Planning
• Provides essential information
• Leads to meeting Mazur’s 5 “rights”
FM10211 – Retail Operations
Week 3
– Right merchandise
– Right time
– Right place
– Right quantities
– Right price
Finish Chapter 4: Merchandise Planning, Buying,
Control, and Profitability
Chapter 5: Sourcing
Midterm Review
FM10211 - Retail Operations
Forecasting
External environmental factors
• Predicting what customers want
• Quantities
• Uses as much input as possible
•
•
•
•
•
•
– External environmental factors
– Internal environmental factors
FM10211 - Retail Operations
2
Economy
Society and culture
Technology
Political and legal issues
Analysis available from a variety of sources
Trend books, etc.
3
Internal environmental factors
FM10211 - Retail Operations
4
Merchandise Budget
• Dollar planning
• Store records
– How much money will be spent
– Sales
– Profits
• Unit planning
– How many of each type of item will be purchased and kept in
inventory
– Includes the mix
– Considers assortment and qualitative aspects
• Store culture
• Vendors
• Both usually include dollar amounts and % of net sales
FM10211 - Retail Operations
5
FM10211 - Retail Operations
6
1
Inventory Flow
•
•
•
•
•
•
Step 1: Plan Retail Sales
Start: beginning of month (BOM)
Stock comes in
Stock is sold
Shrinkage
Returns
End: end of month (EOM)
FM10211 - Retail Operations
• 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
7
Step 2: Plan Inventory/Stock
• 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
9
FM10211 - Retail Operations
10
Inventory Turnover
Inventory Turnover
• Ex. 1: Buy 12 apples, sell one per month
• 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
8
Three Stock Planning Methods
• 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
FM10211 - Retail Operations
– 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
11
FM10211 - Retail Operations
12
2
Assortment Planning II
Inventory Turnover
Turnover =
• Plans the mixture of merchandise
• Basic stock planning
COGS of all sales in period
Full-stock inventory COGS
– For basics
– Ongoing levels
• If apples cost $1 each, then:
• Ex 1: $12/$12 = 1 turns
• Ex 2: $12/$1 = 12 turns
FM10211 - Retail Operations
• Model stock planning
– Based on various factors
•
•
•
•
Fabric
Price
Style
Etc.
13
FM10211 - Retail Operations
14
Step 3: Plan Reductions
Assortment Terms
• Rare to sell all inventory at original price
• Helps clean out inventory to be replaced
• Various types
• Breadth of merchandise
– Number of different product lines, styles, brands carried
– Broad = lots of styles
– Narrow = few styles
– Markdowns
• Promotional or Permanent
• Adjust price down
• Depth of merchandise
– Number of units within a line, style, or brand
– Deep = many colors and sizes
– Shallow = few colors and sizes
– Markup cancellation
• Adjust amount of markup
– Discounts
• For employees and/or special customers
FM10211 - Retail Operations
15
FM10211 - Retail Operations
16
Pricing
Step 4: Plan Markup
• Much more than just considering expenses
• Consider
• In dollars, retail price minus cost
• Percentage of cost added to cost to get price
• Keystone markup
– Type of merchandise
– Competition
– Target customer
– COGS and expenses
• Strategy
– Markup = cost
–
–
–
–
–
• Short markup
– Less than keystone
• Volume and competition are primary factors in
determining markup
– E.g. Wal-Mart
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
17
FM10211 - Retail Operations
18
3
Calculations
Step 5: Plan Purchases
•
•
•
•
•
• Now, purchases can be planned
• Based on
– BOM
– EOM
– Planned Sales
– Reductions
Sales
+Reductions
+EOM
-BOM
= Planned Purchases
• IE:
Sales + Reductions + EOM = BOM + Purchases
• Open to Buy (OTB)
– Planned purchases minus on-order
Everything out of Month
FM10211 - Retail Operations
19
Everything into Month
FM10211 - Retail Operations
20
Six-Month Merchandise Plan
Spring
Fall
Sales
EOM Stock
Reductions
BOM Stock
Purchases
Retail
Cost*
Feb
Aug
44,800
97,485
7,448
94,685
Mar
Sep
47,600
86,285
7,840
97,485
Apr
Oct
36,400
100,285
8,624
86,285
May
Nov
50,400
111,485
6,664
100,285
Jun
Dec
61,600
89,085
3,920
111,485
Jul
Jan
39,200
96,552
4,704
89,085
55,048
27,524
44,240
22,120
59,024
29,512
68,264
34,132
43,120
21,560
51,371
25,686
Chapter 5: Sourcing
Determining how and where goods
bought
*Cost is after taking out markup
(this example uses keystone markup)
FM10211 - Retail Operations
21
Supply Chain
Contract Manufacturing
• Resources
– Manufacturers
• Independent producers
• Perform aspects of manufacturing
• A/k/a vendors, suppliers, resources
• Middlemen
– Sewing
– Cutting
– Finishing
– Wholesalers
• A/k/a distributors
• Buy in large quantities, break down, distribute
• Can be exclusive
– Finishers
– Drop-shippers
– Brokers
FM10211 - Retail Operations
– Only work for a particular company
– Pros and cons
23
FM10211 - Retail Operations
24
4
Lead Time
•
•
•
•
Domestic vs. International
• Domestic Sources
Time between order placed and arriving
The faster the better
Long lead times may be hard to avoid
Technology can help
– Faster
– More expensive
– Easier to work with?
• International Sources
–
–
–
–
– Quick Response
– Just-in-time
FM10211 - Retail Operations
Often less expensive
Longer lead time
Red tape
Ethical issues
25
Manufacturing Cost Comparison
FM10211 - Retail Operations
26
Centralized vs. Decentralized
• Centralized
– One group/individual buys for entire company
• Decentralized
– Buying happens locally
– Less common for larger retailers
FM10211 - Retail Operations
27
FM10211 - Retail Operations
Buying Offices
Markets
• Resident Buying Office (RBO)
• Where retailers and manufacturers meet
• Merchandise Marts
– Located in particular fashion market
– Local representative for retailer
– Store-owned or independent
– Located in major cities
• Trade Shows
• International markets
• Independent works for multiple retailers
• Independent can save money
FM10211 - Retail Operations
28
– Largest cities
29
FM10211 - Retail Operations
30
5