Lecture #14: Buying Merchandise

These lecture notes are provided as a study aid in preparation for examinations. Students should review their class notes, and compare to the outline presented below. To assist in reviewing for exams, students are advised to rewrite their notes in accordance with the outline.

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This lecture will examine the types of merchandise to be considered by the retailer. The next lecture will look at how the merchandise buying function operates. Together, these aspects can make or break a retail store. Remember, the retailer acts as a surrogate buyer for the customer. In shopping at a store, the customer is in effect saying, "I like what you have to offer." If the customer continues to shop at that store, they echo that phrase over and over. At that point, the retailer has become the surrogate, a substitute purchasing agent of sorts who represents the customer.

Thus, it is very important for retailers to carefully consider what they carry, because the retailer is seeking a vote of confidence from the customer, not just their money.

A. Merchandise Mix Management

Rather than just carry a hodge-podge of items, the retailer should seek product compatibility, so that there is some degree of consistency and predictability. For example, clothing and accessory items are compatible.

This does not mean that retailers should shy away from items that are not totally consistent. There is often money to be made from impulse items that have nothing to do with the main product classes.

Furthermore, the idea of compatibility needs to apply not just within the store's merchandise selection, but also to the type of store. For example, a discount store probably should not carry furniture or major appliances, but auto parts would be acceptable.

Some terms:

  1. Substitutes
  2. Complements
  3. Unrelated products

The product line attributes are also important, because unique product characteristics may render an item unacceptable for a retailer. Consider the following:

  1. Bulk--weight and size
  2. Standardization--special needs of the product
  3. Service levels--what is expected and needed
  4. Selling methods--how much personal selling is needed

Product profitability is also important. This is a function of the gross margin on the item, as well as sales volume, selling costs, and inventory holding costs.

Product Brand decisions are also important considerations. The different types of brands include:

  1. Nonbrands (generics)
  2. Vendor brands (i.e., national brands). Notice how manufacturers often develop several brand lines to sell at different types of stores.
  3. Private labels
  4. Retail store brands
  5. Licensed products

Other Factors to Consider:

  1. Market Appropriateness
  2. Lifestyle Merchandise
  3. Competitive Conditions--intra- and inter-type competitors
  4. Supplier Considerations
  5. Stock Lists
  6. The ITO Rate
  7. Open-to-Buy

B. Merchandise Mix Strategies

  1. Narrow variety/shallow assortment
  2. Wide variety/shallow assortment
  3. Narrow variety/deep assortment
  4. Wide variety/deep assortment

C. International Factors:

  1. Country-of-origin effects
  2. Foreign currency
  3. Tariffs
  4. Foreign trade zones
  5. Inventory carying costs
  6. Lead time for purchasing and inventory
  7. Transportation
  8. Quality control
  9. Social backlashes
  10. Made in the USA? or abroad? What does it matter?

D. Where to Buy:

  1. RBOs
  2. Trade Shows
  3. On your own turf

E. Ethical and Legal Issues:

  1. Slotting fees and bribes
  2. Counterfeit goods
  3. Gray Marketing
  4. Diverting
  5. Exclusive territories
  6. Exclusive dealing
  7. Tying contacts
  8. Refusals to deal
  9. Dual distribution

Course Syllabus

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