Chapter 14
Developing Merchandise Plans
Dr. Pointer’s Notes
Chapter Objectives
 To demonstrate the importance of a sound
merchandising philosophy
 To study various buying organization formats
and the processes they use
 To outline the considerations in devising
merchandise plans: forecasts,
innovativeness, assortment, brands, timing,
and allocation
 To discuss category management and
merchandising software
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Merchandising
Activities involved in acquiring
particular goods and/or
services and making them
available at the places, times,
and prices and in the quantity
that enable a retailer to reach
its goals.
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Merchandising Philosophy
 Sets the guiding principles for all the
merchandise decisions that a retailer makes
 Should reflect
* Target market desires
* Retailer’s institutional type
* Market-place positioning
* Defined value chain
* Supplier capabilities
* Costs
* Competitors
* Product trends
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Scope of Responsibility
Two different philosophies
Full array of merchandising functions
* Buying and selling
* Selection, pricing, display, customer
transactions or is the
Focus on buying function only and leave
selling to other specialists
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Micromerchandising
To capitalize on opportunities, retailers
adjusts shelf-space allocations to
respond to customer and other
differences among local markets. What
is on the shelves in Houston, Tx maybe
different from what is on the shelves in
other markets
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Cross-merchandising
Another way to capitalize on
opportunities is for Retailers to carry
complementary goods and services
to encourage shoppers to buy more.
This is the reason apparel stores
stock accessories. Similar to
scramble merchandising.
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Attributes and Functions of Buying
Organizations
Level of Formality
Degree of Centralization
Organization Breadth
Personnel Resources
Functions Performed
Staffing
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Formal
Informal
Centralized
Decentralized
General
Specialized
External/Internal
Resident buying office
Merchandising
Buying
Buyer
Sales Manager
Level of Formality
 Formal buying organizations, merchandising
buying is distinct retail task and a separate
department is set up to do this. Advantage is
clarify of responsibilities. Disadvantage could be
the cost for the dept.
 Informal buying organization, merchandise buying
is not a separate function but can be done by
different folks. Advantage is low cost and flexibility
but disadvantage is less defined tasks and lesser
emphasis
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Degree of Centralization
 Multiunit retailers have to options for controlling
buying function
 Centralized buying where all purchasing is done
from one office. Advantage include integrated
effort, strict controls, consistent image, closeness
to top mgmt, staff support and bigger volume
discounts, Disadvantage is inflexibility, time
delays, morale and excessive uniformity
 Decentralized buying where buying decisions are
made locally or regionally
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Degree of Centralization
 Multiunit retailers have to options for controlling
buying function
 Decentralized buying where buying decisions are
made locally or regionally. Advantages are more
adaptability to locale needs, quicker reordering
and improved morale
 Disadvantages are disjointed planning,,
inconsistent image and limited control, lower
volume discounts and less staff support
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Organizational Breadth
Generalized approach is where one buyer
buys for complete store which is possible
with small organizations
Specialist approach is needed for large
retailers where it is best to use buyers for
each department
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Personnel Resources
 Inside buying organization – is staffed by retailer’s
owned people
 Outside buying organization – personnel external
to the retailer are used to staff the organization
usually for a fee
 Resident buying office responsible for buying and
keeping abreast of trends in the market
 Cooperative buying offices – group of unrelated
retailers purchase together to get economies that
larger chains get.
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Functions Performed
Merchandising view Merchandise
personnel oversees all
* All buying and selling functions
• Assortments
• Advertising pricing
• Point-of-sale displays
• Employee utilization
• Personal selling approaches
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Functions Performed
 Buying view
* Buyers manage buying functions
• Buying
• Advertising
• Pricing
* In-store personnel manage other functions
• Assortments
• Point-of-sale displays
• Employee utilization
• Personal selling approaches
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Staffing
List of all the positions that need to be filled
Buyers - selects the merchandise that is to
be sold and for setting a strategy to market
the products
Sales Managers- supervises the on the
floor selling and operations activities for
specific retail depts
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Different Career Tracks in Retailing
Merchandising
Track
Divisional
Merchandise
Manager
Buyer
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Store Management
Track
Store Manager
Assistant Store
Manager
Associate Buyer
Sales Manager
Assistant Buyer
Assistant Sales
Manager
Figure 14.5 Considerations in
Devising Merchandise Plans
Forecasts
Innovativeness
Assortment
Merchandise
Plan
Brands
Allocation
Timing
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Forecasts
 Forecasts are projections of expected retail
sales for given periods. Serves as the
foundation of merchandise planning
* Components:
• Overall company projections
• Product category projections
• Item-by-item projections
• Store-by-store projections (if a chain)
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Types of Merchandise
 Staple merchandise- all regular products to carried
all the time
 Assortment merchandise-consist of merchandise
from many different depts.
 Fashion merchandise-products that may have
cyclical sales due to changing tastes and lifestyles
 Seasonal merchandise- products that sell well
over nonconsecutive time periods.
 Fad merchandise- high sales generated for short
period of time
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Staple Merchandise
Regular products carried by a retailer
* Grocery store staple examples
• Milk
• Bread
• Canned soup
Basic stock lists specify inventory level,
color, brand, style, category, size, package,
etc.
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Assortment Merchandise
 Apparel, furniture, auto, and other products for
which the retailer must carry a variety of products
in order to give customers a proper selection
 Decisions on Assortment
* Product lines, styles, designs, and colors are
projected
* Model stock plan-used to project the number of
different colors/variations of a certain design
product
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Fashion and Seasonal
Merchandise
Fashion Merchandise: Products that may
have cyclical sales due to changing tastes
and life-styles
Seasonal Merchandise: Products that sell
well over nonconsecutive time periods
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Table 14.1a Factors to Bear in Mind When
Planning Merchandise Innovativeness
FACTOR
RELEVANCE for PLANNING
Target market(s)
Evaluate whether the target market is
conservative or innovative
Goods/ service
growth potential
Consider each new offering on the basis of
rapidity of initial sales, maximum sales
potential per time period, and length of
sales life
Fashion trends
Understand vertical and horizontal fashion
trends, if appropriate
Retailer image
Carry goods/ services that reinforce the
firm’s image
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Table 14.1b Factors to Bear in Mind When
Planning Merchandise Innovativeness
FACTOR
RELEVANCE for PLANNING
Competition
Lead or follow competition in the selection
of new goods/services
Customer segments Segment customers by dividing
merchandise into established-product
displays and new-product displays
Responsiveness to
consumers
Carry new offerings when requested by the
target market
Amount of
investment
Consider all possible investment for each
new good/service: product costs, new
fixtures, and additional personnel
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Table 14.1c Factors to Bear in Mind When
Planning Merchandise Innovativeness
FACTOR
RELEVANCE for PLANNING
Profitability
Assess each new offering for potential
profits
Risk
Be aware of the possible tarnishing of the
retailer’s image, investment costs, and
opportunity costs
Constrained
decision making
Restrict franchisees and chain branches
from buying certain items
Declining goods/
services
Delete older goods/services if sales and/or
profits are too low
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Product life Cycle for product
 Product life Cycle shows the expected behavior of
a good or service over its life.
 Introduction- limited target market. One basic
version supplied
 Growth – as innovators purchase sales increases
as others begin to emulate them
 Maturity – largest portion of target market is using
product with a wide assortment of products.
 Declines stage comes about due to shrinking
market.
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Total Retail
Sales
Figure 14.7 The Traditional
Product Life Cycle
Maturity
Growth
Decline
Introduction
Time
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Structured Guidelines for
Pruning Products
 Select items for possible elimination on the
basis of declining sales, prices, and profits,
appearance of substitutes
 Gather and analyze detailed financial and other
data about these items
 Consider non-deletion strategies such as
cutting costs, revising promotion efforts,
adjusting prices, and cooperating with other
retailers
 After making a deletion decision, do not
overlook timing, parts and servicing, inventory,
and holdover demand
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Assortment
Assortment is the selection of merchandise
a retailer carries. It includes both breadth
of product categories and variety within
each category
Width of assortment – number of distinct
goods/service categories (lines)
Depth- number (variety) within each line
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Table 14.2a Factors to Consider
When Planning Merchandise Quality
FACTOR
RELEVANCE for PLANNING
Target market(s)
Match merchandise quality to the wishes of
the desired target market(s)
Competition
Sell similar quality or different quality
Retailer’s image
Relate merchandise quality directly to the
perception that customers have of retailer
Store location
Consider the impact of location on the
retailer’s image and the number of
competitors, which, in turn, relate to quality
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Table 14.2b Factors to Consider
When Planning Merchandise Quality
FACTOR
RELEVANCE for PLANNING
Profitability
Recognize that high quality goods generally
bring greater profit per unit than lesserquality goods; turnover may cause total
profits to be greater for the latter
Manufacturer
versus private
brands
Understand that, for many, manufacturer
brands connote higher quality than private
brands
Customer services Know that high-quality goods require
offered
personal selling, alterations, delivery, and so
on
Personnel
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Employ skilled, knowledgeable personnel for
high-quality merchandise
Table 14.2c Factors to Consider
When Planning Merchandise Quality
FACTOR
RELEVANCE for PLANNING
Perceived goods/
service benefits
Analyze consumers. Lesser quality goods
attract customers who desire functional
product benefits; High-quality goods attract
customers who desire extended product
benefits
Constrained
decision making
Face reality. Franchises or chain store
managers have limited or no control over
products; Independent retailers that buy from
a few large wholesalers are limited to the
range of quality offered by those wholesalers
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Brands- need to select the proper mix of
Brands
Manufacturer
(national)
Private
(dealer or store)
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Generic
Brands
Manufacturer (national) products are
produced and controlled by manufacturer
Private or dealer brands (store brands) –
owned by wholesalers or retailers and cost
less and are controlled by them
Generic brands – no frills goods stocked by
retailers (receive no support, poor shelf
locations and are very inexpensive)
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Private Label Brands
 Are 20 % of USA and
Canadian sales
 Priced 20-30% lower
than manufacturers
products
 80% of consumers
buy them
 Many retailers sales
are heavily done in
private label products
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 Research shows that
consumers feel that
private label quality is
just as good as
branded
 Premium private
brands are now
emerging
 Battle of the brands
are in progress
Table 14.3 The Berman/ Evans Private Brand Test
Match the Retailer with the Brand Name
Retailer
Bloomingdale’s
Costco
Kmart
Brand
Arizona Jeans
Sam’s Choice
Michael Graves
J.C. Penney
Sears
Wal-Mart
Martha Stewart
Joseph & Lyman
Kenmore
Target
Macy’s
Kirkland
Charter Club
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Timing and Allocation
Timing is deciding on when certain
merchandise is purchased, displayed, and
sold
Allocation deals with how the stock is
allocated either between stores or once in
the store how much is displayed on
shelves or in storage area
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Category Management
Category management refers to how to
manage products in categories in order to
improve productivity
Products are arranged into strategic
business units to generate the highest
profits
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Merchandising Software
General Merchandise Planning
Software
Forecasting Software
Innovativeness Software
Assortment Software
Allocation Software
Category Management Software
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Questions
 Make sure that you read this chapter
carefully and make additional notes.
14-41