Purchase System in Retail

Purchase System in Retail : 

0 Purchase System in Retail Retail Management Presented by: Puneet Ramaul

Learning Objectives : 

1 Learning Objectives What is Merchandise Buying Process of Merchandise Buying Factors Affecting Merchandise Buying

KEY TERMS : 

KEY TERMS Merchandise Management is the analysis, planning, acquisition, handling, and control of the merchandise investments of a retail operation Merchandise Line is a group of products that are closely related because they are intended for the same end use (all televisions) are sold to the same customer group (kids clothing) or fall within a given price range (budget men’s wear) 2

Contd. : 

3 Contd. Variety refers to the number of different merchandise lines that the retail stocks in the store. Breadth (or assortment) is the number of merchandise brands that are found in a merchandise line. Depth is the average number of stock-keeping units within each brand of the merchandise line.

Merchandise Buying Process : 

Merchandise Buying Process The process through which a retailer decides what merchandise to buy and in what quantity Steps in Merchandise management Creating an assortment plan for a category Forecasting Sales Outlining the flow of merchandising Buying a merchandise 4

QUESTIONS EXPLAINING THE PROCESS : 

QUESTIONS EXPLAINING THE PROCESS What branding options are available to the retailers? How do retailers buy national brands? How do retailers prepare for and conduct negotiations with their vendors? 5

Contd. : 

Contd. What legal and ethical issues are involved in buying merchandise? What issues do retailers consider when buying and sourcing private-label merchandise internationally? Why are retailers building strategic relationships with their vendors? 6

Branding options : 

Branding options Whether to buy a National-label brand Private-label brand Licensed brand 7

Contd. : 

Contd. National-label brand: Also known as manufacturer brands, are products designed, produced and marketed by a vendor and sold to many different retailers Umbrella branding (e.g. Kellog’s, Amul) Not associating name with a product (e.g. P&G) 8

Contd. : 

Contd. Private-label brands: Also called store-brands, are products developed and managed by retailers Retailers typically develop the specifications for their private labels and then contract with manufacturers, often located in countries with developing economies, to produce the product Also national-brand manufacturers can develop a private-label brand for a specific retailers e.g. Levi’s Signature jeans was developed specifically for sale at Wall-Mart in US E.g. STOP, FORCA Jeans etc. 9

Contd. : 

Contd. Licensed Brands: These are the brands for which the owner of a well known brand enters into a contract with a licensee to develop , produce and sell the branded merchandise Licensees may be : A retailer A third party E.g. Any retailer selling a sweatshirt with a university’s logo printed on it has to obtain the license from that university by paying some licensing fee 10

Manufacturer Vs Private brands : 

Manufacturer Vs Private brands 11 “-”: Disadvantage ; “+”: Advantage; “?”: depends on circumstances

MEETING WITH VENDORS : 

MEETING WITH VENDORS To reach to a buying decision a retailer must meet a vendor. The places where a retailer can meet a vendor include Wholesale market centers: A Concentration of vendors within a specific geographic location that may be under one roof or even on the Internet Trade shows: These are the shows where vendors display there product range and offerings to the buyers(retailers) Vendor’s office 12

Wholesale market Vs Trade shows : 

Wholesale market Vs Trade shows The meetings during market weeks offer an opportunity for in-depth discussion where as trade shows have the advantage for buyers to see the merchandise offered by different vendors 13

NEGOTIATING WITH VENDORS : 

NEGOTIATING WITH VENDORS Negotiating is the process of finding mutually satisfying solutions when the retail buyer and vendor have conflicting objectives. The mantra for negotiation is “Knowledge Is Power” The more a buyer knows about his situation and that of the vendor, more powerfully can he negotiate In this process the buyer may provide the vendor with some new ideas or current trends e.g. fashion trend in some other region etc. 14

MAJOR ISSUES IN NEGOTIATION : 

MAJOR ISSUES IN NEGOTIATION Price and Gross Margin Additional Markup Opportunities Terms of Purchase Delivery and Exclusivity Advertising Allowances Transportations 15

LEGAL & ETHICAL ISSUES : 

LEGAL & ETHICAL ISSUES Terms & conditions of purchase Resale price maintenance Commercial Bribery Chargeback Slotting allowances Exclusives Counterfeit Merchandise Gray Markets Tying Contract 16 Protect individual retailers from chain retailers Vendors can offer different terms to retailers for the same merchandise, if the costs of manufacturing, selling and delivery are different

LEGAL & ETHICAL ISSUES : 

LEGAL & ETHICAL ISSUES Terms & conditions of purchase Resale price maintenance Commercial Bribery Chargeback Slotting allowances Exclusives Counterfeit Merchandise Gray Markets Tying Contract 17 It is a requirement imposed by any vendor that retailer can not sell a particular item for less than a specific price Example of BOSE Speakers

LEGAL & ETHICAL ISSUES : 

LEGAL & ETHICAL ISSUES Terms & conditions of purchase Resale price maintenance Commercial Bribery Chargeback Slotting allowances Exclusives Counterfeit Merchandise Gray Markets Tying Contract 18 No vendor or his agents are allowed to offer “something of value ” to the buyer to influence the purchase decision

LEGAL & ETHICAL ISSUES : 

LEGAL & ETHICAL ISSUES Terms & conditions of purchase Resale price maintenance Commercial Bribery Chargeback Slotting allowances Exclusives Counterfeit Merchandise Gray Markets Tying Contract 19 Retailer deducts an amount of money from what he owes to a vendor

LEGAL & ETHICAL ISSUES : 

LEGAL & ETHICAL ISSUES Terms & conditions of purchase Resale price maintenance Commercial Bribery Chargeback Slotting allowances Exclusives Counterfeit Merchandise Gray Markets Tying Contract 20 It is an amount that a vendor pays to a retailer for securing a space in the retail outlet to display its products

LEGAL & ETHICAL ISSUES : 

LEGAL & ETHICAL ISSUES Terms & conditions of purchase Resale price maintenance Commercial Bribery Chargeback Slotting allowances Exclusives Counterfeit Merchandise Gray Markets Tying Contract 21 Retailers ask the vendors for an exclusive arrangement so that no other retailer can sell the item or brand

LEGAL & ETHICAL ISSUES : 

LEGAL & ETHICAL ISSUES Terms & conditions of purchase Resale price maintenance Commercial Bribery Chargeback Slotting allowances Exclusives Counterfeit Merchandise Gray Markets Tying Contract 22 A retailer should not sell the goods of a particular brand or with a trademark without obtaining the permission of the brand owner

LEGAL & ETHICAL ISSUES : 

LEGAL & ETHICAL ISSUES Terms & conditions of purchase Resale price maintenance Commercial Bribery Chargeback Slotting allowances Exclusives Counterfeit Merchandise Gray Markets Tying Contract 23 A retailer should not get involved into gray marketing, that is selling a country specific registered trademark product made by a foreign manufacturer at lesser prices

LEGAL & ETHICAL ISSUES : 

LEGAL & ETHICAL ISSUES Terms & conditions of purchase Resale price maintenance Commercial Bribery Chargeback Slotting allowances Exclusives Counterfeit Merchandise Gray Markets Tying Contract 24 In such a contract vendors restrict the retailer from buying the needed merchandise until he purchases the merchandise that vendor asks him to buy even if it is not needed by the retailer

BUYING A PRIVATE-LABEL BRAND : 

BUYING A PRIVATE-LABEL BRAND Buying and Selling private-label brands is a strategic decision as it involves a significant investment Retailers offering PL have specialized departments which have people for: Identifying trends Designing & specifying products Selecting manufacturers Maintaining staff to monitor the conditions under which products are developed Testing the quality of manufactured products 25

Reverse Auctions : 

Reverse Auctions One buyer (retailer) and many potential sellers (vendors) Retailer provide the specification of what they want to a group of potential vendors, who then bid for fulfilling the requirement Buyer may not buy from the lowest bidder but from the one who assures good quality and on-time delivery with a reasonable price 26

Global Sourcing : 

Global Sourcing Diminishing barriers(tariffs, duties etc.) to International trade have opened the door to outsourcing of manufacturing of products to countries with developing economies Low labor cost acts as a major factor However the factors that give rise to the cost include Foreign currency fluctuations Tariffs Longer lead time Increased transportation cost 27

STRATEGIC RELATIONSHIPS : 

STRATEGIC RELATIONSHIPS It occurs when a retailer and a vendor are committed to maintaining the relationship over the long term and investing in opportunities that are mutually beneficial to the parties It creates a Win-Win situation as: Size of profit increases Sales volume increases Both parties focus on uncovering and exploiting joint oppurtunities 28

Fundamentals of successful Strategic relationship : 

Fundamentals of successful Strategic relationship Mutual Trust Open Communication Common Goals Credible Commitments 29 A belief that the partner is Honest Benevolent

Fundamentals of successful Strategic relationship : 

Fundamentals of successful Strategic relationship Mutual Trust Open Communication Common Goals Credible Commitments 30 To share information To develop sales-forecast together To sort out the problems in relationship

Fundamentals of successful Strategic relationship : 

Fundamentals of successful Strategic relationship Mutual Trust Open Communication Common Goals Credible Commitments 31 To have common goals like Enhancing profit Increasing the sales volume Business expansion

Fundamentals of successful Strategic relationship : 

Fundamentals of successful Strategic relationship Mutual Trust Open Communication Common Goals Credible Commitments 32 These are tangible investments in relationship It may include spending money to improve supplier’s product or services provided to the customer

FACTORS AFFECTING MERCHANDISE BUYING : 

33 FACTORS AFFECTING MERCHANDISE BUYING In selecting merchandising sources the following criteria should be considered: Selling history Consumers’ perception of the manufacturer’s reputation Reliability of delivery Trade terms Quality of Merchandise

Contd. : 

34 Contd. After sale service Transportation time Inventory carrying cost Fashionability

Common Buying Errors : 

35 Common Buying Errors Buying merchandise that is either priced too high or too low for the store’s target market. Buying the wrong type of merchandise (i.e., too many shirts and no trousers) or buying merchandise that is too trendy. Having too much or too little basic stock on hand. Buying from too many vendors. Failing to identify the season’s hot items early enough in the season. Failing to let the vendor assist the buyer by adding new items and/or new colors to the mix. (All too often, the original order is merely repeated, resulting in a limited selection.)

SOURCES : 

SOURCES BOOKS: Retailing Management by Levy, Weitz & Pandit ICFAI textbook for Retail Management Websites: http://classes.bus.oregonstate.edu/ba495/Materials http://www.scribd.com/doc/6148226/Inventory-Centralized-Retail 36

THANK YOU..!! : 

THANK YOU..!! 37