The Fundamentals of Merchandising free essay sample

The past decade has witnessed sea change in the world of retail, of which increasing competition is just one aspect. New and emerging technologies and customers fragmentation has made it even more difficult for retailers to retain consumers who are loyal to their stores. Walters and Hanharan have identified four key elements of the strategic direction that are retailer may take, they are: * Merchandise strategy; * Communications strategy; * Customer service strategy; and * Format and environment strategy. Among all the elements of retail strategy, that of merchandising is becoming increasingly important, eventually determining the loyalty that a customer may have for a retail store. Over the years, the concept of merchandising has also evolved. From an era when manufacturers decided what the consumers needed to buy, to a time when consumers are the decision-makers – the change in the world of merchandising has been phenomenal. The Concept of Merchandising The word â€Å"merchandise†, means goods and sold for a profit. We will write a custom essay sample on The Fundamentals of Merchandising or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page It originate from the French word â€Å"merchant† which led to merchandise – meaning â€Å"goods† derived from the old French marchat. According to Business Dictionary, merchandise refers goods and commodities sold at the retail level. â€Å"Merchandising† is the buying, presenting, and selling of the merchandise. This includes all related activities such as advertising, display and promotion of merchandise involving the retail customers. The merchandising challenge of consistently having the right product in the right quantity, available at the place, at the right time and at the right price becomes increasingly difficult as more selling an fulfilling locations are added to a distributed retail model. Achieving these ‘five rights’ is the key to successful merchandising and, many a times, remains an elusive goal for most retailers. On the one hand, when an inventory enhanced with a view to improve service levels and decrease stock outs, profitability suffers owing to excessive markdowns. On the other hand, when inventory is reduced profitability suffers due to lost sales. Many a times both these situations typically occur simultaneously. Grace Kunz has defined merchandising as the ‘planning, developing, and presenting of product lines for identified target markets with regard to pricing, assorting, styling and timing. Retail merchandising has been defined by Lewison as the process of developing, obtaining, pricing, supporting and communicating the retailer’s merchandise offering. These aspects can be individually explained as follows: Analysis- because retailers must be able to correctly identify their customers before they can ascertain consumer desires and needs/requirements so as to make good buying decisions. Planning- because the merchandise that is to be sold in the future must be bought ‘now! ’ * Acquisition- because the merchandise needs to be produced, be it from distributers or manufacturers. * Handling- because the merchandise has to reach where it is needed in proper condition to be sold. * Control- because it is necessary to check the amount(s) spent on buying/acquiring products, in the process of merchandising. The concept of merchandising can be summarized in the words of Aufreiter, et al as ‘merchandising is not a synonym for the buying function, it is an integrated, end-to-end business process that runs from planning the assortment, to sourcing, to distribution, to allocation of the goods to the stores, to promoting and selling the assortment to the customers to replenishing inventory as necessary. ’ Different Roles in Merchandising Retail buyers represent both the retail firms and those consumers who are in the market for merchandise. Therefore, they are often referred to as the customers’ advocates. Ettenson and Wagner define retail buying as the decision making process through which retail buyer identifies, evaluates and selects merchandise for resale to the consumer. Taking this definition into consideration, if one were to specify the role of a buyer, it would comprise: * Understanding the consumer segment for whom the merchandise is being created; * Then, the buyer creates the basket that is offered to the customers; * Putting forth an offer of product requires planning and electing the specific merchandise which will form a part of the merchandise assortment. The buyer interacts with vendors and suppliers and works towards determining who is best suited for providing the required range of merchandise; and * The buyer also negotiates favorable manufacturing and supply terms with the vendors, so as to enable the achievement of the required pricing policy to be adopted by the company and, at the same time, the required margins. Hirschman and Stampfl have categorized the role of the role of the retail buyer extremely well. According to them, a retail buyer has to perform three primary functions, namely: First in line is the role of a change agent, where the buyer influences the buying behavior of consumers by offering new products and services and assortments. Second is the role of a gate keeper, where the buyer is responsible for the goods right from the suppliers to the end consumers. Last, the buyer plays the role of opinion leader, in conjunction with the role of change agent, and influences consumer opinion, but does not necessarily induce a buying decision. Associate or Junior buyers usually buy specific items for a department or division of a firm which is too large to served by one buyer, but at the same time coordinates with the Head Buyer. Assistant Buyers are responsible for routine aspects of the works. The structure of the merchandising department largely depends on the organizational structure adopted by that particular retail organization. Many organizations may also have a position known as a Purchase Agent. Purchase Agent and Buyers commonly focus on routine purchasing tasks, often specializing in a commodity or a group of related commodities, such as steel, cotton, grains, fabricated metal products, or petroleum products. Purchase Agents usually track market conditions, price trends, or futures markets. The Merchandiser, on the other hand, is responsible for particular lines of merchandise. For example, in a departmental store, there may be merchandisers for menswear, women swear, children’s wear, etc. The basic duties of the merchandiser can be divided into four areas: planning, directing, coordinating and controlling as follows: 1. Planning. Though merchandisers may not be directly involved in the actual purchase of merchandise, they formulate the policies for areas in which they are responsible. These include forecasting sales for the forthcoming budget period, which further involves estimating consumer demand and the impact of changes in the retail environment. These sales forecasts are then translated into budgets to help the buyers to work within the financial guidelines. 2. Directing. Guiding and training buyers as and when the need arises is also a function of the merchandiser. Many a times, buyers have to be guided to take the additional markdowns for products that may not be doing to well in the stores. Inspiring commitment and performance on the part of the buyers is also necessary. 3. Co-ordinating. Usually, merchandise managers supervise the work of more than one buyer; hence, they need to co-ordinate the buying effort in terms of how well it fits in with store image and with the other products being bought by other buyers. 4. Controlling. Assessing not only merchandise performance but also buyer’s performance is the part of the merchandise manager’s job. Buying performance may be evaluated on the basis of net sales, maintained mark-up percentages, markdown percentages, gross margin percentages and stock turn. This is necessary to provide control and maintain high performance results. Many retail organizations also have a Division Merchandise Manager (DMM) or a similar position; he/she is responsible for merchandising activities for particular lines of merchandise. For example, the DMM for children’s wear would supervise those buyers who purchase merchandise such as baby clothes, and clothes plus related accessories for newborns, boys and girls. Typically, a DMM’s role notwithstanding the size of the retail organization, would involve the following functions: 1. Forecasting sales for the forthcoming budget period. This involves estimating consumer and the impact of changes in the retail environment. 2. Translating the sales forecast into inventory levels in terms of rupees. To do this effectively, the DMM needs to understands and provide for the inventory levels that would be needed to achieve a particular level of sales. 3. Inspiring commitment and performance on the part of both, the merchandisers and the buyers. Typically, as DMM are at a senior level within the organization, it is believed that they can guide the merchandisers in terms of vendor’s selection, merchandise lines that can be developed, and future trends. 4. Assessing not only the merchandise performance but also the buyers performance in order to provide control and maintain high performance results. The DMM may not get involved in most day-to-day merchandise management problems and is more likely to be involved with quarterly, seasonal, or annual planning, budgeting and controlling of merchandising activities. The function of buying-while the integral to the functioning of the retail organization – is influenced by a number of elements within the environment. 1. The type of retail organization 2. The type of merchandise to be retailed 3. The quantities to be retailed In small independent stores, one person is typically the owner and manager. He/She is responsible for all the business operations of the store, including all the buying and merchandising duties. As in the case of every retail endeavor, no matter what size, the most fundamental activities comprise buying of merchandise and reselling to the end consumers. It is therefore necessary for him/her to have a thorough understanding of the buying process. As the owner has direct access to the end consumers, he/she would have a better understanding of their needs and wants, and the function of buying would be as per the same requirements. The role of a buyer in such an organization would typically involve: * Co-ordinating the purchasing for various products required by the store * Writing of orders * Handling special orders as and when they arise * Making decisions regarding merchandize returns * Remerchandising the store Taking decisions with respect to the pricing of the product * Planning and coordinating various promotional activities and events and in store presentation of the merchandise * Customer contact and selling It is wrong to believe that all independent retailers are small. As the independent store grows, the owner may not be able to handle all the duties efficiently. Continued growth may encourage departmentalization. To better understand the peculiarities of merchandising in the case of a small retail store it would have a limited number of employees ranging between 5-8 persons, depending on the scale of operations. Structure in a Small Independent Retailer Owner Baker/Chef Deliver Boys/ Helpers/ Peons Sales Staff + Manager The product mix offered would perhaps be a combination of cakes, desserts, cookies, chocolates, etc. taking into consideration the fact that store is a bakery; most of its products would have limited shelf-life. The process of merchandising would have to take this into consideration and perhaps work on day-to-day forecasts and procurement of the raw material. That the off-take could increase during festive times would need to be taken into consideration. As it is an independent store, pricing would have to be competitive and arrived at the after taking into consideration other retailers such as Birdy’s Croissants, etc. Buying for a Chain Store Generally, as the operation of a chain store is larger than that of an independent store, the buyer in such an organization needs to be a specialist. Merchandising in chain stores is characteristics by: * Central Buying Plan * Central Merchandising Plan A retail chain operates in more than one region, and would therefore have to catered diverse consumer market. The objective however is the same to obtain a buying advantage through aggregated purchases that will permit the retailers to offer lower prices to the consumer. Centralized vs. Decentralized Buying Buying in large multi-store retailers maybe centralized or decentralized. Decentralized buying occurs when each store makes it own decision re grading purchasing; whereas centralized buying is when central buying office makes the same decision. The primary benefit gained by centralized buying is the quantity discount obtained from high-volume of purchase. Buying Committee But this is something youll rise to. Heads of Merchandising Heading up and managing a team of Merchandisers, youll develop and deliver the Divisional Business Plan. Youll build and sustain supplier relationships to see all trading opportunities are maximised, as well as promote   team internally – to influence supply chain, IT, suppliers and stores as to your business objectives. All the while youll woryourk to enhancing our processes and systems so that theyre world class. Youll come to us with an impressive background. Youre either a Merchandise Planning Manager or Head of Merchandising who has a strong clothing background and a reputation for great leadership. Youre inspirational and motivational, as well as grounded in technical advances so that you can make any changes as necessary. Any international exposure would be great. Merchandise Planners/Merchandise Planning Managers Youll deliver and roll out the merchandise plan – in line with the planning calendar – whilst maximizing profits and minimizing risk. Which means youll deliver stock availability unfailingly, by getting the right products, in the right place at the right time. Detailed budgeting will also fall to you, as will supply chain efficiency, stock levels (including exit plans for departmental promotions) and of course youll look after the management and development of a small team of Assistant Merchandise Planners and Trainees. Youll bring plenty of experience and knowledge of Microsoft WSSIs, critical paths, delivery scheduling and allocation of replenishment systems. Youll also have previous demonstrable management skills. Assistant Merchandise Planners Youll look after all WSSI and reforecasting, as well as assist in the trading of the department and spotting opportunities for our customers and the business. Youll collate business analysis for senior teams, look after range build and attend sign offs as well as mentor a Trainee in their work. With some previous experience in merchandising at assistant level (preferably in fashion), youll grab our attention with your excellent communications skills and ability to develop relationships across the buying office. Buyers All of our buyers no matter what level you join us need to be fashion-forward. Youll live, eat and sleep fashion. And because you love everything about fashion, you completely get the Famp;F brand – understand our vision and are excited about delivering a flexible sourcing strategy to support it. But as much as its about fashion, we cant lose sight of being commercial – which comes as second nature to you. Youll work cross-functionally to see that were maximizing every opportunity – which means your creativity, lateral thinking and innovation will bring about great results. Because of the fast-paced nature of our work youll find that the tides shift constantly, but this is something that motivates and spurs you on. Buyers/ Buying Managers Youll develop and implement the buying plan for your category – constructing and implementing supplier and range plans to wow customers, so your products fly off the shelf. Recognizing that fashion is unique to each country but trends are often global, youll see that their needs are met, as well as implementing the corporate promotions calendar and policies. Naturally youll take care of the pricing plan for the product range. Youre a seasoned Buyer already, whos got people management experience and whose passion for fashion will inspire everyone around them. Youll be able to show a proven track record in new range introduction and direct sourcing experience is essential. Assistant Buyers Youll help deliver on the buying plan for your category – hitting and beating your sales and margin targets – by coming up with customer driven ranges and promotions. With the support of your manager, youll negotiate continually on product costs and rebates to see that were driving costs down for customers without compromising on quality. Youll also take ownership of resolving any day-to-day issues with suppliers, distribution and ordering departments. As an Assistant Buyer, were looking for someone whos got a good grounding in the basics. Youll have previous experience within a multi site retail consumer business and have a solid understanding of country and global supply chain processes. A love of fashion, a total commitment to customer focus and the ability to work as part of a team are a given. Trainee Buyers As your first step into fashion and buying, youll be keen to learn the ropes. Youll absorb everything going on around you and make a vital contribution, relishing the administrative support you carry out and the exposure it gives you. Youll take on organizing and cataloguing sample garments and also updating our critical paths to see were on track. In fact youll turn your hand to anything and everything as you strive to learn everything you can. Youll either be a graduate with a fashion-related degree, or have recently completed your A-Levels and be looking for an alternative career path to university. Either way youve an eye for trend, love working at a fast pace and cant wait to prove yourself. Youll also be confident enough to participate in weekly trade meetings. Buying, Merchandising and Design Buying- The set of  procedures  used to identify  products  for  purchase, verify  quality  and  compliance  of products and  vendors, carry out purchasing  transactions, and verify that  operations  associated  with purchasing have been  executed  appropriately. Trainee Assistant Buyer-  support the Assistant Buyer and Buyer within their day-to-day functions. Assistant Buyers- An assistant buyers provide technical and administrative assistance to a purchasing department by assisting with purchasing documentation, spreadsheets and customer service. Buyers-  A buyer, also called a purchasing manager or procurement director, is responsible for seeking out suppliers, selecting merchandise and negotiating bills of sale for a business, primarily within a retail environment. She reports directly to her companys management. Merchandising- The activity of  promoting  the  sale  of  goods  at retail. Merchandising  activities  may include display  techniques,  free  samples, on-the-spot  demonstration, pricing,  shelf talkers, special  offers, and other  point-of-sale  methods. According to  American Marketing Association, merchandising encompasses planning involved in  marketing  the  right  merchandise  or  service  at the right place, at the right time, in the right  quantities, and at the right  price. Assistant Merchandiser- Assistant merchandisers assist the lead merchandiser in creating and maintaining a successful business strategy. Merchandiser- Merchandisers work in the retail sales industry alongside merchandise managers and executives, buyers and sales personnel to ensure that assigned products are displayed in a way to encourage sales in the retail environment. Design- Realization  of a  concept  or idea into a  configuration,  drawing,  model, mould,  pattern,  plan  or  specification  (on which the actual or  commercial  production  of an item is based) and which helps  achieve  the  items  designated objective(s). Merchandising Principles Four basic principles of Merchandising are: Value:  Immediately upon arriving the customer must see the value that a retailer offers.