5th Edition

PPT 14-1

Chapter 14

Buying Merchandise

McGraw-Hill/Irwin PPT 14-2 Retailing Management, 5/e Levy/Weitz:

Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Merchandise Management

Retail Communication Mix

Planning Merchandise Assortments

Buying Merchandise
Buying Systems Pricing

PPT 14-3

Merchandise Branding Strategies

Manufacturer (National) Brands Designed, produced, and marketed by a vendor and sold by many retailers Private-Label (Store) Brands Developed by retailer and only sold in retailers outlets Licensed Brand Developed by licensee and right sold to either manufacturer or retailer

PPT 14-4

Spectrum of National vs. Private Label

% Store Brands
The Gap Limited Marks & Spencer IKEA Macys National Brands Wal-Mart

Target

Home Depot

PPT 14-5

Relative Advantages of Manufacturer versus Private Brands

Type of Vendor Manufacturer Brands ? + + +

Impact on Store
Store loyalty Store image

Private-Label Brands

Traffic flow
Selling and promotional expenses Restrictions

+
+ -

+
+

Differential advantages
Margins

+
?

PPT 14-6

Private Labels
Advantages Disadvantages

Unique merchandise not

available at competitive outlets Difficult for customers to compare price with

Need to develop
expertise in developing and promoting brand Unable to sell excess merchandise

competitors
Higher margins
PPT 14-7

Typically less desirable

for customers

Manufacturer (National) Labels

Advantages Disadvantages Lower margins Vulnerable to competitive pressures

More desired by
customers Resell excessive merchandise Dont need skills and people to develop and promote merchandise
PPT 14-8

Most Recognized Apparel and Accessory Manufacturer Brands

PPT 14-9

Most Recognized Apparel and Accessory Private Label Brands

PPT 14-10

Examples of Private-Label Brands

PPT 14-11

Examples of Private-Label Brands

PPT 14-12

Examples of Private-Label Brands

PPT 14-13

Examples of Private-Label Brands

PPT 14-14

Private Label Options

Bargain Branding
no-frills product at a discount price.

Copycat Branding
imitates the manufacturer brand in appearance and trade dress

Premium Branding
private label at a comparable manufacturer-brand quality.

Parallel Branding
private labels that closely imitate the trade dress and product attributes of leading manufacturer brands.

PPT 14-15

Issues in International Sourcing of Private Label Merchandise

Country of Origin Effects Costs Foreign Currency Fluctuations Tariffs Supply Chain Efficiency and Inventory Carrying Costs Transportation costs Quality Control
PPT 14-16

Regulations Affecting the Costs of Importing Goods

World Trade Organization

NAFTA
Maquiladores Free Trade Zones

PPT 14-17

Managing International Sources

Quality Control

More difficult to maintain quality standards

Human Right Issues Need to Build Strategic Partnerships

PPT 14-18

Domestic vs. International Sourcing

Domestic Higher cost of merchandise Shorter lead times easier to use quick response systems Easier to control human rights issues and quality control Customer preferences for domestic manufactured products
PPT 14-19

International Lower cost Longer lead times More control problems

Connecting with Vendors Going to Market

Internet Exchanges
Wholesale Market Centers Trade Shows Resident Buying Offices Meeting Vendors at Your Company

PPT 14-20

Functions Provided by Internet Exchanges

Product Directories
Use of Reverse Auctions

Collaboration in Planning CPRF Software General Information about Trends

PPT 14-21

Types of Exchanges
Consortium Exchanges
Transora
Worldwide Retail Exchange GobalNetXchange

Private Exchanges Independent Exchanges

PPT 14-22

Online Reverse Auctions

Auction
A market institution with an explicit set of rules determining resource allocation and prices on the basis of bids from market participants.

Why reverse?
Vendors bid for buyers business Price falls

One buyer, multiple vendors Sealed vs. open bid auctions

PPT 14-23

Reverse Auctions

B Reverse Auction S S S

Traditional Auction

PPT 14-24

Reverse Auctions in Retail Buying

Online vs. physical differences
Reduced contact cost Instant feedback Bidder anonymity

The retailers goals

Gain competitive pricing Open vendor base Improve negotiation process Maintain valuable relationships
PPT 14-25

Price Path on Open-Bid Auction

PPT 14-26

Issues in Using Reverse Auctions to Buy Products

Private vs. Collaborative Auctions/Exchanges

Fixed Cost High for Software

Standardized Software Less Need for Collaborative Exchanges

Collusion Consideration of Quality Differences from Bidders

Impact on Supplier Relationships

Used Primarily for Non-Resale Products Carpet, Fixtures
PPT 14-27

Negotiating with Vendors

Two-way communication designed to reach an agreement when two parties have both shared and conflicting interests.

PPT 14-28

Planning Negotiations
Consider prior history Assess current situation
General market conditions Vendors position

Power of vendor

Set goals Be aware of vendors goals Number of people involved

PPT 14-29

Select an advantageous place

Issues to Negotiation
Markup opportunities from excess from vendors excess merchandise Purchase terms Transportation costs

Delivery times
Exclusivity Advertising allowances

PPT 14-30

Types of Negotiations
Win
Win Buyer Lose Vendor

Lose

PPT 14-31

Win - Lose Negotiation

Can be good in the short run and bad in the long-run
Short-term solution-- person you are negotiating with cant lose all the time Might degenerate into LOSE LOSE

PPT 14-32

Lose - Lose Negotiation

Wastes time and energy No relationships established Objectives not met

PPT 14-33

Win - Win Negotiation

Collaboration Cooperation Long-term relationship Doesnt mean giving-in Enhances vendor trust

PPT 14-34

Guidelines for Negotiations

Separate people from problem Insist on objective criteria to evaluate performance Invent options for mutual gain Let the other party do the talking Know how far to go

PPT 14-35

Negotiating Tips
Be aware of time

Location -- comfortable
Keep negotiating participants even Be patient Let him/her mention a figure Dont be afraid to say no

PPT 14-36

Negotiating Tips
Dont over negotiate

Dont assume
Visualize the negotiation Timing is everything Always leave the door open Maintain self-esteem

PPT 14-37

SUMMARY Planning is critical Knowledge is power A person will only do what is right for him/her

PPT 14-38

Strategic (Partnering) Relationships

Retailer and vendor committed to maintaining relationships over the long-term and investing in mutually beneficial opportunities

PPT 14-39

Strategic Relationships
Win Win --Concerned about expanding the pie, not how to divide the pie

Retailer
PPT 14-40

vs.

Vendor

Building Blocks for Strategic Partnerships

Mutual Trust
Open Communications

Common Goals
Credible Commitments

PPT 14-41

Developing Trust: Capability or Competence

Competence
Salespeople demonstrate competence when they can show that they know what they are talking about.

Requires knowledge of:

The customer The product The industry The competition
PPT 14-42

Stages in Building Strategic Relationships Awareness Exploration

Expansion
Commitment

PPT 14-43

Legal and Ethical Issues

Contractual Disputes Chargebacks Commercial Bribery Slotting Allowances Buybacks Counterfeit Merchandise Gray Markets and Diverted Merchandise Exclusive Territories

Exclusive Dealing

Refusal to Deal Tying Contracts

PPT 14-44

Chargebacks
A practice used by retailers in which they deduct money from the amount they owe a vendor. Two Reasons:

merchandise isnt selling

vendor mistakes Can be a profit center one senior executive at a large department store chain was told to collect $50 million on chargebacks
PPT 14-45

Commercial Bribery
A vendor or its agent offers to give or pay a retail buyer something of value to influence purchasing decisions. A fine line between the social courtesy of a free lunch and an elaborate free vacation.
Rule of thumb - accept only limited entertainment or token gifts.

PPT 14-46

Slotting Allowances
Fees paid by a vendor for space in a retail store.

Currently arent legal.

Retailers argue that they are a reasonable method for ensuring that their valuable space is used efficiently. Manufacturers view them as extortion.

$9 billion or 16% of all new product introduction costs in grocery industry.

PPT 14-47

Buybacks
Used to get products into retail stores.
Two scenarios:
Retailer allows a vendor to create space for its goods by buying back a competitors inventory and removing it from a retailers system. Retailer forces a vendor to buyback slow-moving merchandise.

PPT 14-48

Counterfeit Merchandise
Goods made and sold without the permission of the owner of a trademark, a copyright, or a patented invention that is legally protected in the country where it is marketed.
Major problem is counterfeiting intellectual property.

PPT 14-49

What to do About Counterfeiters

Trademark,copyright, and/or patent products in the countries in which theyre sold. US government is engaged in bilateral and multicultural negotiations and education to limit counterfeiting. (WTO) Take steps to protect yourself.

PPT 14-50

Gray-Market and Diverted Merchandise

Gray- Market Merchandise possesses a valid U.S. registered trademark and is made by a foreign manufacturer but is imported into the United States without permission of the U.S. trademark owner. Not Counterfeit. Is legal. Diverted Merchandise is similar to graymarket merchandise except there need not be distribution across international boundaries.
PPT 14-51

Gray-market and Diverted Merchandise: Taking Sides

Discount stores argue customers benefit because it lowers prices. Traditional retailers claim important service after sale will be unavailable

May hurt the trademarks image.

PPT 14-52

Avoiding the Gray-Market Problem

Require customers to sign a contract stipulating that they will not engage in gray marketing. Produce different versions of products for different markets.

PPT 14-53

Exclusive Territories
Granted to retailers so no other retailer in the territory can sell a particular brand. Benefits vendors by assuring them that quality retailers represent their products.

Assure retailers adequate supply.

Grants retailers a monopoly.

Illegal when they restrict competition.

PPT 14-54

Exclusive Dealing Agreements

Occur when a manufacturer or wholesaler restricts a retailer into carrying only its products and nothing from competing vendors.
Illegal when they restrict competition.

PPT 14-55

Tying Contracts
An agreement that requires the retailer to take a product it doesnt necessarily desire to ensure that it can buy a product it does desire.
Illegal when they lessen competition. Ok to protect goodwill and quality reputation of vendor.

PPT 14-56

Refusals to Deal
Suppliers and retailers have the right to deal or refuse to deal with anyone they choose.
Except when it lessens competition.

PPT 14-57

Terms of Purchase
Discounts
Trade (Functional) Discounts Chain Discounts Quantity Discounts

Seasonal discounts
Cash discounts ROG and EOM dating Anticipation discounts

Shipping Terms and Conditions

PPT 14-58

A Sample Price List

Price to Wholesaler Quantity per Order 1 - 10 11 - 25 26 + Discount 40 - 5% 50 - 10 50-10-5 Price $57* 45 42.75

Price to Retailer Discount 30% 40 40-10 Price $70 60 54

* Based on a $100 suggested retail price.

PPT 14-59

Example of a Cash Discount

1/30, n/60

Nov 1 Date of Invoice

Dec 1 30 days 1% discount

Jan 1 60 days Full amount Due

PPT 14-60

Example of ROG Dating

ROG Dating

Nov 1 Date of invoice

Nov 15 Merchandise arrives

Dec 15 30 days ROG 1% discount

Jan 15 60 days ROG Full amount due

PPT 14-61

Example of EOM Dating

EOM Dating

Nov 1 Date of invoice

Dec 1 30-day discount period begins

Jan 1 Feb 1 30 days EOM 60 days EOM 1% discount Full amount due

PPT 14-62

Example of EOM Dating, Grace Period

EOM Dating, Grace Period

Oct 25 Date of invoice

Nov 1

Dec 1 Jan 1 Feb 1 30-day 30 days EOM 60 days EOM discount 1% discount Full amount period due begins

PPT 14-63

Example of Extra Dating

Extra Dating

Nov 1 Date of invoice

Dec 1 Jan 1 30-day 60-day discount Extra period discount begins period begins

Feb 1

Mar 1 Apr 1 60 days Full Extra amount 1% discount due

PPT 14-64

Alternative Shipping Terms and Conditions

Owns Merchandise Pays Freight in Transit and

Charges

Files Claims (If Any)

F.O.B. origin, freight collect F.O.B. origin, freight prepaid

Retailer Supplier

Retailer Retailer

F.O.B. destination, freight collect

F.O.B. destination, freight prepaid

Retailer
Supplier

Supplier
Supplier

PPT 14-65