Chapter 14

Retail Management: A Strategic
Approach
Thirteenth Edition
Chapter 14
Developing
Merchandise Plans
Copyright © 2018, 2014, 2012 by Pearson Education, Inc. All Rights Reserved
Learning Objectives
14.1 To demonstrate the importance of a sound merchandising
philosophy
14.2 To study various buying organization formats and the processes
they use
14.3 To outline the considerations in devising merchandise plans:
forecasts, innovativeness, assortment, brands, timing, and
allocation
14.4 To discuss category management and merchandising software

Merchandising
Activities involved in acquiring particular goods/ services and making
them available at the places, times, prices, and quantities that enable a
retailer to reach its goals.
Merchandising Philosophy
• Sets the guiding principles for all the merchandise decisions that a
retailer makes
• It should reflect
– Target market desires
– Retailer’s institutional type
– Market-place positioning
– Defined value chain
– Supplier capabilities
– Costs
– Competitors
– Product trends

Scope of Merchandising Responsibility

•Full array of merchandising functions
– Buying and selling
– Selection, pricing, display, customer transactions
OR
•Focus on buying function only

Micro Merchandising
Retailers adjust shelf-space allocations to respond to customer
differences and other differences among local markets.
Cross-Merchandising
Retailers carry complementary goods and services to encourage
shoppers to buy more.
Attributes and Functions of Buying
Organizations
Considerations in Devising Merchandise
Plans
Forecasts
These are projections of expected retail sales for given periods
• Components:
– Overall company projections
– Product category projections
– Item-by-item projections
– Store-by-store projections (if a chain)

Types of Merchandise
• Staple merchandise
• Assortment merchandise
• Fashion merchandise
• Seasonal merchandise
• Fad merchandise

Staple Merchandise
• Regular products carried by a retailer
– Grocery store examples: milk, bread, canned soup
• Basic stock lists specify inventory level, color, brand, style,
category, size, package, etc.

Assortment Merchandise
• Apparel, furniture, automotive, and other categories 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

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

Table 14.1a Factors in 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
Table 14.1b Factors in 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
Table 14.1c Factors in 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
Traditional Product Life Cycle
Structured Guidelines for Pruning
Products
• Select items for possible elimination on the basis of declining sales,
prices, profits, and appearance of substitutes
• Gather and analyze detailed financial/ miscellaneous 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

Table 14.2a Factors in Planning

Merchandise Quality
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
Table 14.2b Factors in Planning
Merchandise Quality
Profitability Recognize that high quality goods generally bring greater profit per unit than
lesser-quality goods; turnover may cause total profits to be greater for the
latter
Manufacturer versus Understand that, in the minds of many consumers, manufacturer brands
private brands connote higher quality than private brands
Customer services Know that high-quality goods require personal selling, alterations, delivery,
offered etc.
Personnel Employ skilled, knowledgeable personnel for high-quality merchandise
Table 14.2c Factors in Planning
Merchandise Quality
Perceived goods/ service Analyze consumers. Lesser quality goods attract customers who desire
benefits functional product benefits; High-quality goods attract customers who desire
extended product benefits
Constrained decision Face reality. Franchises or chain store managers have limited or no control
making over products, so independent retailers that buy from a few large
wholesalers are limited to the range of quality offered by those wholesalers
Retail Assortment Strategies
• Width of assortment refers to the number of distinct goods/service
categories (product lines) a retailer carries.
• Depth of assortment refers to the variety in any one goods/service
category (product line) a retailer carries.
• An assortment can range from wide and deep (department store) to
narrow and shallow (convenience store).

Brands
• Manufacturer (national)
• Private (dealer or store)
• Generic

Advantages of Private Labels versus

National Brands
• Store loyalty– A 1 percent increase in private label purchasing
increases a retailer’s market share of a household’s purchases by
0.3 percent. A 10 percent increase in private label purchases,
increases that retailer’s market share of that household by 3
percentage points.
• Differentiation strategy- Opportunity to differentiate store on the
basis of recipe, styling, value, features.
• Increased channel power over suppliers— Depends on strength
of private label versus national brand
• Higher profit margins on private labels- 25 to 30 percent higher
(but no return privileges, co-op promotions, slotting fees, and
warehousing support).

Successful Private Label Strategies

• Be a purchasing agent for consumers, not a selling agent for
suppliers
• Develop distinctive products (Trader Joe’s wild salmon in a can,
chocolate-covered sunflower seeds, pretzels with sesame seeds
(instead of salt)
• Co-brand with famous designer (Target with Michael graves,
Mossimo and Liz Lange) or with national brand (Costco and
Starbucks, Jelly-Belly, StonyField)
• Taste and product perfromance testing (Costco, Trader Joe’s,
Aldi)
• Tell a story about the product (ingredients, source, recipe, and
health).
Timing, Allocation Decisions

Timing:
a. Peak seasons.
b. Order and delivery time.
c. Routine versus special orders.
d. Stock turnover.
e. Discounts.
f. The efficiency of inventory procedures.
Allocation:
a. How much merchandise to place on the sales floor.
b. How much merchandise to place in the stockroom.
c. Whether to use a warehouse.

Category Management
• Category management is a merchandising technique used to
improve productivity.
• It is a way to manage a retail business that focuses on the
performance of product category results rather than individual
brands.
• It arranges product groupings into strategic business units to better
meet consumer needs and to achieve sales and profit goals.
• Retail managers make merchandising decisions that maximize the
total return on the assets assigned to them.

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Retail Management: A Strategic

Scope of Merchandising Responsibility

Fashion and Seasonal Merchandise

Table 14.1a Factors in Planning

FACTOR RELEVANCE for PLANNING

Target market(s) Evaluate whether the target market is conservative or innovative

Retailer image Carry goods/services that reinforce the firm’s image

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-

FACTOR RELEVANCE for PLANNING

Profitability Assess each new offering for potential profits

Risk Be aware of the possible tarnishing of the retailer’s image,

Table 14.2a Factors in Planning

FACTOR RELEVANCE for PLANNING

Competition Sell similar quality or different quality

FACTOR RELEVANCE for PLANNING

FACTOR RELEVANCE for PLANNING

Advantages of Private Labels versus

Successful Private Label Strategies

Timing, Allocation Decisions

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