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mat 114 exam 3
Terms in this set (83)
Planning and control of buying and selling of goods and services.
1. Merchandise budget
2. Retail accounting statements
3. inventory evaluation
The merchandise budget
Plan of projected sales, when and how much merchandise is purchased, markups and reductions
Five major merchandising decisions
1. anticipated sales?
2. stock on hand to achieve sales plan?
3. what reductions must be made?
4. what additional purchases must be made?
5. what should be the gross margin?
four rules in preparing merchandise budget
1. always be prepared in advance of selling season
2. language of budget must be easy to understand
3. planned for a short period of time (six months is norm)
4. flexible enough to permit changes
determining the planned sales
estimate for entire season and monthly, consider monthly holidays and weekends, weather forecasts, inflation
determining the planned inventories
stock to sales ratio, BOM (beginning of month), EOM (end of month)
determining planned retail reductions
markdowns, employee discounts, stock shortages
determining planned purchases at retail and cost
1. planned sales
2. planned retail reductions
3. planned EOM inventory
LAST STEP IS DETERMINING GM (GROSS MARGIN).
Most important, profit and loss statement, provides summary of the sales and expenses for given time (monthly, quarterly, seasonally or annually)
Included in income statement are
gross sales, returns and allowances, net sales, cost of goods sold, gross margin, operating profit, other income and expenses, net profit
shows the financial condition at a particular point in time. Used to observe changes in firms financial condition, assets=liabilities +net worth
assets: anything of value owned by retail firm
cash or items that can be converted into cash (short period of time)
Includes: accounts receivable, prepaid expenses, retail inventories
can't be converted quickly into cash (long term)
intangible asset retailer pays for when buying an existing business
legitimate claim against assets
short term debts-due within a year (example: amount due to vendor, payroll, taxes)
long term liabilities
long term debts
net worth (owners equity)
difference between total assets and total liabilities
statement of cash flow
lists in detail the source and type of all revenue (Cash inflows) the use and type of all expenditures (cash outflows)
positive cash flow
inflows exceed outflows
negative cash flow
outflows exceed inflows
two decision in inventory valuation
1. accounting inventory system to use
2. inventory pricing method to use
1. cost method
book valuation of inventory based on the cost of merchandise including freight. retailers using this method: big-ticket items, few lines, infrequent price changes.
2. retail method
values merchandise at current retail prices
inventory pricing systems: fifo (first in, first out)
oldest merchandise is sold before the more recently purchased merchandise
LIFO (last in, first out)
most recently purchased merchandise is sold first and the old merchandise is sold last.
of merchandise investments in a retail operation
what is the dollar amount retailer can spend on inventory?
gross margin return on inventory(GMROI): used to analyze the performance of inventory and incorporates how quickly it sells.
4 methods for planning dollars invested in merchandise:
1. basic stock method: requires a base level of inventory regardless of predicted sales volume
2. percentage variation method- high annual inventory turnover rate.
3. weeks supply method- planned on weekly basis, sales do not fluctuate substantially
4. stock to sales method
dollars planned for merchandise need to be controlled
Open to buy (OTB): dollar amount can currently spend on merchandise without exceeding planned dollar stock. should not be set in stone, can be affected if : actual sales exceed planned sales, reductions are lower than planned or delay in shipment.
consists of a group of products that are closely related: intended for same use, sold to same consumer group, fall within a given price range
category management: organize each department or line of products within each merchandise line selected.
number of different merchandise lines a retailer chooses to stock in its store
department stores: large variety
locally owned retailers: one basic merchandise line
number of brands that are found in a single merchandise line
supermarket vs. convenience store
need proper balance of national brands and private label brands
"battle of brands"
retailers brand compete with national brands for shelf space and display location
on average number of storekeeping units (SKUs) within each brand of th merchandise line.
need to make sure the merchandise assortment is correct: Example: women apparel (dresses)
1. dollar merchandise constraints
2. space constraints
3. merchandise turnover constraints
4. market constraints
1. dollar merchandise contraints
emphasize either: variety, breadth or depth
consignment- vendor retains ownership of goods until sold
extra dating- vendor allows extra time for retailer to pay for goods
2. space constraints
depth or breadth = more space
variety = be able to separate
3. merchandise turnover contraints
various merchandise mixes will affect inventory turnover
more product variation lower turnover
4. market constraints
consumer perception of store affected by variety, breadth and depth
where is the retailer going to obtain its merchandise?
retailer needs to consider: selling history, consumers perception of the brand, reliability of delivery, trade terms, quality of merchandise, transportation time, fashionability
other important factors to consider:
size of the ventory, merchandise display support, past experience with vendor
approaching vendor, two important pieces of information needed:
1. the vendor profitability analysis statement- purchases made last year, discount from vendor, transportation charges paid, original markup, markdowns, and season ending gross margin
2. the confidential vendor analysis- includes above plus three-year financial summary, as well as names, titles and negotiating points of the vendors sales staff.
after selecting vendor- what specific merchandise should you buy?
1. where does this product fit?
2. will i have an exclusive? does competition nearby have same product?
3. what is the demand for this product?
4. speedy stock replacement?
5. expected turnover rate?
6. does product complement the rest of my inventory?
5 types of vendor discounts
1. trade discount
2. quantity discount
3. promotional discount
4. seasonal discount
5. cash discount
merchandise that cannot be accounted of due to theft, loss or damage.
usually by: vendors, employees, customers, organized crime
steps taken to reduce crime:
in store- surveillance, who is worth prosecuting?
in transit: eliminate name from containers carrying cargo, monitoring devices, screen personnel, hire security
interactive pricing decisions
merchandise- analyze attributes of the merchandise, compared to competing retailers, value to customer
retailers need to consider the range of prices made available to the consumer
interactive pricing decisions
location- closer to competition= less price flexibility
attract customers from a distance= increase promotion efforts or lower prices
low prices but No promotion, heavy promotion but no competitive pricing
offering to finance purchases = charging higher prices
a cue a customer uses in determining the retailers image is the retailers price
different laws in different states and in other parts of the world
1. profit oriented objectives
2. sales oriented objectives
3. status- quo
profit oriented objectives
1. target return objective- retailer sets a specific level of profit as objective
2. profit maximization- retailer seeks to make as much profit as possible
skimming: trying to sell at the highest price before
penetration: enters market with a low price.
sales oriented objectives
seek some level of unit sales, dollar shares, or market shares but do not mention profit
status quo objectives
happy with market share, don't rock pricing policies
Rules of actions or guidelines that ensure the uniformity of pricing decisions within a retail operation
should reflect the expectations of target market, can influence patronization
1. below market pricing policy
discounters and wholesalers: purchase- closeouts and seconds, stock fast selling merchandise, operate from modest facilities
2. price at market level
price zone: range of prices for a particular merchandise line that appeals to customers in a certain demographic group, example: target, walmart, kohl's
3. above market pricing
high prices, non-price factors important to target market
factors which allow retailer to use this pricing:
1. merchandise offerings
2. services provided
3. convenient location
4. extended hours of operation
sets prices, seeks to maintain prices over a long period of time
example: movie tickets
differences in demand and cost force the retailer to change prices
offering same products and quantities to different customers at different prices, personal selling situations
example: automobile dealer
charge all customers the same price
example: big mac
specified number of price points of reach merchandise classification
salesperson moves a customer from a lower-priced line to a higher-priced
customer exposed to higher-priced lines desires to purchase a lower-priced line
retail prices end in the digits 5, 8, 9 such as $29.95, $49.95, or $9.99 usually associated with low prices
price of each unit multiple-unit package is less than individual example candy bars
distinct multiple items offered together at a special price, perceived savings in cost of time
Example: joseph A. Bank
high-demand item priced low and heavily advertised
Example: coke or pepsi
extreme form of leader pricing where item is sold below retailers cost
advertising a low price product, once in-store persuade to purchase higher priced product
calculate selling price
SP = C + M
C = dollar cost of merchandise per unit
M = dollar markup per unit
SP = selling price
the difference between cost of the merchandise and the selling price
reductions in the price of a item taken in order to stimulate sales
amount of reduction / original selling price
Causes of markdowns
markdowns need to be PLANNED
buying errors, pricing errors, merchandising errors, promotion errors
early markdown policy
move merchandise quickly, less markdown per unit
late markdown policy
avoid taking markdowns too frequently, only have semiannual or annual clearance
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