Planning Merchandise

Assortments
 Merchandise Planning Is Done at
the Category Level
• Why?

• Category: group of products likely to have

similar demand patterns
They are substitutes

• How does a category differ from a SKU?

 Two Basic Considerations
• Must stock what the customer wants to
buy.

• Merchandise in stock must meet the profit

goal.
 Measures of Financial
Performance
• Overall corporate:
ROA = Net Profit X Net Sales
Net Sales Total Assets
• Merchandising Financial Performance
GMROI = Gross Margin X Net Sales
Net Sales Av. Inventory
[sales/stock ratio
-- not inv. Turnover} \
 Sales/Stock Ratio
GMROI = Gross Margin X Net Sales
Net Sales Av. Inventory
• GMROI measures what you are making on each
dollar invested in inventory. Therefore, in this
ratio “Average Inventory” is measured in cost
dollars.
GMROI = Gross Margin X Net Sales
Net Sales Av. Inventory at
Cost
GM and Sales/Stock Different
for Different Products
Not all products have same GMROI
Product GMROI
Apparel 241
Food 170
Furniture 111
Consumer electronics 97

(in a discount store)

 Buyer’s Dilemma
• Need to balance customer preferences/
shopping behaviors vs. profit goals

• Ex: Sears’ decision to sell toys

 Sales/Stock vs. Inventory
Turnover
• Sales/Stock = Net Sales
Average Inventory at Cost
• Inventory Turnover = Net Sales
Av Inv at Retail
OR
= COGS
Av Inv at Cost
• All ratios use Average Inventory. WHY?
 Converting S/S to Inv Turnover
• Sales/Stock ratio X (100%-Gross margin
%)

• Really changing retail $ in “net sales” to

COGS (GM% + COGS% = 100%) SO
• Net Sales X (100% - GM%) = COGS
Av Inv at Av Inv at
Cost
Cost
 GMROI Uses
• Evaluate departments
• Evaluate merchandise classifications
• Evaluate vendors
• Evaluate particular items
• EVALUATE BUYER’S PERFORMANCE