UNIT – III MERCHANDISING PROCESS 6.
0 Hours
Objectives:
On completion of the study of the course the learners will be able
3.0 To comprehend various steps in the process of merchandising
3.1 To understand merchandising process
3.2 To learn planning function of merchandising
3.3To learn buying function of merchandising
3.4 To understand selling function of merchandising
3.5 To understand various merchandising functions at Export House, Buying
House and Retail House
UNIT III Merchandising process
Module No. Name of the module
1 Basic steps in merchandising
2 Merchandising Process
MODULE 1 BASIC STEPS IN MERCHANDISING
3.1.1 Planning
Merchandising is concerned with all of the activities necessary to provide a store’s
customers with the merchandise they want to buy, when and where they want it and at
prices they can afford and are willing to pay.
American Marketing Association defines merchandising as “ the planning involved in
marketing the right merchandise at the right place at the right time in the right quantities
at the right price”. It involves: (a) Making Buying Plans (b) Understanding the customers
(c) Selecting the Merchandise (d) Promoting and Selling the Goods to the consumer.
The merchandiser ensures that the business ‘de-risks’ itself by making the best decision
at a point of time. ‘De-risking’ refers to the process of optimising sales performance and
minimising stock risk, by making informed decisions.
3.1.2 Merchandise Planning focuses on the following issues:
• Determining future customer demand in terms of styles, quantity, colours, prices
and fashion emphasis.
• Planning to meet future customer demand and assure a profit.
• Selecting resources and buying merchandise.
• Coordinating advertising and sales promotion to assist in bringing the customers
into the store to buy the merchandise.
(C) Dr. Sougata Banerjee, NIFT, Kolkata
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• Projecting store image.
• Establishing sound merchandising policies to ensure the success and growth of
the business and to assist in meeting competition.
3.1.3 Main areas of the planning activity of merchandising management rotate around:
1. Planning stock to be delivered in to the business:
a. Analyzing historical sales patterns and trends.
b. Recommending forward fabric buying levels.
c. Recommending forward garment buying levels
d. Monitoring and managing delivery of new stock in to the distribution
centre.
e. Ensuring that overall stock levels and buying are in line with the
organization sales plans.
2. Moving delivered stock around the business:
a. Initial allocations of new stock to shops- what quantity to each?
b. Store replenishment – as garments start to sell – how much more stock and
how quickly do we send to individual branches?
a. Recommending the level of repeat buys of best selling lines.
b. Transfers and recalls of faulty or non-seasonal stock.
3.1.4 Steps in fashion merchandising
1. Planning: fashion is subject to change and the planning must have flexibility
• Planning based on how much we expect to sell and how much inventory it will
take to secure that selling
• Planning the assortments
• Customer orientation: knowing what people want, when they want and how much
they would pay for it.
• Preparation of six month buying plans which require the knowledge of fashion
trends and market conditions and economic factors
• Most important factor in planning is flexibility.
3.1.5 Buying
The merchandiser, like the buyer, is often trying to work on many seasons at once. They
will be helping the buyer plan ahead for distinct seasons’ colour ratios; they will also be
helping the buyer to decide on how many garments to buy within each category for the
coming season.
In addition they will be controlling the current seasons’ stock flow into the business and
advising on whether or not repeat buying will be necessary. Whether late deliveries need
to be cancelled or whether or not poor selling lines may have to have their price reduced,
to ensure that they will sell out.
3.1.6 The role and responsibilities of the merchandiser for buying function:
• To estimate sales and plan stock levels to achieve the planned sales and margin
for a specific garment type.
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• To provide regular analysis and progress reports referring to stock levels, sales
performance and stock purchases to senior management.
• To work with buyer on range planning to maximise commercial opportunities for
products.
• To manage intake and commitment to accommodate the stock requirements of the
business at any given time and the open to buy requirements of the garment type.
• To manage stock distributions to stores optimising customer demand, available
selling space and seasonal selling opportunities.
• To effectively manage and develop the merchandising distribution team.
Buying: buying is done by classifications
• Price lines
• Sizes
• Quantities
• Buying is dependent on customer demand estimated by study of customer wants
and needs
• The successful buyer knows what customer wants, when they want it and how
much they want to pay for the goods.
Buying involves the following functions
1. Choosing the resource
2. Selecting the merchandise
3. Securing the best terms
4. Actual placing the order.
The buyer is responsible for not only what to buy and when to buy, but also where to buy
and how much to spend.
Buying responsibilities includes:
• Establishing and maintaining effective buying relationship with vendors.
• Adequately stocking the departments price lines and securing the best possible
mark up on all purchases
• Supervising the physical inventory or stock counts to verify the accuracy of the
stock records.
3.1.7 Selling
Buying in a retail organisation depends on customer demand. Demand is determined best
by the actual customer response to the goods made available by the buying function. So
buying function cannot exist without involvement in selling function. This function
includes communication and promotional activity.
“Goods well bought are half sold’’
Trend towards central buying- merchandise presentation to the customer is becoming a
function of sales manager rather than buying. A store regardless of its size cannot and
should not stock, all the merchandise available in the market.
The crux of merchandising:
(C) Dr. Sougata Banerjee, NIFT, Kolkata
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Selecting the merchandise with certain characteristics that are indicative of tastes of
customers of a store and in such assortments, depths and price levels that make for a
proper rate of sale decided upon by the customer.
Depending on the size of the company, the merchandising departments, along with their
focus can be divided as follows:
Department Focus
attached to
Design Procuring materials as desired by design dept. Scouting for new
materials & making data available to the designers on excess or slow
moving items of raw materials & trims in stock.
Production Procuring material as per the production plan at the right time & the
right price & for right quantities to ensure that production process is
never hampered.
Retail Ensuring that the merchandise available at the stores is what is
selling or is likely to sell and withdraw slow moving items.
Overall To overview the flow of goods and services within the organization.
(C) Dr. Sougata Banerjee, NIFT, Kolkata
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MODULE 2: BUYING PROCESS
3.2.1 Steps for Buying the Merchandise:
1. Making Buying Contacts:
a. Markets
b. Visiting Sales Representatives.
c. Catalogues
d. Resident Buying Offices
e. Store Owned resources
f. Wholesalers
2. Factors in Selecting Resources.
i. Merchandise Offerings.
ii. Vendor Policies.
iii. Vendor Services.
iv. Vendor Performance.
3. Market Trip Planning
a. Timing the Market Trip.
b. The Buying Plan.
c. Steps in Making a Market Trip
d. Planning the Trip.
4. Arrival in Market.
5. Visiting Resources. Guidelines for Visiting Resources:
• Know the buying plan fully. Have definite merchandise needs written down.
• Visit better price‐line resources first to develop fashion and quality standards.
• Meet Key Executives at resources visited.
• Visit Factories and workrooms to learn more about manufacturers’ capacity to
produce and maintain quality control.
• Wait to make a commitment until the market has been covered fully in a
classification.
• Do not overbuy.
• Check the buying plans, notes and merchandise on order before writing orders.
• Negotiate with vendor for best terms, discounts and shipping arrangements.
• Make notes about merchandise to share with store personnel.
6. Completion of the Trip.
a. Selecting Merchandise at Market:
b. The Editing Process.
c. Negotiating the Purchase:
1. Types of Discounts:
• Cash Discounts: Percentage reductions allowed for paying invoices on or before a
date specified by the vendor.
• Trade Discounts: Percentage reductions from a list price offered to middlemen.
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• Seasonal Discounts: Percentage reductions in price offered to encourage retailers
to place orders for merchandise ahead of the usual buying season.
• Quantity Discounts: Price reduction offered by the vendor to the retailer for
buying goods in large amounts.
2. Dating: Number of days the retailer is entitled to take a cash discount and to pay the
invoice before it is considered past due.
• Regular Dating: Calculated from the date of invoice. “8/10 Net 30” means 8%
discount is extended, if the bill is paid within ten days.
• EOM Dating: Is calculated from the “end of the month”. An Invoice dated July 18
with terms of “8/10 E.0.M.” means 8% Discount can be extended if paid by
August 10.
• Extra Dating: “3/10‐30 extra” means the retailers get 30 extra days above 10 days
to make the payment for 3% discount.
• ROG Dating: “receipt of goods” allows the retailer to calculate the discount
period from the date the merchandise is received at the store.
3. Delivery Terms: Where the title to the merchandise passes from vendor to buyer and
where the risk of ownership begin.
F.O.B. Factory (Free On Board at the Factory): Title passes to the buyer when the goods
are delivered by the seller to the freight carrier. The buyer pays the freight and is
responsible for freight-damage claims.
F.O.B. Factory F.F.A. (Free On Board at the Factory, Full Freight Allowed): The title
passes to the buyer when the goods are delivered by the seller to the freight carrier. The
seller pays the freight charges, but the buyer is responsible for freight-damage claims.
F.O.B. (city of destination) (Free On Board to your city): The title passes to the buyer
when the goods are delivered by the seller to the freight terminal in the city, or nearest
city, of destination. The seller pays the freight and is responsible for freight-damage
claims to the terminal. The buyer pays the freight charge and is responsible for freight-
damage claims from the terminal to the final destination.
F.O.B. Job Site (Free On Board at job site, or contractor's shop): The title passes to the
buyer when the goods are delivered to the job site (or shop). The seller pays the freight
and is responsible for freight-damage claims.
F.A.S. Port [of a specific city] (Free Alongside Ship at the nearest port): The title passes
to the buyer when goods are delivered to the ship dock or port terminal. The seller pays
the freight and is responsible for freight-damage claims to the ship dock or port terminal
only. The buyer pays the freight and is responsible for freight-damage claims from the
ship dock or port terminal to the designated delivery point.
4. Negotiating Services:
• Packaging of Merchandise for resale to the store’s customers.
• Pre-ticketing and labelling of merchandise.
• Point‐of‐purchase selling aids.
• Cooperating advertising money
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• Training of Store Salespeople.
• Money reimbursement for markdowns taken on merchandise that does not sell.
• Assumption of Inventory responsibilities.
• For merchandise in the store.
• Consignment selling (which allows for return of merchandise that does not sell).
6. Bargaining.
a. Payment Terms
1. Consignment Buying: A case in a retail shop purchase, particular
goods, where payments are withhold until those goods are sold. When they are sold, the
retail stores pay to the manufacturers and/or the whole sellers. Retail stores buy
considering the possibilities of goods returns so that this method is not favored, but this is
well practiced.
2. Memorandum Buying: The retailers buy the merchandise paying
advance, there is no return of unsold stock but the discount at EOSS (End of Season Sale)
is been shared by the retailer and the vendor to dispose of the unsold stock.
b. Credit Period: The more the credit period the better it is.
7. Writing the Purchase Order: Information in Order Form:‐
a. Store Name & Address
b. Point of delivered.
c. Order Form Serial No.
d. Store Department Number
e. Date Order is placed
f. Name & Address of the Shipper.
g. Payment Terms
h. FOB
I. Product Specifications.
J. Quantity Ordered etc…
3.2.2 Types of Order:
• Regular Orders: Orders for Regular stock placed with vendors by the buyer.
• Reorders: Orders for additional merchandise from a buyer to a vendor to
replenish depleted stocks; often placed for hot selling items.
• Open Orders: Unrestricted orders placed with a resident buying office for urgent
requirement.
• Advance Orders: Orders placed well in advance of the specified shipping date.
They are used with staple stock where the buyer can accurately predict needs far
in advance.
• Special Orders: Orders placed for merchandise not regularly carried in stock or
temporarily out of stock.
• Back Orders: Orders placed for shipment or parts of shipments that were not
filled on time by the vendor.
• Blanket Orders: Pre-seasons orders placed with a vendor to be delivered in
several lateral shipments over a period of time.
(C) Dr. Sougata Banerjee, NIFT, Kolkata
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3.2.3 Merchandising Process in an export house
An export house is a firm that provides a worldwide service whose main activity is to
export a product line from one place to another.
A merchandiser in an export house is a manager who has overall responsibility for the
selection, sales and profitability of the product range within a particular category
(garment type) ,e.g. shirts, jackets.
Roles and responsibilities of a merchandiser in an export house
1. Production activities.
• Responsible for the development of the sample referring to the desired material
which may be in the form of swatches, sketches or prototypes provided by the
buying house.
• Need to update the changes that the buying houses require. if the changes are
possible than they are immediately undertaken, and cost sheets are worked on.
• All supervisors report to the merchandiser for the respective development in the
production activities of their consecutive department.
2. He co-ordinates the sampling of the product type ordered; later producing 15-25 pieces
i.e.; samples which are made to be sent to the importers and other related firms. Costing
is done after sample approval. It is done on one garment basis and later quantity is
multiplied with it, respectively. Now exporters give order through merchandiser.
3. Quality check is another responsibility of the merchandiser.
Bulk order given, enclosed with:
LC sheet (letter of credit) which includes terms & conditions, delivery, & its via buyers
bank/ advisory bank/ parent bank B.L. sheet. Also sees appropriate business terms,
financial aspects like setting up of plants/machineries.
4. Approves salesmen’s shipments including bill of lading, quality check
Modus Operandi – including steps of the procedure followed during the production.
He/she acts as an interface of the company and the production unit for the right time
delivery of the goods.
5. Inspection is done by a merchandiser at different levels
Initial inspection: - inspecting the quality, seams, and material used, stitching, stain-free
tests, i.e. all the initial steps taken before the completion of the garment.
Midline inspection: - done when 50% of the garment is complete, & then the inspection
report is mailed to the buyer. Final inspection:- done after finishing.
6. Maintaining the records
• Has to have a record of every swatch
• Maintains a T.N.A ( Time & Action Calendar ) which is weekly sent to the buyer
which includes the entire planning of the production:
• Date of order
• Approval of the samples
• Time of delivery, etc
(C) Dr. Sougata Banerjee, NIFT, Kolkata
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3.2.4 Merchandising Process In A Buying House
A buying house act as intermediaries between the retail house and the export house who
are possibly unknown to each other
A merchandiser in a buying house
A buying merchandiser is a manager who has overall responsibility for the selection,
sales and profitability of the product range within a particular category (garment type)
,e.g. shirts.
Roles and responsibilities of a merchandiser in a buying house
The overall responsibility is to select the merchandise that maximizes the sales and
profitability of a product range through meeting the target customer exact product needs.
1. To develop and buy a range of merchandise that achieves the profit margin and is
consistent with the retailers buying strategy:
The buyers task therefore is to maximize full price sales of stock bought and minimize
the quantity of unsold stock at the end of the season.
2. To source and develop products from an effective supplier base:
The task is to with the right export house and to get the right balance between the cost
and quantity on the products they buy.
3. To research and evaluate all relevant products and market trends:
Task is to evaluate all the information surrounding the development of a range. The
information is diverse but falls into two main categories related to current and past sales
and future fashion trends.
4. To be responsible for the negotiation of the product prices including delivery and the
payment terms:
When the buyer has decided on the final product designs after inputs from merchandising
design and garment technology, he will begin the process of meeting suppliers and
discussing cost prices.
5. To communicate effectively with suppliers (export houses), product terms and senior
management within the company.
6. To work within the constraint of merchandise planning
Task is to operate within control parameters that include financial budgets, and specific
commercial considerations such as historical sales performance and key fashion trends
like colour.
3.2.5 Merchandising Process In A Retail House
A retail house sells the product or services to final customers who actually use the
products or derive personal benefits from the service
A merchandiser of a retail house
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The merchandiser of a retail house is responsible for stock planning, management and
control. The retail merchandiser maximizes the profitability of the department , working
within the normally accepted conventions of the business. But the level of such
intervention depends on the size of the respective firm .
Roles and responsibilities of a merchandiser in a retail house
Merchandiser is responsible for the moving of stock both in & around the business. They
may vary from the organization to organization. The role of merchandiser is a senior role
usually of the same status as that of the buyer.
1. To provide regular analysis and progress reports referring to stock levels, sales
performance and stock purchases to senior management:
• Evaluating sales performances in relation to sales targets and planned stock levels.
• Produce weekly reports indicating their product area’s performance compared
with the target set. React effectively to the information as it arrives.
• Fast sellers will need to be repurchased quickly; poor sellers may need to be
marked down to lower the price and increase consumer demand to clear them
before the end of the season.
• Analyze the information received, together with the proposed plan of action for
senior management’s review and approval.
2. To work with buyer on range planning to maximize commercial opportunities for
products.
• Balancing the range commercially, ensuring that there is the correct mix of styles,
colours, sizes and price points in the range both nationally and regionally
• Provide the fundamental foundation for the future of the organization ,and its
importance must not be underestimated. Experienced merchandisers are able to
add a great deal to the process through their highly developed intuition into what
figures are relevant or not.
3. To manage intake and commitment to accommodate the stock requirements of the
business at any given time and the open to buy requirement of the garment type:
• Intake refers to new stock delivered into the business for distribution to stores.
• Commitment refers to stock on order and open to buy as we know is the amount
of money available to spend on new stock.
• The merchandiser will keep a keen eye on daily and weekly deliveries, to ensure
that the shops are adequately stocked with right goods at the right time.
• Take daily decisions to either try and bring forward or delay future deliveries to
ensure that current stock provides a balanced offered to customers.
• Henceforth merchandisers aim is to control stock flow into and through the
business.
4. To manage stock distribution to store optimizing customer demand, available selling
space and seasonal selling opportunities:
(C) Dr. Sougata Banerjee, NIFT, Kolkata
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• To make the best use of the stock available by trying to meet as much of the
demand in branches as possible and by maximizing the profitability of the sales.
• It is an incredibly difficult balance to get right and a problem which can be made
worse by timing, as the opportunity to sell products at full price lasts only a
season.
• Undertake as much detailed sales and stock analysis at individual shop level as
they can.
• Understand each shops micro market or local trading environment.
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