Retail Management

PURCHASE NEGOTIATION AND SUPPLY CHANNEL RELATIONSHIP

Presented by: GROUP 2

Learning Objectives
What is Merchandise Buying Process of Merchandise Buying Factors Affecting Merchandise Buying

KEY TERMS
Merchandise Management is the analysis,

planning, acquisition, handling, and control of the merchandise investments of a retail operation
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 the same customer group (kids clothing) or fall within a given price range (budget mens wear)

Contd.
Variety refers to the number of different
merchandise lines that the retail stocks in the store.

Breadth (or assortment) is the number of

merchandise brands that are found in a merchandise line.

Depth is the average number of stock-keeping

units within each brand of the merchandise line.
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Merchandise Buying Process

The process through which a retailer decides

what merchandise to buy and in what quantity

Steps in Merchandise management
Creating an assortment plan for a category Forecasting Sales Outlining the flow of merchandising Buying a merchandise

QUESTIONS EXPLAINING THE PROCESS

What branding options are available to the

retailers?
How do retailers buy national brands? How do retailers prepare for and conduct

negotiations with their vendors?

Contd.
What legal and ethical issues are involved in

buying merchandise?
What issues do retailers consider when

buying and sourcing private-label merchandise internationally?

Why are retailers building strategic

relationships with their vendors?

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Branding options
Whether to buy a
National-label

brand

Private-label

brand

Licensed

brand

Contd.

National-label

brand: Also known as manufacturer brands, are products designed, produced and marketed by a vendor and sold to many different retailers

Umbrella branding (e.g. Kellogs, Amul) Not associating name with a product (e.g. P&G)

Contd.
Private-label brands: Also called store-

brands, are products developed and managed by retailers Retailers typically develop the specifications for their private labels and then contract with manufacturers, often located in countries with developing economies, to produce the product Also national-brand manufacturers can develop a private-label brand for a specific retailers e.g. Levis Signature jeans was developed specifically for sale at Wall-Mart in US 10 E.g. STOP, FORCA Jeans etc.

Contd.
Licensed Brands: These are the brands for

which the owner of a well known brand enters into a contract with a licensee to develop , produce and sell the branded merchandise Licensees may be :
A

retailer A third party

E.g. Any retailer selling a sweatshirt with a

universitys logo printed on it has to obtain the license from that university by paying some licensing fee
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Manufacturer Vs Private brands

Impact on store Store Loyalty Store Image Traffic Flow Selling & Promotional expense Restrictions Differential Advantage Margins Manufacturer brands ? + + + ? Private-label brands + + + + + ?

-: Disadvantage ; +: Advantage; ?: depends on circumstances

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MEETING WITH VENDORS

To reach to a buying decision a retailer must

meet a vendor. The places where a retailer can meet a vendor include
Wholesale market centers: A Concentration of

vendors within a specific geographic location that may be under one roof or even on the Internet Trade shows: These are the shows where vendors display there product range and offerings to the buyers(retailers) Vendors office
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Wholesale market Vs Trade shows

The meetings during market weeks offer an

opportunity for in-depth discussion where as trade shows have the advantage for buyers to see the merchandise offered by different vendors

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NEGOTIATING WITH VENDORS

Negotiating is the process of finding mutually

satisfying solutions when the retail buyer and vendor have conflicting objectives. The mantra for negotiation is

Knowledge Is Power The more a buyer knows about his situation and that of the vendor, more powerfully can he negotiate In this process the buyer may provide the vendor with some new ideas or current trends e.g. fashion trend in some other region etc.
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MAJOR ISSUES IN NEGOTIATION

Price and Gross Margin Additional Markup Opportunities Terms of Purchase Delivery and Exclusivity Advertising Allowances Transportations

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LEGAL & ETHICAL ISSUES

Terms & conditions of purchase Protect individual Resale price maintenance retailers from chain Commercial Bribery Chargeback Slotting allowances Exclusives Counterfeit Merchandise Gray Markets Tying Contract
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retailers

Vendors can offer different terms to retailers for the same merchandise, if the costs of manufacturing, selling and delivery are different

LEGAL & ETHICAL ISSUES

Terms & conditions of purchase It is a requirement Resale price maintenance imposed by any vendor Commercial Bribery Chargeback Slotting allowances Exclusives Counterfeit Merchandise Gray Markets Tying Contract
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that retailer can not sell a particular item for less than a specific price Example of BOSE Speakers

LEGAL & ETHICAL ISSUES

Terms & conditions of purchase Resale price maintenance Commercial Bribery Chargeback Slotting allowances Exclusives Counterfeit Merchandise Gray Markets Tying Contract
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No vendor or his agents are allowed to offer something of value to the buyer to influence the purchase decision

LEGAL & ETHICAL ISSUES

Terms & conditions of purchase Resale price maintenance Commercial Bribery Chargeback Slotting allowances Exclusives Counterfeit Merchandise Gray Markets Tying Contract
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Retailer deducts an amount of money from what he owes to a vendor

LEGAL & ETHICAL ISSUES

Terms & conditions of purchase Resale price maintenance Commercial Bribery Chargeback Slotting allowances Exclusives Counterfeit Merchandise Gray Markets Tying Contract
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It is an amount that a vendor pays to a retailer for securing a space in the retail outlet to display its products

LEGAL & ETHICAL ISSUES

Terms & conditions of purchase Resale price maintenance Commercial Bribery Chargeback Slotting allowances Exclusives Counterfeit Merchandise Gray Markets Tying Contract
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Retailers ask the vendors for an exclusive arrangement so that no other retailer can sell the item or brand

LEGAL & ETHICAL ISSUES

Terms & conditions of purchase Resale price maintenance Commercial Bribery Chargeback Slotting allowances Exclusives Counterfeit Merchandise Gray Markets Tying Contract
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A retailer should not sell the goods of a particular brand or with a trademark without obtaining the permission of the brand owner

LEGAL & ETHICAL ISSUES

Terms & conditions of purchase Resale price maintenance Commercial Bribery Chargeback Slotting allowances Exclusives Counterfeit Merchandise Gray Markets Tying Contract
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A retailer should not get involved into gray marketing, that is selling a country specific registered trademark product made by a foreign manufacturer at lesser prices

LEGAL & ETHICAL ISSUES

Terms & conditions of purchase Resale price maintenance Commercial Bribery Chargeback Slotting allowances Exclusives Counterfeit Merchandise Gray Markets Tying Contract
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In such a contract vendors restrict the retailer from buying the needed merchandise until he purchases the merchandise that vendor asks him to buy even if it is not needed by the retailer

BUYING A PRIVATE-LABEL BRAND

Buying and Selling private-label brands is a

strategic decision as it involves a significant investment Retailers offering PL have specialized departments which have people for:
Identifying

trends Designing & specifying products Selecting manufacturers Maintaining staff to monitor the conditions under which products are developed Testing the quality of manufactured products
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Reverse Auctions
One buyer
(vendors) (retailer)

and many potential sellers

Retailer provide the specification of what they

want to a group of potential vendors, who then bid for fulfilling the requirement
Buyer may not buy from the lowest bidder but

from the one who assures good quality and on-time delivery with a reasonable price
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Global Sourcing
Diminishing barriers(tariffs, duties etc.) to

International trade have opened the door to outsourcing of manufacturing of products to countries with developing economies Low labor cost acts as a major factor However the factors that give rise to the cost include
Foreign Tariffs Longer

currency fluctuations

lead time Increased transportation cost

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STRATEGIC RELATIONSHIPS
It occurs when a retailer and a vendor are

committed to maintaining the relationship over the long term and investing in opportunities that are mutually beneficial to the parties It creates a Win-Win situation as:
Size

of profit increases Sales volume increases Both parties focus on uncovering and exploiting joint oppurtunities

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Fundamentals of successful Strategic relationship

Mutual Trust Open Communication Common Goals Credible Commitments

A belief that the partner is Honest Benevolent

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Fundamentals of successful Strategic relationship

Mutual Trust Open Communication Common Goals Credible Commitments

To share information To develop salesforecast together To sort out the problems in relationship

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Fundamentals of successful Strategic relationship

Mutual Trust Open Communication Common Goals Credible Commitments

To have common goals like Enhancing profit Increasing the sales volume Business expansion

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Fundamentals of successful Strategic relationship

Mutual Trust Open Communication Common Goals Credible Commitments

These are tangible investments in relationship It may include spending money to improve suppliers product or services provided to the customer

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FACTORS AFFECTING MERCHANDISE BUYING

In selecting merchandising sources the

following criteria should be considered:

Selling history Consumers perception of the manufacturers

reputation Reliability of delivery Trade terms Quality of Merchandise

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Contd.
After sale service Transportation time Inventory carrying cost Fashionability

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Common Buying Errors

Buying merchandise that is either priced too high or too low
for the stores target market. Buying the wrong type of merchandise (i.e., too many shirts and no trousers) 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 seasons 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.)

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POULIN RIYAS JOYRAJ AND ARAVIND

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