MERCHANDISE MANAGEMENT

In the fierce competition of retail, it is very crucial to attract new customers and to keep the
existing customers happy by offering them excellent service. Merchandising helps in achieving
far more than just sales can achieve.

Merchandising is critical for a retail business. The retail managers must employ their skills and
tools to streamline the merchandising process as smooth as possible.

What is Merchandising?
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 customers buying
decision.

Types of Merchandise

There are two basic types of merchandise

Staple Merchandise Fashion Merchandise

It has predictable demand It has unpredictable demand
History of past sales is available Limited past sales history is available
It provides relatively accurate forecasts It is difficult to forecast sales

Factors Influencing Merchandising

The following factors influence retail 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?

Shopping Options

Todays 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

A merchandising manager is typically responsible to

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
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 birds 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? Vendors
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.

Merchandise Buying
This activity includes the following

Step 1 - 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.
Step 2 - 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 resource(s).
Step 3 - Evaluate the Merchandise Items By going through sample products, or the
complete lot of products, assess the products for quality.
Step 4 - Negotiate the Prices Realize a good deal of purchase by negotiating prices for
bulk purchase.
Step 5 - Finalize the Purchase Finalizing the product prices and buying the
merchandise by executing buying transaction.
Step 6 - 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.
Step 7 - 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.

Vendor Relations

Cordial relationship with the vendor can be a great asset for the business. A strong rapport with
vendors can lead to

Purchasing products when required and paying the vendor for it later according to credit
terms.
Getting the latest new products in the market at discount prices or before other retailers
can sell them.
Having a great service of delivery, timeliness of delivery, returning faulty products with
exchange, etc.

Merchandise Performance
The following methods are commonly practiced to analyze merchandise performance

ABC Analysis

It is a process of inventory classification in which the total inventory is classified into three
categories

A Extremely Important Items Very crucial inventory control on order scheduling,

safety, prompt inspection, consumption pattern, stock balance, refill demands.
 B Moderately Important Items Average attention is paid to them.
C 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.

Sell-Through Analysis

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.

Multi-Attribute Method

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.

Retailing refers to the concept of selling merchandise in small quantities to the consumers for
their end use. According to retailing, the individual can walk up to any nearby retail store and
purchase products as per his need and pocket in small units for his own consumption.

The display of merchandise at the store plays an important role in attracting the customers
into the store. The display of the products at the retail store goes a long way in influencing the
buying behaviour of the consumers. The presentation of the products is essential to create that
first impression in the minds of the consumers.

Store Management
The retail store being the fundamental source of revenue and the place of customer interaction, is
vital to the retailer.

The store manager may not himself perform, but is responsible for the following duties

Maintaining cleanliness in the store.

Ensuring adequate stock of merchandise in the store.
Appropriate planning, scheduling, and organization of staff, inventory and expenses, for
short and long-term success.
Monitoring the loss and taking preventive measures to protect the companys assets and
products in the store.
Upgrading store to reflect high profitable image.
Communicating with head office/regional office when required.
 Conducting constructive meetings with staff to boost their morale and motivate the staff
to achieve sales goals.
Communicating with customers to identify their needs, grievances, and complaints.
Ensuring that the store is in compliance with employment laws regarding salary, work
hours, and equal employment opportunities.
Writing performance appraisals for assisting staff.

The store manager ensures that these duties are performed according to the guidelines set by the
company.

Premises Management
The store premises are as important as the retail store itself. Managing premises includes the
following tasks

Determining Working Hours of Store. It majorly depends upon the target audience, retailed
products, and store location.

For example, a grocery store near residential area should open earlier than a fashion store. Also,
a solitary store can be open as long as the owner wants to but a store in a mall has to adhere to
working hours set by the mall management.

Managing Store Security. It helps avoiding inventory shrinkage. It depends upon the size of
store, the product, and the location of store. Some retailers attach electronic tags on products,
which are sensed at store entrance and exits by sensors for theft detection. Some stores install
video cameras to monitor movement and some provide separate entry and exit for personnel so
that they can be checked.

For example, a large departmental store needs high security than the grocery store located near
residential area.

Here are some basic formulae used while managing premises

Transaction per Hour = No. of Transactions/Number of Hours

The retailer keeps track of the number of transactions per hour, which helps in determining store
hours and staff scheduling.

Sales per Transaction = Net Sales/Number of Transactions

The result gives the value of the average sales and net return, which is used to study sales trends
over time.

Hourly Customer Traffic = Customer Traffic In/Number of Hours

This measure is used to track total number of customer traffic per unit time. It is then applied to
schedule hours and determine staff strength.

Inventory Management
Merchandise manager, category manager, and other staff handle the inventory. It includes the
following tasks

Receiving products from the vendor.

Recording inward entry of the products.
Checking the products against quality norms laid by the retail company and for details
such as colors, sizes, and styles. In case of large stores, this task is automated to a large
extent.
Separating and documenting the faulty or damaged products for returning.
Displaying the products appropriately to gain customers attention. Heavy products are
kept at the lower level. Most accessed products are kept at the eye-level and the less
accessed products are kept at high level of shelves. On-the-fly-purchased products such
as chocolates, candies, etc. are placed near payment counters.

Here are some formulae used for inventory control

Inventory Turnover Rate = Net Sales/Average Retail Value of Inventory

It is expressed in number of times and indicates how often the inventory is sold and replaced
during a given period of time.

Cost of Goods Sold/Average Value of Inventory at Cost

When either of these ratio declines, there is a possibility that inventory is excessive.

% Inventory Carrying Cost = (Inventory Carrying Cost/Net Sales) * 100

This measure has gained importance due to rise in inventory carrying cost because of high
interest rates. This prevents blockage of working capital.
Gross Margin Return on Inventory (GMROI) = Gross Margin/Average Value of
Inventory

The GMROI compares the margin on sales on the original cost value of merchandise to yield a
return on merchandise investment.

Receipt Management
Managing receipt is nothing but determining the manner in which the retailer is going to get the
payment for the sold products. The basic modes of receipt are

Cash
Credit card
Debit card
Gift card

Large stores have the facility of paying by the modes listed above but small retailers generally
prefer accepting cash. The retailer pays card fees depending upon the volume of transactions
with the suppliers, manufacturers, or producers.

The staff responsible for accepting payment needs to clearly understand the procedure for
accepting payment by cards and collecting the amount from the bank.

Supply Chain Management and Logistics

Supply Chain Management (SCM) is the management of materials, information, and finances
while they move from manufacturer to wholesaler to retailer to consumer. It involves the
activities of coordinating and integrating these flows within and out of a retail business.

Most supply chains operate in collaboration if the suppliers and retail businesses are dealing with
each other for a long time. Retailers depend upon supply chain members to a great extent. If the
retailers develop a strong partnership with supply chain members, it can be beneficial for
suppliers to create seamless procedures, which are difficult to imitate.

Customer Service
The top management of a retail business decides the customer service policy. The entire retail
store staff is trained for customer service. Each employer in the retail store ensures that the
service starts with smile and the interacting customer is comfortable and has a pleasant shopping
experience.

The promptness and politeness of the retail store staff, their knowledge about the product and
language, ability to overcome challenges, and rapidness at the billing counter; everything is
noted by the customer. These aspects build a great deal of customers perception about the store.

Many retail stores train staff members to handle the cash counter. They have also introduced a
concept of express billing where customers buying less than 10 products can bill faster without
having to stand in the regular payment queue.

During festivals and markdown periods, the trend of shopping increases.

Customer Conversion Ratio = (Number of Transactions/Customer Traffic) * 100

The result is the retailers ability to turn a potential customer into a buyer. It is also called walk
to buy ratio. Low results mean that promotional activities are not being converted into sales and
the overall sales efforts need to be assessed afresh.

Space management is one of the crucial challenges faced by todays retail managers. A well-
organized shopping place increases productivity of inventory, enhances customers shopping
experience, reduces operating costs, and increases financial performance of the retail store. It
also elevates the chances of customer loyalty.

Let us see, how space management is important and how retailers manage it.

What is Space Management?

It is the process of managing the floor space adequately to facilitate the customers and to
increase the sale. Since store space is a limited resource, it needs to be used wisely.

Space management is very crucial in retail as the sales volume and gross profitability depends on
the amount of space used to generate those sales.

Optimum Space Use

While allocating the space to various products, the managers need to consider the following
points

Product Category
o Profit builders High profit margins-low sales products. Allocate quality space
rather than quantity.
 o Star performers Products exceeding sales and profit margins. Allocate large
amount of quality space.
o Space wasters Low sales-low profit margins products. Put them at the top or
bottom of shelves.
o Traffic builders High sales-low profit margins products. These products need
to be displayed close to impulse products.
Size, shape, and weight of the product.
Product adjacencies It means which products can coexist on display?
Product life on the shelf.

Retail Floor Space

Here are the steps to take into consideration for using floor space effectively

Measure the total area of space available.

Divide this area into selling and non-selling areas such as aisle, storage, promotional
displays, customer support cell, (trial rooms in case of clothing retail) and billing
counters.
Create a Planogram, a pictorial diagram that depicts how and where to place specific
retail products on shelves or displays in order to increase customer purchases.
Allocate the selling space to each product category. Determine the amount of space for a
particular category by considering historical and forecasted sales data. Determine the
space for billing counter by referring historical customer volume data. In case of clothing
retail, allocate a separate space for trial rooms that is near the product display but away
from the billing area.
Determine the location of the product categories within the space. This helps the
customers to locate the required product easily.
Decide product adjacencies logically. This facilitates multiple product purchase. For
example, pasta sauces and spices are kept near raw pasta packets.
Make use of irregular shaped corner space wisely. Some products such as domestic
cleaning devices or garden furniture can stand in a corner.
Allocate space for promotional displays and schemes facing towards road to notify and
attract the customers. Use glass walls or doors wisely for promotion.

Store Layout and Design

Customer buying behavior is an important point of consideration while designing store layout.
The objectives of store layout and design are

It should attract customers.

It should help the customers to locate the products effortlessly.
It should help the customers spend longer time in the store.
It should motivate customers to make unplanned, impulsive purchases.
It should influence the customers buying behavior.
Store Layout Formats

The retail store layouts are designed in way to use the space efficiently. There are broadly three
popular layouts for retail stores

Cross Merchandising

Cross merchandising refers to the display of opposite and unrelated products together to
earn additional revenues for the store. Products from different categories are kept together at
one place for the customers to find a relation among them and pick up all.

According to cross merchandising:

Unrelated products are displayed together.

The retailer makes profits by linking products which are not related in any sense and
belong to different categories.
Cross Merchandising helps the customers to know about the various options which would
complement their product.
Cross Merchandising makes shopping a pleasurable experience as it saves customers
precious time.

Examples of Cross Merchandising

Mobile covers displayed next to mobile phones.

Recharge coupons with new sim cards
Batteries with electronic appliances
Neck ties or cuff links displayed with men shirt
Fashion jewellery, rings, anklets, hand bags with female dresses
Shoe laces, shoe shiners, shoe racks with shoes
Audio CDs with CD Players

Jenny went to a nearby retail store to purchase a shirt for herself. She picked up a nice blue
formal shirt displayed on the mannequin. The retailer was smart enough to add matching trouser,
scarf and a handbag to the mannequin (Cross Merchandising). Not only did Jenny purchase the
shirt but also the trouser as well as the office bag as she felt the products would complement her
shirt.

The customer at the first instance cant really decide what all he needs apart from the products he
has already purchased. Through cross merchandising, the retailer smartly tries his level best
to convince the customers to buy additional products apart from his existing list.

Mike went to a nearby departmental store to purchase cigarettes. He spotted chewing gums
displayed along with the cigarettes. He immediately decided to purchase the chewing gums along
with his cigarettes which he might need after smoking. Thus cross merchandising (display of
cigarettes along with chewing gum) made Mike realize the connection between the products and
eventually pick both of them.

Important tips for Cross Merchandising

The opposite products should be sensibly displayed for the customers to be able to relate
them.
The merchandise should be neatly arranged without giving a cluttered look to the store.
The merchandise must complement each other to create the desired impact.
The retailer must make sure the products have some logical connection with each
other.

Displaying neck ties with Laptops would make no sense and fail to excite the customers.
The customer would purchase either of the two (Either the Laptop or the neck tie)
depending on his need but would never purchase both. However if laptop bags are kept
with laptops, there are chances that the customer might pick up both the products.

Use hangers, pegs, mannequins or suitable fixtures to intelligently display the unrelated
goods and prompt the customer to pick all of them.

Visual Merchandising

The art of increasing the sale of products by effectively and sensibly displaying them at the
retail outlet is called as visual merchandising. Visual merchandising refers to the aesthetic
display of the merchandise to attract the potential buyers, prompt them to buy and eventually
increase the sales of the store. In simpler words, visual merchandising is the art of displaying the
merchandise to influence the consumers buying behaviour.

The store must offer a positive ambience to the customers for them to enjoy their shopping.

The location of the products in the store has an important role in motivating the consumers to
buy them. Sensible display of the merchandise goes a long way in influencing the buying
decision of the individual.

The end-user will never notice something which is not well organized: instead stacked or thrown
in heaps.

Proper Space, lighting, placing of dummies, colour of the walls, type of furniture,music,
fragrance of the store all help in increasing the sale of the products.

Lighting is one of the critical aspects of visual merchandising. Lighting increases the
visibility of the merchandise kept in the store. The store should be adequately lit and well
ventilated. Avoid harsh lighting as it blinds the customers who walk into the store.
The signage displaying the name of the store or other necessary information must be
installed properly outside the store at a place easily viewable to the customers even from a
distance.

The retailer must be extremely cautious about the colour of the paint he chooses for his
store. The paint colour can actually set the mood of the customers. The wall colours must be
well coordinated with the carpet, floor tiles or the furnitures kept at the store. Dark colours make
the room feel small and congested as compared to light and subtle colours.

The store must always smell good. Foul smell irritates the consumers and he would walk out of
the store in no time. Use room fresheners or aromatic sticks for a pleasant environment.

The merchandise must be properly placed in display racks or shelves according to size and
gender. Put necessary labels (size labels) on the shelves as it help the customers to locate the
products easily. Make sure the product do not falls off the shelves as it gives a messy look.

The dummies should be intelligently placed and must highlight the unique collections, latest
trends and new arrivals in order to catch the attention of the individual. The dummies should not
act as an obstacle and should never be kept at the entrance of the store.

Dont play blaring music at the store. It acts as a hindrance to effective communication and the
retailer can never understand what the buyer actually intends to buy.

Select the theme of the store according to the season. Red should be the dominating colour
during Christmas or Valentines Day as the colour symbolizes love, fun and frolic. A white theme
would look out of place during the season of love.

Dont keep unnecessary furniture as it gives a cluttered look to the store.

Why Visual Merchandising?

Visual Merchandising helps the customers to easily find out what they are looking for.
It helps the customers to know about the latest trends in fashion.
The customer without any help can actually decide what he intends to buy.
It increases the sales of the store and results in increased level of customer satisfaction.
The customers can quickly decide what all they need and thus visual merchandising
makes shopping a pleasant experience.
Visual merchandising gives the store its unique image and makes it distinct from others.