Week 3

1. Week 3 FM10211 – Retail Operations Finish Chapter 4: Merchandise Planning, Buying, Control, and Profitability Chapter 5: Sourcing Midterm Review

2. Planning • Provides essential information • Leads to meeting Mazur’s 5 “rights” • Right merchandise • Right time • Right place • Right quantities • Right price FM10211 - Retail Operations

3. Forecasting • Predicting what customers want • Quantities • Uses as much input as possible • External environmental factors • Internal environmental factors FM10211 - Retail Operations

4. External environmental factors • Economy • Society and culture • Technology • Political and legal issues • Analysis available from a variety of sources • Trend books, etc. FM10211 - Retail Operations

5. Internal environmental factors • Store records • Sales • Profits • Store culture • Vendors FM10211 - Retail Operations

6. Merchandise Budget • Dollar planning • How much money will be spent • Unit planning • How many of each type of item will be purchased and kept in inventory • Includes the mix • Considers assortment and qualitative aspects • Both usually include dollar amounts and % of net sales FM10211 - Retail Operations

7. Inventory Flow • Start: beginning of month (BOM) • Stock comes in • Stock is sold • Shrinkage • Returns • End: end of month (EOM) FM10211 - Retail Operations

8. Step 1: Plan Retail Sales • Estimate sales • Usually use sales history, if available • Increase or decrease, depending on other factors • If not available, more research necessary • Plan sell-through • Percentage of available merchandise that is sold FM10211 - Retail Operations

9. Step 2: Plan Inventory/Stock • Based on Sales Plan • Must have proper stock to meet sales goals • Calculate Beginning of the Month (BOM) and End of the Month (EOM) inventory levels FM10211 - Retail Operations

10. Three Stock Planning Methods • Basic stock • Minimum level of stock at all times • Stock-to-sales ratio (SSR) • Multiply planned monthly sales by ratio to get BOM • Ratio comes from Trade Orgs or sales history • Week’s supply • Stock level set to sales for determined number of weeks • Directly related to turnover rate FM10211 - Retail Operations

11. Inventory Turnover • Also called stock turn • The number of times stock is sold and replaced within a period of time • High turns means shorter time in inventory • Short time in inventory means less inventory costs • (This is a slightly simplified version) FM10211 - Retail Operations

12. Inventory Turnover • Ex. 1: Buy 12 apples, sell one per month • Problems • Had to invest in 12 apples at once • Money tied up for 12 months • Apples can go bad, other inventory issues • Ex. 2: Buy 1 apple, sell it, buy another, etc. • Much better! • Invest in one apple at a time • Money tied up for 1 month • Inventory stays fresh FM10211 - Retail Operations

13. COGS of all sales in period Full-stock inventory COGS Turnover = Inventory Turnover • If apples cost $1 each, then: • Ex 1: $12/$12 = 1 turns • Ex 2: $12/$1 = 12 turns FM10211 - Retail Operations

14. Assortment Planning II • Plans the mixture of merchandise • Basic stock planning • For basics • Ongoing levels • Model stock planning • Based on various factors • Fabric • Price • Style • Etc. FM10211 - Retail Operations

15. Assortment Terms • Breadth of merchandise • Number of different product lines, styles, brands carried • Broad = lots of styles • Narrow = few styles • Depth of merchandise • Number of units within a line, style, or brand • Deep = many colors and sizes • Shallow = few colors and sizes FM10211 - Retail Operations

16. Step 3: Plan Reductions • Rare to sell all inventory at original price • Helps clean out inventory to be replaced • Various types • Markdowns • Promotional or Permanent • Adjust price down • Markup cancellation • Adjust amount of markup • Discounts • For employees and/or special customers FM10211 - Retail Operations

17. Step 4: Plan Markup • In dollars, retail price minus cost • Percentage of cost added to cost to get price • Keystone markup • Markup = cost • Short markup • Less than keystone • Volume and competition are primary factors in determining markup • E.g. Wal-Mart FM10211 - Retail Operations

18. Pricing • Much more than just considering expenses • Consider • Type of merchandise • Competition • Target customer • COGS and expenses • Strategy • Price range • Price points • Promotionally priced vs. regularly priced • Odd priced vs. even priced • Loss Leader? • Pricing is regulated by Federal Trade Commission (FTC)! FM10211 - Retail Operations

19. Step 5: Plan Purchases • Now, purchases can be planned • Based on • BOM • EOM • Planned Sales • Reductions • Open to Buy (OTB) • Planned purchases minus on-order FM10211 - Retail Operations

20. Everything out of Month Everything into Month Calculations • Sales • +Reductions • +EOM • -BOM • = Planned Purchases • IE: Sales + Reductions + EOM = BOM + Purchases FM10211 - Retail Operations

21. Six-Month Merchandise Plan *Cost is after taking out markup (this example uses keystone markup) FM10211 - Retail Operations

22. Chapter 5: Sourcing Determining how and where goods bought

23. Supply Chain • Resources • Manufacturers • A/k/a vendors, suppliers, resources • Middlemen • Wholesalers • A/k/a distributors • Buy in large quantities, break down, distribute • Finishers • Drop-shippers • Brokers FM10211 - Retail Operations

24. Contract Manufacturing • Independent producers • Perform aspects of manufacturing • Sewing • Cutting • Finishing • Can be exclusive • Only work for a particular company • Pros and cons FM10211 - Retail Operations

25. Lead Time • Time between order placed and arriving • The faster the better • Long lead times may be hard to avoid • Technology can help • Quick Response • Just-in-time FM10211 - Retail Operations

26. Domestic vs. International • Domestic Sources • Faster • More expensive • Easier to work with? • International Sources • Often less expensive • Longer lead time • Red tape • Ethical issues FM10211 - Retail Operations

27. Manufacturing Cost Comparison FM10211 - Retail Operations

28. Centralized vs. Decentralized • Centralized • One group/individual buys for entire company • Decentralized • Buying happens locally • Less common for larger retailers FM10211 - Retail Operations

29. Buying Offices • Resident Buying Office (RBO) • Located in particular fashion market • Local representative for retailer • Store-owned or independent • Independent works for multiple retailers • Independent can save money FM10211 - Retail Operations

30. Markets • Where retailers and manufacturers meet • Merchandise Marts • Located in major cities • Trade Shows • International markets • Largest cities FM10211 - Retail Operations