory used to guard against going out of stock when demand exceeds forecasts or merchandise is delayed. Also called backup stock or buffer stock.
seasonal merchandise Inventory whose sales fluctuate dramatically according to the time of the year.
sell-through analysis A comparison of actual and planned sales to determine whether early markdowns are required or more merchandise is needed to satisfy demand.
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Key Terms 8 of 9
service level A measure used in inventory management to define the level of support or level of product availability; the number of items sold divided by the number of items demanded. Service level should not be confused with customer service. Also called level of support.
shopworn Merchandise that looks damaged because it has been on display for a long time and customers have been handling it.
shrinkage An inventory reduction that is caused by shoplifting by employees or customers, by merchandise being misplaced or damaged, or by poor bookkeeping. Also called inventory shrinkage.
SKU rationalization program An analysis of the potential benefits a retailer could achieve by adding or deleting specific items from its assortments.
staple merchandise Inventory that has continuous demand by customers over an extended period of time. Also known as basic merchandise.
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Key Terms 9 of 9
stock-keeping unit (SKU) The smallest unit available for keeping inventory control. In soft goods merchandise, an SKU usually means a size, color, and style.
stock-to-sales ratio Specifies the amount of inventory that should be on hand at the beginning of the month to support the sales forecast and maintain the inventory turnover objective. The beginning-of-month (BOM) inventory divided by sales for the month. The average stock-to-sales ratio is 12 divided by planned inventory turnover. This ratio is an integral component of the merchandise budget plan.
variety The number of different merchandise categories within a store or department. Also known as breadth.
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Appendix of Image Long Descriptions
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Appendix 1 EXHIBIT 11-1 Illustration of Merchandise Classifications and Organization
The top position of the chart reads: chairperson merchandise-oriented partner. Below this are four senior vice president positions as part of the merchandise group. They are: senior vice president, general merchandise manager: women’s apparel; senior vice president, general merchandise manager: men’s, children’s, intimate apparel; senior vice president, general merchandise manager: cosmetics, shoes, jewelry, accessories; and senior vice president, general merchandise manager: home, kitchen.
Beneath the senior vice president, general merchandise manager: men’s, children’s, intimate apparel are five departments managed by division merchandise managers. They are: division merchandise manager: men’s dress apparel; division merchandise manager: men’s sportswear; division merchandise manager: young men’s apparel; division merchandise manager: children’s apparel; and division merchandise manager: intimate apparel.
Beneath the division merchandise manager: children’s apparel are six classifications. These are: buyer preteen accessories; buyer girls’ size 7-14; buyer girls’ size 4-6; buyer toddlers; buyer infants; and buyer little boys.
Beneath the buyer girls’ size 4-6 are four categories: sportswear, dresses, swimwear, and outerwear.
Beneath the sportswear category is a SKU reading girls’ Levi jeans, size 5, rinsed wash blue, straight leg.
There is a highlighted path in the organizational chart: chairperson merchandise-oriented partner; senior vice president, general merchandise manager: men’s, children’s, intimate apparel; division merchandise manager: children’s apparel; buyer girls’ size 4-6; sportswear; girls’ Levi jeans, size 5, rinsed wash blue, straight leg.
In addition to the chart’s merchandise group, a planning group is displayed. From the chairperson merchandise-oriented partner, the chart goes to the vice president of planning. Below this is the division director of planning. Finally, below this is the manager of planning.
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Appendix 2 Merchandise Management Overview 3 of 5
GMROI equals gross margin percentage multiplied by sales-to-stock ratio which equals gross margin divided by average inventory at cost. Gross margin percentage is gross margin divided by net sales and sales-to-stock ratio is net sales divided by average inventory at cost.
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Appendix 3 EXHIBIT 11-2 Illustration of GMROI
The sales, gross margin, and average inventory for fresh bakery bread and gourmet canned food are listed.
Fresh bakery bread. Sales: 1,000,000 dollars. Gross margin: 200,000 dollars. Average inventory: 100,000 dollars. Gourmet carved food. Sales: 200,000 dollars. Gross margin: 100,000 dollars. Average inventory: 50,000 dollars.
The GMROI is calculated as gross margin divided by net sales multiplied by net sales that are divided by average inventory which equals gross margin divided by average inventory.
For fresh bakery bread, the GMROI is calculated as 200,000 divided by 1,000,000 multiplied by 1,000,000 that is divided by 100,000 which equals 200,000 divided by 100,000.
For fresh bakery bread, the GMROI equals 20 percent multiplied by 10 which equals 200 percent.
For gourmet canned food, the GMROI is calculated as 100,000 divided by 200,000 multiplied by 200,000 that is divided by 50,000 which equals 100,000 divided by 50,000.
For gourmet canned food, the GMROI equals 50 percent multiplied by 4 which equals 200 percent.
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Appendix 4 EXHIBIT 11-3 Merchandise Planning Process
There are seven steps in the merchandise planning process. They are:
Forecast category sales (chapter 11)
Develop an assortment plan (chapter 11)
Determine appropriate inventory level and product availability (chapter 11)
Develop a plan for managing inventory (chapter 11)
Allocate merchandise for stores (chapter 11)
Buy merchandise (chapter 12)
Monitor and evaluate performance and make adjustments (chapters 11, 13).
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Appendix 5 EXHIBIT 11-6 Inventory Investment and Product Availability
The line graph’s vertical axis is labeled inventory investment millions of dollars. It is marked by a list of numbers, counted by hundreds, between 0 and 600. The horizontal graph is labeled product availability percent. It is marked by a list of numbers, counted by fives, between 80 and 100.
The line on the graph makes a smooth curve upward, going from 100 million dollars inventory investment and 0 percent product availability, to 600 million dollars inventory investment and 100 percent product availability.
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Appendix 6 EXHIBIT 11-7 Merchandise Flow of a Staple SKU
The vertical axis of the line graph is labeled units available. It is marked by the numbers 0, 50, 100, and 150. The horizontal axis is labeled weeks. It is marked by the numbers 1, 2, 3, and 4. At 25 units available, a line stretches across the length of the horizontal weeks line. The units available below this line are considered backup stock.
The graph’s line begins with a note stating the retailer has ordered 96 units. At week 0, the units available number at 149. Between the time of week 0 and week 2, the units available fall from 149 to 25. At week 2, stock is reordered, bringing the units available up to 125. Between weeks 2 and 4, the units available fall from 125, dipping down into the backup stock and almost reaching 0.
The graph notes this fall rising and falling pattern is the cycle stock.
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Appendix 7 EXHIBIT 11-8 Inventory Management Report for Rubbermaid SKUs
Quantity
on hand Quantity on order Sales last 4 weeks Sales last 12 weeks Forecast next 4 weeks Forecast next 8 weeks Product availability Backup stock Turnover planned Turnover actual Order point Order Quantity
RM Bath Mat – Avocado 30 60 72 215 152 229 99 18 12 11 132 42
RM Bath Mat – Blue 36 36 56 130 115 173 95 12 9 10 98 26
RM Bath Mat – Gold 41 72 117 325 243 355 99 35 12 13 217 104
RM Bath Mat – Pink 10 12 15 41 13 25 90 3 7 7 13 0
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Appendix 8 EXHIBIT 11-9 Six-Month Merchandise Budget Plan for Men’s Casual Slacks
April May June July August September
1. Sales percentage distribution to season 100.00 percent 21.00 percent 12.00 percent 12.00 percent 19.00 percent 21.00 percent 15.00 percent
2. Monthly sales 130,000 dollars 27,300 dollars 15,600 dollars 15,600 dollars 24,700 dollars 27,300 dollars 19,500 dollars
3. Reduction percentage distribution to season 100.00 percent 40.00 percent 14.00 percent 16.00 percent 12.00 percent 10.00 percent 8.00 percent
4. Monthly reductions 16,500 dollars 6,600 dollars 2,310 dollars 2,640 dollars 1,980 dollars 1,650 dollars 1,320 dollars
5. BOM stock to sales ratio 4.00 3.60 4.40 4.40 4.00 3.60 4.00
6. BOM inventory 98,280 dollars 98,280 dollars 68,640 dollars 68,640 dollars 98,800 dollars 98,280 dollars 78,000 dollars
7. EOM inventory 65,600 dollars 68,640 dollars 68,640 dollars 98,800 dollars 98,280 dollars 78,000 dollars 65,600 dollars
8. Monthly additions to stock 113,820 dollars 4,260 dollars 17,910 dollars 48,400 dollars 26,160 dollars 8,670 dollars 8,420 dollars
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Appendix 9 EXHIBIT 11-11 Apparel Size Differences for the Average and Specific Store in a Chain
The vertical axis is labeled percent of total allocated to each size. It is marked by numbers, counted by fives, going from 0 up to 45. The horizontal axis is labeled apparel size. It is divided between extra small (XS), small (S), medium (M), and large (L). Two lines are plotted on the graph.
The first line charts the average breakdown of stock for a chain. 11 percent is allocated to extra small. 37 percent is allocated to small. 40 percent is allocated to medium. 12 percent is allocated to large.
The second line charts the breakdown of stock for a specific store. 5 percent is allocated to extra small. 30 percent is allocated to small. 40 percent is allocated to medium. 25 percent is allocated to large.
The lines overlap at the medium allocation.
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Appendix 10 EXHIBIT 11-12 Sales of Capri Pants by Region
The graph’s vertical axis is labeled sales in units. It is marked by numbers, counted by thousands, ranging from 0 to 8000. The horizontal axis is labeled with the months July, August, September, October, November, and December. The graph charts two lines, one representing capri sales for the Midwest region, the other representing capri sales for the west region.
Starting in July, capri sales for the Midwest reach their highest level of 7,000 sales in units by mid-July. By August, sales have fallen to a little over 5,000. The line continues to descend, finding a small peak up from 2,500 up to 3,000 in early August. By mid-August, capri sales have dropped to 1,000 and continue to decline. By October, sales flatten, and remain that way through the end of December.
For the west, capri sales are flat in July. They slowly begin to increase, and by mid-August, reach 1,000 sales in units. By September, sales reach 2,100, and soon after increase to the highest sales level of 3,900. From mid-September through mid-October, sales decline slowly down to 2,000. They drop sharply in mid-October, reaching almost 0. By the start of November, sales flatten, and remain that way through the end of December.
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Appendix 11 EXHIBIT 11-14 Multiattribute Method for Evaluating Vendors
Performance Evaluations of Individual Brands Across Issues
Issues Importance of Evaluation of Issues (I) Brand A
(Pa) Brand B
(Pb) Brand C
(Pc) Brand D
(Pd)
(1) (2) (3) (4) (5) (6)
Vendor reputation 9 5 9 4 8
Service 8 6 6 4 6
Meets delivery dates 6 5 7 4 4
Merchandise quality 5 5 4 6 5
Markup opportunity 5 5 4 4 5
Country of origin 6 5 3 3 8
Product fashionability 7 6 6 3 8
Selling history 3 5 5 5 5
Promotional assistance 4 5 3 4 7
280 298 212 341
Ii = importance weight assigned to the ith dimension. Pij = Performance evaluation for jth brand alternative on the ith issue. I = Not important. 10 = Very important.
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