PPT 14-1 5 th Edition. PPT 14-2 Chapter 14 Buying Merchandise McGraw-Hill/Irwin Levy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill.

PPT 14-1

5th Edition5th Edition

PPT 14-2

Chapter 14

Buying MerchandiseBuying Merchandise

McGraw-Hill/IrwinLevy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

PPT 14-3

Merchandise Management

BuyingSystems

PlanningMerchandiseAssortments

BuyingMerchandise

Pricing

RetailCommunication

Mix

PPT 14-4

Merchandise Branding Strategies

• Manufacturer (National) Brands

– Designed, produced, and marketed by a vendor and sold by many retailers

• Private-Label (Store) Brands

– Developed by retailer and only sold in retailer’s outlets

• Licensed Brand

– Developed by licensee and right sold to either manufacturer or retailer

PPT 14-5

Spectrum of National vs. Private Label

The Gap

Limited

Marks & Spencer

IKEA

Wal-Mart

Home Depot

% StoreBrands

National Brands

Macy’s

Target

PPT 14-6

Relative Advantages of Manufacturer versus Private Brands

Type of VendorType of Vendor

Impact on Store Manufacturer Private-Label

Brands Brands

Store loyalty ? +

Store image + +

Traffic flow + +

Selling and promotional + -expenses

Restrictions - +

Differential advantages - +

Margins ? ?

PPT 14-7

Private Labels

Advantages

• Unique merchandise not

available at competitive

outlets

• Difficult for customers to

compare price with

competitors

• Higher margins

Disadvantages

• Need to develop

expertise in developing

and promoting brand

• Unable to sell excess

merchandise

• Typically less desirable

for customers

PPT 14-8

Manufacturer (National) Labels

Advantages

• More desired by

customers

• Resell excessive

merchandise

• Don’t need skills and

people to develop and

promote merchandise

Disadvantages

• Lower margins

• Vulnerable to competitive pressures

PPT 14-9

Most Recognized Apparel and Accessory Manufacturer Brands

PPT 14-10

Most Recognized Apparel and Accessory Private Label Brands

PPT 14-11

Examples of Private-Label Brands

PPT 14-12

Examples of Private-Label Brands

PPT 14-13

Examples of Private-Label Brands

PPT 14-14

Examples of Private-Label Brands

PPT 14-15

Private Label Options

• Bargain Branding

– no-frills product at a discount price.

• Copycat Branding

– imitates the manufacturer brand in appearance and trade dress

• Premium Branding

– private label at a comparable manufacturer-brand quality.

• Parallel Branding

– private labels that closely imitate the trade dress and product attributes of leading manufacturer brands.

PPT 14-16

Issues in International Sourcing of Private Label Merchandise

• Country of Origin Effects

• Costs

– Foreign Currency Fluctuations

– Tariffs

– Supply Chain Efficiency and Inventory Carrying Costs

– Transportation costs

• Quality Control

PPT 14-17

Regulations Affecting the Costs of Importing Goods

• World Trade Organization

• NAFTA

•Maquiladores

• Free Trade Zones

PPT 14-18

Managing International Sources

• Quality Control

•More difficult to maintain quality standards

• Human Right Issues

• Need to Build Strategic Partnerships

PPT 14-19

Domestic vs. International Sourcing

Domestic

• Higher cost of merchandise

• Shorter lead times – easier to use quick response systems

• Easier to control human rights issues and quality control

• Customer preferences for domestic manufactured products

International

• Lower cost

• Longer lead times

• More control problems

PPT 14-20

Connecting with VendorsGoing to Market

• Internet Exchanges

• Wholesale Market Centers

• Trade Shows

• Resident Buying Offices

• Meeting Vendors at Your Company

PPT 14-21

Functions Provided by Internet Exchanges

• Product Directories

• Use of Reverse Auctions

• Collaboration in Planning – CPRF Software

• General Information about Trends

PPT 14-22

Types of Exchanges

• Consortium Exchanges

– Transora

– Worldwide Retail Exchange

– GobalNetXchange

• Private Exchanges

• Independent Exchanges

PPT 14-23

Online Reverse Auctions

• Auction

– A market institution with an explicit set of rules determining resource

allocation and prices on the basis of bids from market participants.

• Why reverse?

– Vendors bid for buyer’s business

– Price falls

• One buyer, multiple vendors

• Sealed vs. open bid auctions

PPT 14-24

B

S

S

S

Reverse Auction

S

B

B

B

Traditional Auction

Reverse Auctions

PPT 14-25

Reverse Auctions in Retail Buying

• Online vs. physical differences

– Reduced contact cost

– Instant feedback

– Bidder anonymity

• The retailer’s goals

– Gain competitive pricing

– Open vendor base

– Improve negotiation process

– Maintain valuable relationships

PPT 14-26

Price Path on Open-Bid Auction

PPT 14-27

Issues in Using Reverse Auctions to Buy Products

• Private vs. Collaborative Auctions/Exchanges

• Fixed Cost High for Software

– Standardized Software Less Need for Collaborative Exchanges

• Collusion

• Consideration of Quality Differences from Bidders

• Impact on Supplier Relationships

– Used Primarily for Non-Resale Products – Carpet, Fixtures

PPT 14-28

Negotiating with Vendors

Two-way communication designed to reach an agreement when two parties have both shared and conflicting interests.

PPT 14-29

Planning Negotiations

• Consider prior history

• Assess current situation

– General market conditions

– Vendor’s position

– Power of vendor

• Set goals

• Be aware of vendor’s goal’s

• Number of people involved

• Select an advantageous place

• Be aware of deadlines

PPT 14-30

Issues to Negotiation

• Markup opportunities from excess from vendor’s excess merchandise

• Purchase terms

• Transportation costs

• Delivery times

• Exclusivity

• Advertising allowances

PPT 14-31

Types of Negotiations

Buyer

Vendor

Win

Lose

Win Lose

PPT 14-32

Win - Lose Negotiation

• Can be good in the short run and bad in the long-run

• Short-term solution-- person you are negotiating with can’t lose all the time

• Might degenerate into LOSE - LOSE

PPT 14-33

Lose - Lose Negotiation

• Wastes time and energy

• No relationships established

• Objectives not met

PPT 14-34

Win - Win Negotiation

Collaboration

Long-term relationship

Doesn’t mean “giving-in”

Enhances vendor trustCooperation

PPT 14-35

Guidelines for Negotiations

• Separate people from problem

• Insist on objective criteria to evaluate performance

• Invent options for mutual gain

• Let the other party do the talking

• Know how far to go

PPT 14-36

Negotiating Tips

• Be aware of time

• Location -- comfortable

• Keep negotiating participants even

• Be patient

• Let him/her mention a figure

• Don’t be afraid to say “no”

PPT 14-37

Negotiating Tips

• Don’t over negotiate

• Don’t assume

• Visualize the negotiation

• Timing is everything

• Always leave the door open

• Maintain self-esteem

PPT 14-38

SUMMARY

• Planning is critical

• Knowledge is power

• A person will only do what is right for him/her

PPT 14-39

Strategic (Partnering) Relationships

Retailer and vendor committed to maintaining relationships over the long-term and investing in mutually beneficial opportunities

PPT 14-40

Strategic Relationships

Win – Win --Concerned about expanding the pie, not how to divide the pie

vs.Retailer Vendor

PPT 14-41

Building Blocks for Strategic Partnerships

• Mutual Trust

• Open Communications

• Common Goals

• Credible Commitments

PPT 14-42

Developing Trust:Capability or Competence

CompetenceCompetenceSalespeople Salespeople demonstrate demonstrate competence when competence when they can show that they can show that they know what they know what they are talking they are talking about.about.Requires knowledge Requires knowledge of:of:

The customerThe customerThe productThe productThe industryThe industryThe competitionThe competition

PPT 14-43

Stages in Building Strategic Relationships

• Awareness

• Exploration

• Expansion

• Commitment

PPT 14-44

Legal and Ethical Issues

• Contractual Disputes

• Chargebacks

• Commercial Bribery

• Slotting Allowances

• Buybacks

• Counterfeit Merchandise

• Gray Markets and Diverted Merchandise

• Exclusive Territories

• Exclusive Dealing

• Refusal to Deal• Tying Contracts

PPT 14-45

Chargebacks

• A practice used by retailers in which they deduct money from the amount they owe a vendor.

• Two Reasons:

– merchandise isn’t selling

– vendor mistakes

• Can be a profit center

– one senior executive at a large department store chain was told to collect $50 million on chargebacks

PPT 14-46

Commercial Bribery

• A vendor or its agent offers to give or pay a retail buyer “something of value” to influence purchasing decisions.

• A fine line between the social courtesy of a free lunch and an elaborate free vacation.

• Rule of thumb - accept only limited entertainment or token gifts.

PPT 14-47

Slotting Allowances

• Fees paid by a vendor for space in a retail store.

• Currently aren’t legal.

• Retailers argue that they are a reasonable method for ensuring that their valuable space is used efficiently.

• Manufacturers view them as extortion.

• $9 billion or 16% of all new product introduction costs in grocery industry.

PPT 14-48

Buybacks

• Used to get products into retail stores.

• Two scenarios:

– Retailer allows a vendor to create space for its goods by “buying back” a competitors inventory and removing it from a retailer’s system.

– Retailer forces a vendor to buyback slow-moving merchandise.

PPT 14-49

Counterfeit Merchandise

• Goods made and sold without the permission of the owner of a trademark, a copyright, or a patented invention that is legally protected in the country where it is marketed.

• Major problem is counterfeiting intellectual property.

PPT 14-50

What to do About Counterfeiters

• Trademark,copyright, and/or patent products in the countries in which they’re sold.

• US government is engaged in bilateral and multicultural negotiations and education to limit counterfeiting. (WTO)

• Take steps to protect yourself.

PPT 14-51

Gray-Market and Diverted Merchandise

• Gray- Market Merchandise possesses a valid U.S. registered trademark and is made by a foreign manufacturer but is imported into the United States without permission of the U.S. trademark owner.

• Not Counterfeit.

• Is legal.

• Diverted Merchandise is similar to gray-market merchandise except there need not be distribution across international boundaries.

PPT 14-52

Gray-market and Diverted Merchandise: Taking Sides

• Discount stores argue customers benefit because it lowers prices.

• Traditional retailers claim important service after sale will be unavailable

• May hurt the trademark’s image.

PPT 14-53

Avoiding the Gray-Market Problem

• Require customers to sign a contract stipulating that they will not engage in gray marketing.

• Produce different versions of products for different markets.

PPT 14-54

Exclusive Territories

• Granted to retailers so no other retailer in the territory can sell a particular brand.

• Benefits vendors by assuring them that “quality” retailers represent their products.

• Assure retailers adequate supply.

• Grants retailers a monopoly.

• Illegal when they restrict competition.

PPT 14-55

Exclusive Dealing Agreements

• Occur when a manufacturer or wholesaler restricts a retailer into carrying only its products and nothing from competing vendors.

• Illegal when they restrict competition.

PPT 14-56

Tying Contracts

• An agreement that requires the retailer to take a product it doesn’t necessarily desire to ensure that it can buy a product it does desire.

• Illegal when they lessen competition.

• Ok to protect goodwill and quality reputation of vendor.

PPT 14-57

Refusals to Deal

• Suppliers and retailers have the right to deal or refuse to deal with anyone they choose.

• Except when it lessens competition.

PPT 14-58

Terms of Purchase

• Discounts

– Trade (Functional) Discounts

– Chain Discounts

– Quantity Discounts

– Seasonal discounts

– Cash discounts

• ROG and EOM dating

– Anticipation discounts

• Shipping Terms and Conditions

PPT 14-59

A Sample Price List

Price to Wholesaler Price to Retailer

Quantity

per Order Discount Price Discount Price

1 - 10 40 - 5% $57* 30% $70

11 - 25 50 - 10 45 40 60

26 + 50-10-5 42.75 40-10 54

* Based on a $100 suggested retail price.

PPT 14-60

Example of a Cash Discount

1/30, n/60

Nov 1 Dec 1 Jan 1Date of Invoice 30 days 60 days

1% discount Full amount Due

PPT 14-61

Example of ROG Dating

ROG Dating

Nov 1 Nov 15 Dec 15 Jan 15 Date of Merchandise 30 days ROG 60 days ROG invoice arrives 1% discount Full amount

due

PPT 14-62

Example of EOM Dating

EOM Dating

Nov 1 Dec 1 Jan 1 Feb 1 Date of 30-day discount 30 days EOM 60 days EOM invoice period begins 1% discount Full amount

due

PPT 14-63

Example of EOM Dating, Grace Period

EOM Dating, Grace Period

Oct 25 Nov 1 Dec 1 Jan 1 Feb 1

Date of 30-day 30 days EOM 60 days EOM invoice discount 1% discount Full amount

period due begins

PPT 14-64

Example of Extra Dating

Extra Dating

Nov 1 Dec 1 Jan 1 Feb 1 Mar 1 Apr 1 Date of 30-day 60-day 60 days Fullinvoice discount Extra Extra amount

period discount 1% discount due begins period

begins

PPT 14-65

Alternative Shipping Terms and Conditions

Owns Merchandise

Pays Freight in Transit and

Charges Files Claims (If Any)

F.O.B. origin, freight collect Retailer Retailer

F.O.B. origin, freight prepaid Supplier Retailer

F.O.B. destination, freight collect Retailer Supplier

F.O.B. destination, freight prepaid Supplier Supplier