Fashion Concepts

&
Fashion Merchandising

Major Subject
Master of Fashion Management
NIFT Mumbai
• Merchandising
• Promoting & Selling
• Responsible to Run Store – RIGHTS??
• Responsible for Product/Collection/Display
• If Forecasting is relevant?
• Sales & Promotion Strategies
• Planning RIGHTS??? Qty, Price, Consumers?
• Coordinating with Manufacturers & Suppliers
• Inventory Management & Controlling (Monitor Performance)
• Risk Analysis
• Hiring
• Development of Product
• Coordination of different departments
• Customer Demand Forecasting & Trends
• Design & Lay outing of the Store
• Costing of the Product as in the Operation Breakdown + Quotes + MOQs.
• Allocation of Inventory
• Introducing New Product – NPD/Sampling
• Fixtures & Props – VM
• Sourcing of RMs & Sampling
• Bring Business for Company
• Range Planning, Assortment Planning, Costing & Negotiations with Vendors, in terms of Product Placement in Ratios.
MKT Strategies.
• Category Management
• Budgeting
• Tech Pack development, Sampling, QC & Approvals
• Helping designers with the market intelligence
• Online Listing
• Trade Shows – Responsible for creation & Presentation, Booking Orders.
• Inspections, Following Shipment
• Vendor Management & CRM
• In Limitations & Resource Constraints.
 C
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T
O
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The Global Fashion Supply Chain

 What is Merchandising ??
Merchandising is generally defined as a set
of activities designed to provide the right
goods at the right place at the right time
through the right medium at the right price
in the right mix of the right quality from
the right source in the right quantity as per
the requirements of the business.
It ensures that the smooth occurrence of any
activity is not hindered for want of any
material or service.
The term ‘Merchandising’ in fashion retailing
refers to the total process of stock planning,
management and control.

The job requires highly developed numeric

skills and an innate ability to spot trends,
relationships and co-relationships within
regular sales and stock figures.
 The merchandiser’s job combines
support for the buyer (in terms of
providing the buyer with
information) with responsibility for
effectively managing the flow of
stock into and around the business
after the suppliers have completed
the range.
 The merchandiser ensures that the business
‘de-risks’ itself by making the best decision at a
point of time.
‘De-risking’ refers to the process of optimising
sales performance and minimising stock risk,
by making informed decisions.

Tip: Stock is money- it must be in the

right quantity, in the right place at the
right time.
Main areas of merchandising management activity:

1.Planning stock to be delivered in to the business:

a. Analyzing historical sales patterns and trends.
b. Recommending forward fabric buying levels.
c. Recommending forward garment buying levels
d. Monitoring and managing delivery of new stock in to the distribution centre.
e. Ensuring that overall stock levels and buying are in line with the organization
sales plans.
2.Moving delivered stock around the business:
a. Initial allocations of new stock to shops- what quantity to each?
b. Store replenishment – as garments start to sell – how much more stock and
how quickly do we send to individual branches?
a. Recommending the level of repeat buys of best selling lines.
b. Transfers and recalls of faulty or non-seasonal stock.
 The merchandiser, like the buyer, is often trying to
work on many seasons at once. They will be helping
the buyer plan ahead for distinct seasons’ colour
ratios; they will also be helping the buyer to decide on
how many garments to buy within each category for
the coming season.

In addition they will be controlling the current

seasons’ stock flow into the business and advising on
whether or not repeat buying will be necessary.
Whether late deliveries need to be cancelled or
whether or not poor selling lines may have to have
their price reduced, to ensure that they will sell out.
The role and responsibilities of the merchandiser:
•To estimate sales and plan stock levels to achieve the
planned sales and margin for a specific garment type.
•To provide regular analysis and progress reports referring to
stock levels, sales performance and stock purchases to senior
management.
•To work with buyer on range planning to maximise
commercial opportunities for products.
•To manage intake and commitment to accommodate the
stock requirements of the business at any given time and the
open to buy requirements of the garment type.
•To manage stock distributions to stores optimising
customer demand, available selling space and seasonal
selling opportunities.
•To effectively manage and develop the merchandising
distribution team.
The key merchandising competencies:
Personal Characteristics:
Logical, rational
Multi tasking flexibility
IT-oriented
Numerate
Analytical
Detail conscious – But aware of bigger picture
Assertive
Retentive Memory
Awareness
Data awareness
Commercial awareness
Planning
Action
Fashion merchandising
Factors that make fashion merchandising
Unique:
1. Obsolescence factor
2. Higher markdown
3. Faster turnover
4. Seasonal factors
5. Sales promotion
Obsolescence factor
Obsolete = no longer in use or discarded fashion

•In many categories of merchandise utility value is a strong factor.

•But in fashion the emotional pull is an all consuming element.
•It can be readily seen that what is not accepted becomes obsolete.
•Merchandise is initially priced at a level that will make for a desired profit
•Consumer’s acceptance = buyer’s success
•Lack of acceptance means slow or non selling style
•New selling price to move it out of stock
Higher markdowns:
•Right merchandise at right price level is the key to success
•Product obsolescence leads to mark down
•First markdown should be deep enough so that there is an immediate
appeal to consumers and that the stock can be moved out quickly
•Strong relation between the item and time of the season it is marked
down
Faster turnover:
•Fashion change fast
•By constantly changing styles in stock, the merchandise is kept in
good condition
Seasonal factors:
•Fashion depends on the season of the year, when the season
is over, the merchandise fades with it.
•Very rarely merchandise is kept in storage for the following
year. It is entirely dangerous
•Each buyer therefore follows the principle
“what is purchased must be sold”
Sales promotions: fashion products sales promotions are an
important part.
Presentation: in case of fashion products presentation of
product to consumer is of utmost importance.
Where?
•Retailers
•Wholesalers
•Buying houses / buying agencies
•Export houses
Wholesaler retailer consumer

Exporter buying house Retail chain

 Basic functions of merchandising
1. Planning
2. Buying
3. Selling
• The fundamental consideration of fashion
merchandising is to stock
• What consumers are likely to accept.
• Right with respect to styles, colors, price, place,
time, etc
Steps in fashion merchandising
1. Planning: fashion is subject to change and the planning
must have flexibility
• Planning is based on how much we expect to sell and
how much inventory it will take to secure that selling
• Planning the assortments
• Customer orientation : knowing what people want,
when they want and how much they would pay for it.
• Preparation of six month buying plans which require
the knowledge of fashion trends and market
conditions and economic factors
• Most important factor in planning is flexibility.
2. Buying:
Buying is done by classifications
• Price lines
• Sizes
• Quantities
• Buying is dependant on customer demand
estimated by study of customer wants and needs
• The successful buyer knows what customer wants,
when they want it and how much they want to pay
for the goods.
Buying involves the following functions
1. Choosing the resource
2. Selecting the merchandise
3. Securing the best terms
4. Actual placing the order.
The buyer is responsible for not only what to buy and when to
buy, but also where to buy and how much to spend.
Buying responsibilities includes:
• Establishing and maintaining effective buying relationship with vendors.
• Adequately stocking the departments price lines and securing the best possible
mark up on all purchases
• Supervising the physical inventory or stock counts to verify the accuracy of the
stock records.
1. Selling: buying is dependent on customer demand.
Demand determined best by the actual customer
response to the to goods made available by the buying
function. So buying function cannot exist without
involvement in selling function. This function includes
communication and promotional activity.
“Goods well bought are half sold’’
Trend towards central buying- merchandise
presentation to the customer is becoming a function of
sales manager rather than buying
A store regardless of it’s size, cannot and should
not stock, all the merchandise available in the
market.
The crux of merchandising :
Selecting the merchandise with certain
characteristics that are indicative of tastes of
customers of a store and in such assortments ,
depths and price levels that make for a proper rate
of sale decided upon by the customer.
Depending on the size of the company, the merchandising departments, along
with their focus can be divided as follows:
Department attached Focus
to

Design Procuring materials as desired by design dept.

Scouting for new materials & making data
available to the designers on excess or slow
moving items of raw materials & trims in stock.
Production Procuring material as per the production plan at
the right time & the right price & for right
quantities to ensure that production process is
never hampered.
Retail Ensuring that the merchandise available at the
stores is what is selling or is likely to sell and
withdraw slow moving items.
Overall To overview the flow of goods and services within
the organization.
 Top Management

Design
Marketing

Procurement
Merchandising Accounts

Production
ERP

Warehouse Logistics
 Process Flow in Export House

Tech pack received

Proto sample /
development sample
If sample approved
If not approved 1st fit sample

size set sample

submitted Initial fabric is ordered

2nd fit
Size set approval

sealer sample (With Bulk fabric is received

Comments)
sealer sample to
3rd fit production

Production
REJECT
Finishing

Shipment
Role of Merchandiser in Export House

sampling
accessory production

fabric finishing

Security merchandising
packaging

R&D shipping

HRD finance
 Role of Merchandiser in Export House

Fabric, lab ,trims and accessories,

• Costing - best price quotations - desired markups. pattern making department, CAD
2

• For all the approvals whether Proto / Fit , Size Set , sealer, TOP samples Sampling and IE department
3
or gold sealer

• Once the orders are finalized, pass on all the concerned details to the Accounts and planning department
4
planning.

• Conducting PP meeting and preparing Time and action calendar and HODs of all concerned department
5 reviewing them on daily basis.

Production and finishing

• Coordinating with production deptt & updating them about various
approvals received from buyer to ensure timely delivery. department
6

• Providing best service to the buyers by taking quick actions and

feedback to maintain healthy buyer vendor relationship Merchandising Department
7
 Fabric store For warehousing Trims & Accessory store

Checking for defects, width, color

QC

Cutting Department For cutting, recutting, bundling & ticketing

Checking of cut panels

QC
For stitching
Sewing Department
Laces, zippers, labels
AQL -1.5

QC For end table checking (measurement checking)

For buttoning
Kaj – button Department

AQL – 2.5
Finishing Department For washing, thread cutting, spot removing , ironing & tagging

Final checking
QC
For getting packed in poly bags
Packaging Department
Tags, price tickets

QC Metal detection

For getting packed in cartons

Shipping Department
For shipping Production process
 Acceptable Quality Levels for Normal Inspection (% defective)

Lot Size/Sample Size .01 .015 .025 .04 .065 .10 .15 .25 .40 .65 1.0 1.5 2.5 4.0

Lot Acceptance (Ac) Number (maximum number of rejects to accept the lot)

LS=2 to 8
0 0 0 0 0 0 0 0 0 0 0 0 0 0
SS=2

LS=9 to 15
0 0 0 0 0 0 0 0 0 0 0 0 0 0
SS=3

LS=16 to 25
0 0 0 0 0 0 0 0 0 0 0 0 0 0
SS=5
LS=26 to 50
0 0 0 0 0 0 0 0 0 0 0 0 1 1
SS=8

LS=51 to 90
0 0 0 0 0 0 0 0 0 0 0 0 1 1
SS=13

91 to 150
0 0 0 0 0 0 0 0 0 0 0 0 1 2
SS=20

151 to 280
0 0 0 0 0 0 0 0 0 0 0 1 2 3
SS=32

281 to 500
0 0 0 0 0 0 0 0 0 0 1 2 3 4
SS=50
501 to 1200
0 0 0 0 0 0 0 0 0 1 2 3 5 7
SS=80

1201 to 3.2K
0 0 0 0 0 0 0 0 1 2 3 5 7 10
SS=125
3201 to 10K
0 0 0 0 0 0 1 1 2 3 5 7 10 14
SS=200

10001-35K
0 0 0 0 0 0 1 2 3 5 7 10 14 21
SS=315

35001-150K
0 0 0 1 1 1 2 3 5 7 10 14 21 -
SS=500

150001-500K
0 0 0 1 1 2 3 5 7 10 14 21 21 -
SS=800

.01 .015 .025 .04 .065 .10 .15 .25 .40 .65 1.0 1.5 2.5 4.0
 Buying House
Two primary types of Buying Offices are:

•Independent & Store Owned

•Independent Resident Buying Offices are independently owned & operated.
They charge fees to noncompeting stores for market services.
•Store-owned Resident Buying Offices
 Role of Merchandiser in a Buying House

International Buyer

CONFIRMATION Inquiry Quotation

BUYING HOUSE
MERCHANDISER
CONFIRMATION

Quotation Inquiry

Export House
Export House Export House Export House
 Role of Merchandiser in a Buying House

Approvals Approvals
B
Proto, 1st Fit, Size set, Proto, 1st Fit, Size set,
Gold Seal U Gold Seal
B
Approved Y Approved
U
I
Y
Updating Info. N Inspection/Follow -up Export House
E Merchandiser
G
R
H
O Shipment
Shipment
U
S
Merchandiser

Shipment
Task 1:

Inside Fashion Business – To develop an understanding

of the structure and function of Global Fashion Industry
Merchandise Plan:
It is a financial plan allocating specific amounts of
money to each department/division for the purchase
of an appropriate assortment of fashion merchandise
that will meet consumer demand & sales goals.

Six month merchandising plan

Dollar Plan
Elements of the merchandise plan

• Planned sales
• Estimates for each month and the period
• Planned stock
• Estimated inventory need at the beginning of each month
• Planned markdowns
• Estimated inventory reduction for each month
• Planned purchases:
• Estimated purchase budget to be spent during a given period.
Since a plan is a set of financial goals, it may
include planned figures for:
• Workroom cost
• Cash discount
• Season stock turnover
• Shortage
• Average stock
• Markdown percentage of initial markon
• Newspaper advertising
• Gross margin percentage
Merchandise Planning

This process of Merchandise Planning begins with the

formulation of objectives, setting of policies and
implementation of procedures necessary to carry out dept. /
store objectives.
It includes both –
•Cash planning in terms of Merchandise budgets
•Unit planning in terms of Merchandise lists
Six-month merchandise plan

Successful retail operations requires the right merchandise assortment.

To achieve this, the following variables must be planned at least 6 months in
advance.
•Receipt Plans
•Sales Plan
•Mark-up Plans
•Mark-down Plans
•Inventory shortages
•EOM Stock levels
•Weeks Supply
•Gross Margins – Profits
This plan is called the merchandise budget & it forecasts specific merchandising
activities for a dept. or store for a specified period of time. This merchandise budget
is also referred to as the six-month merchandise plan.
The Planning Process

Planning is based on 3 components:

Objectives : the goal towards which the management

activities of the business establishment are directed.
Policies: provide management with a frame of reference for
decision making that is consistent with planned objectives –
they provide guidelines for dealing consistently with
problems & issues.
Procedures: are necessary steps that must be followed to
execute a given policy. Management must emphasize if the
procedure is a rule / guide.
Variables of record-keeping

Cash Disbursements
Cash Receipts
Credit
Expenses
oDirect: paid out directly for the dept.’s benefit. E.g. salary, advertising,
promotions, special events.
oIndirect: that serve the whole store. E.g. electricity, rent, taxes, insurance etc.

Dept. Sales 20,000

COGS - 14000
Total 6000
OP Expenses -5000 (3000 D + 2000ID)
Net Profit 1000(Net profit)
Sales
Purchases
Stocks & Inventories
Profit & Loss Statement / Income Statement / Operating
Statement
 Key factors – P & L

Returns &
Net Sales = Gross Sales - Adjustments

Total Cost of Op. Inventory Purchase Shipping

Purchases = (cost)
+ +
(cost) (cost)

Net Cost of Total Cost Closing Inventory

= - = Gross COGS
Goods Sold of Purchases (Cost) -

Cash Discount
 Gross
Margin = Net Sales - Net COGS

Total Operating Direct Indirect

Expenses = Expenses + Expenses

Gross Total Operating

Net Profit = Margin
- Expenses
Planning Process & Effective Budgeting

Operations Budget

Cash Budget

Capital Budget

Merchandise Budget
 Six Month Merchandise Plan
Product Category: Kid’s T-shirt
Planned sales: Rs 8,00,000
Reductions: 20% of planned sales
20% X 8,00,000 = 1,60,000
Seasonal turnover: 1.5
Operating Expenses: 35%
Profit Desired: 10%
Alteration cost: 1%
Cash Discount: 1.5%
SIX MONTHS MERCHANDISE PLAN Plan Actual
% initail markup
Department Name KIDS %reductions 20%
% maintained mark up
Department Number 007 % alteration expenses 1%
% cash discount 1.5%
Department Manager Mr. V.P. Singh % gross margin
% operating expenses 35%
Buyer Lilliput % net profit
season turnover 1.5
Period 6 months average stock
basic stock
AUG SEP OCT NOV DEC JAN SEASON
SPRING SUMMER FEB MAR APRIL MAY JUNE JULY TOTAL
Sales Last Year
Plan 8,00,000
plan % of season
Revised Plan
Actual
EOM STOCK Last Year
Plan
Revised
Actual
MARKDOWNS Last Year
Plan
Revised
Actual
% of Plan MD
BOM STOCK Last Year
Plan
Revised
Actual
Planned Purchases at Retail Last Year
Plan
Revised
Actual
Planned Purchases at Cost Last Year
Plan
Revised
Actual
 Percentage of Planned sales and Planned
Reductions

Month Sales % Reduction %

Feb 14 16

Mar 15.5 13

April 20 20

May 19.5 15

June 16 17

July 15 19
SIX MONTHS MERCHANDISE PLAN Plan Actual
% initail markup
Department Name KIDS %reductions 20%
% maintained mark up
Department Number 007 % alteration expenses 1%
% cash discount 1.5%
Department Manager Mr.V.P.Singh % gross margin
% operating expenses 35%
Buyer Lilliput % net profit
season turnover 1.5
Period 6 months average stock
basic stock
AUG SEP OCT NOV DEC JAN SEASON
SPRING SUMMER FEB MAR APRIL MAY JUNE JULY TOTAL
Sales Last Year
Plan 112000 124000 160000 156000 128000 120000 8,00,000
Plan % of season 14 15.5 20 19.5 16 15
Revised Plan
Actual
EOM STOCK Last Year
Plan
Revised
Actual
MARKDOWNS Last Year
Plan 25600 20800 32000 24000 27200 30400 160000
Revised
Actual
% of Plan MD 16 13 20 15 17 19
BOM STOCK Last Year
Plan
Revised
Actual
Planned Purchases at Retail Last Year
Plan
Revised
Actual
Planned Purchases at Cost Last Year
Plan
Revised
Actual
STEP1- Distribution of Monthly Planned sales

Monthly Planned sales = % of season sales X Net

sales
Feb: 14% X 8,00,000 = 1,12,000
March: 15.5% X 8,00,000 = 1,24,000
April: 20% X 8,00,000 = 1,60,000
May: 19.5% X 8,00,000 = 1,56,000
June: 16% X 8,00,000 = 1,28,000
July: 15% X 8,00,000 = 1,20,000
Step 2 - Distribution of Monthly planned
reductions
Total monthly Planned Reduction = % of reductions X Net
Sales
= 20% X 8,00,000
= 1,60,000

Feb: 16% X 1,60,000 = 25,600

March: 13% X 1,60,000 = 20,800
April: 20% X 1,60,000 = 32,000
May: 15% X 1,60,000 = 24,000
June: 17% X 1,60,000 = 27,200
July: 19% X 1,60,000 = 30,400
1,60,000
SIX MONTHS MERCHANDISE PLAN Plan Actual
% initail markup
Department Name KIDS %reductions 20%
% maintained mark up
Department Number 007 % alteration expenses 1%
% cash discount 1.5%
Department Manager Mr. V.P. Singh % gross margin
% operating expenses 35%
Buyer Lilliput % net profit
season turnover 1.5
Period 6 months average stock
basic stock 400000
AUG SEP OCT NOV DEC JAN SEASON
SPRING SUMMER FEB MAR APRIL MAY JUNE JULY TOTAL
Sales Last Year
Plan 1,12,000 1,24,000 1,60,000 1,56,000 1,28,000 1,20,000 8,00,000
plan % of season 14 15.5 20 19.5 16 15
Revised Plan
Actual
EOM STOCK Last Year
Plan
Revised
Actual
MARKDOWNS Last Year
Plan 25,600 20,800 32,000 24,000 27,200 30,400 1,60,000
Revised
Actual
% of Plan MD 16 13 20 15 17 19
BOM STOCK Last Year
Plan 512000
Revised
Actual
Planned Purchases at Retail Last Year
Plan
Revised
Actual
Planned Purchases at Cost Last Year
Plan
Revised
Actual
 STEP 3 - Determine BOM Stock Figures
BOM = Basic Stock + Planned Sales for that month

Basic Stock = Avg Inventory – Avg Monthly

Sales
Avg Inventory = Planned Sales/ Stock Turnover
= 8,00,000/ 1.5
=5,33,333.33
Avg Monthly Sales = Planned Sales/No. of Months
= 8,00,000/ 6
= 1,33,333.33
Therefore, Basic Stock = 5,33,333.33 – 1,33,333.33
= 4,00,000
 BOM Stock Calculation

Feb: 1,12,000 + 4,00,000=5,12,000

March: 1,24,000 +4,00,000 =5,24,000
April: 1,60,000 +4,00,000 =5,60,000
May: 1,56,000 +4,00,000 =5,56,000
June: 1,28,000+4,00,000 =5,28,000
July: 1,20,000+4,00,000 =5,20,000

Total Planned BOM = 32,00,000

SIX MONTHS MERCHANDISE PLAN Plan Actual
% initail markup
Department Name KIDS %reductions 20%
% maintained mark up
Department Number 007 % alteration expenses 1%
% cash discount 1.5%
Department Manager Mr. V. P. Singh % gross margin
% operating expenses 35%
Buyer Lilliput % net profit
season turnover 1.5
Period 6 months average stock
basic stock 400000
AUG SEP OCT NOV DEC JAN SEASON
SPRING SUMMER FEB MAR APRIL MAY JUNE JULY TOTAL
Sales Last Year
Plan 1,12,000 1,24,000 1,60,000 1,56,000 1,28,000 1,20,000 8,00,000
plan % of season 14 15.5 20 19.5 16 15
Revised Plan
Actual
EOM STOCK Last Year
Plan 5,24,000 5,60,000 5,56,000 5,28,000 5,20,000 533333
Revised
Actual
MARKDOWNS Last Year
Plan 25,600 20,800 32,000 24,000 27,200 30,400 1,60,000
Revised
Actual
% of Plan MD 16 13 20 15 17 19
BOM STOCK Last Year
Plan 5,12,000 5,24,000 5,60,000 5,56,000 5,28,000 5,20,000 32,00,000
Revised
Actual
Planned Purchases at Retail Last Year
Plan
Revised
Actual
Planned Purchases at Cost Last Year
Plan
Revised
Actual
 STEP 4 - End of month stock

End of month EOM=Beginning inventory of next

month
EOM for July = Average inventory
Average inventory = Sales/stock turnover
=8,00,000/1.5
=5,33,333
SIX MONTHS MERCHANDISE PLAN Plan Actual
% initail markup
Department Name KIDS %reductions 20%
% maintained mark up
Department Number 007 % alteration expenses 1%
% cash discount 1.5%
Department Manager Mr. V.P.Singh % gross margin
% operating expenses 35%
Buyer Lilliput % net profit
season turnover 1.5
Period 6 months average stock
basic stock 400000
AUG SEP OCT NOV DEC JAN SEASON
SPRING SUMMER FEB MAR APRIL MAY JUNE JULY TOTAL
Sales Last Year
Plan 1,12,000 1,24,000 1,60,000 1,56,000 1,28,000 1,20,000 8,00,000
plan % of season 14 15.5 20 19.5 16 15
Revised Plan
Actual
EOM STOCK Last Year
Plan 5,24,000 5,60,000 5,56,000 5,28,000 5,20,000 5,33,333 32,21,333
Revised
Actual
MARKDOWNS Last Year
Plan 25,600 20,800 32,000 24,000 27,200 30,400 1,60,000
Revised
Actual
% of Plan MD 16 13 20 15 17 19
BOM STOCK Last Year
Plan 5,12,000 5,24,000 5,60,000 5,56,000 5,28,000 5,20,000 32,00,000
Revised
Actual
Planned Purchases at Retail Last Year
Plan
Revised
Actual
Planned Purchases at Cost Last Year
Plan
Revised
Actual
 Step 5 -Monthly Plan Purchase at Retail

Monthly plan purchase at retail

= Sales+ EOM stock + markdown - BOM stock
Feb: 1,12,000+5,24,000+25,600-5,12,000 =1,49,600
March:1,24,000+5,60,000+20,800-5,24,000 =1,80,800
April: 1,60,000+5,56,000+32,000-5,60,000 =1,88,000
May: 1,56,000+5,28,000+24,000-5,56,000 =1,52,000
June: 1,28,000+5,20,000+27,200-5,28,000 =1,47,200
July: 1,20,000+5,33,333+30,400-5,20,000 =1,63,733

Total planned purchase at retail = 9,81,333

SIX MONTHS MERCHANDISE PLAN Plan Actual
% initail markup
Department Name KIDS %reductions 20%
% maintained mark up
Department Number 007 % alteration expenses 1%
% cash discount 1.5%
Department Manager Mr. V. P. Singh % gross margin 45%
% operating expenses 35%
Buyer Lilliput % net profit 10%
season turnover 1.5
Period 6 months average stock
basic stock
AUG SEP OCT NOV DEC JAN SEASON
SPRING SUMMER FEB MAR APRIL MAY JUNE JULY TOTAL
Sales Last Year
Plan 1,12,000 1,24,000 1,60,000 1,56,000 1,28,000 1,20,000 8,00,000
plan % of season 14 15.5 20 19.5 16 15
Revised Plan
Actual
EOM STOCK Last Year
Plan 5,24,000 5,60,000 5,56,000 5,28,000 5,20,000 5,33,333
Revised
Actual
MARKDOWNS Last Year
Plan 25,600 20,800 32,000 24,000 27,200 30,400 1,60,000
Revised
Actual
% of Plan MD 16 13 20 15 17 19
BOM STOCK Last Year
Plan 5,12,000 5,24,000 5,60,000 5,56,000 5,28,000 5,20,000 32,00,000
Revised
Actual
Planned Purchases at Retail Last Year
Plan 1,49,600 1,80,800 1,88,000 1,52,000 1,47,200 1,63,733 9,81,333
Revised
Actual
Planned Purchases at Cost Last Year
Plan
Revised
Actual
Step 6 - Planned purchases at cost

Planned purchase at cost = Cost% X planned purchased at

retail
Cost%= 100- gross margin%
Gross margin % = profit%+expense%
=10%+35%
=45%
Cost% = 100%-45%
=55%
Planned purchase at cost

Feb: 55%X1,49,000 =82,280

March:55%X1,80,800 =99,440
April: 55%X1,88,000 =1,03,400
May: 55%X1,52,000 =83,600
June: 55X1,47,200 =80,960
July: 55%X1,63,733 =90,053.15
Planned purchase at cost =1,71,013
SIX MONTHS MERCHANDISE PLAN Plan Actual
% initail markup
Department Name KIDS %reductions 20%
% maintained mark up
Department Number 007 % alteration expenses 1%
% cash discount 1.5%
Department Manager Mr. V.P. Singh % gross margin
% operating expenses 35%
Buyer Lilliput % net profit
season turnover 1.5
Period 6 months average stock
basic stock
AUG SEP OCT NOV DEC JAN SEASON
SPRING SUMMER FEB MAR APRIL MAY JUNE JULY TOTAL
Sales Last Year
Plan 1,12,000 1,24,000 1,60,000 1,56,000 1,28,000 1,20,000 8,00,000
plan % of season 14 15.5 20 19.5 16 15
Revised Plan
Actual
EOM STOCK Last Year
Plan 5,24,000 5,60,000 5,56,000 5,28,000 5,20,000 5,33,333
Revised
Actual
MARKDOWNS Last Year
Plan 25,600 20,800 32,000 24,000 27,200 30,400 1,60,000
Revised
Actual
% of Plan MD 16 13 20 15 17 19
BOM STOCK Last Year
Plan 5,12,000 5,24,000 5,60,000 5,56,000 5,28,000 5,20,000 32,00,000
Revised
Actual
Planned Purchases at Retail Last Year
Plan 1,49,600 1,80,800 1,88,000 1,52,000 1,47,200 1,63,733 9,81,333
Revised
Actual
Planned Purchases at Cost Last Year
Plan 82,280 99,440 1,03,400 83,600 80,960 90,053 1,71,013
Revised
Actual
Open-to-Buy System
The OTB system is used after the merchandise is purchased
Monitors Merchandise Flow

Determines How Much Was Spent and How Much is Left to

Spend

PhotoLink/Getty Images PhotoLink/Getty Images

Optimal Merchandise Mix
3 Dimensions

Variety
- Refers to the mix in terms of number of different lines the retailer stocks in the
store. e.g. men’s wear, women’s wear, toys, appliances, cosmetics, sports goods etc.
Breadth
- Or assortment is the number of merchandise brands that are found in a
merchandise line. e.g. A ‘7-11’ store will carry very narrow breadth, as
opposed to Shoppers Stop carries 6-8 brands of jeans or mens shirts.
Battle of brands vs. private labels
Depth
- The average number of SKU’s within each brand of individual merchandise line.
e.g. Due to shelf space constraints A7-11 store may carry only 1-2 fast moving sizes
whereas a Walmart may carry all sizes & sufficient quantity of each.

Retailers task is to find a balance between the above 3 dimensions in relation to his
store, it’s positioning, customer profile & financial resources.
Merchandise Mix Strategies
Different optimal variety and assortment strategies possible!!

• Narrow Variety/Shallow Assortment

Vending machines
Newsstands
Door-to-door
• Wide Variety/Shallow Assortment
Variety Stores
General Stores
Discount Stores
• Narrow Variety/Deep Assortment
Specialty Stores
• Wide Variety/Deep Assortment
Full-line Department Stores
 Merchandising Assortment Strategies
Narrow & shallow
• Advantages
- Aimed at convenience
customers
- Least costly
- High turnover items
• Disadvantages
- Little width and depth
- No one-stop shopping
- Some disappointed customer
- Weak image
- Limited customer loyalty
- Small trading area
Wide and Shallow
• Advantages
- Broad market
- High level of customer traffic
- Emphasis on convenience customer
- Less costly than wide and deep
- One-step shopping
• Disadvantages
- Low variety within product line
- Some disappointed customers
- Weak image
- Many items with low turnover
- Reduced customer loyalty
Merchandising Assortment Strategies
Narrow & Deep
• Advantages
- Specialist image
- Good customer choice in
category(ies)
- Specialized personnel
- Customer loyalty
- No disappointed customers
- Less costly than wide and deep
• Disadvantages
- Too much emphasis on one
category
- No one-stop shopping
- More susceptible to trends/cycles
- Greater effort needed to
enlarge the size of the
trading area
Wide and Deep
• Advantages
- Broad market
- Full selection of items
- High level of customer traffic
- Customer loyalty
- One-stop shopping
- No disappointed customers
• Disadvantages
- High inventory investment
- General image
- Many items with low
turnover
- Some obsolete merchandise
 Model Stock Plan : Mens Shirts
Dependent Variables
Customer profile – psychographic / demographic
Buying behavior – occasion / frequency of purchase/ budget
Stores positioning vis-a-vis product product category

Product Attributes – Some Variables

Type Dressy, casual, sports, work 4

Size S, M, L, XL 4

Sleeve Long, short 2

Collar Button-down, normal 2

Color Blue, white, beige, pink, off-white 5

Fabric Cotton, poly-mix 2

Price 3 Price points 3

Model Stock Plan : Mens Shirts

If the store decides to keep one SKU of each type its initial inventory will be
4x4x2x2x5x2x3 = 1920 SKU’s
@ Avg. cost of Rs.300 = Rs. 576, 000

Clearly the final decision will be based on the dominant dependent variable(s) and a
retailer may not be able to offer the entire range but offer a more selective collection.
Successful retailers know that they will have to allow some customers to walkout empty
handed.