Merchandise Buying and HandlingLearning ObjectivesSlide 3Retailing TruismDollar Merchandise PlanningSlide 6Slide 7Slide 8Slide 9Slide 10Slide 11Dollar Merchandise ControlDollar Merchandise Control:Inventory PlanningOptimal Merchandise MixSlide 16Battle of the BrandsDimensions of and Constraints on Optimal Merchandising MixConstraining FactorsConstraining Factors: Dollar Merchandise ConstraintsQuestion to PonderManaging the InventorySlide 23Slide 24Inventory Management for a Retailer Selling a Basic Stock ItemInventory Management for a Retailer Selling a Seasonal ItemConflicts in Stock PlanningBlockbuster Conflict SolutionSelection of Merchandising SourcesSlide 30Slide 31Two-Seasons Vendor Profitability AnalysisConfidential Vendor AnalysisSlide 34Slide 35Selection of Merchandising Sources:Slide 37Vendor NegotiationsSlide 39Trade DiscountQuantity DiscountSlide 42Promotional DiscountSeasonal DiscountCash DiscountSlide 46Delivery TermsIn-Store Merchandise HandlingSlide 491Merchandise Buying and HandlingMerchandise Buying and HandlingChapter 9Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved.2Learning ObjectivesLearning Objectives•Explain the differences between the four methods of dollar merchandise planning used to determine the proper stock levels needed to begin a merchandise selling period.•Explain how retailers use dollar merchandise control and describe how open-to-buy is used in the retail buying process.3Learning ObjectivesLearning Objectives•Describe how a retailer determines the makeup of its inventory.•Describe how a retailer selects proper merchandise sources.•Describe what is involved in the vendor-buyer negotiation process and what terms of the contract can be negotiated.•Discuss the various methods of handling the merchandise once it is received in the store in order to control shrinkage, including vendor collision and theft.4Retailing TruismRetailing Truism•If a retailer doesn’t have the merchandise, there is nothing to promote and sell.5Dollar Merchandise PlanningDollar Merchandise Planning•Merchandise Management is the analysis, planning, acquisition, handling, and control of the merchandise investments of a retail operation.•Gross Margin Return on Inventory (GMROI) is gross margin divided by average inventory at cost; alternatively it is the gross margin percent multiplied by (net sales divided by average inventory investment). GMROI can be comupted as follows:•(Gross margin/Net sales) X (Net sales/Average inventory at cost) = (Gross margin/Average inventory at cost)LO 16Dollar Merchandise PlanningDollar Merchandise Planning•Basic Stock Method (BSM) is a technique for planning dollar inventory investments and allows for a base stock level plus a variable amount of inventory that will increase or decrease at the beginning of each sales period in the same dollar amount as the period’s expected sales.•Percentage Variation Method (PVM) is a technique for planning dollar inventory investments that assumes that the percentage fluctuations in monthly stock from average stock should be half as great as the percentage fluctuations in monthly sales from average sales.LO 17Dollar Merchandise PlanningDollar Merchandise Planning•The BSM can be calculated as follows:•Average monthly sales for the season = Total planned sales for the season/Number of months in the season•Average stock for the season = Total planned sales for the season/Estimated inventory turnover rate for the season•Basic stock = Average stock for the season – Average monthly sales for the season•Beginning-of-Month (BOM) = Basic stock + Planned monthly sales LO 18Dollar Merchandise PlanningDollar Merchandise Planning•The (PVM) can be calculated as follows:•BOM stock = Average stock for season X ½[1 + (Planned sales for the month/Average monthly sales)]LO 19Dollar Merchandise PlanningDollar Merchandise Planning•Weeks’ Supply Method (WSM) is a technique for planning dollar inventory investments that states that the inventory level should be set equal to a predetermined number of weeks’ supply which is directly related to the desired rate of stock turnover.•Stock-to-Sales Method (SSM) is a technique for planning dollar inventory investments where the amount of inventory planned for the beginning of the month is a ratio (obtained from trade associations or the retailer’s historical records) of stock-to-sales.LO 110Dollar Merchandise PlanningDollar Merchandise Planning•The WSM can be calculated as follows:•Number of weeks to be stocked = Number of weeks in the period/Stock turnover rate for the period•Average weekly sales = Estimated total sales for the period/Number of weeks in the period•BOM stock = Average weekly sales X Number of weeks to be stockedLO 111Dollar Merchandise PlanningDollar Merchandise Planning•The SSM can be computed as follows:•Average BOM stock-to-sales ratio for the season = Number of months in the season/Desired inventory turnover rateLO 112Dollar Merchandise ControlDollar Merchandise Control•Open-to-buy (OTB) refers to the dollar amount that a buyer can currently spend on merchandise without exceeding the planned dollar stock. Computations for OTB are as follows:•Planned sales for month + Planned reductions for month + End-of-Month (EOM) planned retail stock – Beginning-of-Month (BOM) stock = Planned purchases at retail•Planned purchases at retail – Commitments at retail for current delivery = Open-to-Buy (OTB)LO 213Dollar Merchandise Control:Dollar Merchandise Control:•Buying merchandise that is either priced too high or too low for the store’s target market.•Buying the wrong type of merchandise (i.e., too many tops and no skirts) or buying merchandise that is too trendy.•Having too much or too little basic stock on hand.•Buying from too many vendors.•Failing to identify the season’s hot items early enough in the season.•Failing to let the vendor assist the buyer by adding new items and/or new colors to the mix. (All too often, the original order is merely repeated, resulting in a limited selection.)LO 2Common Buying Errors14Inventory PlanningInventory Planning•Optimal Merchandise Mix•Constraining Factors•Managing the Inventory•Conflicts in Unit Stock PlanningLO 315Optimal Merchandise MixOptimal Merchandise Mix•Merchandise Line is a group of products that are closely related because they are intended for the same end use (all televisions); are sold to
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