How to Buy Merchandise for a Retail Store

Beginning with the turn of the last century and continuing for many years, retailers and buyers for retail stores concentrated all of their buying efforts on the selection of merchandise items they thought their customers would like and would purchase. These buyers were product-orientated. It was called subjective retailing because the buyer based the buying decision on a personal view of the likes and dislikes of customers.

Within recent years the consumer movement (consumerism) has forced a change in the retailer's buying efforts from a subjective attitude to that of an objective one. The retailer now has to measure the likes and dislikes of the customers before a buying decision can be made. The buyer has to be consumer-orientated. Retailing has entered into the new era of the marketing of merchandise.

The Marketing Approach

it was now necessary to obtain the answers, through research and study, to the where, who, what, when and why of the consumer's buying habits and choices. The "where" refers to the trading area from which the retailer attracts its customers. The "who" refers to the demographic descriptions of these customers which provide a profile of the potential customers. The "what" refers to the types of merchandise these potential customers want to buy and, therefore, want the retailer to stock. The "when" refers to the part of the year when the customers make their purchases. The "why" refers to the psychographics of the customers which reflect their varied life-styles and the projection of these life styles into purchasing habits.

As a result of this consumerism, the small retailer and the buyer for the larger store has had to learn the significance of a new vocabulary to successfully effect this marketing of the merchandise approach. The new vocabulary includes such phrases as: target group, an understanding of the wants and needs of the consumers the retailer has selected to serve; the marketing positioning, the merchandising policies the retailer has established upon which to develop a reputation as a price, value, quality, assortment, and fashion leader; market penetration, the extent to which the retailer has succeeded in interpreting and satisfying the merchandise wants and needs of the target group; the new tools, the new approach of marketing the merchandise requires a knowledge and understanding of the tools necessary to effectively buy for retail stores; and, the merchandise plan, (see below) which is a timetable of merchandising objectives to be achieved within a stated time frame to ensure that your planned market positioning and market penetration are realized.

The Merchandise Plan

The plan is applicable to all forms of retailing at all sales levels. It is most often a six-month merchandise plan but there can be time frame variations depending upon the merchandise.

The first six-month plan includes February-March-April (spring) and May-June-July (summer). This plan is prepared and finalized in the previous August to permit early buying of imports and other merchandise. The second six-month plan includes August-September-October (fall) and November-December-January (winter). This plan is prepared and finalized in the previous February for the same reasons stated above.

The important items to be considered monthly when developing your six-month Merchandise Plan are:

Net Sales - This figure represents a realistic dollar estimate of your monthly merchandise sales. These sales estimates are based on past experience and on future considerations including; business conditions, competition, inflation, promotional plans, merchandising opportunities, and merchandise availability.

Stock - In order to achieve your estimated (planned) sales figure you must provide sufficient stock to permit a satisfactory selection for your customers. This stock figure can be determined by calculating your inventory turnover rate or your sales-stock ratio, or by estimating the maximum quantity for each item or the stock requirements based on expected weekly sales.

Reductions - Reductions refer to the lowering of retail value of your inventory and is caused by planned markdowns, shrinkage (stock shortage) and discounts to employees or other special groups. Since these are the only three things that can cause the retail value of the inventory at the end of a period to have a lower valuation than it had at the beginning of the period, they are to be included in the plan.

Purchases - This figure represents the dollar value of merchandise the buyer must purchase to replenish the stock likely to be sold to your retail customers. It is calculated by subtracting the dollar value of the stock-on-hand at the beginning of the month from the total dollar value of the planned net sales, shrinkage, and reduction for the month. The result is the planned purchases for the month..

Open-To-Buy - To arrive at the open-to-buy figure for the month, it is necessary to subtract (from the above planned purchases figure) the dollar value of the commitments already placed for delivery during the same month. Since each month is an entity by itself, it is not possible to carry any unspent open-to-buy commitments over to the next month. Knowledgeable buyers generally commit about 50 percent of the planned purchase figure in order to allow funds for reorders, fill-ins, and to take advantage of unexpected marketing opportunities.

In addition to the above items and depending upon the retail operation, the following elements may also be included in your six-month plan: turnover, markon, payroll, advertising, gross margin, number of transactions, and average sale. It should be noted that the six-month plan is flexible and can be adjusted at any time to meet changing business conditions.

The Stock Plan

After determining the broad categories of merchandise the store is to stock (men's clothing, stationary, costume jewelry, etc.), the retailer divides the broad categories into smaller categories called classifications (men's suits, tuxedoes, raincoats, etc.). In turn, the classifications are divided into sub-classification (single-breasted, double-breasted, etc.). A unit stock plan of the number of items to be stocked in each by price, style, color and size is then prepared. The purpose of this approach is to ensure that the stock will present an assortment of items that will satisfy the wants and needs of the broad section of targeted consumers. One element of the stock plan approach is the model stock or basic stock list. This list will contain those items that the customer expects to find in stock at all times. These are the musts or never-out items which are sometimes referred to as the bread-and-butter items.

The number of items in all stock plans is multiplied by the price line to arrive at the dollar value of the planned inventory. Adjustments in the stock plan may be necessary if the financial constraints preclude an ambitious stock assortment.

Everyone Requirements To be knowledgeable about the Decision Making Process. All of us rely on information, and techniques or
tools, to help us in our daily lives.

When we go out To eat, the restaurant is the tool that provides us with all the information required to decide what to purchase
and how much to spend.

Operating a Business also needs making conclusions using information and techniques - how much inventory to preserve, what price
to sell it in, what credit agreements to provide, how many people to employ.

Decision Making Process in business is the systematic process of identifying and solving issues, of asking questions and finding
answers. Decisions are created under conditions of uncertainty. The future is not known and occasionally even the last is suspect.
This guide opens the door for company owners and managers to learn about the variety of techniques that can be utilised to improve
your decision making process in a world of doubt, change, and uncontrollable conditions.

A General Approach to Decision Making Procedure. If a scientist, or an executive of a major company, or a small business owner you
can gain from boosting your decision making abilities. The general solution to systematically solving issues is the same. The next
7 step approach to better management decision making can be utilized to study nearly all issues faced by a business enterprise.

State the problem. A problem first has to exist and be recognized. What is the issue and why is it a issue. What's ideal and how
can current operations vary from that ideal. Identify why the symptoms (what is going wrong) and the triggers (why is it going
wrong). Attempt to specify all terms, concepts, variables, and relationships. Quantify the issue to the extent possible. If the
issue, not accurately and fast fulfilling customer orders, try to ascertain just how many orders were incorrectly full and the
length of time it took to fulfill them.

Establish the Objectives. What are the objectives of the study. Which goals are the most crucial. Objectives usually are said by
means of an action verb like to decrease, to increase, or to enhance. Returning to the client order problem, the significant goals
is: 1) to raise the percentage of orders filled properly, and 2) to reduce the time necessary to order and process. A
sub-objective could include to simplify and streamline the order fulfilling procedure.

Develop a Diagnostic Framework. Next set a diagnostic frame, that is, determine what approaches are going to be utilized, what
kinds of information are required, and also how and where the info is available. Is there going to be a customer survey, a summary
of company records, time and movement tests, or some thing else. What are the assumptions (facts supposed to be correct) of this
study. What would be the standards used to judge the study. What time, funding, or other constraints are there. What kind of
qualitative or other special techniques are going to be utilized to examine the information. (Some of that will be covered
shortly). In other words, the diagnostic frame establishes the scope and methods of the whole study.

Collect and Analyze the Data. The next step is to collect the data (by following the procedures established in Step 3. Raw
information is then tabulated and coordinated to ease analysis. Tables, charts, graphs, indicators and matrices are some of the
conventional ways to arrange raw data. Analysis is your important requirement of audio business decision making. What does the
data reveal. What facts, patterns, and trends could be viewed in the information. A number of the quantitative techniques covered
under can be utilized during the measure to ascertain facts, patterns, and trends in data. Of course, computers have been used
widely during this step.

Generate Alternative Solutions. After the analysis was completed, some specific conclusions about the character of the issue and
its resolution should have been achieved. The next step is to create alternative solutions to this issue and rank them in order of
the net benefits. But how are choices best generated. Again, there are some well established techniques such as the Nominal Group
Method, the Delphi Method and Brainstorming, amongst others. In these methods a group is involved, all people who have reviewed
the data and analysis. The method will be to get an informed group indicating a variety of possible solutions.

Grow an Action Plan and Implement. Select the best answer to this problem but be sure to understand clearly why it is best, that
is, the way that it accomplishes the objectives established in Step 2 greater than its alternatives. Then develop a productive
method (Action Plan) to execute the solution. At this stage an important organizational consideration arises - who will be
responsible for seeing the implementation through and what authority does he have. The selected manager should be accountable for
seeing that all of tasks, deadlines, and reports have been performed, met, and composed. Details are important in this step:
reports, programs, activities, and communication are the key elements of any activity program. There are several methods available
to decision makers implementing an action plan. The PERT method is a way of setting out an entire period such as an action
program. PERT is going to be covered shortly.

Evaluate, Acquire Feedback and Monitor. After the Action Plan was implemented to Fix a problem, management must evaluate its
effectiveness. Assessment Standards have to be determined, feedback stations developed, and monitoring performed. This Step ought
to be done following 3 to 5 weeks and at 6 months. The goal is to answer the main point question. Has the problem been solved?

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