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RMG400 Final review notes for Ch 3.docx

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Retail Management
RMG 400
Hong Yu

Ch.3 A key measurement of the buyer’s performance is sales volume. In most Retail stores, the individuals who buy merchandise are separate from those who sell the merchandise. This has both advantages and disadvantages for the buyer. Buying different types of products: When planning your career in retail buying, one of the first decisions should be to determine the types of merchandise that would interest you the most. Two interests: Soft lines: the apparel and accessory product categories and fashions for the home such as linens, curtains, and bathroom items. Hard lines: hardware, sporting goods, appliances, furniture, toys, lawn and garden products. Soft lines could be further subdivided such as women’s, men’s, etc... Subdivides can also be Fashion or basics. Basic merchandise items that customer buy year in year out and expect stores to have them in stock at all times Soft lines examples would be such as socks, hosiery, and blue blazers. Hard lines examples would be Barbie dolls, notebooks, or votive candles. Fashion merchandise includes products that have high demand over a relatively short period—usually one selling season. Includes most apparel items but also many hard lines. Ex: the newest aroma candles, the “hottest” color for cell phone covers, or a “special edition” Barbie doll would all be considered fashion merchandise. These items will only be in the store only a few months before being replaces by the next trend or newest model. New buyers find that forecasting for basic merchandise is much easier than for fashion merchandise because fashion come to the market quickly and go quickly, they are constantly seeking out new and innovative products to buy, so looking at similar products from the year before still won’t provide valuable information . Fashion buyers must be able to predict what their customers will buy this year. However, for basic merchandise it’s a lot easier because their sales tend to vary little from year to year. Buyers decisions to be made by Fashion buyers tend to be much more riskier and challenging than basic buyers therefore they are paid more. Having the right fashion products in a store can be very profitable. As you enter a career in retail buying, your first job with probably be buying basics and from there you will decide which types of products interest you the most. Buying at different retail formats After you decide which types of products interest you, you need to decide which type of retail store you would like to be a buyer for. Those stores could be located in malls, strip shopping centers, downtown area, small/large independent stores. When we examine the types of stores we want to know who performs the buying duties, if they have buyers at the local store, if all buying duties are performed by individuals at corporate headquarters, these answers may narrow your list of potential employers. Different types of retail formats: Department stores: sell all kinds of merchandise for the individual and the home. Offer a wide assortment of merchandise and services organized into departments based on product categories one-stop shopping for the entire family. Ex: Sears, JCPenney, and Macy’s The dominant retailers have now been threatened by other retail formats such as specialized department stores that have eliminated less profitable product categories. (mostly sell only apparel and home fashions) Kohl’s is a specialized department store but also has features of a discount store Some department stores have narrowed their product assortments as well as their customers base. So no longer offering something for everyone. Ex: JCPenny eliminating categories such as hardware and expanding its apparel. Sears, eliminated its “big book” catalogue and added many national brands to its product mix. Department stores must change with the times in order to survive. Discount department stores: also emphasize on one-stop shopping and appeal to customers who value savings over service. Emphasis is on selling nationally advertised brands at low prices, focus on the fastest-moving merchandise. Ex: Walmart-Kmart, Target. Outlet stores: sell slow movers and out-of-date merchandise. Some outlet stores are also used as test markets for new styles or models coming into the market. Ex: Polo, Tommy Hilfiger, etc... Growth has slowed down over the years for outlet stores. Specialty stores: primarily sell one specific product line and are based on the concept of meeting the needs of a particular market segment. In many product categories, specialty store with much broader assortments are challenging traditional department stores. An example of a specialty clothing store that has developed a growth strategy around providing unique fashions at low prices would be forever 21. Supermarkets (departmentalized store): sell groceries, dairy products, meats, and produce along with some non-food items. To meet the non-stop shopping of consumers, most supermarkets have broadened their product lines to include non-food items such as hardware, health and beauty aids, stationary, etc... now discount supercenters and warehouse clubs have expanded the superstore concept and are luring customers away from local supermarkets. Buying for chain stores: Chain store: two or more stores under single ownership. Has central headquarters that manages and buys merchandise for all stores in the chain. They carry varied assortments of merchandise such as grocery, department, discount, and drugs. Some chains specialize in a single line (shoes, men’s clothing, candy). Buyers are frequently removed from individual stores and placed at the chain’s headquarters. Chains provide the opportunity for increasing profits by having the advantage of mass buying power. In most chain store, selling is separate from the buying function. Buyers have little responsibility for sales personnel therefore they devote their time to product and market knowledge/ become product specialists. However the buyer’s performance is measured by the amount of merchandise sold in the stores so they must keep in contact with stores and sales associates. • Buyers’ responsibilities include: – Planning sales goals – Seeking out sources of merchandise – Purchasing merchandise to be sold in all the chain’s stores Centralized buying: occurs when all buying activities are performed from the store’s central headquarters. Buyers have the authority and responsibility for the selection and purchase of merchandise for all stores. Advantages: - A steady flow of merchandise is provided to the store because buyers are able to spend more time in the market. They are able to make frequent small shipments to keep store assortments complete and balanced. - Sales forecasts for all stores in a chain are more reliable than forecasts for each separate store. Centralized data allow buyers to be more accurate in predicting consumer trends because examining a small number of sales in each individual store may not be enough to detect trends. - A specialist is making the buying decisions. Centralized buyers make merchandize decisions for only a few products rather than a multitude of items, allowing them to be more knowledgeable about that merchandise - Expenses are reduced because each store does not need individual buyers. Travel expenses to markets are also reduced - Purchasing power is consolidated at headquarters, and this leads to lower merchandise costs because the chain will be in a better position to take advantage of quantity discounts So increased profitability, standardized operations, and improved control. Types of Centralized buying 1) Central merchandising plan: a central office representing a group of stores has complete responsibility for the selection and purchase of merchandise for all the stores. Stores using this plan are sears, JCPenny, old navy, Lane Bryant, and Gap, each store receives whatever the corporate office considers appropriate. Buying decisions for each store depends on sales history and average ticket sale. Centralized buyers spend a lot of time collecting and analyzing sales and inventory data collected from each store. Heavy reliance on computer output because of the dependence on reports. Disadvantage is that individual store needs may not be met. Manager may be less enthusiastic about selling merchandise that they had no choice in selecting and may even be critical of the merchandise received. Some store managers may even blame the buyers for slow-selling merchandise. 2) Warehouse requisition plan: attempts to overcome some of the limitations of the central merchandising plan; used only by stores carrying basic merchandise. Buyer at headquarters still determines the assortment of merchandise carried in the warehouse but each store manager is allowed to requisition the assortment that he or she wishes for the individual store so they can eliminate items they don’t want. Requests for merchandise are sent directly to the warehouse. Chain stores that decide to use this plan must have a sufficient number of stores in one area to make the establishment of a distribution center cost-effective. Advantages shipping distances are short/ orders filled quickly/ less merchandise kept in stock rooms/freeing additional space for sales, this plan reduces the amount of inventory that must be carried by each store, not effective for fashion items because fashion items change quickly so need to come directly from manufacturers. • Regional distribution centers are established to serve a number of stores in the area • Each store manager is allowed to requisition the assortment that he or she wishes for the individual store. • Typically used by: Stores carrying basic merc
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