Managing Merchandise Assortment and

Inventory Management
Group 5

Ishika Deb 18020841013

Raghav Bawa 18020841028
Shakya Dutta 18020841031
Suchismita Pramanik 18020841036
Darpan Bhatt 18020841053
Reetwika Biswas 18020841077
Aditi Singh 18020841094
 EVALUATING MERCHANDISE MANAGEMENT PERFORMANCE
Performance measure for evaluating a retail firm - ROA

ROA – 2 components :- 1. Asset Turnover

2. Net Profit Margin Percentage

Why ROA is not a good measure ?

1. No control over all of the
retailer’s asset
Key Components :- 1.Margin2. No control over all of
retailer’s expenses 2. Turnover
 DEVELOPING AN ASSORTMENT PLAN
ASSORTMENT
01 02 VARIETY 03 ASSORTMENT
PLAN
It is the set of SKUs that a The variety or breadth, of a The assortment or depth, of
retailer will offer in a retailer’s merchandise is the merchandise is the number of
merchandise category in each of number of different SKUs per type of the different
its stores. It reflects the breadth merchandising categories merchandising categories
and depth of merchandise that offered. offered.
the retailer plans to offer in a
merchandise category.
 GLIMPSE OF AN ASSORTMENT PLAN
STYLES TRADITIO TRADITIO TRADITIO TRADITIO TRADITIO BOOT BOOT BOOT BOOT
NAL NAL NAL NAL NAL CUT CUT CUT CUT

Price $20 $35 $40 $65 $65 $25 $25 $45 $45
Levels

Fabric Regular Stonewash Regular Stonewash Stonewash Regular Stonewash Regular Stonewash
Composito denim ed Denim ed ed Denim ed Denim ed
n

Colors Light Blue Light Blue Light Blue Light Blue Light Blue Light Blue Light Blue Light Blue Light Blue

Indigo Indigo Indigo Indigo Indigo Indigo Indigo Indigo Indigo

Black Black Black Black Black Black Black Black Black

 Determining Variety
and Assortment

RETAIL ASSORTMENTS COMPLEMENTARY BUYING PHYSICAL

STRATEGY AND MERCHANDISE BEHAVIOUR SIZE
GMROI OF THE STORE
 INVENTORY AND PRODUCT
AVAILABILITY
THE KEY TO FINANCIAL PERFORMANCE OF BRANDSMART IS IT’S INVENTORY
TURNOVER. MOSTLY PEOPLE THINK IT’S THE PROFIT MARGIN, BUT
EVENTUALLY IT TURNS OUT TO BE THE LEVEL OF INVENTORY. BRANDSMART
HAS A POLICY OF SELLING THE STOCK WITHIN 60 DAYS AND AFTER THAT
THEY EXPLORE WAYS OF GETTING RID OF THE MERCHANDISE WITHOUT
IMPACTING PROFITS. THEY RETURN THE STOCK OR NEGOTIATE WITH THE
VENDOR TO TAKE BACK THE SLOW SELLING MERCHANDISE IN EXCHANGE
OF THE SLOW MOVING INVENTORY AND THEN COMPENSATE US FOR THE
LOSS MARGIN.
• THIS TYPE OF SYSTEM THE INVENTORY IS SET UP FOR A FIXED TIME AND THE PRODUCT ALSO IS
AVAILABLE TO THE CONSUMERS.
• ADVANTAGES OF SUCH SYSTEM TO BRANDSMART
1. OFFERING FRESH STOCK
2. LOWER COST AND INCREASED PROFITS
3. INCREASE MARKET SHARE DUE TO LOW PRICES
4. HAVING A COMPETITIVE ADVANTAGE
5. GOOD RETURN TO INVESTORS
 ESTABLISHING A CONTROL SYSTEM FOR
MANAGING INVENTORY
SKU IN A STAPLE MERCHANDISE CATEGORY ARE SOLD MONTH AFTER MONTH, YEAR
AFTER YEAR.
AUTOMATED CONTINUOUS REPLENISHMENT CONTROL SYSTEM IS USED TO MANAGE THE
FLOW OF THE STAPLE MERCHANDISE SKUS AND CATEGORIES. THE SYSTEM MONITORS
THE INVENTORY LEVEL OF EACH SKU IN A STORE AND AUTOMATICALLY TRIGGERS A
REORDER OF AN SKU.
 CYCLE STOCK/BASE STOCK –INVENTORY FOR WHICH THE LEVEL GOES UP
AND DOWN DUE THE REPLENISHMENT PROCESS .
RETAILERS TRY TO CYCLE STOCK INVENTORY TO INVENTORY
INVESTMENT .
APPROACH- REORDER SMALLER QUANTITIES MORE FREQUENTLY, THOUGH IT
MAY LEAD TO ADMINISTRATIVE AND TRANSPORTATION COST.

BACKUP STOCK- IS THE LEVEL OF INVENTORY NEEDED TO ENSURE

MERCHANDISE IS AVAILABLE IN LIGHT OF UNCERTAINTIES.

Determining the Level of Backup-

1. Product availability the retailer wants to provide. More backup of A item and lower backup of C item.
2. Greater the fluctuation in demand , the greater would be the backup stock needed.
3. Amount of backup needed is also affected by the lead time from the vendor. Shorter lead time results in a lower level
of backup stock required to maintain the product availability.
4. Fluctuations in lead time may also affect the amount of backup stock.
5. Vendor’s fill rate also affects the retailers backup stock requirements.
Automated Continuous Replenishment take place by comparing the sales made through the POS terminal with the
shipment received for the store. When the reordered merchandise arrives at the store, the level of inventory is adjusted
up. (Flaw- if goods are stolen)
 Fashion Merchandise-
Merchandise Budget Plan-
Determines how much merchandise in dollars should be delivered at the end of each month to achieve GMROI goal for
the period. The amount of merchandise delivered each month depends on the sales forecast, planned discounts to
employees and customers, and the level of inventory needed to support sales.

Open and Buy System- compares the planned end of the month inventory to the actual end of the month inventory.
Difference may arise due to order shipped late or sales deviated from the forecast.
 Allocating Merchandise to the Store

How much merchandise to allocate in each store?

1

What type of merchandise to allocate?

2

When to allocate the merchandise to different store?

3
 Annual Sales

Amount of Merchandise Physical Characteristics

Level of Product of the merchandise
availability allocated

Depth of assortment
 Types of Merchandise Allocated
Laptop And Lattes
Insert icon here
• Laptops and Lattes are affluent, single,
and still renting.
• They are educated, professional, and
partial to city life, favouring major
metropolitan areas such as New York,
Boston, Chicago, Los Angeles, and
San Francisco.
• Median household income is more
than $87,000
• Median age is 38 years.
• Technologically savvy, the Laptops
and Lattes segment is the top market
for notebook PCs and PDAs. They use
the Internet on a daily basis to trade
stocks and make purchases and travel
plans.
• They are health conscious and
physically fit; they take vitamins, use
organic products, and exercise in the
gym. They embrace liberal
philosophies and work for
environmental causes.
Rustbelt Retirees
An assortment with Insert icon here
higher-price brands that
feature low sugar,
organic ingredients, and
• Rostbelt Retirees can be found in
whole wheat. Private- older, industrial cities in the Northeast
label cereals would be and Midwest,
Pennsylvania and
especially
other
in
states
de-emphasized. surrounding the Great Lakes.
• Households are mainly occupied by
married couples with no children and
singles who live alone.
• The median age is 43.8 years.
• More than 40 percent of the
households receive Social Security
benefits.
• Most residents live in owned, single
An assortment of lower- family homes, with a median value of
$118,500.
price, well-known brands • Unlike many retirees, these residents
and more private-label are not inclined to move. They are
proud of their homes and gardens and
cereals. participate in community activities.
• Members of veterans’ clubs. Leisure
activities include playing bingo,
gambling in Atlantic Cityworking
crossword puzzles, and playing golf.
 Timing of Merchandise Allocated
Merchandise are generated at the To increase inventory turnover seller
store level on the basis of sales need to recognize regional differences
data captured by point-of-sale and arrange for merchandise to be
terminals shipped to the appropriate regions
when customers are ready to buy.

Pull distribution Seasonality

Strategy

Push Distribution Seasonality Cash strapped consumers are

Merchandise is allocated
to the stores on the basis
of historical demand, the
inventory position at the
distribution center, and
the needs of the stores.
showing a tendency to make
Strategy their largest purchases when
they get their paychecks at the
beginning of the month and to
cut back on purchases as that
money runs out toward the
end of the month.
.
Evaluating Merchandise Performance
• ABC Analysis
• Sell Through Analysis
• Multiattribute Method.
 ABC Analysis : Pareto (80/20 Rule)
ABC analysis rank orders merchandise by some performance measure to determine which items should
never be out of stock, which items should occasionally be allowed to be out of stock and which items should
be deleted from the stock selection.
ABC analysis utilizes the 80:20 principle which implies that 80% of the sales come from 20% of the products.
STEP 1: Rank order SKU’s using one or more criteria. The most important performance measure for this type of
analysis is Contribution margin

Contribution margin: Net sales – Cost of goods sold – Other variable expenses

STEP 2: Determine how items with different levels of profit or volume should be treated differently.

The buyer may define as:

A items those that account for 5% of items and represent 70% of sales.
B items represent 10% and 20% of sales.
C items account for 65% of the SKUs but contribute only 10% of sales and
D as those items for which there were no sales in the past season.
Sell-through Analysis Evaluating Merchandise Plan
A sell through analysis is a comparison between actual and planned sales to
determine whether early markdowns are required or whether more merchandise is
needed to satisfy demand.
 Multiattribute Method
The multiattribute analysis method for evaluating vendors uses a weighted average score for each vendor.
STEPS:
1) Develop a list of issues to consider for decision making, like vendor reputation, service merchandise quality, selling history
etc.
2) Give importance weights to each attribute
3) Make judgments about each individuals brand’s performance on each issue.
4) Combine the importance and performance scores
5) Add all to arrive at the brand scores
 SUMMARY
• THE MERCHANDISE MANAGEMENT PLANNING PROCESS AND EXAMINES SALES
FORECASTING AND ASSORTMENT PLANNING IN MORE DETAIL
• MERCHANDISE IS BROKEN DOWN INTO CATEGORIES FOR PLANNING PURPOSE
BUYERS AND THEIR PARTNERS, MERCHANDISE PLANNERS AND ASSORTERS, MANAGE
THESE CATEGORIES, OFTEN WITH THE HELP OF MAJOR VENDORS.
• PERFORMANCE MEASURES USED TO ASSESS MERCHANDISE MANAGEMENT ARE
GMROI, SALES TO STOCK RATIOS AND INVENTORY TURNOVER, AND GROSS MARGIN.
• RETAILERS USE GMROI TO PLAN AND EVALUATE MERCHANDISE PERFORMANCE. THE
GMROI PLANNED FOR A PARTICULAR MERCHANDISE CATEGORY IS DERIVED FROM THE
FIRM’S OVERALL FINANCIAL GOALS, BROKEN DOWN TO THE CATEGORY LEVEL.
• GROSS MARGIN PERCENTAGE AND INVENTORY TURNOVER WORK TOGETHER TO
FORM THIS USEFUL MERCHANDISE MANAGEMENT TOOL.
 SUMMARY
• HIGH INVENTORY TURNOVER IS IMPORTANT FOR A RETAILER’S FINANCIAL SUCCESS. BUT IF THE RETAILER ATTEMPT
TO PUSH INVENTORY TURNOVER TO ITS LIMIT, STOCKOUTS AND INCREASED COSTS MAY RESULT,
• WHEN DEVELOPMENT A SALES FORECAST, RETAILERS NEED TO KNOW WHAT STAGE OF THE LIFE CYCLE A
PARTICULAR CATEGORY IS IN AND WHETHER THE PRODUCT IS A FAB FASHION OR STAPLE ITEM SO THEY CAN
PLAN THEIR MERCHANDISING ACTIVITIES ACCORDING
• CREATING A SALES FORECAST INVOLVES SUCH SOURCES OF INFORMATION AS
• PREVIOUS SALES DATA
• PERSONAL AWARENESS
• FASHION AND TREND SERVICES
• VENDORS
• TRADITIONAL MARKET RESEARCH
Thank you!!