What is 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.

• Planning, developing and presenting of product lines for

identified target markets with regard to pricing,
assorting, styling and timing.
• It is core of retailing
 def
• Merchandisers are responsible for everything that happens to a
product from the moment it is delivered to the store to the
moment a shopper picks it up off the shelf. They monitor product
appearance and supply in various stores throughout their designated
geographic area.

• Merchandising is any practice which contributes to the sale of

products to a retail consumer.

At a retail in-store level, merchandising refers to displaying

products that are for sale in a creative way that entices customers
to purchase more items or products. 
• What is a Merchandiser?
• A merchandiser ensures that products are available in a physical
store or in stock for a virtual store. They make sure the products
arrive on time, and work closely with the purchasing department
(and buyers) in order to forecast, plan, and monitor stock levels.
• Merchandisers also work closely with display staff in order to
decide how goods should be seen so as to maximize sales. In
smaller companies, merchandisers may be responsible for both
the merchandising and the buying.
 Merchandise Management

• What will happene if a design (t shirt you want) is not

available in the size you need?
• Retailers need to change their focus from product
centric to customer centric.
• Goods well bought are half sold.
• If you take good care in the buying of the products, it
does not come back
• If you take care of the customers, they do come back
 Merchandise Management

• Merchandise Management can be termed as the analysis,

planning, acquisition, handling and control of the
merchandise investment of retail operations.
• Analyze: correctly identify customers and their needs to make
a good buying decisions.
• Planning: Merchandise to be sold in future must be bought
now.
• Acquisition: merchandise needs to be procured from the best
sources.
• Handling: Putting merchandise where they are needed.
• Control: it is necessary to control the money spent on buying
 Merchandise Mix

• Definition: The breadth and depth of the products

carried by retailers.
• Also known as Product Assortment

• Examples: During the holidays, retail stores increase

its merchandise mix so customers can find more gift
giving ideas.
• A retailer must buy what it sells, not sell what it buys.
 Merchandiser Roles and Responsibilities

• Merchandising manager does buying, selling and display task

• Understand customer preference,
• Track and analyze market trends and forecasts
• Drives every product decision like product line, shelf space,
price, inventory turnover, quality, national brands or store
brands
• Bring surprising products, customization in assortment
• Collaborate closely with design, production and sales teams
• Work with product development on pre- and post-production
processes
 Buyers Roles and Responsibilities

• Responsible for buying for a department, entire store or a

chain of stores
• Select and order the merchandise to be sold
• Maintain a balanced inventories, allocation of merchandise
to various stores
• Analyze customer purchasing preference, trends, style, taste
and customer motivations
• Planning and selecting merchandise assortment.
• Vendor selection, development and management.
• Pricing the merchandise, discounts, schemes workouts.
 Principles of Merchandising

i. Understand the target market, Buy what your customers want

not what you want
ii. Build merchandise plan one store at a time
iii. Build the right assortments
iv. Be consistent, with the image retailers seeks (value, premium
etc.)
v. Understand the needs of vendors and negotiate a win-win
vi. Share information with the vendors
vii. Accept the mistake happen, replace not selling merchandise,
provide space for good merchandise
viii.Seek to surprise the customers
 Buying Organization Formats and Processes

• Understand buying organization and its processes

• Who is responsible for the decision?
• What are their task?
• Do they have sufficient authority?
• How does merchandising fit with overall operations?
 Level of Formality

• Large company set up separate departments with

distinct personnel
• Formal buying organization set up separate department
for merchandise buying
• This function involves in acquiring merchandise and
making it available for sale
• In smaller organization merchandise decision are
informal, same person handles merchandising and other
retail task
• Responsibility and authority are not clear cut
 Degree of Centralization

• Centralized: integration of efforts, strict control, consistent

image, proximity to top management, staff support, volume
discount, inflexibility, time delays
• Decentralized: adaptability to local condition, quick order
processing, branch autonomy boost morale, disjointed
planning, inconsistent image, limited control, loss of volume
discounts
• Many stores combine the formats. Allow each store to select
its own merchandise.
• Centralized buying is not viable option for a diverse country
like India
 Organization Breadth

• General buying: owner of a small hardware store

may buy all merchandise for his store. Good for
smaller retailers.

• Specialized buying: A department store generally has

separate buyers for each categories for girls, juniors
and women cloths. Better for large retailers.
 Personnel Resources
• A retailer can choose an inside or outside buying organization
• Hire outside buying organization on a fee basis (Doneger
Group, Associate Merchandising)
• Outside buying organization provides : Global trends
identification, product design and development, global
product sourcing, quality assurance, production, deliver, order
tracking.
• Some use in house buying personnel, some use both
• Cooperative Buying:
• Independent stores and small chains indulge in cooperative
buying to beat large retail chains.
• It is most popular among food, hardware and drug retailers
Devising Merchandise Plans
 Forecasts

 Forecasts are projections of expected retail sales for given

periods.
 They are the foundation of merchandise plans and include
these components:

• Overall company projections

• Product category projections
• Item-by-item projections
• Store-by-store projections (if a chain)
 Forecasts

• When preparing forecasts, it is essential to distinguish among

different types of merchandise.
• Staple Merchandise: Regular products, milk, bread, canned soup,
facial tissues (watches, jeans, glassware and house ware). These
items have stable sales and can be predicted easily
• Assortment Merchandise: consists of apparel, furniture, autos
etc. for which a retailer must carry a variety of products in order
to give customers a proper selection.
• It is harder to forecast due to demand variation, style changes,
size and color variations
• Product lines, styles, designs, and colors are projected
• A model stock plan is used to project specific items
 Forecasts

• Fashion Merchandise consists of products that may have

cyclical sales due to changing tastes and lifestyles.
• Difficult to predict
• Seasonal Merchandise (e.g., ski equipment, air conditioners)
consists of products that sell well over nonconsecutive time
periods. Forecast is straightforward
• Fad Merchandise, high sales are generated for a short time.
Often toys and games are fads. Harry potter toys, Fads may
turn into extended fads (e.g., Trivial Pursuit board games,
Barbie toys). Difficult to predict
 Innovativeness

• Innovativeness of a merchandise plan depends on these factors:

• Evaluate whether the target market is conservative or
innovative, match merchandise quality to the wishes of target
market.
• Segment customers by dividing merchandise into established-
product displays and new-product displays.
• Goods/service growth potential
• Follow the latest fashion trends
• Carry goods/services that reinforce the Retailers’ image
• Responsiveness to consumers, carry new offerings when
requested by the target market.
 Assortment

• An assortment is the selection of merchandise a retailer carries

• Deciding on product mix, chooses quality merchandise.
• When making assortment plans, sales, profits, and investment costs
should be reviewed.
• Space requirements should be analyzed: How much is required? How much
is available?
• The inventory rate should be considered in assigning shelf space.
 Assortment Planning Considerations
• Competition analysis
• Forecasting/ Trends analysis
• Customer analysis
• Demand planning
• Revenue and margin projections
 Brands

Manufacturer
(national)

Private Generic
(dealer or store)
 Timing

• Retailers must decide when each type of merchandise is to

be stocked.
• To properly plan the timing, the retailer should take into
account its forecasts and these factors:
a) Peak seasons, i.e, winter coats
b) Order and delivery time
c) Routine versus special orders
d) Stock turnover
e) Discounts
f) The efficiency of inventory procedures
 Allocation

 A chain must also have a clear store-by-store allocation plan.

Retailers must decide the following:

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.
d) Some retailers rely on warehouses as distribution centers.
e) Many supermarket chains, get some goods shipped directly
from suppliers to individual stores.
 Merchandising Software

• General Merchandise Planning Software

• Forecasting Software
• Assortment Software
• Allocation Software
• Space Planning.
• Category Management Software
Implementing Merchandise Plan
Implementing Merchandise Plans
 Gathering Information

• After overall merchandise plan are set

• More information about the target market needs and prospective
suppliers are required before buying and re-buying the merchandise.
• Consumers are most valuable source of data collection about the market
place.
• From the study of consumers’ demographics, lifestyle, product
preferences, potential shopping plans, a retailer can learn about
consumer demand directly.
• Loyalty programs are useful in tracking consumer purchase and interest
• Regular Customer feedback is an influential factor
• Suppliers (manufacturers and wholesalers) do their own forecast
• Retail sales and display personnel interact with consumers and can pass on
their observation to management
 Selecting Merchandise Sources
• At this stage select the source of merchandise and interact
with them. Source from domestic or international markets
• Example: high fashion apparel, watches, perfumes,
cosmetics may be procured from international markets.
• Company-owned: supplier provides most of the
merchandise the retailer requests.
• Outside, regularly used suppliers: this supplier is not owned
by the retailer but used regularly, familiar with merchandise
quality and reliability.
• Outside, new supplier: unfamiliar with merchandise quality
and reliability.
 Negotiating the Purchase
• At this stage a retailer negotiate the purchase and its terms.
• The retailer and supplier carefully discuss all aspects of a new or special
order.
• The purchase negotiations include the following:
• Delivery date.
• Quantity purchased.
• Price and payment arrangements.
• Discounts: Trade discounts (volume discounts, booking discounts), chain
discounts, quantity discounts, seasonal discounts, cash discounts
• Form of delivery: truck, rail, sea, air
• Shipping fees
• Point of transfer of title.
• Support activities – setting up display, advertising
 Concluding Purchases
• For medium and large retailers, purchases are
computerized.
• They take help of Electronic Data Interchange (EDI) and
quick response (QR system) inventory planning system.
• Smaller retailers often write up and process orders
manually.
• Multi-unit retailers must determine whether to use
central, regional management, or local manager purchase
approval.
• Transfer of title to the buyer must be specified.
 Evaluating the Merchandise

• Three forms of evaluation are possible. The technique chosen

depends on the item’s cost, its attributes, and purchase regularity.
• Inspection occurs when every single unit is examined before
purchase and after delivery because they are costly.
• Example: Jewelry, Art
• Sampling is used with regular purchases of large quantities of
breakable, perishable, or inexpensive items. Items are sampled for
quality and condition.
• Description buying is used with standardized, non-breakable, and
nonperishable merchandise. Items are not inspected or sampled.
• Only counting is conducted.
• Example: paper clip, pads, printer papers.
 Receiving and Stocking Merchandise

• The retailer is now ready to receive and handle items.

• Items may be shipped from suppliers to warehouses (for storage and
disbursement) or directly to retailers’ stores.
• RFID helps in storing and remotely retrieving data.
• Order received must be checked for completeness and product
condition
• Invoices must be reviewed for accuracy and payment made as
specified
• Prices and inventory information are marked on the merchandise (QR)
• Setting up displays, start selling products to final consumer
• Arranging delivery and pick up
• Processing returns of damaged goods
Receiving and Stocking Merchandise at REI’s Category Killer
Stores
Shirt Assortment
State-of-the-Art Inventory Control

15-35
 Reordering Merchandise
• A procedure is necessary for the items a retailer purchases
more than once.
• Four critical factors:
• Order and delivery time: time taken for processing an
order and suppliers ability to fulfill delivery
• Inventory turnover: time taken to sell out inventory.
• Financial outlays: expenses of buying various quantity of
the products
• Inventory versus ordering costs
 Re-evaluating on a Regular Basis

• The overall procedure, as well as the handling of individual

goods and services, should be monitored.

• This stage becomes part of the information-gathering stage

for future efforts.
Category Management
 Category Management

• A Category is a group of similar or related items which the customer

would ideally like to find together in a store.
• Categories are mainly used to better manage and monitor predefined
groups of products.
• What is category management?
• Right product> Right time>Right price> right Location> to meet projected
sales > generate required margins> Maintain define stock cover.
• Category Management
• Focuses on the performance of product category results rather than
individual brands.
• It arranges product groupings into strategic business units.
• It is a merchandising technique used to improve productivity.
 Key areas of Category Management

• Category Management includes:

• Space Planning to ensure desired display space.
• Assortment Planning to facilitate the achievement of
required financial objectives.
• Visual Merchandising to optimize display efficiency and
aid walk ins/conversions in a store.
• Inventory Management to ensure required stock cover
and avoid being out of stock.
Factors Affecting the Growth of Category Management

• Changes in Consumers
• Intensified Competition
• Advancements in Technology
Category Management
Category Definition
Process
Strategic Decisions Category Roles

Category Strategies

Category Tactics

Operational Decisions Managing Category Mix

Assessment and
Feedback
 Category Definition

• Category definition is the first step in the category

management process.
• At this point category is defined and the product assortment
is determined from the consumer perspectives.
• The role of sub-categories and individual SKUs are considered
within the category.
• Category definition leads to the formation of departments
and section in the store.
• The retailers need to understand the way consumers organize
product forms, price options, sizes and brands when they buy
and use category.
 Assigning Roles to Categories

• Each category needs to be assigned specific and strategic

roles.
• The roles are assigned in the light of customers, competition
and retailers objectives.
• It helps in targeting the merchandise at specific customers
needs.
• Enable retailers to allocate resources to improve its overall
market position.
• A store can have up to 500 categories
• Example: Value category, premium category to retain and
attract customers
 Roles of Categories

• Destination: the retailer is customers first choice, for coffee,

pasta, bread, paper, Pet cares (5-7 % of all categories)
• Preferred: (routine category) Induce customers to prefer the
store to its competitors, toothpaste, soap, detergent, juice,
milk, cereal, soft drink, hot beverages, confectionary (55-60%)
• Occasional / Seasonal Cater to the seasonal or occasional
needs of its customers, umbrella, rain coat, woolen cloths
gift items, (15-20%)
• Convenience: Add the value of convenience in shopping,
home cleaning products, daily need products, Coffee,
Chocolate (15-20%)
 Category Strategies

• The strategies are developed on the basis of

• How these categories are performing?
• How they relate in delivering values to the customers?
• How they drive competitive advantages?
• Examples: traffic building (promotions, penetrating
pricing), Transaction Building (increase the purchase
basket, encourage impulse buying), Profit Contribution
(sell high margin products), Cash generating, Excitement
creating(new products, seasonal items), Image creating
(price, service, quality, variety), Turf defending (used to
draw traditional customer base, protect business)
 Category Tactics

• Category tactics are a set of store variables

that the retailers use to keep store and its
offer relevant to its target customers.
• These variables are assortment, pricing,
promotional tactics, display and self
presentation tactics.
 Managing Category Mix

• A retailer manages category mix taking into consideration several

variables such as customer choice, fashion, inventory, productivity,
retail space and retail margins.
• Example, category mix at Shoppers Stops is decided on the basis
of consumer buying pattern and not merely on the product type.
• The merchandise is divided into sections on basis of many factors
like average turnover of the product, customer buying pattern, and
planning efficiency.
• Men’s denim and formal shirts are found to be usually purchased
according to brand preference and these products are segregated
according to brands names for planning purposes.
 Category Assessment and Feedback

• A major implication of category management is the economic

outcomes of specific category.
• Reduction of SKUs to an extend increase consumers
satisfaction.
• There is a need for different assortment across regions
• Assess the performance of the categories on continuous
basis.
• Identify the areas of opportunities for improved results in
turnover, profits, and return on assets in the category.
• The performance of the category could be assessed from two
broad perspectives– economic and perceptual.