Planning Merchandise Intro

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 Apparel Food Furniture Consumer electronics (in a discount store)

GMROI 241 170 111 97

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