Merchandising
Participant Guide
1
Index
About the Guide
3
Module 1: Course Orientation
4
Module 2: Introduction to Merchandising
5
Lesson 1: Introduction
5
Lesson 2: The Merchandise Plan
6
Module 3: Merchandise Flow
Lesson 1: Receiving and Processing Merchandise
Module 4: The Merchandise Floor
8
8
10
Lesson 1: Store Layout
10
Lesson 2: Merchandise Flow and Adjacency
11
Lesson 3: Visual Merchandising Concepts
12
Lesson 4: Merchandising Processes and Techniques
13
Module 5: Inventory Management
18
Lesson 1: Inventory management
18
Lesson 2: Pricing
22
2
About the Guide
Notes:
This guide provides information to help you navigate through the
Merchandising Course. It also provides you with valuable information on the
course content, objectives and activities in each module.
The guide consists of two columns. The right-hand column is for notes you
may want to take throughout the course. The left-hand column will lift out
the most important pieces of information included in the course along with
questions to complete. These questions should be completed by investigating
your store’s overall strategies on items included in this course. You may need
to ask questions of others in your store to collect these answers and your
Coach will follow-up with you throughout your training.
Take Notes
Activity for the learner
About the Course
Introduction to Merchandising is the third course in the NRFF Fundamentals
of Retail Management Curriculum. This course will provide learners with an
overview of merchandising concepts and principles, one of the key areas of
manager accountability, to look at how merchandise is received, presented,
and maintained. As learners discover the importance of having the right
products, at the right time, at the right price, and in the right place, they
will also gain a further understanding of what a career in retail involves.
3
Module 1: Course Orientation
Notes:
Objective: Learn how to navigate this online learning course.
This orientation outlines the structure of the Merchandising course and highlights
some of the features of this online learning environment.
Once you have completed the course orientation, take a few minutes to make
yourself familiar with the following:
Course Info – General information, including technical requirements.
Course Outline – The course outline provides an overview of the topics
you will cover in the course. This course has 5 modules and an
assessment. Each module is broken into lessons. If you are unable to
complete this course in one session, use the outline to plan your learning
sessions.
Glossary - Throughout this course, you will be introduced to several new
terms. The Glossary defines the new terms, and you can access it
throughout the course.
Resources –Look at all of the resources in the course. These may
include printable job aids, Web links, or other helpful documents.
The Course Outline, Glossary and Resources are accessible from each page in the
course.
4
Module 2: Introduction to Merchandising
Lesson 1: Introduction
Notes
Objectives:
Understand the general concepts of merchandising.
Understand the factors that impact a merchandise plan.
Customers want products that satisfy their needs and wants. They expect
selection, quality, and value. To meet customer expectations, retailers devote
a great deal of energy to merchandising product presentations. Engaging
merchandise presentations are a retailer's major method of attracting
customers to stop, look at, and purchase new merchandise.
Merchandising means having the right products at the right time, at the right
price, in the right place. It's the essential language retailers use to
communicate with customers about trends, fashion, new products, and pricing.
Exceptional merchandising can make a difference in why a customer shops at
one store instead of another, and well-displayed and presented merchandise
gives the retailer a competitive advantage.
In this course, you'll learn how merchandising works, the factors that influence
it, and how you can use it to maximize sales.
In the stores where you shop, what have you noticed about
how merchandise is presented?
What aspects of merchandising help you make a purchase?
5
Module 2: Introduction to Merchandising
Lesson 2: The Merchandise Plan
Notes
Objectives:
Understand the organization of merchandise into families of business.
Understand merchandise planning, purchasing, and analysis.
Understand how a sales plan and merchandise plan are developed.
Identify the factors that impact a merchandise plan.
Learn how to use a merchandise plan.
If merchandising is a key area of responsibility for a Retail Manager, how does
the right merchandise get to your store at the right time? Who determines
what merchandise your store will receive? As a Retail Manager, how can you
use merchandising to drive sales?
Department stores organize merchandise into several categories. Each
category is called a Family of Business (FOB). For each FOB, different
individuals are responsible for purchasing merchandise, planning and
allocation, and analyzing the business to achieve sales and profit goals.
Each FOB is a merchandise category that begins with a broad scope of
business, such as Center Core, which is comprised of Cosmetics, Accessories,
and Shoes; Men's and Kids; Ready to Wear which is Ladies' Apparel; and Home.
These major categories are divided into subcategories that define smaller
merchandise groups.
For example, the Home FOB may be organized into two large categories called
Hard Home and Soft Home, which have smaller groups of departments. Hard
Home could include Furniture, Floor Coverings, and Lamps. Soft Home could
include Textiles, Decorative, and Housewares. Retailers organize their
departments differently.
The Merchandising team, often called Merchants, consists of Merchandise
Managers, Buyers, Assistant Buyers, and Planners, and is typically located at
the retailer's corporate headquarters. Each season, the merchandising team
selects products they believe customers want to buy, then builds a plan to
purchase the appropriate products. The team's plan is based on careful
analysis of past and current sales, economic conditions, competition, and
trends.
In the stores where you shop, what have you noticed
about how merchandise is grouped? Consider apparel,
soft home items, home improvement products,
electronics, toys, and grocery.
6
Module 2: Introduction to Merchandising
Lesson 2: The Merchandise Plan continued
Notes
The Merchandising team develops a sales plan based on their prediction of
which products will sell. For each classification or department, the team
creates a specific financial plan that lists all the merchandise to be purchased
that season.
First, they look at the previous year’s sales and estimate how much business is
expected to grow. Then they plan the correct amount of merchandise needed
to meet those sales and inventory projections. The final merchandise
assortment plan may include information on vendors, quantities, sizes, and
colors for each product. Merchants use the plan to prepare a budget and
negotiate with the vendors to purchase the assortment of merchandise.
A good merchandise assortment plan accurately predicts the types and
quantities of merchandise that will sell by store, and results in the stores
meeting or exceeding sales and profit plans.
The merchandise plan provides additional detail about the sales plan. The plan
details how much merchandise (in dollars) you expect to receive and how much
you need to sell to meet the planned sales and profit goals. As a Retail
Manager, you need to be aware of these numbers and understand that they
were well planned and are vital to the store’s financial success.
Retail Managers are reviewed on their sales and profit performance plan. It’s
their responsibility to ensure the merchandise plan is executed to ensure
success.
The merchandise plan lets you know how much business you need to generate.
By monitoring daily sales and comparing them to the plan, you can keep track
of how well your department is performing. Depending on the retailer, you may
also be able to make recommendations about whether you need more or less of
a product.
You may receive merchandise plans that provide more detailed information
about the merchandise you'll receive and the plans for how it will leave your
store. These plans may tell you by month, week, and even day when to expect
sales spikes, when you'll have major promotional events, the expected profit
margin of the merchandise, and what other reductions such as theft, lost
merchandise, and human error, may impact your stock.
You're responsible for managing these plans and preparing the sales floor and
staff to meet sales goals.
The rest of this course examines how the merchandise purchased by the Buyers
gets to your sales floor; merchandise presentation techniques to help you drive
sales; and how you manage inventory.
What do you think about the merchandise selections the retailers
offer in your area?
7
Module 3: Merchandise Flow
Lesson 1: Receiving and Processing Merchandise
Notes
Objectives:
Understand the flow of merchandise, from the receiving dock to the selling floor.
Describe how merchandise is received.
Describe how merchandise is processed.
Do you know what happens to merchandise behind the scenes before it gets to
your sales floor?
Merchandise arrives in trucks from the Distribution Center, and is delivered to the
store's receiving dock, where it's unloaded and processed. Much planning and
organization occur to make this process as smooth as possible.
As a Retail Manager, you may not be directly responsible for coordinating receiving
and processing merchandise, but it's important that you understand how it works.
Without an efficient process, there's a good chance of merchandise damage or
loss, which negatively impacts sales performance.
Once the truck arrives in the receiving dock, receiving Associates unload
merchandise onto the dock floor. Associates follow the store's receiving guidelines,
which are created for maximum efficiency and organization.
Staffing Schedule
Retailers have a standard for how many cartons a person can unload per hour.
Based on this standard, the staffing schedule is adjusted so there's an adequate
number of Associates to unload a truck efficiently.
The staffing schedule varies throughout the year. For example, prior to a major
sales event or before the holiday season, trucks may arrive nearly every day, so
more Associates are scheduled to unload them. Trucks sometimes arrive just once
a week, so fewer Associates are needed.
Dock Organization
Before unloading the truck, everyone should understand:
- What's coming off the truck
- Where the cartons should be stacked
Stations are organized into separate areas by department to reduce the
Associates' walking distance to unload the truck. Cartons on the truck should
already be organized by department. When unloading the truck, Associates
place cartons for each department in the designated areas.
Checking Cartons
Associates are required to check each carton to ensure it has the correct
store number and to identify damaged cartons.
Cartons with incorrect store numbers or damaged cartons are labeled and
placed back on the truck to go back to the Distribution Center. It's
important to catch shipping errors—they result in an overage of
merchandise for the receiving store, and a shortage for the store that
should've received the merchandise.
8
Module 3: Merchandise Flow
Lesson 1: Receiving and Processing Merchandise continued
Notes
After Associates organize the unloaded cartons by department, the
contents are ready to be processed. Processing merchandise includes
everything that needs to be done to the received merchandise before it's
ready to be placed on the selling floor. Every store and department has its
own guidelines about what needs to be done.
Unpacking Merchandise
All merchandise is removed from the cartons. All packing material (e.g.,
cardboard boxes, paper, and plastic, etc.) is disposed of according to the
store's guidelines.
Hanging Items
Many items, such as Women's jackets and dresses, need to be placed on
hangers. Some items are shipped on hangers, but may need to be re-hung.
Each department has its own requirements on how to hang merchandise.
Folding Merchandise
Many items, such as Men's sweaters and jeans, need to be folded according to
the department's presentation and fixture standards. Items that arrive folded
shouldn't be hung unless directed by the Store Manager.
Placing Price and Sensor Tags
Items from vendors who set their own prices are usually shipped with price
tags already in place. However, if merchandise is received without being
priced, your store has to place a price tag on each item.
Many items in each department also require sensor tags. Guidelines for sensor
tags vary by retailer, store, and department.
Why is it important for retailers to have standards and
procedures for each of the following:
• dock organization?
• checking cartons and unpacking merchandise?
• hanging and folding merchandise
• placing sensor tags on merchandise?
9
Module 4 :The Merchandise Floor
Lesson 1: Store Layout
Notes
Objective: Understand store layout by department
Customers get a first impression of a store from its exterior storefront, window
displays, parking areas, and the like. Once they enter the store, the interior
store layout and the merchandise displays are the main factors in setting the
store atmosphere - they make a big difference in influencing the customer's
overall impression and choice to stay and shop.
A good store layout fully utilizes its available space regardless if the store is a
discounter, specialty, department, or upper-end retailer. Within the store
layout, space is allocated for each of the merchandise departments and
classifications. High-volume, high-margin merchandise is usually placed in the
prime selling areas.
The two most common types of store layouts are freeform and grid. A
department or specialty store usually uses a freeform layout, while a grocery
store or big box retailer uses a grid.
A freeform layout presents a friendly atmosphere, and it encourages customers
to browse in a variety of directions and purchase multiple items. A grid layout
allows for efficient use of floor space and makes it easier for customers to find
items. Some stores use a combination of both freeform and grid layouts.
Within the same store, retailers may use both freeform and grid layouts to
satisfy customers' needs and to influence their shopping decisions.
Men's suits are typically merchandised on fixtures in a grid layout to make it
easier for customers to locate the correct size. Men's sportswear may be in a
freeform layout with all collections from a variety of vendors in one area to
show a "casual lifestyle." A collection from a ladies' designer sportswear vendor
may be merchandised in a freeform shop or boutique layout so customers spend
more time selecting coordinating items to assemble different outfits.
How does a store‘s exterior appearance influence your decision to
shop?
How does a store’s interior appearance and floor layout influence
your decision to shop in the store?
How does a grid layout help you shop?
What do you like about a freeform store layout?
10
Module 4: The Merchandise Floor
Lesson 2: Merchandise Flow and Adjacency
Notes
Objectives:
Explain merchandise flow and adjacency
Learn how to read and execute a planogram
Merchandise flow refers to how merchandise is placed by vendor and
classification within the store and department. Merchandise is placed in the best
way to sell the entire store instead of individual items, and enhances the overall
shopping experience.
Placing and grouping "like" merchandise saves customers time and prevents them
from having to "hunt" for what they want. Proper flow increases opportunities to
sell additional merchandise and helps customers shop for an entire "look" or
coordinate outfits. For example, merchandising separate blouses adjacent to
separate skirts and slacks; wallets adjacent to handbags; men's ties and dress
shirts adjacent to men's suits.
Merchandise is placed with the newest receipts, fashion, or advertised items in
the front to attract customers to the area. Basics and markdowns are usually
placed in the back.
Based on the store profile, agreements with vendors, as well as planned sales and
profit, the corporate merchandising team creates a planogram or adjacency
diagram that determines where to place the merchandise within each
department of the store. By looking at a planogram, you can determine the
importance of an item compared to all the other items you have to sell. The most
important products are placed in the best-selling front areas, while less
important products and clearance items are placed closer to the back. An
adjacency plan tells you how the merchandise should flow and which products
should be next to each other. A planogram is a very specific item-by-item plan
that tells you exactly where merchandise should be placed. As a Retail Manager,
you are responsible for making sure the appropriate plan is being followed.
In the stores where you shop, what have you noticed
about the flow of merchandise?
What products are in the front and in the back of the
store?
What products are next to each other?
What products do you see at check out?
11
Module 4: The Merchandise Floor
Lesson 3: Visual Merchandising Concepts
Notes
Objective:
Identify critical themes and messages of merchandising.
Understand the impact of visual merchandising
Visual merchandising is an art that integrates merchandise, color, signage,
mannequins, fixtures, and lighting to communicate the store's image and a
message about products to the customer. The visuals in a store can show a
store's prestige, quality of goods, fashion trends, product information,
convenience, low prices, and so forth. Visual merchandising gives a retailer a
competitive advantage, which can make a big difference in sales.
Communicating Prestige
A retailer famous for its better men's clothing might use soft lighting,
elegant dark wood fixtures, and leather seating to communicate 'prestige.'
Communicating Quality of Goods
A retailer might group together a selection of upper-end bags and shoes to
show off the store's high quality of goods.
Communicating Product Selection
A Women's Shoe department may have shoes as far as the eye can see. The
visual merchandising is designed to let customers know that the store
carries an endless variety of shoes.
Throughout a season, a store has plans for themes that highlight specific
merchandise, upcoming holidays, or local events. Displays will be planned
and merchandised to present these themes throughout the store.
What visual messages have you noticed in the stores
where you shop?
What do the visual presentations tell you about the
merchandise in the store?
How do the messages connect with the store’s key
customers?
12
Module 4: The Merchandise Floor
Lesson 4: Merchandising Processes and Techniques
Notes
Objectives:
Understand the process for merchandising the sales floor.
Understand basic merchandising techniques.
Understand how to merchandise sales and clearance items.
Understand floor recovery strategies and methods.
Now that you understand the basic concepts of visual merchandising, it's time
to merchandise the sales floor. A good merchandise display shows off your
products and helps drive sales.
As a Retail Manager, it's your responsibility to make sure the store is floor
ready at least 15 to 30 minutes before opening. Follow the plans provided to
identify where and how your merchandise should be placed.
There are some common merchandising techniques that can be combined to
create powerful visual images.
Vertical Colorization
Arrange items to form a vertical row of a single color. Use vertical colorization
when merchandising key and basic items.
The Color Game
Arrange items according to your store's color order, or from light to dark. You
can also arrange basics in a colorburst, with the brightest color in the middle
and darker colors to the sides.
Colorscape
Mix patterns, colors, and textures together in different ways. Some options
include centering the brightest color, centering the most prominent pattern
and alternating color and pattern
Wallscape
Place items along a display wall. Use wallscape hardware to vary presentation
options – Shelves, Cubes, Hangbars, Faceouts
Tablescape
Arrange items on a feature table. Use tablescape elements such as cubes and
forms to verticalize the presentation and add visual interest.
Folding
Fold items into the same size on each fixture, using a fold board if required.
Some folded items require paper, so check with your department's standard
guidelines.
Stack folded items so that the front and sides of each stack are even. Maintain
stacks of even heights.
13
Module 4: The Merchandise Floor
Lesson 4: Merchandising Processes and Techniques continued
Notes
Sizing
Arrange items by size, from smallest to largest.
- Faceout: Smallest to largest, front to back
- Hangbar: Smallest to largest, left to right
- Vertical stacks: Smallest to largest, top to bottom
Enhancements
Use fixtures and merchandise enhancements to make the merchandise more
visually appealing.
Common Presentation Styles
Lifestyle
Group different items together to suggest a combination of merchandise that is
appealing to the lifestyle of the target customer. This style of presentation is
about telling a story. The display shown here is targeted toward the young,
urban male. This display uses a combination of tablescape, wallscape, and
enhancements.
Vendor
Create a display using a collection of various items from a single vendor. Use
fixtures approved by the vendor.
Shop
Group items from different divisions together to create a theme. Fourth of July
Picnic and Christmas Emporium are examples of themes.
Key Item
Key items are basic items that come in a variety of colors. Jeans and
turtlenecks are examples of key items. This style of presentation may also group
together different merchandise that share a similar characteristic. For example,
you may display all of the green handbags together even though they represent
a variety of styles and vendors.
In what stores have you seen these merchandise techniques
used?
What did you like and dislike about how the techniques
were used?
14
Module 4: The Merchandise Floor
Lesson 4: Merchandising Processes and Techniques continued
Notes
Signage
Signage is so important that it's often called the "silent sales person." Some
customers prefer to shop without assistance, and good signage makes this
easy. Customers also do not want to read long descriptions; they want signs
to quickly tell them what they need to know.
A good sign has the price or promotional offer, a short product identifier, and
sometimes brief bullet points such as sizes, colors, and selling features. This
information helps the customer make a buying decision on the spot. For
larger retailers, promotional signs are either a permanent markdown for
clearance or a major sales event where the sales amount is taken at the
register. Retailers may use different color signs or toppers to differentiate
between types of promotional offers.
In addition to being convenient for customers, accurate pricing on your
signage is the law.
It is the Retail Manager's responsibility to ensure the signs on your floor are
accurate, placed appropriately, and are changed at the right time. In many
areas, sign auditors check sign process against the price at the register. If
there is a discrepancy, the retailer could face significant fines.
Promotional Sales Events
Promotional sales events entice customers to come into the stores and buy
the merchandise that is temporarily offered at a reduced price. Sales are
advertised through direct mail, coupons, catalogues, and newspaper ads.
Stores offer many sales throughout the year. Just a few examples are a One
Day Sale, Home Sale, Anniversary Sale, Back to School Sale, or
Mother's/Father's Day Sale.
Advertising budgets by store are usually set as a percent to sales, 5% to 7%.
Therefore, more sales mean more advertising dollars available to advertise
either new or sale merchandise.
A Retail Manager must be aware of all the advertised promotional events and
their department's role in the event. The advertising calendar is usually
organized for an entire season and you'll receive an ad calendar listing sales
events for the upcoming season. You are responsible for setting up and
signing the sales floor for the event.
Promotional sales event preparation steps are on the next page.
15
Module 4 :The Merchandise Floor
Lesson 4: Merchandising Processes and Techniques continued
Notes
Check the stock - As soon as you know an item is going on sale, check the
stock to make sure you have inventory on hand. If you have stock concerns,
alert store management and follow company guidelines for communicating
with the merchandising team. Sometimes stock substitutions can be made
to meet customer needs or merchandise can be located in other stores and
sent to the customer.
Plan for Recovery - The Retail Manager should also have a plan in place to
regularly fill in stock and when necessary, communicate quick selling items
to store management.
Decide on a Location - Promoted items should have a prominent position on
the sales floor. If the merchandise is toward the back of the store, you may
need to move it closer to the front. For major events, the merchandise may
be placed on promotional tables in the aisle.
Prepare Signage - Signage for the sales event needs to be located or
prepared in advance. Signs should display the regular price, sales price, and
any selling features. For legal reasons, pricing on the signage needs to be
accurate, so be sure to give this a high priority.
Placement of Signage - Follow guidelines and visual standards for sign
placements to ensure consistency and ease of shopping for customers.
Be sure to have a plan for ensuring that signs are set on time and taken
down on time. Promotional merchandise is set, signed, and ready prior to
store opening on the first day of the promotion and taken down prior to
store opening the day after the end of the promotion.
Why is good signage so important in a store?
What have you noticed about how signage helps you shop?
What type of promotional events do the stores in your area
have? How do customers learn about these events?
16
Module 4 :The Merchandise Floor
Lesson 4: Merchandising Processes and Techniques continued
Notes
Recovery
At the end of every business day, everything on the sales floor needs to be in
place so that the floor is ready for the next morning's customers. This process
is called recovery.
Every store has a set of standards for recovery. As a Retail Manager, it's your
responsibility to execute the recovery standards. However, don't wait until
the end of the day to do it. Recovery is an all-day process. If you recover
throughout the day between customers, the amount of work to be done at
the end of day is reduced and Associates can leave on time. This also keeps
your floor in the best possible shape for customers to shop.
Fitting Rooms - Clear out all fitting rooms and make sure they are empty of
merchandise and hangers.
Merchandise and Displays - Replace all merchandise in the correct location
within the proper display. Re-fold and size items and make sure stacks are
even. Replenish the floor with items from the stock room.
Cash Wrap Stand - Make sure the cash wrap stand is fully stocked and
organized with bags and other supplies, and that it is uncluttered and free of
stray merchandise, hangers, and signs. Return stray merchandise to its home
department.
W. A. M. (Walls Aisles Middle) - Walk along the walls, aisles, and middle of
the floor. Keep your eyes open for anything out of place.
Although a Retail Manager does not usually determine where merchandise is
placed or how it is displayed, you need to understand why those decisions
were made. Keep in mind that once the merchandise hits the sales floor, it's
still your job to maximize sales through merchandising.
Stay within the guidelines laid out by the corporate merchandising team, but
think about how you can adapt your merchandise displays to reach your
target customer and enhance sales.
Use the information about merchandising concepts, techniques, and
processes in this module to provide information and deliver a message about
your merchandise with accuracy and visual impact. Let your customers know
what's hot, what they should buy, and why. And remember, the way you
present, display, and maintain merchandise on the floor helps the customer
shop and helps drive sales.
Why is it important for retailers to have standards and
procedures for the recovery process?
17
Module 5: Inventory Management
Lesson 1: Inventory Management
Notes
Objectives:
Understand the fundamental aspects of inventory management.
Understand the importance of stockroom management.
So far, you've learned that merchandise is purchased according to a sales plan,
and then sent to the various stores where it is received and processed so that
it's floor-ready. Next, the merchandise is displayed on the sales floor using
visual merchandising techniques that enhance the customer's shopping
experience.
Managing the inventory through all these steps is a critical responsibility for a
Retail Manager. Inventory management refers to keeping track of all
merchandise at each stage of the merchandise flow, from the time the
merchandise is floor-ready until it is sold. Let's take a look at some of the
factors that influence inventory management.
The stockroom holds many items: additional inventory that doesn't fit on the
sales floor, merchandise on hold for customers, RTVs (merchandise to be
returned to vendors), signage, fixtures, and so forth. An organized stockroom
makes it easier to replenish merchandise, manage inventory, and service
customers.
Merchandise should be separated by department and classification. Place faster
selling merchandise in areas that are easy to access, and make sure price and
descriptive information are visible. Be sure to maintain an aisle width that's
adequate for the merchandise being stored and the equipment required to
reach the upper shelves.
Depending on the store, Retail Managers are responsible for the organization of
all or part of the stockroom. The Manager creates a stockroom plan, posts it on
the stockroom door for easy reference, and evaluates the execution of the plan.
Being "in stock" means having the correct amount of merchandise in the store to
satisfy customer demand. This is especially important when the merchandise
has been advertised or promoted. While a retailer never wants to lose a sale by
being out of stock, having too much stock means that surplus merchandise may
have to be marked down or significantly reduced for clearance.
A Retail Manager needs to plan for supply and demand of the area's
merchandise, taking into account factors such as weather, promotions, and
projected customer demand. You need to know the current inventory, as well
as what new inventory to expect, and when. Managing inventory levels is a
balancing act—it requires a constant review and adjustment of stock levels.
Inventory usually falls into two categories: fashionable or seasonable
merchandise, and basic items. Retail Managers follow different strategies for
keeping these two categories of merchandise in stock.
18
Module 5: Inventory Management
Lesson 1: Inventory Management continued
Notes
Basic items are a store's primary items that have day-to-day customer
demand. Basic items are always replenishable. They should always be in
stock, in a wide variety of colors, styles, and sizes. For example, a men's
basic sock should always be available in black, size large.
Basic items are usually replenished by a model stock system. A model stock is
determined by the minimum quantity of an item that should be on hand at all
times. As items are brought into stock or sold, the replenishment system
keeps track of the store's "on hand" count of the items. When sales drive the
on hand count down to the model stock level, a re-order is generated so that
the store is never out of a basic item.
Seasonable or fashionable merchandise refers to items that are available
because they are in season or in fashion. These items may not be
replenishable. For example, a ladies' sweater may be a one-time purchase by
the store's Buyer. When the sweater sells out, it may be replaced by another
style. If your store is running out of a popular fashionable item, the Retail
Manager should contact the Buyer to see if more are available.
Merchandise Security
Inventory "shortage" or "shrinkage" is a loss of merchandise caused by
employee theft, customer shoplifting, mishandling during shipping or
processing, administrative errors, and fraud. Did you know that every year,
retailers lose 1% to 3% of their annual sales from shrink? Retailers typically
plan for a percentage of sales that results in an annual loss.
According to the 2003 National Retail Security Survey, 103 responding retail
chains reported an average shortage of 1.6% of sales, converting to about
$33.6 billion in losses based on $2 trillion in sales.
Retailers use a variety of techniques to try to minimize shrink:
•
•
•
•
Employee background checks
Video cameras and other surveillance equipment
Sensor tags
Maintaining fitting rooms to discourage shoplifting
As a Sales Manager, it's your job to minimize shrinkage by following your store
guidelines. You'll learn more about merchandise security in the Operations
course.
19
Module 5: Inventory Management
Lesson 1: Inventory Management continued
Notes
Inventory Performance
Inventory performance refers to how much and how quickly your merchandise
is selling. As a Sales Manager, you need to understand how your inventory is
performing on a daily basis so that you can arrange for replenishment of your
stock to meet customer demand.
For example, if a large retirement village just opened around the corner
from your suburban convenience store, you may notice a spike in the sales of
products used by an older population. The Buyers and Planners at corporate
may not be aware of this new demographic shopping in your store, so it
would be your job to ensure you have enough stock to meet the new
demand. This would mean contacting the person responsible for
replenishment of the merchandise and making them aware of the change.
In another example, after a great deal of financial analysis of stock
performance and sales and margin growth opportunities, corporate may
decide to move an entire department to a better location in the store. This
move will impact sales, and you'll need to watch inventory performance in
order to increase model stock or future orders.
You'll learn more about inventory performance in the Financial Reporting
course.
Sell Thru - Sell thru is the number of unit sales of an item divided by the
beginning on hand (BOH) quantity of the same item. Sell thru reflects the
percentage of goods sold that week. It's an indication of how quickly
merchandise is selling.
For example, let's say you need to look at performance for a specific style of
pumps that a new Buyer recently introduced to the stores.
At the beginning of the week, you had 472 pair of pumps in inventory. This is
your beginning on hand, or BOH. Sales reports show that 34 pairs were sold
last week, leaving 438 ending on hand (EOH).
Turnover - Turnover refers to how quickly merchandise moves through the
store. It reflects how many times your inventory on hand has been sold and
replaced within the season, and is calculated by dividing sales by average
inventory value.
For example, let's say the average six-month inventory of sandals for last
Summer season was $122,116. Net sales for the season totaled $450,180, so
your turnover was 3.69.
The turnover sandals for last Summer was 3.69.
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Module 5: Inventory Management
Lesson 1: Inventory Management continued
Notes
Stock to Sales Ratio - An inventory planning method to maintain a specified
ratio of goods on hand to planned sales.
In this example, at the beginning of the month, you have $23,000 worth of
designer handbags in stock. This month, you plan to sell $5,950 worth of these
handbags.
Your stock to sales ratio was 6.67%.
What factors contribute to a well-organized stockroom?
What factors cause a retailer to be “out of stock”?
What do the following terms mean?
• Sell Thru
• Turnover
• Stock-to-Sales Ratio
What causes retailers to have a shortage or shrink
problem in their stores?
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Module 5: Inventory Management
Lesson 2: Pricing
Notes
Objectives: Understand the role of pricing in the retail business.
Pricing Strategies
Merchandise is priced so that it provides value to the customer and a profit for
the retailer. Price is influenced by consumer demand, competition, vendors,
and government regulations.
A retailer's pricing strategy is aligned with the target customer and the services
the store offers. Let's compare pricing strategies for some different types of
retailers.
Discounters are no-frills stores where prices are lower than at other stores with
the same merchandise. A low level of service allows for lower prices. Instead of
promoting sales events, discounters usually advertise everyday low prices.
Department stores sell merchandise in many categories such as home
furnishings, apparel, jewelry, and linens. Department stores offer average
prices with frequent sale events featuring marked down goods.
Upper-end stores offer the best in designer and luxury goods and services. Very
often, they carry exclusive merchandise. This kind of service results in higher
cost of goods and overhead, which results in higher prices.
Retailers make constant pricing adjustments to merchandise in response to
spikes or decreases in sales, seasonal demand, competition, and shrink.
Markdowns are taken to drive sales, increase customer traffic, and reduce
inventory. Some markdowns are planned, such as scheduled holiday events and
permanent price reductions, while others are a result of sales falling below plan
or an item not moving as quickly as desired. Either way, sale and clearance
items are a significant part of your business, and price changes are an important
part of a product's life cycle.
Retailers must understand and abide by federal, state, and local regulations
regarding pricing discrimination, unit pricing, and price advertising. In addition,
retailers must abide by their agreements with vendors. For example, if another
retailer is selling the same product at a price that's 20% lower than yours, your
store can't automatically lower the price. You first need to get an agreement
with the vendor, and then plan for and advertise the markdown.
As a Retail Manager, you don't generally get to determine the price of the
merchandise. For most promotional sales events, pricing is set by the
merchandising team. However, you'll need to implement the price changes, and
you may want to make recommendations about how to adjust prices to
accommodate changing sales and inventory. As your customers react to
merchandise, you receive daily input about supply and demand. You should
react to that information to help you meet the numbers in the merchandise
plan.
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Module 5: Inventory Management
Lesson 2: Pricing
Notes
What is your opinion about the pricing strategies used by:
a.
Discounters?
b.
Department Stores?
c.
Upper End Stores?
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