Merchandising is the sequence of various activities performed by the retailer such as planning, buying, and selling of products to the customers for their use. It is an integral part of handling store operations and e-commerce of retailing.
Merchandising presents the products in retail environment to influence the customer’s buying decision.
Types of Merchandise
There are two basic types of merchandise:
- It has predictable demand
- Fashion Merchandise
- It provides relatively accurate forecasts
- It has unpredictable demand
- Limited past sales history is available
- It is difficult to forecast sales
Factors Influencing Merchandising
Size of the Retail Operations
This includes issues such as how large is the retail business? What is the demographic scope of business: local, national, or international? What is the scope of operations: direct, online with multilingual option, television, telephonic? How large is the storage space? What is the daily number of customers the business is required to serve?
Today’s customers have various shopping channels such as in-store, via electronic media such as Internet, television, or telephone, catalogue reference, to name a few. Every option demands different sets of merchandising tasks and experts.
Separation of Portfolios
Depending on the size of retail business, there are workforces for handling each stage of merchandising from planning, buying, and selling the product or service. The small retailers might employ a couple of persons to execute all duties of merchandising.
Functions of a Merchandising Manager
- Lead the merchandising team.
- Ensure the merchandising process is smooth and timely.
- Coordinate and communicate with suppliers.
- Participate in budgeting, setting and meeting sales goals.
- Train the employees in the team.
Merchandise planning is a strategic process in order to increase profits. This includes long-term planning of setting sales goals, margin goals, and stocks.
Step 1: Define Merchandise policy
Get a bird’s eye view of existing and potential customers, retail store image, merchandise quality and customer service levels, marketing approach, and finally desired sales and profits.
Step 2: Collect Historical information
Gather data about any carry-forward inventory, total merchandise purchases and sales figures.
Step 3: Identify Components of Planning
- Customers: Loyal customers, their buying behavior and spending power.
- Departments: What departments are there in the retail business, their subclasses?
- Vendors: Who delivered the right product on time? Who gave discounts? Vendor’s overall performance with the business.
- Current Trends: Finding trend information from sources including trade publications, merchandise suppliers, competition, other stores located in foreign lands, and from own experience.
- Advertising: Pairing buying and advertising activities together, idea about last successful promotions, budget allocation for Ads.
Step 4: Create a long-term plan
Analyze historical information, predict forecast of sales, and create a long-term plan, say for six months.
This activity includes the following:
- Collect Information: Gather information on consumer demand, current trends, and market requirements. It can be received internally from employees, feedback/complaint boxes, demand slips, or externally by vendors, suppliers, competitors, or via the Internet.
- Determine Merchandise Sources: Know who all can satisfy the demand: vendors, suppliers, and producers. Compare them on the basis of prices, timeliness, guarantee/warranty offerings, payment terms, and performance and selecting the best feasible resources.
- Evaluate the Merchandise Items: By going through sample products, or the complete lot of products, assess the products for quality.
- Negotiate the Prices: Realize a good deal of purchase by negotiating prices for bulk purchase.
- Finalize the Purchase: Finalizing the product prices and buying the merchandise by executing buying transaction.
- Handle and Store the Merchandise: Deciding on how the vendor will deliver the products, examining product packing, acquiring the product, and stocking a part of products in the storehouse.
- Record the Buying Figures: Recording details of transactions, number of unit pieces of products according to product categories and sub-classes, and respective unit prices in the inventory management system of the retail business.
The following methods are commonly practiced to analyze merchandise performance:
It is a process of inventory classification in which the total inventory is classified into three categories:
- Extremely Important Items: Very crucial inventory control on order scheduling, safety, prompt inspection, consumption pattern, stock balance, refill demands.
- Moderately Important Items: Average attention is paid to them.
- Less important Items: Inventory control is completely stress free.
This approach of segregation gives importance to each item in the inventory. For example, the telescope retailing company might be having small market share but each telescope is an expensive item in its inventory. This way, a company can decide its investment policy in particular items.
In this method, the actual sales and forecast sales are compared and the difference is analyzed to determine whether to apply markdown or to place a fresh request for additional merchandise to satisfy current demand.
This method is very helpful in evaluating fashion merchandise performance.
This method is based on the concept that the customers consider a retailer or a product as a set of features and attributes. It is used to analyze various alternatives available with regard to vendors and select the best one, which satisfies the store requirements.