BUYING AND MERCHANDISING

BY GROUP 1PANKTI VADHANI-81

SURBHI SEN-68POOJA VENKAT-58

ZEUS BALAPORIA-02KINGSHUK-09

AISHWARYA-49

WHAT IS BUYING AND MERCHANDISING?

• The activity of promoting the sale of goods at retail.• Merchandising activities may include

display techniques, free samples, on-the-spot demonstration, pricing, shelf talkers, special offers, and other point-of-sale methods.

• According to American Marketing Association, merchandising encompasses "planning involved in marketing the right merchandise or service at the right place, at the right time, in the right quantities, and at the right price.”

PROCEDURES TO BE FOLLOWED IN BUYING AND MERCHANDISING

This is a step by step process and involves following stages:

• (i) Collecting information• (ii) Selecting vendors• (iii) Evaluating merchandise• (iv) Negotiation with vendors• (v) Buying merchandise• (vi) Receiving and stocking merchandise • (vii) Re-ordering• (viii) Re-evaluating

Step 1: COLLECTING INFORMATION • Once the firm’s overall merchandise plans are defined, exact information

about current market needs and potential vendors is required.• This is essential as a retailer before buying merchandise would like to

know:

• (i) What consumers are looking for,• (ii) Where the vendors are located and what is their goodwill in the

market, and• (iii) What their competitors are offering.

• After understanding these aspects, retailer will be in a position to decide what he wants to buy and from whom.

• For collecting information, a retailer/buyer has several possible sources defined as internal and external sources.

Internal Sources –• -Global retailers like Wal-Mart, Spencer’s, Zara have

proper consumer study divisions those continuously monitor the consumers’ lifestyles, living habits and their changing demographics in order to study the consumer demand directly.

• Vendors (manufacturers and wholesalers), on the other hand, do their own projections about the future

External Sources –

• Visiting suppliers, talking with sales’ experts and observing consumer behavior.

• Besides this data provided by trade associations, government bodies projects like RAI, ASSOCHAM, FICCI bulletins may be consulted.

Internet has also become a vital source for collecting information and is also time saving. Retailers may use collected information for making merchandise decisions about (i) staple merchandise and (ii) fashion merchandise

Step 2 : Selecting Vendors

• For vendor selection, retailers have 3 alternatives:

1) Company owned vendors – these are owned by company themselves. Work for particular retailers and provide as per their requirement.

2) External, widely used supplier – not owned by the retailer but is frequently used. The quality of goods and the services offered are known.

3) External, not used supplier – retailer has not purchases anything from this supplier. Once the supplier is decided, retailer should interact about the buying terms and conditions.

Step 2 : Selecting Vendors (Contd)

• Vendor evaluation on the basis of following:

1) Reputation/Goodwill of vendor in the market2) Quality of goods offered3) Which vendor offers merchandise as lowest total cost?4) How quickly the good will be delivered 5) Guarantee/Warrantee offerings6) Is vendor offering credit purchases?7) Promotional support provided by the vendor8) Selling history9) Steady source of supply10) Is vendor’s merchandise line conservative or innovative?11) Liquidation and shrinkage policies

Step 3 : Evaluating Merchandise

Step 3 : Evaluating Merchandise (Contd)

The merchandise planning to a great extent depends on the following factors and is handled by the respective CATEGORY MANAGERS

• The type of Retail Display Assets Used :Bays, EndCaps, Bins, FSUs , SideCaps, Floor Stacks , Promotional Chimneys , Aisles , Gondolas

• The Offtakes of the SKUs from the corresponding seasonal months in the past, along with evaluation of the store’s ATV (Average Ticket Value), NOB (Number of Bills), the Promotions running on the SKUs, the Terms of Trade (TOTs) signed with the selected vendors, the pre-decided Scan/Promo Margins which eventually decide the gross margin realized on the sale of each SKU.

Step 3 : Evaluating Merchandise

Step 3 : Evaluating Merchandise

Step 3 : Evaluating Merchandise• The Merchandise evaluation has specialized ERP Databases and software assistance

to help the Category Managers in planning the Merchandise and Assortment that will be reflected in their system through the following matrices – Sales, Inventory , Prices , Shrinkage Databases.

• Merchandise evaluation for a KVI (Key Value Item) is usually jointly done by the Vendor and Retailer, at the time of signing the TOT, where the SKUs and their placement assets are also decided along with the RLP (Retailer Landing Price) and Scan Margins.

• Most modern retailers today have a robust ERP software to help them assist in Merchandise planning and forecasting on the basis of past trends and offtakes.

• The Throughput Sales decisions are eventually discussed with the Material Planning and Replenishment Teams (MPR) which look after the re-ordering and replenishment of the respective category SKUS ; after the ordering assortment and quantities is confirmed, the plan is shared with the Store Planogram Team which shares the layout of the how the assortment shall appear on the pre-decided Display Asset.

Step 4 : Negotiation with Vendors

In case of Evaluation of a New SKU which is to be included in the retailing format, the following steps are undertaken – • The Vendor and Retailer discuss the projected offtake for the new SKU

and according arrive at an adhoc Retailer Margin, based on the planned ROI for the retailer and corresponding business throughput and ordering plans for the SKU.

• After the completion of the said tenure, the retailer evaluates the offtake for the New SKU (with and without the promotional effect) and accordingly recalibrates the Terms of Trade with the Vendor.

• Any decision of the retailer to engage in an OTT Promotional Offer that eventually affects the Retail Selling Price of the SKU is jointly undertaken after discussion with the Vendor on all the Sales and Pricing considerations.

Step 4 : Negotiation with Vendors

Additionally, Merchandise Evaluation at the Retail store is based on additional factors like –

• The additional trade promotion margins offered by the vendor to the retailer (Eg. The whole Floor Stack by HUL for the New Dove Pink Range of Bath Soaps)

• The Sales of the said SKUs on a month-on-month basis, as observed by the retailer – in the presence and absence of any planned promotional activity

• The ROI and Retail margins that the retailer benefits with on the offtake of the assortment (Eg. High volume and Low Margin vs Low Volume and High Margin)

• The Vendor’s association with the retailer, in terms of capital budgeting, additional trade discounts for data sharing, category competitor analysis etc.

What To Buy?

How much to Buy?

For which stores and which territories?

How much to price it at?

Does it need any seasonal promotional?

What are the Competitor Sales for the same category?

New Trends in Consumer Buying Behavior and Other Channels

Step 5 : Buying Merchandise

Step 5 : Buying Merchandise

• The Buying Plan is usually decided 8-12 weeks prior to the week of implementation (Eg. Planning in July for October’s Merchandise)

• Buying entails the consideration of a host of factors :–

- Seasonality

- Existing Stocks and their health (Date of Expiry)

- Competition analysis to understand the top grossing Products - Variants- SKUs

- Ordering Cycles for the forecasted quantities of merchandise

- Pricing and Promotions for the planned assortment

Step 5 : Buying Merchandise

Key functions of any Category Buying and Merchandising Manager would include:

- Vendor Relationship Management- Co-ordination with the Stores’ Category Division Heads to

ensure hassle-free implementation of the said assortment- Thoroughly updated of all the developments in the industry

and category – with respect to new products, competitive prices, alternate retail channels etc.

- Budgetary planning

Step 6 : Receiving merchandise While acquiring the merchandise, retailer physically receives the items, counts

the supplies, pays the invoices, marks the items, transfers the items and stock in go downs/warehouses to avoid any pilferage and damage

In case of centralized buying, goods are received by regional office/central warehouse and then transferred to chain stores

The process of checking freight by comparing the vendors invoice against the store's purchase order is also done to ensure:

Prices and additional terms of sale are as agreed upon Quantities received by the retailer match purchase order Product styles, colors, sizes received are identical to purchase order Merchandise quality equals, the buyer's expectations

Problems and discrepancies should be documented and reported to the proper party responsible

Step 6 : Stocking

merchandise Received inventory should

immediately make its way to the appropriate location within the store

Chain stores and larger retail environments may use PLAN-O-GRAMS ( Store and Space Planning Layout )

A planogram is a diagram that shows how and where specific retail products should be placed on retail shelves or displays in order to increase customer purchases. Planogramming is a skill used in merchandising and retail space planning

Step 7 : Re-ordering MerchandiseThree factors are critical in reordering merchandise that the retailer purchases more than once: order and delivery time- Lead time, inventory turnover and inventory versus ordering costs

Lead time Inventory turnover Inventory versus ordering costs:- There are trade-offs between inventory holding

and ordering costs

A large inventory fosters customer satisfaction, volume discounts, low per-item shipping costs, and easier handling. It also means high investments; greater obsolescence and damages; and storage, insurance, and opportunity costs

Placing many orders and keeping a small inventory mean a low investment, low opportunity costs, low storage costs, and little obsolescence. Yet, there may be higher unit costs, adverse effects from order delays, a need for partial shipments, service charges, complex handling, and disappointed customers (if items are out of stock)

Step 8 : Re-evaluating Merchandise

As shown in the figure, it is the feedback process. This includes,

Customer:- VFM/Quality/Ease of use etc.

Employees:- Ease of handling/ Safety concerns/ Their view on the products

Market changes:- New or alternate vendors/ New technology/ New trends etc.