The merchandise budget
The merchandise budget is a clear plan of the sales anticipated by a retailer over a given period in the future. The merchandise budget influences the amount of commodities to be purchased by the retailing company. It also highlights the possible reductions and markups that the company might have to embrace.
The merchandising budget should be prepared after considering the anticipated sales, the stock on hand, and the required gross margins for the company to attain higher profits. The language of the budget should be clear, and the budget must be based on a specific timeline.
For instance, most retail firms create a six-month merchandising budget. The variables contained in a merchandise budget include the planned sales, planned BOM and EOM inventories, and the retail reductions. The budget must also contain the purchases at retail and cost, as well as the planned gross margins of the buyer.
Retail accounting statements
There are three retail accounting statements. These include the income statement, balance sheet, and the statement of cash flow. The income statement highlights the profit or loss made by the company over a given period.
The balance sheet is a financial statement that highlights the company’s liabilities, assets, and shareholder’s equity at a given time. The assets must balance with the liabilities and the equity held by the shareholders. The cash flow statement breaks down the effects of different financial activities on the cash available for the retail company.
Inventory valuation
Inventory valuation entails calculating all the costs involved in the process of placing the items in the inventory in place. There are two methods of accounting inventory systems, and these include the cost method and the retail method.
Inventory valuation also includes inventory pricing systems, which may follow the first-in-first-out (FIFO) procedure or the last-in-first-out (LIFO) strategy.
Merchandise buying and handling
Steps in Merchandise buying and handling
The first step is identifying the most viable sources of supply. This involves identifying the best manufacturers. The second step involves contacting the suppliers. The third step entails conducting an evaluation of the prospective suppliers. This process results in the identification of the best supplier.
The fourth step entails negotiations on prices and services associated with delivery. The last step is the purchasing process, which entails making payments and receiving the merchandise on the part of the retailer (Dunne, Lusch & Carver, 2013).
Dollar-merchandise planning
Dollar merchandise planning influences the allocation of cash in the company because it determines the best way to balance the stock and sales. The plan highlights the desirable rate of spending for the company (Dunne, Lusch & Carver, 2013).
Dollar-merchandise control
The retailer must control the dollar plan by limiting the commitments on merchandise that would exceed the dollar amount that the buyer can safely spend. Dollar-merchandise control ensures that the retailer sticks to the merchandise budget prepared at the beginning of a given period of business (Dunne, Lusch & Carver, 2013).
Inventory planning
Inventory planning is a vital process in retailing because it involves the alignment of the quantity, timing, sales, and production capacity of the inventory. This process facilitates effective control of the profit margins of the company and the cash flow system (Dunne, Lusch & Carver, 2013).
Selection of merchandise source
The selection of a merchandise source determines the cost of the inventory, and the profit margins for the retailer. It is important to select a merchandise source based on affordability and reliability of the source (Dunne, Lusch & Carver, 2013).
Retailers can acquire their merchandise from different manufacturers; hence, there must be a comprehensive system to manage the supply chain.
Vendor negotiations
Vendor negotiations entail discussions on the price of the merchandise and delivery information between the retailer and the potential suppliers. This process facilitates a ground for bargaining between the involved suppliers and the retailer.
Item creation and location
Item creation involves the development of a unique tag on the items in the inventory that can be used to identify the items. Retailers must create items and feed the data to the inventory database for reference. The items should also indicate their specific location in the stores for easy access during the process of taking the inventory.
Replenishment and in-store handling
If the retailer is selling perishable goods with short expiry dates, it is important to prevent the LIFO effect on the consumers by limiting the number of batches of the products displayed on the shelves.
This ensures that the retailer achieves the FIFO strategy in selling and reduces losses caused by the expiration of products on the shelves. This process also helps in handling the storage constraints in the store (Broekmeulen & Bakx, 2010).
Merchandise-line reviews
This process involves the evaluation of the identified opportunities and challenges associated with the merchandise in the past. It also involves the formulation of solutions to the problems associated with the merchandise by looking at the solution derived in the past (What are the Key Elements of a Merchandise Planning System? 2015).
Markdowns
Markdowns are the levels of price reduction that the retailer is forced to apply to the merchandise to respond to various constraints in the market. These constraints could be the availability of cheaper alternative products or bad assortment planning of the merchandise (Sayner, 2011).
Retail Pricing
Pricing objectives and policies
Pricing objectives and policies influence the pricing of the products in a retail company. The pricing objective should be aligned with the strategic financial objectives of the retail company. The elasticity of consumer prices should be considered while setting the price objectives and policies (Varley, 2006).
Target return objective
This is an investment tool that is used to determine the rate of financial returns that a retailer is looking to achieve from the merchandise.
Profit Maximization
Profit maximization is a technique used by retail companies to influence the attainment of the greatest profit on investments. It entails the manipulation of the prices of the products in the inventory to attain the highest profit margins (Varley, 2006).
Skimming
Skimming is a pricing strategy used by companies whereby they place the highest possible price for a commodity. As soon as the first client purchases the commodity at the set price, the company lowers the price to attract other customers (Varley, 2006).
Pricing Strategies
Pricing strategies are crucial in profit maximization because they determine the position of the products in a competitive retail industry. Companies must develop pricing strategies that foster the attainment of the greatest profit margins (Varley, 2006).
Pricing below the market
Pricing below the market is a strategy that entails offering products at prices that are below the standard market prices with the objective of enhancing the competitive power of the associated product.
Pricing at market levels
Pricing at market levels entails the development of a pricing strategy that matches set by other retailers in the industry. This pricing method is common for companies operating in a perfectly competitive market.
Pricing above the market
Pricing above the market entails developing a pricing strategy that places higher than normal prices of the products offered by a retailer. This technique is associated with the maximization of profits.
Using Markups
Markups are strategic tools used to raise the price of commodities when the demand increases. Markups entail adding specified rates for different commodities sold by a retailer.
Markdown Management
Markdown management entails the development of a control system to determine the minimum level of profit margins that the retail company is willing to obtain. Markdown management is essential in the development of pricing objective and policies because it entails the reduction of the prices of different products offered by a retailing company (Varley, 2006).
Advertising and Promotion
Advertising and promotion are indispensable factors in the management of retail operations. Advertising and promotion help retail companies to increase their market share by enhancing the awareness of the presence of their respective brands in the market (Belch & Belch, 2011).
Types of promotions
Advertising
Advertising in the retail industry is a viable strategy to communicate to potential clients and to create awareness of the existence of different products. Advertising helps companies to maintain and increase their market share. Advertising should be conducted in a persuasive manner to appeal to the target market (Belch & Belch, 2011).
Sales promotion
Sales promotion is a strategy applied to increase the rate of sales in a retail company. There are different methods of sales promotions, and their main aim is to entice consumers to increase the demand for a specific commodity (Belch & Belch, 2011).
Publicity
Publicity involves the development of awareness of the existence of products. Publicity is a marketing strategy that increases the sales of specific products in a company, and it is widely used by retailers to introduce new products to the consumers.
Personal selling
Personal selling entails the use of a salesperson to sell products to potential customers. Personal selling is an effective strategy in marketing because it creates awareness of the existence of new products, and it also provides a platform for the retailer to persuade the target customers to purchase products.
There are many strategies used in retail selling, but they follow specific steps. These steps include approaching the customer, determining the problem to solve for the customer, and presenting the merchandise to solve the problem.
Making the sale and developing a relationship to open grounds for future sales are also important steps in the process (Belch & Belch, 2011).
Customer Service
Customer service is a concept that encompasses all the services that a retailer provides to the customers in the retail store and other business platforms. Customer loyalty to companies is a function of the quality of services that the company offers.
Customer services are normally provided to the consumers before they make a purchase, during the purchasing process and after the purchase is made. This provides a comprehensive coverage of services to keep the customer happy and satisfied. Customer care is a tool for adding value to the products offered by a retailer.
Harnessing market share in a competitive market is difficult; hence, most retailers add value to their products by improving the quality of their customer services. This quality is facilitated by investing in training and development programs for the employees, and providing some extra free services to the customers.
This may include free delivery of products (Belch & Belch, 2011).
Retail Selling
Retail selling is the essence of doing business in the retail industry. It entails the development of a relationship with the customer and persuading the customer to assume a purchasing behavior that is beneficial to the company. Retail selling focuses on selling merchandise at the most profitable prices and quantity.
Retail selling is associated with the sale of small quantities of merchandise to individual customers. The trick is to maintain a loyal market share that can help in the attainment of the objective of the company.
Most retailers increase their selling rates by reducing the prices of their merchandise, and providing services that add value to the merchandise. The quality of the merchandise also plays a major role in retaining market share (Belch & Belch, 2011).
Store layout and design
The layout and design of a retail store determine the number of sales and the type of products that consumers purchase. A good retailer must develop a store layout that facilitates the arrangement of products in different related categories. The layout should also aim at maximizing the available space.
The merchandise should fit on the shelves available; hence space management is a crucial requirement. The design of the store determines the accessibility of the merchandise on display (Belch & Belch, 2011).
One of the best strategies used by retailers is the placement of enticing and new products near the entry of the store to attract customers. The design of the store should ensure that all the merchandise is clearly displayed.
References
Belch, G., & Belch, M. (2011). Advertising and Promotion: An Integrated Marketing Communications Perspective. New York: McGraw-Hill Education.
Broekmeulen, R. A. C. M., & Bakx, C. H. M. (2010). In-store replenishment procedures for perishable inventory in a retail environment with handling costs and storage constraints. Web.
Dunne, P., Lusch, R., & Carver, J. (2013). Retailing. Boston: Cengage Learning.
Sayner, R. (2011). Markups & Markdowns. Web.
Varley, R. (2006). Retail Product Management: Buying and Merchandising. London: Psychology Press.
What are the Key Elements of a Merchandise Planning System? (2015). Web.