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Week 3. FM10211 – Retail Operations. Finish Chapter 4: Merchandise Planning, Buying, Control, and Profitability Chapter 5: Sourcing Midterm Review. Planning. Provides essential information Leads to meeting Mazur’s 5 “rights” Right merchandise Right time Right place Right quantities

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week 3

Week 3

FM10211 – Retail Operations

Finish Chapter 4: Merchandise Planning, Buying, Control, and Profitability

Chapter 5: Sourcing

Midterm Review

planning
Planning
  • Provides essential information
  • Leads to meeting Mazur’s 5 “rights”
    • Right merchandise
    • Right time
    • Right place
    • Right quantities
    • Right price

FM10211 - Retail Operations

forecasting
Forecasting
  • Predicting what customers want
  • Quantities
  • Uses as much input as possible
    • External environmental factors
    • Internal environmental factors

FM10211 - Retail Operations

external environmental factors
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

internal environmental factors
Internal environmental factors
  • Store records
    • Sales
    • Profits
  • Store culture
  • Vendors

FM10211 - Retail Operations

merchandise budget
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

inventory flow
Inventory Flow
  • Start: beginning of month (BOM)
  • Stock comes in
  • Stock is sold
  • Shrinkage
  • Returns
  • End: end of month (EOM)

FM10211 - Retail Operations

step 1 plan retail sales
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

step 2 plan inventory stock
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

three stock planning methods
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

inventory turnover
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

inventory turnover1
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

inventory turnover2
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

assortment planning ii
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

assortment terms
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

step 3 plan reductions
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

step 4 plan markup
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

pricing
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

step 5 plan purchases
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

calculations
Everything out of Month

Everything into Month

Calculations
  • Sales
  • +Reductions
  • +EOM
  • -BOM
  • = Planned Purchases
  • IE:

Sales + Reductions + EOM = BOM + Purchases

FM10211 - Retail Operations

six month merchandise plan
Six-Month Merchandise Plan

*Cost is after taking out markup

(this example uses keystone markup)

FM10211 - Retail Operations

chapter 5 sourcing

Chapter 5: Sourcing

Determining how and where goods bought

supply chain
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

contract manufacturing
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

lead time
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

domestic vs international
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

manufacturing cost comparison
Manufacturing Cost Comparison

FM10211 - Retail Operations

centralized vs decentralized
Centralized vs. Decentralized
  • Centralized
    • One group/individual buys for entire company
  • Decentralized
    • Buying happens locally
    • Less common for larger retailers

FM10211 - Retail Operations

buying offices
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

markets
Markets
  • Where retailers and manufacturers meet
  • Merchandise Marts
    • Located in major cities
  • Trade Shows
  • International markets
    • Largest cities

FM10211 - Retail Operations

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