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CHAPTER 13
C H A P TE R
13
Questions
• What branding options are available to retailers?
• How do retailers buy national brands?
• What issues do retailers consider when buying and
Buying sourcing private label nhãn hàng riêng merchandise
internationally?
Merchandise • How do retailers prepare for and conduct
negotiations cuộc đàm phán with their vendors?
• Why are retailers building strategic relationships
with their vendors?
• What legal and ethical đạo đức issues are involved
liên quan in buying merchandise?

Copyright © 2014 McGraw-Hill Education. All rights reserved. N o reproduction or distribution without the prior written consent o f McGraw-Hill Education.
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Brand Alternatives Retailers’ branding approach

• National (Manufacturer) • Similar to national brands, retailers use their name to create a
Brands private label for merchandise
• Designed, produced, and
• The Gap, Victoria’s Secret use a family brand approach
marketed by a vendor and sold by
• All of private label merchandise is associated with their name
many retailers
• Private-Label (Store, House, or • Macy’s uses a portfolio approach
• A portfolio of private label brands with different merchandise types
Own) Brands
(Charter Club, First Impressions, Greendog, INC, The Cellar, Tools of
• Developed by a retailer and only
the Trade)
sold in the retailer’s outlets

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Categories of Private Exclusive Brands

Brands
• Comparable to, even superior to, manufacturer’s
Premium brand quality, with modest price savings

• Imitate the manufacturer’s brand in appearance and

Copycat packaging, perceived as lower quality, offered
at a lower price

• Developed by a national brand vendor and sold

Exclusive Brands exclusively by the retailer

• Target a price-sensitive segment by offering a no-

Generic Brands frills product at a discount price

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Private Labels National (Manufacturer) Labels

• Advantages • Disadvantages
• Unique merchandise • Require significant
not available at investments in design, global
competitive outlets manufacturing sourcing
• Exclusivity boosts store • Need to develop expertise in
loyalty developing and promoting
• Difficult for customers brand
to compare price with • Unable to sell excess
competitors merchandise
• Higher margins • Typically less desirable for
customers
• Advantages • Disadvantages
• Help retailers build their • Lower margins
image and traffic flow • Vulnerable to
• Reduces selling and competitive pressures
promotional expenses • Limit retailer’s
• More desired by flexibility
customers
• Customers patronize
retailers selling the
branded merchandise
• Push some of the financial
risk onto the vendor The McGraw-Hill Companies, Inc./Lars Niki, photographer

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Buying National Brand Merchandise Meeting National Brand Vendors

• Buying decision for fashion apparel/accessories: • Wholesale Market Centers
• 5-6 times a year • National Markets (new York), Regional Markets (Dollars,
• Many months before delivery Atlanta, Miami), London, Milan, Paris, Tokyo
• Withhold open-to-buy (OTB) for new items with fashion • Market weeks- Buyers make appointments to visit the
change various vendor showrooms
• Buying decision for staple merchandise: • Trade Shows
• Less frequent • Frankfurt Book Fair, Las Vegas Consumer Electronics

• Continuous replenishment Show, Atlanta Super Show for Sporting Goods

• Internet Exchanges
• Worldwide Retail Exchange
• Meeting Vendors at Your Company

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National Brand Buying Process Developing and Sourcing

Private Label Merchandise
• Meet with vendors
• In-House: Large retailers (e.g., JCPenney, Macy’s,
• Discuss performance of vendor’s merchandise during The Gap, American Eagle Outfitters) have divisions
the specialized in
previous season • Identifying trends, designing, specifying products

• Review the vendor’s offering for the coming season • Selecting manufacturers
• Monitoring and managing manufacturing conditions and
• May place orders for the coming season product quality
• Sometimes they do not buy at market, but review
merchandise, return to their offices to discuss with
the buying team before negotiating with vendors

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Developing and Sourcing Sourcing Merchandise

Private Label Merchandise
• Costs associated with global sourcing decisions
• Acquisition: Limited Brands acquired MAST • Tariffs
Industries • Managerial issues associated with global sourcing
• MAST decisions
• one of the world’s biggest contract manufacturers, importers,
• Quality control, time to market, social/political risks
distributors of apparel
• Have manufacturing operations and join ventures in 12 • Resident buying offices
countries • Organizations located in major market centers that
• Also provides private label merchandise for Abercrombie & Fitch,
provide services to help retailers buy merchandise
Lane Bryant, New York & Company, Chico’s
• Reverse auctions
• Outsource: ex. Li & Fung – partnered with many
specialty retailers

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Reverse Auctions Global Sourcing

Why reverse? • Costs Associated with Global Sourcing Decisions
One buyer (the retailer), multiple sellers
Sellers bid for buyer’s business Foreign currency fluctuations, tariffs,
Price falls Remote production
longer lead times, increased
No strategic relationships with vendors facilities in developing
transportation costs
economies with low
Obsolete costs and inventory
labor costs
carrying costs from larger inventories

• Managerial Issues
• Quality control, time-to-market, social political factors
• Difficult for collaborative supply chain management (CPFR) based
on short and consistent lead times
• Human rights and child labor

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Negotiating with Vendors Negotiating with Vendors Continued

Negotiation Issues
• Two-way
• Price and gross margin
communication • Margin Guarantees
designed to reach an • Slotting Allowances
agreement when two • Additional markup opportunities
parties have both • Terms of purchase
shared and conflicting • Exclusivity
interests. • Advertising allowances
• Transportation

Royalty-Free/CORBIS

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Price and Gross Margin Issues Tips for Effective Negotiations

• Markdown money
• Choose a good place to negotiate
• Funds from a vendor to a retailer to cover decreased gross
margin from markdowns • Be aware of real deadlines
• Separate people from problem
• Slotting Allowances • Insist on objective Information
• A charge imposed by a retailer to stock a new item (in • Invent options for mutual gain
supermarkets)
• Let the other party do the talking
• For Retailers
• To ensure efficient uses of their valuable space • Know how far to go

• To determine which new products merit inclusion in their • Don’t burn bridges
assortment • Don’t assume
• Manufacturers view them as extortion
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Strategic Relationships Building Partnering Relationships

• Awareness
• Retailer and vendor • No sale, reputation and image
committed to maintaining • Exploration
relationships over the • Buyer and vendor explore the potential benefits and costs of
long-term and investing a partnership
in mutually beneficial • Expansion
opportunities
• The buyer has collected enough information about the
vendor to consider developing a longer-term relationship.
• Commitment
• If both parties continue to find the relationship mutually
beneficial, it moves to the commitment stage and becomes
a strategic relationship.
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Maintaining Strategic Relationships Building Partnering Relationship

• Mutual Trust • Discrete
• One Purchase at a
• Open Communication
Time
• Common Goals • Short-Term
• Focuses on Price
• Credible Commitments
• Win-Lose Negotiations
• Governed by Contracts
• Partnering
• Anticipate Future
• Long-Term
• Considers all Elements
• Win-Win Collaboration
• Governed by Trust

Awareness Expansion

Exploration Commitment

• Stockbyte/Punchstock Images

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Legal, Ethical, and Social

Counterfeit Merchandise
Responsibility Issues for Buying
Merchandise • Goods made and sold without the permission of the
• Purchase Terms and • Counterfeit
owner of a trademark, a copyright, or a patented
Conditions Merchandise
invention that is legally protected in the country
• Resale Price • Gray Markets and
where it is marketed
Diverted Merchandise • Major problem is counterfeiting intellectual property
Maintenance • Exclusive Dealing
• Commercial Agreements
Bribery • Tying Contract
• Chargeback
s
• Buybacks
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Gray-Market, Diverted, Gray-Market, Diverted,

and Black-Market Merchandise and Black-Market Merchandise
• Gray-Market Merchandise imports) • Diverted merchandise is similar to gray-market
(parallel
possesses a valid U.S. registered trademark and is merchandise except distribution is not necessarily
made by a foreign manufacturer but is imported into across international boundaries.
the United States without permission of the U.S.
trademark owner. • A black market occurs when consumer goods are
• Not Counterfeit
scarce, such as water or gasoline after a natural
• Is legal
disaster; heavily taxed, such as cigarettes or alcohol;
or illegal, such as drugs or arms.

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Terms of Conditions of Purchase Commercial Bribery

• The Robinson-Patman Act (Anti-Chain-Store Act)
• Restricts the prices and terms that vendors can offer
to retailers
• Forbids vendors from offering different terms and
conditions to different retailers for the same
merchandise and quantity
• Different prices can be offered if
• The costs of manufacturing, selling, and delivery
are different
• The retailers are providing different functions
(e.g., distribution, store service, etc.)
• 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.
• Some retailers with a zero tolerance policy.
• Some retailers accept only limited entertainment or
token gifts.

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Chargebacks Buybacks
• A practice used by retailers in which they deduct • Stocklifts, Lift-outs
money from the amount they owe a vendor without • Used to get products into retail stores.
getting vendor approval.
• Two scenarios:
• Two Reasons:
• Retailer allows a vendor to create space for its goods by
• merchandise isn’t selling
“buying back” a competitors inventory and removing it from a
• vendor mistakes retailer’s system.
• Difficult for vendors - Disrupt relationships • Retailer forces a vendor to buyback slow-moving
merchandise.

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How do Vendors Avoid Exclusive Dealing

the Gray-Market Problem? Agreements
• Occur when a manufacturer or wholesaler restricts a
• Require retail and
retailer into carrying only its products and nothing
wholesale customers to
from competing vendors
sign a contract stipulating
• Example: Safeway – Coca-Cola
that they will not engage
in gray marketing.
• Illegal when they restrict competition
• Produce different versions
of products for different
markets.

Steve Cole/Getty Images

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Tying Contracts Refusals to Deal

• An agreement that requires the retailer to take a • Suppliers and retailers
product it doesn’t necessarily desire (the tied have the right to deal or
product) to ensure that it can buy a product it does refuse to deal with
desire (the tying product) anyone they choose.
• Illegal when they lessen competition
• Ok to protect goodwill and quality reputation of • Except when it lessens
vendor – legal for a vendor to require a buyer to buy competition.
all items in its product line
Kent Knudson/PhotoLink/Getty Images

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Corporate Social Responsibility

• Corporate social responsibility describes the
voluntary actions taken by a company to address the
ethical, social, and environmental impacts of its
business operations.

• Fair trade is a socially responsible movement that

ensures that producers receive fair prices for their
products.

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