Buying and

Merchandising-II UNIT 14 APPLICATION OF BUYING AND

MERCHANDISING TO APPAREL
RETAIL OPERATION
Structure
14.0 Objectives
14.1 Introduction
14.2 Retail Industry – Organised versus Traditional Sectors
14.3 Shopper’s Stop
14.4 Case Study : Cutie – The Kids Wear Brand
14.5 Guidelines for Solving the Questions
14.6 Let Us Sum Up
14.7 Key Words
14.8 Answers to Check Your Progress
14.9 Terminal Questions

14.0 OBJECTIVES
After studying this unit, you should be able to:
● explain the concept of organized retail industry;
● describe the present status of retail industry in India;
● describe the process of buying and merchandising in shopper’s stop;
● analyse the case study of a retail store dealing in kids wear.

14.1 INTRODUCTION
In the previous unit, you have learnt that how has been retail industry growing in
India. Nevertheless, the unorganized retailing, i.e. family owned retail stores
constitute still a significant portion of the retail sector. Even in Asia, India lags behind
many other countries as far as the organized retailing is concerned. However, with
the entry of big corporate houses in this sector, vast potential of this sector will be
tapped. In this unit, you will learn about the expected growth of the organized retail
sector in India in the next few years. You will also learn about the organization of the
buying and merchandising process at Shopper’s Stop and finally. You will learn about
the case study of cutie – the kids wear brand.

14.2 RETAIL INDUSTRY - ORGANIZED VERSUS

TRADITIONAL SECTORS
The organized retail has miles to go in India. It captured only three per cent of the
$330bn (£176bn) retail market in 2005, which is highly fragmented and unorganized,
comprising mostly family-owned businesses. This is the unique selling point of being
220 closer to people’s homes. Modern retail chains which sprang up five years ago
foresee immense growth potential. A vast swathe of Indian retail is yet to be tapped Application of Buying
and Merchandising
into. Organized retail accounts for 81% of total retail in Taiwan, whereas in Malaysia,
to Apparel Retail
Thailand and China, it makes up 55%, 40% and 20%, respectively. Operation
With improving infrastructure facilities, especially in cities, and with government
moving in the direction of relaxing rules for foreign brands, the Indian organized retail
sector is set to become the new star on the commercial horizon. The entry of the
largest domestic business conglomerates such as the Reliance Group, Aditya Birla
Group and Bharti Enterprises, has upped both the capital inflows as well as business
confidence in the sector.
The largely untapped organized retail arena is now viewed as a multibillion dollar
proposition by Indian and foreign players. It is backed by a strong economy where
GDP has more than doubled in the last 10 years. There has been a mushrooming
middle class, and a young earning population with an appetite for spending that is
further spurred by a rapid rise in the proportion of working women in India.
Table 14.1: Share in Spending of Rural versus Urban Areas

Rural Urban
Entertainment 33% 67%
Consumer services 44% 56%
Durables 50% 50%
Miscellaneous consumer goods 57% 43%
Clothing and footwear 61% 39%
Food 64% 36%
Source: KPMG/Rocsearch
Based on the study done by KPMG/Rocsearch in 2005, it was observed that rural
hold major shares in many of the spending categories. This provides clues to the
organized sectors for making forays in such categories in the coming years.

Organized Retail Sector

It would be interesting to note some key observations, based on the study done in
2007 by FICCI, about the organized retail industry.
● The organized retail sector is likely to increase its share from the current (2007)
4% to over 20% by 2010.
● The overall retail sector to grow from the present level of $328 billion to $430
billion, according to the study by FICCI.
● Presently there are more than 15 million retail outlets of which 80% are run as
small family businesses.
● Organized retail is likely to grow at a CAGR of 50% and set to be worth $90
billion by 2010.
● Organized retail has witnessed a CAGR of 35% over the past 5 years
● Organized retail accounts for 1.5% of the country’s GDP

Apparel Rules Supreme

Clothing and accessories are the most important products of the Indian organised
retail. They account for the maximum share of 38% in organised retail in India, as per
the study done by KPMG/Rocsearch in 2005. This is followed by food or groceries
and consumer durables at 11% and nine per cent, respectively. Park Avenue, Zodiac,
Arrow, Louis Philippe, Chiragh Din, are among the leading players catering to the 221
Buying and branded apparel market. It took a long time for global brands such as Allen Solly and
Merchandising-II
Van Heusen to create a respectable market share in the ready-to-wear segment,
especially in the face of fierce competition from local brands. Today, there is also a
discernible trend towards reverse globalisation in the case of Indian apparel. Indian
brands such as Zodiac Clothing have created a niche for themselves in competitive
markets such as Holland and the UK. Similarly, Indian leather brand, Hidesign, is
being retailed at premium international outlets in South Africa, China, Dubai and
Russia.

Check your progress A

1. What do you mean by traditional retail sector in India?
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2. List the percentages of the organized retailing in the total retail sector in China,
Malaysia and Taiwan.
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3. Describe briefly the research findings of KPMG about the share in spending
of the rural versus urban areas in India.
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4. Describe briefly the key observations made by FICCI in the year 2007.
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5. List the prominent apparel brands in India.
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14.3 SHOPPER’S STOP

Shopper’s Stop (SS) was founded in 1991 by the K Raheja group of companies, who
222 at that point in time were a leading name in the real estate and hotel industries. From
a single department store in Mumbai suburb at Andheri it has grown to a chain of Application of Buying
and Merchandising
more than 20 stores offering all major product categories like men’s wear, ladies
to Apparel Retail
wear, kids wear, home products, accessories, cosmetics, perfumes, jewellery, etc. The Operation
store also have special corners like Planet M – for music, Crosswords – for books,
and a coffee shop. Shopper’s stop has a strong base of its loyal customers, which
accounts for about 60% of its overall sales revenue. This is nurtured through a well-
structured retail loyalty programme by the name of “First Citizen”.
Buying and Merchandising at Shopper’s Stop: Buying and merchandising (BM)is
a centralised activity, and merchandise planning is a key function performed by the
BM department. Once the corporate sales objectives are planned, the BM has to
work out the overall sales to be achieved. From the overall sales turnover the targets
for different categories are worked out, which then become a category benchmark.
The process of category management is looked upon as a methodology for satisfying
customers by offering a complete basket of merchandise that would constitute the
category. The team of trading manager, merchandiser, and buyer work together to
achieve the objectives of each category.
In order to understand the process of buying and merchandising in the organization, it
is necessary to understand the method in which categories are defined and handled.
This is illustrated in Figure.14.1

Division Menswear Womenwear Kids wear Non-apparel

Department Louis Phillip

Sub-department

Shirts Trousers Jackets Accessories

Sub-class

Style
Stripes Checks Plain

Button Down Seville Full sleeves Half sleeve

Colours Options

Options x style x size SKU

Figure 14.1: The Buying & Merchandising Process at Shopper’s Stop

Budgeting is done at the sub-department, chain level. Once the budgets are frozen,
the off takes are determined in terms of value and quantity. This is the starting point
of the Assortment Planning Process. Thus, if women’s wear has a budget of Rs 100
crore to be achieved, the departmental break-ups would first be determined.
Departments in women’s swear are Indian wear, western wear lingerie and
nightwear. The merchandise in each department is then classified into sub-
departments. For example, in women’s western wear- tops would be a sub
department. First, the brand mix of the total number of tops required is determined.
Then the fabric mix and the colour mix are determined. This is the starting point o
Range Planning. 223
Buying and The B & M department uses the merchandise management system functionality of
Merchandising-II
JDA packaged software solution to support the planning exercise. The system helps
the merchandiser determine margins, costs and quantities.
Planning at shopper’s stop is based on seasons - autumn –winter and spring–summer,
typically done six months in advance. As the budgeted numbers are available, an
analysis is done of the past season’s sales is done. The other important factors taken
into consideration are:
● Projections for the various brands.
● WGSN (Worth Global Style Network) forecasts for trends that can be adapted
to suit Indian tastes, skins and sensibilities.
The direction for a particular category is then determined. The key to efficient BM is
assortment planning and then its implementation.

Evaluation of Category Performance

Each merchandising category is evaluated in terms of targets and the returns that it
has achieved on footage, labour, and inventory i.e.
● GMRO – Gross Margin Return on investment
● GMRO – Gross Margin Return on Footage
● GMRO – Gross Margin Return on Labour
The returns on the category are compared with the benchmarks set for that category
and this helps further decision- making. Depending on the evaluation, a decision is
taken to either increase space or increase service intensity or to increase
merchandise. This exercise is done once in six month at the end of each season so
that the sales and promotions for the period are covered and the results are not
biased.
Shopper’s Stop has a very efficient IT system in place. Through various softwares its
Finance & Accounts, HR, Merchandising, Planning, and Warehousing activities have
been integrated. The integration of IT systems have given great advantage to
Shopper’s Stop in not only managing the merchandise planning and replenishments. It
further facilitates the suppliers network and warehouse operation in the best possible
manner.

14.4 CASE STUDY: CUTIE – THE KIDS WEAR BRAND

The following case study of a multinational brand with its base in US has given
licence to its Indian partner for kids’ apparel. It would be interesting to note how the
concerned licensee manages the feedback and reporting of its field staff on the
product sub-categories, for organizing an efficient inventory management. This
ensures proper availability of merchandise to consumers for achieving the best sales
result.
Shaikh is a Regional Retail Executive (RREs) for one of the foreign labels in Kids’
Brand by the name of “Cutie”. The brand is very much popular among the kids
between age-group of 2 to 14 years, and their parents due to its fashion image and
prestige. In India the brand is available through different chains of Large Format
Stores (LFS) and Exclusive Business Outlets (EBOs). As such Shaikh is a sincere
and hard working person. In the retail field he has about five years of experience. His
experience is mainly in the garment sector, starting with a position of Counter Sales
224 Representative (CSR). He rose to the position of a senior sales supervisor monitoring
sales staff at five stores. He joined this new company about a year back and had Application of Buying
and Merchandising
never faced much heat during the last one year with the company. He had to file
to Apparel Retail
some normal reports like global count, and daily store visit report. The global count Operation
report is a count of sales and stocks taken on daily basis for each of the stores under
his territory. The daily store visit report is prepared on daily basis based on his visit to
a store. Normally he would cover 3 stores in a day out of the total number of 12
outlets in his territory. So he has to prepare three daily visit reports as per the tour
plan decided with the Retail Manager Mr Kumar.
Shaikh’s other responsibilities are as under:
● To achieve the sales target for the outlets under his control.
● To monitor the sales staff at various retail outlets of the company, this included
Large Format Stores and Exclusive Business Outlets.
● To recruit staff at outlets whenever vacancy arises.
● To submit statement of stocks requirement to the management (back-end team)
for replenishment purpose to different outlets, based on the requirement
assessed.
● To submit statement for return of goods to the company’s warehouse, once in a
month, to the back-end team.
● To provide market feedback on new brands and existing competitors on various
marketing aspects like promotion schemes, new products, pricing, styles, new
malls, etc.
Recently about one month back a Retail Management Consultant (RMC) with the
company introduced a new sales feedback form as shown in Exhibit 1. This is
supposed to cover sales, stock, receipts, returns, closing stocks, and other important
details as shown in the given format. On one fine day RMC called all the RREs of
the company and Managers of EBOs to the head office and in an intensive session
with the team introduced the new sales feedback format. The training was conducted
for making everyone understand the importance of filling it as well as explained the
steps for filling the same. The steps explained were as follows:
1. To maintain a register as shown in Table 2 at each retail outlet location (both
LFS and EBOs)
2. Every new style to be entered in the respective page for the sub-category
mentioning MRP price and opening quantity. For existing styles to enter the
quantities in stock on the start date of the sales feedback process.
3. All the sales details to be entered on daily basis with tally marks. To be
summarized at the end of every week.
4. Quantities received or returned during the week concerned to be mentioned in
the concerned columns for the week.
5. Closing stock quantity to be entered using the following formula, Closing Stock =
Opening Stock + Received Quantity –Sold Quantity – Returned Quantity.
6. After the end of the week, on every Monday, the RREs should transfer the data
in the register to the format shown in Table 1, sub-category-wise.
7. The style-wise details to be taken from the register, as necessary, for broken
sets, and styles more than 60 days old for LFS outlets, and more than 90 days
old for EBOs.
8. It was emphasized the sub categories to be covered should be the top ones that
account for about 80% of sales for providing feedback as per the given format. 225
Buying and The important sub categories were found to be about 7 to 8 against which
Merchandising-II
benchmark quantities and options have been provided. The bench-mark
quantities indicate the maximum quantity to be maintained in stock for the given
price-range against the given sub-product category.
It is almost more than two weeks now since the new format was brought into use.
Shaikh has diligently started following the new feedback report. After the first burst
of enthusiasm he suddenly realized that the task of filling the new feedback form
requires deep effort. As it was not just taking count of the number of pieces but he
has to actually ensure that all the data is diligently entered by his CSRs and Managers
of EBOs in their registers. As the sale and stock receipt occurs, and then he has to
summarize the details in the register and in his feedback form accordingly.
Though the task was tedious, while doing it he realized that now he has much more
confidence when he has to present the report to the management on performance
related issues. The report now gives him clear idea about:
● The stock maintained against various sub categories and their respective price
ranges;
● The sales during the week against sub categories and price ranges;
● How many styles are in complete sets and in which sub category and price
ranges;
● Whether in any of the sub categories and price ranges there are excess or
deficient stocks as per the bench mark stock quantity to be maintained against
each of the sub categories and their respective price ranges. The bench mark
quantity details are provided by the backend team based on certain working for
each of the stores.
● The styles to be returned back if they have crossed the limitation of 60 or 90
days as the case may be;
● In which sub category and price range the movement is better and hence new
replenishments are required;
● To check if the sell through and sales to stock ratios are as per the bench mark
provided by the management team;
● Which of the stores are doing well in terms of sales and sales to stock ratios and
in which sub categories?
RMC after a period of 15 days of the sales feedback period asked each of the RREs
to make a detailed presentation of their analysis of the sales feedback forms for two
of their best stores. He made it clear to RREs that the purpose of this exercise is to
understand how well they have understood the importance of the process. What has
been their learning from the feedback process?
For Shaikh this was his first serious presentation to be made in a systematic manner.
While making use of the hard facts as provided by the feedback reports, he did not
know immediately from which point to begin his analysis and what is the best way of
representing the facts and figures. What questions he should cover in his analysis.
While going through the feedback reports he realized that in the ‘goods receipt’ row
he has entered the same quantity as the opening quantity. This was not correct, he
should have left it blank if there had been no new receipt during the week. Further in
the first row showing maximum standard quantity/(no. of options) by oversight he has
mentioned the no. of options first and quantities in the bracket. So now if you are in
his place can you help him to analyse the feedback data of two outlets viz. EBO
outlets located in Inorbit mall at Malad and at Oberoi Mall at Goregaon (E).
226
The data for the two EBO outlets is given in Annexure I Application of Buying
and Merchandising
to Apparel Retail
Questions about the Case Operation
1. What replenishment actions you would take for each of the two stores. Explain
for one product category in each of the stores.
2. In which categories and price ranges you need to reduce stocks, what
preventive steps you need to take while deciding on returning excess stocks.
3. If the sales to stock ratio to be achieved on yearly basis for each of the
categories is assumed to be 3. Can you identify the sub categories that are doing
well for the two stores combined and separately.
4. Within each of the sub categories can you find out which of the price ranges are
doing comparatively better for the two stores combined as well as individually.
For doing this analysis the following format could be of use.
Store Upto 300 301 - 500 501 - 700 701 – 1000 1001 - 1500 1501 - 2000
Name

Sub No Sale No Sale No Sale No Sale No Sale No Sale

category of as % of as % of as % of as % of as % of as %
pcs of pcs of pcs of pcs of pcs of pcs of
sold stock sold stock sold stock sold stock sold stock sold stock
Sub cat 2

Sub cat 3

5. Between the two stores which one is doing well in terms of overall sales and
sales to stock ratio irrespective of the sub categories?
6. Based on the analysis of individual stores can you draw out the profile of the
consumers for each one of them? What promotional steps you may take to
improve sale of each of these stores.
Table1: Weekly category-wise report to be submitted by each Regional
Retail Executive (RRE):
Name of CSR: Store Name: Period:

Category Details Price Price Price Price Price Remark

Range Range Range Range Range
Upto 301 to 501 to 701 to 1001 to
300 500 700 1000 1500
Tee Shirt Bench mark Qty/
(No of Options)
Opening Qty
(mention style
nos. with proper
sets)
Qty Recd
Qty Returned
Qty Sold
Closing Qty
(mention style
nos. with broken
sets

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Buying and
Merchandising-II or more than 60
days old
Skirt Bench mark Qty/
(No of Options)
Opening Qty
(mention style
nos. with proper
sets)
Qty Recd
Qty Returned
Qty Sold
Closing Qty
(mention style
nos. with broken
sets)
or more than 60
days old

Table 2: Format of the sales register for recording sales on daily basis and stock
information at regular intervals say at the end of the week.
Product Category Period
Style MRP Opening Opening 1st 2nd 3rd 4th 5th 6th 7th Total Ret Recd Closing
Nos Price Qty Qty Day weekly Qty Qty Qty
Date Sale Sale
Qty Qty

The case is excerpted and adapted form ‘Product Category Management’,

Chiplunkar R M., ch 7, Tata McGraw Hill Education Pvt. Ltd. New Delhi. 2010.

14.5 GUIDELINES FOR SOLVING THE QUESTIONS

The students should note the benchmark or maximum quantities given for each
category against each of the price ranges. Then the student should note the closing
stock quantities against each of the price ranges. The difference between the
maximum quantity to be maintained under each price range and the quantity available
against closing stock is the quantity to be ordered or replenished. Also while ordering
228 merchandise the replenishment of missing sizes to be done.
The student should check for the difference between the maximum stock to be Application of Buying
and Merchandising
maintained against each category for each of the price ranges, and the closing stock
to Apparel Retail
available as of now against each category and the price range. If the difference is in Operation
negative figures for any category against any of the price ranges, then the concerned
quantities need to be returned to the vendor or the retailer’s ware-house.
While returning the quantities the store has to keep in mind if the replacement of
merchandise is possible against the category in the given price range. As far as
possible the broken size sets in any of the styles should be returned if the same are
not to be available. Also the styles which are exposed for atleast 90 days need to be
returned to warehouse.
For finding the sub-categories that are doing well for each of the stores, the students
should find the sales to stock ratio for each of the categories. You should calculate
sales to stock ratio by dividing the total sales of the category (combining for all price
ranges) by the overall closing stock of the concerned category. Now multiply the
given ratio by 12 to find the expected yearly sales to stock ratio. The ratio that is
higher or closer to 3 indicates that the concerned categories are doing well.
For finding the categories that are doing well on combined basis, the students will
have to find the two stores combined sales and stock figures for each of the category.
Then you should further analyse the sales to stock ratio to check the ones which are
doing well, as explained in the previous point.
As explained in the question no.4, the student should combine the sales data of two
stores against each of the category and price range as per the table shown in the
question. The percentage of sales to be worked out for each price range against each
category. The higher percentage under a particular price range indicates that the
concerned price range is doing well for that category.
For finding out the store that is doing well in terms of overall sales, the students
should sum up the sales against all the sub-categories and then compare. For finding
the sales to stock ratio the students should sum up the sales and stock figures
separately for each of the stores. You may find the sales to stock ratio separately for
each of the stores. The store with higher sales to stock ratio is the best performing
store.

Check your Progress B

1. Who founded the retail chain, “Shopper’s Stop”?
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2. By which name shopper’s Stop launched its retail loyalty programme?
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229
Buying and
Merchandising-II 3. What do you mean by category bench mark?
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4. What is meant by “once the budgets are frozen”?
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5. Which of the following statements are True or False?
i) India tops in the organized retail sector in Asia.
ii) In India, the share of spending on clothing and footwear in rural areas is
higher than that is the urban areas.
iii) In India about 80% of the retail outlets are run as family businesses.
iv) The first retail store by Shopper’s Stop was opened at New Delhi.
v) Cutie is a men’s wear brand.

14.6 LET US SUM UP

The organized retail sector in India is still at the infantile stage and accounts only 3%
of the total retail market which is estimated to be more than 330 billion dollars. On the
contrary, China, Malaysia, Thailand and Taiwan are far ahead of India is this respect.
However with improving infrastructure facilities, and with the government inclined to
relax the rules for the entry of foreign brands in the retail sector, it is expected that
retail marketing would soon acquire a prime position in commercial sector.
Clothing and accessories are the most important products of the India organized
retail. They account almost 38% of the total organized retail in India. Many Indian
brands such as Zodiac clothing have created a niche is the competitive markets of
Holland and UK.
Shopper’s Stop (SS) was founded in 1991 by the K. Raheja group, who were till than
a leading name in the real estate and hotel industries. By launching its unique scheme
of “First citizen”, this retail chain could sustain and further strengthen its customer
loyalty. As an example, the organization of the buying and merchandising process
being practised by Shopper’s Stop has been discussed in detail.
The results of a case study of Cutie – the kids wear brand have been described.

14.7 KEY WORDS

Benchmark : Standard, or a set of standards, used as a point of
reference for evaluating performance or level of
quality.
Business Conglomerates : A corporation consisting of several companies in
230 different businesses.
CAGR : Compound annual growth rate. Application of Buying
and Merchandising
FICCI : Federation of Indian chambers of commerce and to Apparel Retail
industry. Operation

Fragmented : An isolated or incomplete part.

Infrastructural facilities : The basic facilities, services and installations
needed for the functioning of a community or
society.

14.8 ANSWERS TO CHECK YOUR PROGRESS

B5 i) False; ii) True; iii) True; iv) False; v) False

14.9 TERMINAL QUESTIONS

1. Describe the present scenario of the organized retail sector in India. What are
its future prospects?
2. Discuss the results of the study done by FICCI in 2007 about the organized retail
industry in India.
3. Explain schematically the process of buying and merchandising being followed
by Shopper’s Stop.
4. How is category performance evaluated as Shopper’s Stop? Describe the steps
taken for improving it.
5. Discuss briefly the main results of the case study of Cutie.

231