5th Edition

PPT 12-1
 Chapter 12

Planning Merchandise
Assortments

McGraw-Hill/Irwin
PPT 12-2 Retailing Management, 5/e
Levy/Weitz: Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
 Merchandise Management

Retail Buying
Communication Systems
Mix
Planning
Merchandise
Assortments

Buying Pricing
Merchandise

PPT 12-3
 Merchandise Management Issues

PPT 12-4
 The Category

A category is an assortment of items that the

customer sees as reasonable substitutes for
each other: girls’ apparel, laundry detergents,
soup, DVD players.
In merchandise management, we do everything
at the category level.
The category can mean different things to
different retailers.

PPT 12-5
 Category Management

Category management is the process of

managing a retail business with the objective of
maximizing the sales and profits of a category.

• Objective is to maximize the sales and profits of the

entire category, not just a particular brand.

Breakfast cereal category vs. Kellogg Corn Flake

Men’s knitted shirts vs. Polo shirts

• One person managing the entire category and

responsible for its success or failure.
PPT 12-6
 Category Captain

Selected vendor responsible for managing

assortment of merchandise in a category
• Vendors frequently have more information and
analytical skills about the category in which
they compete than retailers
• Problems
– Vendor category captain may have different goals
than retailer

PPT 12-7
 Standard Merchandise Classification
Scheme and Organizational Chart

PPT 12-8
 The Buying Organization

Merchandise Group…………Men’s wear

Department………….……….Young Men’s wear
Classification………….……..Pants
Category……………………..Jeans
Stock Keeping Unit (SKU)….Levi, 501, size 36
waist, 32 inseam

PPT 12-9
 GMROI
Productivity Measures

Inventory Gross
Margin

Input Output

PPT 12-10
 GMROI
Inventory Productivity Measures

Combine Gross Margin % and Inventory Turnover (sort of)

Gross Margin% Inventory Turn
GMROI = Gross Margin x Net Sales
Net Sales Avg Inventory @ cost
GMROI = Gross Margin
Avg Inventory (@ cost)
Output (Margin Generated by Sales)
Input (Inventory Investment in Inventory)

PPT 12-11
 ROI and GMROI
Asset Productivity Measures
Strategic Corporate Level
Return on Assets = Net Profit
Total Assets
Merchandise Management Level
GMROI = Gross Margin
Avg Inventory @ cost

PPT 12-12
 Illustration of GMROI

PPT 12-13
 Gross Margin %, Inventory Turnover,& GMROI for
Selected Department in Discount Stores

PPT 12-14
 Calculating Inventory Turnover

Inventory turnover = Net Sales

Average inventory at retail

Inventory turnover = Cost of goods sold

Average inventory at cost

Average inventory = Month1 + Month2 + Month 3 +…

Number of months

PPT 12-15
 Inventory Turnover
Month Retail Value of Inventory

EOM January $22,000

EOM February 33,000
EOM March 38,000
Total Inventory $93,000

Average inventory = $93,000 ÷ 3 = $31,000

PPT 12-16
 Inventory Turnover and
Sales-to-Stock Ratio

Inventory turnover = Net Sales

Average
inventory at retail

Inventory turnover = Cost of goods sold

Average inventory at cost

Stock-to-Sales Ratio = Net Sales

Average cost of
inventory

PPT 12-17
 Advantages of Rapid Turnover

• Increased sales volume

• Less risk of obsolescence and markdowns
• Improved salesperson morale
• Money for market opportunities
• Decreased operating expenses
• Increased asset turnover

PPT 12-18
 Disadvantages of Rapid
Rate of Turnover

• Lowered sales volume

• Increased cost of goods sold
• Increased buying and ordering time

PPT 12-19
 Developing a Sales Forecast

• Understanding the nature of the product life

cycle
• Collecting data on sales of product and
comparable products
• Using statistical techniques to project sales
• Work with vendors to coordinate manufacturing
and merchandise delivery with forecasted
demand (CPFR)

PPT 12-20
 The Category Product Life Cycle
Decline

Total Retail Sales

Growth
Maturity

Introduction

Time
Strategy variable Introduction Growth Maturity Decline
Target market High-income Middle-income Mass market Low-income
Innovators adapters and laggards
Variety One basic Some variety Greater variety Less variety
offering
Distribution Limited or More retailers More retailers Fewer
Intensity extensive retailers
Price Penetrating Wide range Lower prices Lower prices
or skimming
Promotion Informative Persuasive Competitive Limited
PPT 12-21
 Variations of the
Category Life Cycle

Fad Fashion Staple Seasonal

Sales over many seasons No Yes Yes Yes

Sales of a specific style No No Yes Yes

over many seasons

Sales vary dramatically No Yes No Yes

from one season to the
next
Illustration
SALES

SALES

SALES
SALES

(Sales against Time)

TIME TIME TIME TIME

PPT 12-22
 Data Sources for
Developing Sales Forecasts

• Previous Sales History

• Published Sources - Buying Power Index
(BPI), Monthly Retail Trade Report, InfoScan,
Claritas, general retail trade publications like
Stores, WWD and Chain Store Age
• Customer Information
• Vendors and Resident Buying Offices

PPT 12-23
 Sales for Levi Jeans at
Trendsetters Department Store

450
SALES ($000) DOLLARS

400
350 Spring &
summer
300 Winter sales
250 sales
Fall
200 sales
150
100
50
0

YEAR

PPT 12-24
 Factors Affecting Sales Projections

Controllable Uncontrollable

• Promotions • Seasonality

• Store Locations • Weather

• Merchandise Placement • Competitive Activity

• Cannabalization • Product Availability

• Economic Conditions

PPT 12-25
 Collaboration, Planning, Forecasting, and
Replenishment Systems (CPFR)

Systems used by retailers and vendors to work

together to insure that the right merchandise is
at the right place at the right time.
– Benefits both retailers and vendors
– Increases fill rate, reduces stockouts, increases
inventory turns

www.cpfr.org

PPT 12-26
 Assortment Planning

Variety is the number of different

merchandising categories within a store or
department
Assortment is the number of SKUs within a
category.
Product availability defines the percentage of
demand for a particular SKU that is satisfied.

PPT 12-27
 Assortment Plan for Girls’ Jeans
Styles T R A D I T I O N A L
Price levels $20 $20 $35 $35 $45 $45

Fabric Reg denim Stone- Reg denim Stone- Reg denim Stone-
composition washed washed washed
Colors Light blue Light blue Light blue Light blue Light blue Light blue

B O O T C U T
Price levels $25 $25 $40 $40
Fabric Reg denim Stone- Reg denim Stone-
composition washed washed
Colors Light blue Light blue Light blue Light blue
Indigo Indigo Indigo Indigo
Black Black Black Black
PPT 12-28
 Size Distribution for Traditional $20
Denim Jeans in Light Blue for a Large Store
SIZE

Length 1 2 4 5 6 8 10 12 14

Short 2 4 7 6 8 5 7 4 2 %
9 17 30 26 34 21 30 17 9 units

Medium 2 4 7 5 8 4 6 3 2 %
9 17 30 21 34 17 26 12 9 units

Long 0 2 2 2 3 2 2 1 0 %

0 9 9 9 12 9 9 4 0 units
Total 100%
429 units
PPT 12-29
 Is This Store Heavy on Variety?
On Assortment?

PPT 12-30
 Determining Variety
and Assortment

• Profitability of Merchandise Mix

• Corporate Philosophy Toward
Assortment
• Physical Characteristics of Store
• Complementary Merchandise

PPT 12-31
 Relationship between Inventory
Investment and Product Availability

600
Inventory investment Dollars

500

400

300

200

100

0
80 85 90 95 100
Product Availability (Percent)

PPT 12-32
 Cycle and Backup Stock

150 -
Order 96
Cycle
Stock
Units Available

100 -

Buffer
Stock
50 -

0-
1 2 3 4
Weeks

PPT 12-33