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Retail Management
RMG 200
Janice Kuo

POST MIDTERM Week 7 – March 9 2017 – chapter 9 Module 6: information system, supply chain management & merchandise management Supply Chain Management • A set of activities and techniques firms employ to efficiently and effectively manage the flow of merchandise from vendors to the retailer’s customers. • Supplier  manufactures  distributor  retailer  shopper • Customer  Buyer/planner  (sale information)  Stores  Vendor  Distribution Centre • (stores purchase from vendors and distribution centers • Relation between vendor and distribution center o Returns, o Vendors can donate returns, off-discount stores, outlet stores and sell for lower price • TERMS: o Universal product code ▪ Black and white bar code containing a 13 digit code of information ▪ The black-and-white bar code found on most merchandise that is used to collect sales information at the point of sale using computer terminals that read the code. This information is transmitted computer to computer to buyers, distribution centers, and then to vendors, who in turn quickly ship replenishment merchandise o Advanced shipping notice ▪ An electronic document received by a retailer’s computer from a supplier before a shipment. A document that tells the distribution centre what specifically is being shipped and when it will be delivered. o Electronic data interchange ▪ The computer-to-computer exchange of business documents – between vendor and retailer. Information that is exchanged includes: PO number, vendors name, address merchandise is being shipped to etc. o Standards are developed for exchanging information about: purchase order changes, order status, transportation routings, advance shipping notices, on- hand inventory status, vendor promotions….standards are developed to automate these activities thus making the supply chain more efficient. The development and use of these standards is critical to the use of EDI because they enable all retailers to use the same format when transmitting data to their vendors. Logistics (aka distribution) • Part of supply chain process that plans, implements, and controls the efficient and effective flow of goods, service and information from point of origin to the point of consumption to meet customer’s requirement (component of SC) o Vendor to distribution center to store to customer 1. Merchandise fows from vendor to distribution centre. 2. Merchandise goes from distribution centre to stores. 3. Alternatively, merchandise can go from vendor directly to stores or even the customer. Supply chain terms • Cross docked o items that are pre-packaged for a particular store. The UPC label determines this. o Efficient in getting product to stores, o Walmart invented it – wanted to save every penny • Floor ready merchandise o Merchandise that is ready to be placed on the selling floor (manufacturers do this – Arizona). • Ticketing-marking o Procedures for making price labels and placing them on the merchandise (convenience stores do this). Push and pull strategy • Pull o Orders for merchandise are generated at store level on the basis of demand data captured by point of sales (POS) o Customer demand • Push o Merchandise is allocated to stores on the basis of historical demand, the inventory positing at the distribution Centre and the stores needs o (push the product out and hope historical data is accurate) Type of Delivery • Distribution Centre Delivery – most costly for retailer, o Vendor – distribution center – retailer – customer o vendors supply to distribution centres, then to retailers, then to consumers. • Direct Store Delivery (DS) o Delivering merchandise to stores in which vendors distribute merchandise directly to the stores. o Vendor – retailer – customer o vendors send it directly to retail, then retail pushes it to consumers • Drop Shipping Delivery o Retailers receive orders from customers and relay these orders to vendors and then the vendors ship the merchandise ordered directly to the customer . o Customer – retailer – vendor – customer o (notify, make order, deliver the order) o consumer orders from retail, retail delivers info to vendors, then vendor delivers to customers. Ex. Catalogue, mail order companies. Supply Chain Coordination: Benefit & Challenge • Benefit o Vendors can plan their purchases of raw materials and manufacturing processes to MATCH the retailer’s merchandise needs. o “Just In Time” merchandise o Reduction in overstock o Reduction in stockouts o (can negotiate better prices) • Challenges o Bullwhip effect ▪ Buildup of excess inventory in an uncoordinated channel ▪ Sharing information helps reduce this effect o Causes: ▪ Delays in transmitting orders, and receiving merchandise, ▪ Overreacting to shortages ▪ Ordering in batches Retail technology that enables coordination • Quick response delivery system (QR) o Started in retail – 80’s o It is an inventory management system that is designed to reduce the retailers lead time for receiving merchandise o System designed
to reduce the lead time for receiving merchandise, thereby lowering inventory investment, improving customer service levels, and reducing distribution expenses; also known as a just-in-time inventory management system. o Benefit: reduced lead time, increased product avail- ability, lower inventory investment, and reduced logistics expenses. • Vendor managed inventory (VMI) o Need huge trust o An approach for improving supply chain efficiency in which the vendor is responsible for maintaining the retailer’s inventory levels in each of its stores • Radio Frequency Identification (RFID) o A technology that allows an object / person to be identified at a distance by means of radio waves (attached to containers, shipping cartons, and individual items) o Tracking system o If there is a mistake – all # can go wrong – can do a manual count o Benefit: Reduce warehouse and labor cost, reduce point of sale labor cost, inventory savings, eliminate counterfeit merchandise, reduce stock out, reduce theft Part 2: Merchandise Management - Chapter 10 What is merchandise management Process by which a retailer attempts to offer the right quantity of the right merchandise in the right place at the right time and meet the company’s financial goal. • Includes the planning (forecasting), acquisition (buying), analysis, handling and control of merchandise and investment of the retail operation – Planning/Forecasting: for future sale of merchandise – Acquisition/Buying: procurement from distributors and manufacturers – Analysis: understanding needs & wants of the target audience – Handling: merchandise available at right store at right time and in the right condition – Control: budgeting and merchandise flow • Planning / Forecasting: future sales of merchandise • Acquisition/Buying: procurement rom distributors and manufactures • Analysis: under • Handling • Control Classification • Merchandise Group o Highest classification level, each merchandise group is managed by general merchandise manager, (GMM) senior vp o A group
within an organization managed by the senior vice presidents of merchandise and responsible for several departments. • Department o Departments are managed by a divisional merchandise manager (DMM) • Classification o A group of items targeting the same customer type, such as girls sizes 4-6, buyers are responsible for one or more classification • Category o A buyer manages one or more merchandise category (ex: sportswear, swimwear) specialize to have best buying power o Synergy in vendors (group items) • SKU: Stock Keeping Unit o Smallest unit available to inventory control, size, color, style (individual items) • Stockout: o A situation occurring when an SKU that a customer wants is not available. Category Captain • Selected vendor responsible for managing a category o Vendors frequently have more info and analytical skills about the category in which they compete than retailers o Helps retailers understand consumer behavior o Creates assortments that satisfy customers o Improves profitability of category o Buying vs category  one buying is done, then the category manager come in to make sure we have right mix of vendors, brand and SKU to optimize sales • Problem: o vendor category captain may have different goals than retailers • # 1 market share company – generally the company that’s given the category captain ship  retailers decide who it will be Type of merchandise • Staple Merchandise o also called a basic merchandise category, is a category that is in continuous demand over an extended time period. o Steady sales from week to week o Demand is predictable o Continuous monitoring and replenishment • Fashion Merchandise o Changing demand from season to season o Sales are unpredictable o Demand is unpredictable o Harder to forecast sales Product life cycle • FAD o (short), illogical, unpredictable, riskiest marketing • FASHION o (sell over many season, dramatic change), sales vary • STAPLE o Increasing (sale over many season, sales do not dramatically change from one season to next) o More predictable revenue Assortment Plan • Breadth: o is the number of different merchandising categories (variety) within a store or department. # of SKU’s within the category. (broad or narrow) • Depth: o is the amount of a particular item that a retailer will stock. # of styles of a specific brand. (deep or shallow) • Narrow & Deep, broad & Shallow, Square planning, • Walmart tends to be narrow and deep • Club monaco tends to be broad and shallow. • Square assortment is moderate planning Model Stock Plan • Model Stock plan o Summary of desired inventory level of each SKU stocked in a store for a merchandise category o Will be different for stores depending on the size and classification • The number of units of backup stock, also called buffer or safety stock, in the model stock plan determines product availability. • Product Availability o Back up stock, buffer or safety stock o % of the demand for a particular SKU that is satisfied. Order Point • The point at which inventory available should not go below or else we will run out of stock before the next order arrives • Order point = sales/week (lead time + review time) + buffer stock o -Assume Lead time = 3 weeks o -Assume Review time = 1 week o -Assume Demand = 100 units per week o Order point = 100 (3+1) = 400 o -Assume Buffer or Safety Stock = 50 units o Order point = 100 (3+1) + 50 = 450 o ***We will order when order point gets below 450 units. Merchandise Analysis Three types of analyses related to the monitoring and adjustment step are: • Sell Through Analysis o Compare actual and planned sales to determine whether more merchandise is needed to satisfy demand or whether price reduction are required o May require markdown money from vendors • ABC analysis o Identifies the performance of individual SKU in the assortment plan o Rank order merchandise by several performance measures ▪ Should never be out of stock (A items) ▪ Should be out of stock occasionally (B items) ▪ Special orders or small quantities (C items) ▪ Should be deleted from the assortment plan (D items) o Ex:A store is high property b/c it has highest sale o A items: 5% of SKUs, ▪ represent 70% of sales o B items: 10% of SKUs, ▪ represent 20% of sales o C items: 65% of SKUs ▪ represent 10% of sales o D items: 20% of SKUs, ▪ represent 0% of sales (at regular price) • Multi-attribute analysis o Evaluating vendors uses a weighted-average score for each vendor. Week 8 – March 16th Module 7: Buying Strategies – Chapter 11 Why Brand? Buying Strategy • Coke and store coke might taste different but for drugs, they are the same. Why get the more expensive brand? • Starbucks license their brand coffee frappucino to pepsi. • Manufacture – national brand o Designed, produced and marketed by a vendor and sold by many retailers • Private Label – store brand o Developed by retailer and only sold in retail outlets o Inferior – low price, low quality  functional and cheap (back in the day) o (present day)  better quality, better positioning (PC) • Licensed brand o Developed by licensee and sold to either manufacturer or retailer o Starbucks Frappuccino ▪ Pepsi makes it o Brand for which the licensor (owner of
a well-known name) enters into a contractual arrangement with a licensee (a retailer or a third party). The licensee either manufactures or contracts with a manufacturer to produce the licensed product and pays a royalty to the licensor. Private label Brand • Advantage o Unique merchandise not available to competitive outlet o Exclusivity boosts store loyalty o Difficulty for customer to compare price with competitor o Higher margin ▪ Don’t invest in high advertising ▪ Control supply chain • Disadvantage o Requires significant investment in design, global manufacturing sourcing o Need to develop expertise in developing and promoting brand o Typically, less desirable for customers o Distribution is limited to own retail store Manufacture – national brand • Advantage o Help retailers build their image and traffic flow o Reduces selling and promotional expenses o More desires by customer o Customers patronize retailers selling the branded merchandise • Disadvantage o Lower margins o Vulnerable to competitive pressures o Limit retailer’s flexibility Examples • Grocery sore: Loblaw’s –president choice / no name • Mass Merchandise: Walmart – great value • Department stores: Bay – lord and Taylor • Specialty stores: Canadian Tire – master craft Private Label Option • Premium o Comparable to or even superior to manufactures brand quality • Parallel o Imitate the manufactures brand in appearance and packaging, perceived as lower quality, offered at a lower price (shoppers puts their brand near private label brands) • Exclusive o Developed by national vendor and sold exclusively by the retailers • Generic o Target a price-sensitive segment by offering a no-frills product at a discount price Meeting national vendors • Wholesale market centers o National Markets (new York), Regional Markets (Dallas, Atlanta, Miami), London, Milan, Paris, Tokyo o Market weeks- Buyers make appointments to visit the various vendor showrooms • Trade shows o Frankfurt book fair, Las Vegas consumer electronics show, Atlanta super show for sporting goods • Internet exchange o Worldwide retail exchange • Meeting vendor at your company Negotiation with national vendors What do retailers want • More markup • Better purchase terms • Transportation • Communication • Exclusivity • Advertising allowances Retail-vendor issues Know Retail- Vendor Issues • Slotting Allowance (Listing Fee in Canada) o Fees paid by a vendor for space in a retail store. • Chargebacks / Buybacks o Retailers force vendors to buyback merchandise or charge $ for stock • Grey-Market Merchandise o a valid U.S. registered trademark and is made by a foreign manufacturer but is imported into the U.S. without permission from the trademark owner • Exclusive Territories o Granted to retailers so no other retailer in the territory can sell a particular brand • Exclusive Dealing o Occur when a manufacturer or wholesaler restricts a retailer into carrying only its products and nothing from competing vendors. • Tying Contracts o An agreement that requires the retailer to take a product it doesn’t necessarily desire to ensure that it can buy a product it does desire • Resale Price Maintenance o A requirement imposed by a vendor that a retailer cannot sell an item for less than a specific price – the manufacturer’s suggested retail price (MSRP) Stage of building relationship • Awareness o Building contract • Exploration o Buyer and vendor explore potential benefits and cost of partnership • Expansion o The buyer has collected enough information about the vendor to consider developing a long term relationship • Commitment o If both parties continue to find the relationship mutually beneficial, it moves to the commitment stage and comes a strategic relationship Legal Consideration • Contractual Dispute o Performance issue or disagreements about the detail of transaction o Can deal with them by: ▪ Alternative dispute resolution ▪ Mediation  middle man ▪ Arbitration  judge ▪ Med-arb Week 9 Pricing – March 23 – chapter 23 Module 8 – Retail Pricing & Loyalty (CRM) Pricing • Price is not value and value is not price • Develop value as a shopper • Relationship of what a customer gets (goods/services) to what he/she has to pay for it • Value: perceived benefit / price • Different from consumers and can be based on the following: o Quality o Price – component of value and drives value o Service o Convenience • Benefits: experience you had, customer service, way the product is, o Multi-faceted Considerations in setting retail price • Price sensitivity • Cost • Competition • Legal constraint Methods in setting price • Cost Oriented – set price at a fixed % of cost over merchandise (keystone pricing) o Retail price = cost of merchandise + mark up o Mark-up = the increases in the retail price of an item after the initial markup percentage has been applied but before the item is placed on the selling floor. ▪ Mark-up percentile (at retail) = (retail
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