INTRODUCTION
Merchandising is the process of making products in Retail outlets available to consumers, by stocking and displaying them on shelves. It may be called as the heart of the retailing. For a successful venture, it is necessary to identify the needs and wants of the customers in a proper way so that the correct merchandise is purchased at a right time and the business does not incur loss and at the same time, it does not lose its customer.
Merchandise Management involves planning, acquisition, handling and control of the merchandise so that the sales and profits of a category can be maximised. It is a coordinated process and involves buying, sourcing, merchandising, and sales. In order to keep the buying process straight, items are grouped into categories.In this unit, you will learn about the merchandise management in the retail business. You will further learn the principles of merchandising and the planning process. You will also learn about the merchandising strategy and the merchandising mix.
Merchandise Management involves planning, acquisition, handling and control of the merchandise so that the sales and profits of a category can be maximised. It is a coordinated process and involves buying, sourcing, merchandising, and sales. In order to keep the buying process straight, items are grouped into categories.In this unit, you will learn about the merchandise management in the retail business. You will further learn the principles of merchandising and the planning process. You will also learn about the merchandising strategy and the merchandising mix.
MERCHANDISE MANAGEMENT
Merchandising is the heart of retailing. Merchandising is the supply chain practice of making products in Retail outlets available to consumers, primarily by stocking shelves and displays.
It is taking the product (or merchandise) from a company and selling it to the customer. It is ensured that the products are visible in stores and presented in an appealing fashion. Merchandise analysis is identifying need and wants of customers in order to buy the correct merchandise.
What is merchandising? Merchandising is a marketing practice in which the brand or image from one product or service is used to sell another.
Merchandising, as commonly used in marketing, also means the promotion of merchandise sales by coordinating production and marketing, and developing advertising, display, and sales strategies to increase Retail sales. It includes disciplines in pricing and discounting, physical presentation of products and displays, and the decisions about which products should be presented to which customers at what time.
Merchandise Management is the process by which a retailer attempts to offer the Right Quantity of Right Merchandise in the Right Place at the Right Time and at the same time meeting the organisation’s financial objectives. Every Retailer space is most precious and the merchandise has to justify the Return on Investment (ROI). The buying decision hence is a very strategic decision to a retailer.
Merchandise Management is an integrated approach to inventory assortment offerings, marketing communications and selling. It does not limit your approach to inventory selection and pricing issues only. It takes all three; effective merchandising, marketing and sales to create a highly desired customer experience. An integrative approach will help create the right management vision to address aged inventory, stock balancing, pricing strategies, Vendor performance, assortment planning, product selection for purchase and repurchase, managing gross margin return on investment and increasing product turnover. It is highly desirable to adopt an approach to solve the merchandising challenges by taking an integrated approach to managing resources and creating emotional connectivity with your company, brand and products.
Merchandise management is the process of analysis, planning, acquisition, handling and control of the merchandise investments of a Retail business with the objective of maximizing the sales and profits of a category. It sounds simple but involves different processes like buying, sourcing, merchandising, and sales. It may be virtually impossible to keep the buying process straight without grouping items into categories. In general, a category is an assortment of items that the customer sees as reasonable substitutes for each other.
For Example: Men’s formal apparels, ladies ethnic wear and infant’s apparels are categories. It is important to understand that merchandising is an integral part of the over-all strategy for the success of a retail venture. It is much more than simply stocking and arranging the products on shelves. It is truly an integral component of the Store’s overall business and can go a long way toward improving its image and consequently sales. Merchandising is all about creating a congenial environment in the Retail Store that aids customers in their overall shopping experiences. It begins long before customers actually enter the Store. In this context, following points are helpful:
i) The Retail Store should look appealing and welcoming to customers;
ii) Try to have clear and professional-looking signage that is distinctly visible to the customers;
iii) Display merchandise arranged in an orderly fashion;
iv) The items should have unambiguous signs showing prices and promotional offers prominently displayed;
v) The interiors should be neat and orderly;
vi) The staff should display helpful and pleasing manners to assist customers with their shopping needs.
The role of merchandising is to make customers feel that there is always something new and innovative to look at and shop for every time they come in to make a purchase. For example, window-dressing does not cost much, but it adds the "professionalism". If there is really a good window dresser, you will find increase in sales straight away - many products sell out when the customer sees them within a window display.
PRINCIPLES OF MERCHANDISING
Drawing upon the basic five rights of merchandising, the basic principles around which the function of merchandising needs to revolve are:
1. Understand the Target Market: The Retailer exists for the customer. Thus products retailed in the store should be a reflection of consumers’ needs and wants. The first step towards this would be the ability to understand who is the consumer? What type of products that he/she actually requires?
2. Build the Merchandise Plan, one Store at a Time: Each Store is different; the customers visiting each Store are different. Hence they have to be understood as separate entities. While the merchandise plan is built for the company as a whole, there has to be an element wherein peculiarities of each Store and region are taken into account.
3. Buy What Your Customers Want, Not What You Want: The buyer is the representative of the consumers, and it is necessary to remember that the choice and taste of target consumers may be very different from his/her. The buyer therefore needs to offer what the consumer will want rather than what he/she likes.
4. Build the Right Assortment: In the case of most products that are bought and consumed, the consumer is always looking for choice. A wide assortment of the right kind of goods goes a long way in building consumer loyalty towards the brand and or the store, as the case may be.
5. Be Consistent: When building a range of products for the consumers, it is necessary to ensure consistency across all product offerings. Consistency is required not only in the choice of products offered but also in terms of their quality. This follows from the principle that a Retailer cannot be everything for everybody. Keeping in view the target market, products and brands offered should be consistent with the image that the retailer seeks to create for itself, in the minds of the customers.
6. Offer Value: The consumer’s decision to buy a product is not always governed by price alone. While taking the buying decision, he/she is seeking value in the purchase made. Low price may not always be a factor favouring sales, and the perception of value that the product provides eventually influences the consumer’s decision.
7. Understand the Needs of the Vendor and Negotiate a Win-Win: While Vendors play a key role in the entire buying process, it is necessary that a buyer understands the strengths and weaknesses of each Vendor and also the factors that motivates them. If the goals of the organization are consistent with what the Vendor seeks to achieve, a better and long-term working relationship is envisaged.
8. Share Information: Sharing information with the Vendors often goes a long way in creating a sense of responsibility and involvement among them. Crucial information that is shared on a timely basis may even affect the long term success or failure of a product or a range of products.
9. Accept the Mistakes Committed: A product or a range launched may not always meet with the expected success. When a buyer is informed that some particular merchandise has not met with the success that was anticipated, it is essential to liquidate/move the goods and open up the selling space to other inventory.
10. Seek to Surprise the Customer: The merchandise is what draws the consumer to the Retail Store. If the merchandise in the Store excites the customer and exceeds his expectations time and again, the customer will have reason to keep coming back to the Store.
MERCHANDISE PLANNING PROCESS
Merchandise planning can either be top down or bottom up planning. In the case of top down planning, the senior management of the company would forecast the growth that they envision for the company and then this process would be translated down to how the growth is to be achieved. Look at Figure 1.1 which shows the merchandising planning process.
Many companies prefer top down planning as it is believed to be more in tune with the Company’s goals and mission; however, by the same principle, it may not focus on the local peculiarities of tastes and choices. Bottom up planning on the other hand would start with planning at the individual store and stock keeping unit level and then up to the regional and national level.
The process of planning also needs to be considered on other scales. The first dimension to be considered is the time span for the plan. The Company could have a five year growth plan which could in turn be broken down year- wise and then with respect to quarters, months and eventually weeks. Another element of planning involves the locations. It answers the basic question in term of how does the Company plan to achieve the sales growth that it has projected. The overall sales target is broken into the sales to be achieved region- wise, store- wise, based on the year on year growth to be achieved and also the new stores that would augment the existing ones. Having done this, planning with reference to the merchandise per se begins. Merchandise planning is done to the last level of Stock Keeping Unit planning.
MERCHANDISING STRATEGY
To start with the very definition, focus separately on the words ‘Merchandising’ and ‘strategy’. Fundamentally, a strategy defines a company’s position; merchandising on the other hand refers to the basic product mix that the Retailer offers to the end consumer. Look at Figure 1.2 which shows the areas influenced by the merchandise strategy. A merchandising strategy is defined as a Company’s position with respect to a given product-mix aimed at ensuring optimization of resources, achieving target sales and margins and reducing stock outs and/or markdowns. The merchandising strategy in turn, dictates the position that a particular buyer/merchandise adopts with respect to the following criteria.
1. The products to be sourced;
2. The terms and conditions agreed with the Vendors and Suppliers;
3. The pricing strategy to be adopted, and
4. The method of packaging and presentation to the end consumer.
Products to be sourced: Retailers may buy product from a variety of sources, which depend on the nature of the business and the product, as well as the capacity for the inventory. There are different types of sources, e.g. drop shipping, local sourcing, low volume: wholesalers, mid volume: importers and distributors and high volume: manufacturers and liquidation sales.
Drop shipping allows the products to be sold without having to hold inventory of the merchandise. The drop shipper holds the stock for the Retailer, who is not required to pay until the stock is sold out. It is obvious that drop shipping can be a good sourcing practice to test the market for a specific product. If the product sells, a bulk order of the product may be placed.
Local sourcing is suitable for the products such as car boot sales, discount shops, and local outlet Stores. This is a good technique to get started immediately in finding products to sell, but it is the most limited type of product sourcing.
Wholesalers are the best option for purchasing low volumes, because they are generally very flexible with Retailers. Once the business is established, and the Retailer is in a position to hold larger quantities of product, importers and distributors may be considered for product sourcing; although they have higher minimum order requirements, they can offer pricing arrangements which can be considerably more profitable than dealing with the wholesalers.
The best ways to increase profit margin is to purchase directly from the manufacturers and to import goods from overseas factories and distributors. Many international Suppliers can offer low priced, high quality goods that can help increase profitability. But importing requires dealing with many issues, such as managing Suppliers, shipping and importation fees.
Liquidation sales are usually bulk lots of merchandise that are being sold when a Retail Company goes out of business. Buying at liquidation can be a very good way of getting very low priced merchandise for sale, but it does not create an ongoing supply of the product.
Vendor’s terms and conditions: Vendor’s terms and conditions is an important step in the product merchandising strategy. These depend on the nature of product. The buyer and the Vendor negotiate and set the terms and conditions. Some examples are: Dispatch /Transit time, Posting and Packaging, Payment Options, Exchanges, Defects, Returns, Lost items, etc.
Pricing strategy: One of the four major elements of the marketing mix is price. Pricing is an important strategic issue because it is related to product positioning. Furthermore, pricing affects other marketing mix elements such as product features, channel decisions, and promotion. Different pricing strategies are discussed in detail .
Packaging and presentation: The packaging and presentation of the product plays an important role in merchandising. No matter how well is it made, a product will not attract a buyer unless it is presented in an attractive manner. It cannot be expected that a car of a new model in a showroom will be presented in a dirty state or having scratches on the body. Similarly, the packaging of a produce displayed on the shelves of a supermarket is equally important; it should be attractive in appearance, easy to handle, showing the brand name prominently, and providing all the information, such as nutrition value, ingredients, weight, price, manufacturing date, expiry date, discount, if any, etc. clearly.
The corporate strategy of a Retail organization influences the buying strategy. While the corporate strategy serves as a guiding framework for each and every department within the organization, the buying strategy is more specific. For the organization, it serves as guide for the function of buying, as well as to decide the time-frame for specific actions to be accomplished. Thus, while the buying strategy is reflection of the corporate strategy, it is specific only to the Company’s buying department.
The buying policy not only ascertains a buyer’s duties and responsibilities, but also enables the Suppliers and Vendors to clearly understand whether the Company allows many Suppliers to be a part of its sourcing base, or restricts its buying to/from a few Suppliers. The method of Supplier selection and the terms and conditions that apply to them are also similarly determined.
MERCHANDISE MIX
Merchandise refers to the complete range of products that the Retailer chooses to offer to its customers. Merchandise mix covers the breadth and depth of products sold by the Retailers. Often, it is also referred to as the product assortment. Over a period of time, the merchandise mix may change in keeping with the market conditions, and may vary even during the course of the same year. For example, the merchandise mix offered during Diwali is different from that offered in summer time.
The merchandise mix comprises of products which the Retailer terms as staple, classic or basic; combined after taking into consideration fashion, fads and seasonal preferences. Staple/classic merchandise lines include those products that are always in demand. Often, they make for the basic necessities of life such as sugar, salt, pulses, etc. or are those products for which there is always a steady demand. Depending on the type of the Retail model, the Retailer has to ascertain the staple products for its stores. In many cases, these products can also be termed as classics. Examples of the products which can be classified as staples are: which shirts for men, socks, handkerchiefs, stationery, etc.Developing a profitable merchandise mix is a continuous process. Using standard metrics and benchmarks makes a consistent review of products and categories possible. Reviewing historical performance, setting objectives and then comparing the actual performance will lead to an actionable strategy for developing an appropriate merchandise mix.
It is always advantageous to enlist the assistance of the marketing and creative teams to support the merchandise-mix objectives.
Merchandise LineIt comprises of a group of closely related products intended for the same end use, and sold to the same customer group. A given merchandise line also falls within the same price range. Thus we can say that a combination of merchandise lines makes up the merchandise mix.
