Planning to Buy
Objectives
• Describe the merchandise planning
function.
• Outline internal and external sources of
planning information.
• Explain factors to be considered in
preparing financial and merchandise
assortment buying plans.
continued
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Objectives
• Describe ongoing inventory management
planning.
• Explain the variables in selecting
merchandise sources.
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Merchandising
• Merchandising mainly involves planning,
buying, and selling of merchandise
– Indirect selling, or nonpersonal promotion, is
aimed at a large general audience
– Direct selling is the exchange of merchandise
to individual consumers in return for money or
credit
• Planning, buying, and selling are the steps of
the merchandising cycle
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Industry Facts
• Merchandisers must decide
– When a style becomes a fashion
– If the fashion is suitable for their retail operation
• Retail buyers are responsible for
purchasing goods for their company to sell at
a profit
– They plan the merchandise selection and
determine quantities and timing for various
styles, colors, sizes, prices, and fashion emphasis
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Permission granted to reproduce for educational use only.
The Merchandise Planning
Function
• The company image must also be considered
when selecting merchandise
• The actual success of the buyers’ choices are
decided by customers who accept or reject
the merchandise offered for sale
• The planning function varies with different
sizes and types of retail organizations
– Small shop owners may also be the buyers
continued
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The Merchandise Planning
Function
• For larger retail venues, a buyer might select
goods for one department
– This is called departmental buying
• Chain store buyers typically buy only one
category classification, such as men’s
sweaters, for all stores in the chain
– This method is increasing in popularity and is
called classification buying
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Gathering Planning Information
• Buyers must place orders months in advance
of the selling season
• They need to accurately forecast what
merchandise will appeal to their customers
• A great deal of information is available to
help buyers anticipate customer demand and
fashion trends
– Internal and external information are valuable
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Availability of Internal
Information
• Some of the best merchandising information
is obtained within the retail company
• Past sales records can show
– what items were sold
– what goods were returned or marked down
– what advertising and promotions increased sales
• Computer information makes the collection
and analysis of records fast and accurate
continued
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Availability of Internal
Information
• Salespeople are a valuable source of product
and customer information
• They can
– record customer inquiries or requests
– identify potential new products, preferred
product assortments, and current stock
deficiencies
– keep retail buyers informed about changing
customer wants
continued
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Availability of Internal
Information
• Consumer opinions can be learned
– by using surveys and customer advisory panels
• Consumer behavior can be studied by
– observing customer reaction to a small sample
order of a new product
• Companies often have fashion bureaus that
specialize in forecasting fashion trends to
advise the buyers
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Availability of External
Information
• Buyers also use these sources of
merchandising information
– vendors from whom goods are purchased
– news learned through networking at trade
association meetings and trade shows
– trade publications having industry statistics,
vendor advertisements, market news, and
trends
– consumer publications showing fashion trends
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Industry Facts
• Another source of external information is
comparison shoppers
– They are hired to check and report back to their
employers about other retailers
– They look at the depth of merchandise
assortments, prices, ambiance, and services of
competing and noncompeting retailers
• All types of planning and buying information
is available through a hired service for a fee
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Permission granted to reproduce for educational use only.
Preparing Buying Plans
• Merchandise planning for the future
– builds on data from past seasons
– should be based on estimated customer demand
• Retail buyers try to establish an expected
rate of sale
• Stock turnover, or inventory turns, is the
number of times the average inventory on
hand is sold and replaced in a given period
continued
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Preparing Buying Plans
• All information gathered must be translated
into a plan
– Buyers prepare buying plans that describe the
types and quantities of merchandise to purchase
for a specific period and a set amount of money
• Written plans include both financial estimates
(in dollars) and merchandise item estimates
(in units)
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Financial Planning and Control
• Financial planning results in a dollar
merchandise plan, also called a six-month
merchandise plan
– This is an estimated dollar amount, or budget,
for planned stock, sales, and profit for the
department for a six-month period
– The yearly periods are February through July and
August through January
continued
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Financial Planning and Control
• Dollar merchandise plans forecast stock values
at the beginning of each month to cover sales
– An important guideline for this is the stock-tosales ratio, which shows the dollar sales volume
in relation to the dollar value of average inventory
• Stock turnover and the stock-to-sales ratios
are guides to help estimate the amount of
stock required in relation to sales
continued
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Financial Planning and Control
• Retail companies also limit buyers to a
certain open-to-buy (OTB)
– Open-to-buy is the dollar or merchandise unit
amount that buyers are permitted to order for
their stores, departments, or apparel
classifications for a specified time period
• The OTB is a control device that is calculated
weekly or monthly
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Assortment Planning
• An assortment plan projects the variety
and quantity of specific stock-keeping units
to be carried by a store or department
– A stock-keeping unit (SKU) is the smallest
unit for which sales and stock records are kept
– SKUs are important for inventory control and
product identification
• A fashion assortment lists each item by SKU
number, including size, price, and color
continued
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Assortment Planning
• A basic stock plan is a proposed purchase list
composed mostly of commodity goods
– Examples: jeans, underwear, hosiery, and men’s
dress shirts
• A model stock plan is composed mostly of
fashion merchandise, so it
– includes items having strong customer appeal for
a limited time
– deals with unpredictability and higher risk
continued
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Assortment Planning
• Many retailers also keep a never-out list of
key items or best-sellers to always have on
hand and on display
– If these high-demand items are ever out of
stock, a permanent loss of sales results
• Retailers need enough merchandise breadth
and sufficient depth to prevent stock-outs.
– This is when the store is out of a particular item
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Additional Planning
Considerations
• The number of brands to stock is a concern
– Substitute products, which can be used in place of
each other, rarely increase sales
– Complementary products, which supplement or
accessorize other products, increase store sales
without negatively impacting other products
• Specification buying is submitting definite
specifications to a manufacturer rather than
looking for goods already produced
continued
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Additional Planning
Considerations
• In consignment buying, the supplier retains
title to the merchandise until it is sold
• With memorandum buying, the retailer takes
title to the goods received, but unsold goods
may be returned after a specified time
• Regular price-line buying involves writing
orders for merchandise at regular price
during market times
continued
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Permission granted to reproduce for educational use only.
Additional Planning
Considerations
• Advance buying is done well ahead of the
desired shipment date and usually involves a
lower price for the merchandise
• Promotional buying is the purchase of items at
special low prices to offer at reduced prices
• Low-price clearance merchandise can be
– odd lots—a broken or unbalanced assortment
– irregulars—items with small imperfections
– closeout goods—discontinued items
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Ongoing Inventory
Management
• Older ways of recording sales of specific
items—stub-ticket control and card-control—
are only used by small retailers
• Most retailers now use faster and more
accurate computerized inventorymanagement systems
– Stock control technology is called electronic
point-of-sale (EPOS) equipment
continued
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Permission granted to reproduce for educational use only.
Ongoing Inventory
Management
• Retailing is now at the point of vendormanaged inventory (VMI)
– Electronic point-of-sale data goes to an apparel
maker’s computers to calculate what and how
much new inventory is needed in each store
• In this streamlined supply chain, sales and
inventory turnover rates have increased while
costs have decreased
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Industry Facts
• A buyer’s activities include locating and
selecting the right vendors, or merchandise
suppliers
• Advantages to buying directly from
producers:
– The goods are usually the latest styles
– Prices are lower
– Goods can be made to the retailer’s specifications
– Merchandising support is usually available
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Selecting Merchandise
Resources
• Wholesalers purchase large quantities of
goods from manufacturers, store the goods,
and sell small quantities to retailers
– They are used mostly for convenience goods
• Websites and catalogs are used to source
goods, usually basic items
– Sales catalogs contain item photos or drawings
and sometimes fabric swatches
– “Video catalogs” may be sent on CDs
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Importers
• Importers’ merchandise is produced
overseas, usually in countries with low wage
rates
– The goods are sold through showrooms in the
American market
– Foreign producers sometimes have agents in this
country that take orders
– Mass merchandise retailers buy a great amount
of foreign goods from overseas manufacturers
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Evaluating Vendor Attributes
• A vendor’s merchandise must be suited to
the retailer’s customer group, price, quality,
fit, and fashion level
• Business policies must be compatible
• Vendor services might include training of
salespeople and promotional assistance
– To maximize vendor services, the concept of
floor-ready merchandise (FRM) is often
specified
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Vendor Services
• FRM means that items shipped to the store
are ready to go directly onto the selling floor
without additional preparation
• Turnaround time for orders is an important
consideration
– Buyers keep files on vendors used through the
years with contact information and notes on
performance
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Selecting Specific Resources
• Buyers should establish a well-selected group
of vendors while being alert for new sources
– Key resources or preferred vendor lists are
developed for each category of goods
– Classification resources are vendors that
specialize in certain products
• A company must consider the number of
resources needed to achieve its goals
continued
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Selecting Specific Resources
• Buyers should regularly determine if their
vendors are keeping pace with ever-changing
customer buying patterns
• A new, efficient method is “e-sourcing”
through global online networks to which
vendors and retail buyers subscribe
– Buyers can send e-mail requests to many
manufacturers of specific types of goods
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Fashion Insights
• Retailers must decide if they should
emphasize designer names, national
brands, or their own private label goods
– Many designer names and manufacturer
brands represent prestige and quality to
consumers
• Name-brand producers often place
requirements on retailers who carry their
goods
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Brand Names Versus Private
Label Merchandise
• Private label (house brand) merchandise is
produced specifically for a retailer and
contains the retailer’s trademark or brand
• As mass merchandisers capture a larger
share of retail sales, private label goods gain
in popularity
– For private label manufacturing, retailers provide
specifications and design samples
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Offshore Sourcing
• Offshore sourcing is the term used when
– goods are bought from overseas producers or
– private label goods are contracted to be made by
foreign manufacturing plants
• Most buyers’ plans include offshore sourcing
since the goods are usually cheaper
– U.S. apparel producers try to persuade retailers
to buy domestically sourced goods to save
American jobs
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Industry Facts
• Offshore sourcing involves risks because
– fashion timing is difficult
– imports limit the ability of retailers to respond
quickly to the market, such as with reorders
– communications may be difficult between the
retailer and offshore producer because of
geographic distances and language barriers
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In Summary
• Fashion merchandisers must analyze
fashion trends and their suitability and
timing for a particular retail operation
• Planning information for buyers includes
many sources inside and outside the
company
• Retail buyers use an expected rate of
sale so as not to order less or more
merchandise than needed
continued
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In Summary
• A retailer also needs financial planning
and control, a balanced merchandise
assortment, and inventory management
– Inventory planning ensures enough
merchandise for the season, but not too
much
• Buyers find, evaluate, and select the
right vendor to produce their merchandise
– Offshore sourcing is an option
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Permission granted to reproduce for educational use only.