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Marketing channel
- The flow of goods from point of production to point of consumption
- Producer > Wholesaler > Retailer > Consumer
*members are sometimes bypassed in the distribution process in teh interest of time or cost
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Vertical integration
- Performing more than one channel function
- Everything is done internally; no middle men
- Feature of private labels
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Which type of store facilitates direct contact between producers and consumers?
Specialty stores
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Table of organization
- Aka organizational chart or pyramid
- Depicts a company's corporate structure and defines an organization's lines of communication and responsibility
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Paul Mazur's retail store organizational structure
- Headed by President
- Four major functions include: Merchandising, Publicity, Control ($), and Store management
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The separation of buying & selling
As single-unit retail operations have evolved into multi-unit chains, buying is now a centralized corporate-level function perfored independently from the operation of stores
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Contemporary store operations function
Includes merchandising responsibilities such as (1) assortment planning, (2) merchandise presentation, (3) inventory management
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Line function
Performs mainstream activities fundamental to an organization's mission
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Staff function
Supports or advises line functions but is not directly involved in an organization's mainstream activities
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Authority
Clearly defined through a chain fo command ina line function
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Retail merchandising
Includes all of the activities associated with buying, pricing, presenting, and promoting merchandise at both store and corporate level
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Buyer
Buys and prices merchandise for resale
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Planner
Projects sales and inventories based on an analysis of sales history, current market trends, and the organization's performance objectives
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Distributor (aka "allocator")
- Allocates arriving shipments of merchandise to individual stores based on each store's capacity, current sales trends, and inventory levels
- Corrects stock imbalances
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Product developer
- Determines which products to develop internally witht eh store's private label
- Establishes specifications for the design, production, and packaging of these goods
- Contracts producers to manufacture the goods according to the specifications
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Merchandise procurement responsibilities
- Buying, planning, distribution, and product development
- INTERDEPENDENT
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Department
- A group of related merchandise
- Identified by product line
- Ex: men's outerwear, men's suits, etc
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Division
- A group of related departments
- Identified by product line
- Ex: Men's, women's, etc
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Divisional merchandise manager (DMM)
Monitors the sales, inventories, and assortments of the departments within a specific merchandise division
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General merchandise manager (GMM)
- Manages a group of related merchandise divisions
- Often at senior management level (VP)
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Visual merchandising
A corporate-level merchandising function responsible for store decor, signage, display, fixturing, and standards for presenting merchandise
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Fashion director
- Responsible for researching dominant color, style, and design trends
- Communicates this info to buyers and other departments
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Store-level merchandising functions ensure that...
- (1) Merchandise is presented on the selling floor in a manner consistent with a company's visual standards
- (2) Inventory levels and assortments are appropriate for the store's customers and sales objectives
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General manager (aka Store manager)
- Respnsible for the merchandising and operations of a store
- Sometiems assisted by an operations manager, HR manager, and/or store merchandise manager
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Department manager (aka Sales manager)
- Uusally reports to a store merchandise manager
- Responsible for an area defined by department or division
- Usually includes both merchandising and operational responsibilities
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District manager
Responsible for a group of stores located within a defined geographic area
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Regional manager
Supervises a group of district managers and reports to a corporate level person (such as a VP or director of stores)
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Qualifications for merchandising positions (6)
- Decision-making skills
- Communication skills
- Analytical skills
- Computer skills
- Organizational skills
- Mobility
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Fashion
- A form of expression widely accepted by a group of people over time
- Includes manufacturing, retailing, and promotion; is a strong force in our economy
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Trend
- Implies the direction or movement of fashion
- Described in ways that imply degree of acceptance, direction, duration, or relationship to other trends
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Style
An item's distinctive characteristics or design features
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Fashion life cycle
- Introduction (high fashion, fashion leaders)
- Growth (knock-offs, fashion followers)
- Peak (mass fashion)
- Decline (markdowns, fashion laggards)
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Fad
- Short-lived fashion
- Rise and fall in popularity quickly
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Classic
- Long-enduring fashion
- Remain popular indefinitely
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Trickle-across theory ("diffusion")
- Suggests that fashion is simultaneously adopted across all socioeconomic groups
- Accounts for the fact that similar fashions appear concurrently at stores that cater to diverse socioeconomic groups due to developments in mass communication and computerized design
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Basic goods
- Functional goods that change infrequently
- Necessities
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Fashion goods
- Aesthetically appealing goods that change frequently
- Non-necessities
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The "Fashion-Basic continuum"
- Goods can overlap
- A basic coat (necessity) can become a fashion item through color, styling, and fabrication
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Fashion today (as relates to our economy)
- Fashion is an integral part of our economic system
- So much a part of our culture that it is difficult to find a product that does not have some inherent element of fashion
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How do retailers communicate fashion to their customers?
Through advertising, sales promotion, product presentation, and direct selling
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Downside to fashion
- Adds complexity to the retailer's job
- Adds risk to retail buying decisions
- Faulty fashion predictions impact sales and profit
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How can fashion acceptance be described?
- Trickle-down
- Trickle-across
- Trickle-up
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How are sales stimulated?
By the transformation of basic goods into fashion goods (ex: American Apparel)
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What is fashion influenced by?
- Technological, economic, and societal change
- Famous people and popular entertainment figures
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Branded merchandise
Identified by a name and/or symbol associated with certain product characteristics such as price, quality, value, fit, styling, and prestige
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Product names
- Either associated with the product producer or the store in which the product is sold
- Product names lead to expectations regarding price, quality, styling, and reliability
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Regional brands
Distributed throughout a define geographic section of the country (ex: Midwest)
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National brands
Distributed throughout the country
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Brand positioning
- Designer
- Bridge
- Better
- Moderate
- Mass market / Budget
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Bridge lines
- Lower-priced lines
- Limited distribution through prestigious stores and fine specialty stores
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Better lines
- Broadly distributed
- Appear at middle-tier department stores (Macy's)
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Moderate lines
- Broadly distributed
- Appear at lower-tier department stores (J.C. Penney)
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Mass market / budget lines
Carried in value-oriented stores (full-line discounters)
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Brand-driven purchases
Occur when clear distinctions differentiate brands
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Licensing
A form of brand extension requiring no capital investment on the part of the licensor
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Brand extension
- Adding related products to an existing product line
- Developing a new product line with the same brand identity
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Private label merchandise
- Bears the name of the retail store in which it is sold, or a name used exclusively by the retailer
- Exclusive to a retailer's product mix
- Affords a retailer an opportunity for higher profit margins
- Found at all prices & levels
- Often used to lower prices and combat competition
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Exclusive line
Brand-name line created by the producer of hte brand for exclusive distribution by a single retailer
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What is a brand?
A name that is meaningful to consumers
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Manufacturer
- Uses labor and machinery to convert raw materials into finished products
- Use either a direct sales force or manufacturers' reps to sell their products to retailers
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Direct sales force
Responsible for meeting with prospective retail buyers, explaining the features of the organization's product line, and processing orders
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Manufacturer's sales representative (the showroom)
- An independent sales agent whose income is based on commissions earned by selling manufacturers' products within a defined geographic territory
- Do not assume title of the goods that they sell
- Advantages: already has customers & territory; payment on commission
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Wholesalers ("the market")
- Buy manufacturers' products and then resell them to retailers
- Wholesalers facilitate the distribution of goods between a producer and a retailer
- Distributer, jobber
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Imports
- Add variety and distinction to a retailer's product mix
- Afford a retailer an opportunity for higher profit margins
- Offer a much higher initial markup over branded goods because you don't have to pay for designer inflation
- Costly
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Tariffs (duties)
Levied by the U.S. government on imports to restrict foreign competition
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Customs brokers
Agents licensed by the U.S. Treasury to represent importers in customs matters
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Landed cost
The final actual cost of imports
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Downside of imports
- High costs
- Fluctuating exchange rates > uncertain landed costs
- Longer lead time, shipping delays
- Tie up capital
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Market
- A place where buyers and sellers come together to transact business
- Buyers get the opportunity to meet with major design and manufacturing executives and to network with buyers of the same merchandise category from other retail organizations
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Merchandise mart
- Houses an entire market under one roof
- "One-stop shopping" for buyers
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Market center
A cluster of marts
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Trade show
A group of temporary exhibits at which vendors of a single category (or groups of related categories) of merchandise present goods to retail buyers
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Market weeks
- April (Fall I or Transition)
- June (Fall II)
- August (Resort/Holiday)
- October/November (Spring)
- January (Summer)
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Break date
- Day that the vendor will give markdown money to buyers
- Retailer must wait until this day to put items on sale
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Resident buying office
A marketing and research consulting firm that serves as an adviser to a group of member, or client, stores
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The primary role of the present-day buying office is that of ?, ?, and ? for member stores.
- Adviser
- Product developer
- Importer
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Types of buying offices
- Salaried office
- Syndicated office
- Private office
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Salaried office
- Most common type of buying office
- Owned and operated independently of its member stores
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Syndicated office
Owned and operated by a retail conglomerate
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Private office
Owned and operated by a singler etail organization as an extension of its corporate merchandising function
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The "right" retail price
- High enough to cover an organization's profit objectives
- Low enough to entice customers to buy
- Cost + markup
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Total revenue
Price x units sold
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Markup percent
(Markup / retail price) x 100
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Initial markup
(Retail - cost) / Retail
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Keystoning
Doubling the cost of an item to reach the retail price
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Additional markup percent
(Markup / present retail) x 100
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Cumulative markup percent
- (Total markup / total retail dollars) x 100
- Lower than IMU because cost of items differs
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Markdown percent
(Markdown dollars / current retail price) x 100
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Jobout
- Sell your marked down merchandise to another (discount) retailer
- Factored in as a markdown
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Markdown dollars
(Original retail price x markdown percent) / 100
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Types of markdowns
- Damage
- Employee discount
- Promotional (temporary)
- Clearance (permanent)
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Clearance merchandise
- Discontinued goods
- Seasonal merchandise
- Broken assortments
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Slow sellers
- Weather
- Poor assortment
- Poor presentation
- Late delivery
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Maintained markup
- The difference between the cost of merchandise and the actual retail selling price
- Takes into account the impact of markdowns on IMU
- Indicator of how well merchandise sustains markup
- Usually lower than IMU (except equal when goods are sold at original price)
- *Initial markup - Net markdowns
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Tactical price change
A strategic markup or markdown that falls within a retail price zone defined at one end by a retail price with a standard markup at the other end by a retail price with an inflated markup
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Managing markdowns
- Last year's markdowns for the same time period are used to project this year's markdowns
- Gross margin and net income will be negatively affected by excessive markdowns
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Initial markup must be high enough to cover...
- Transportation and workroom costs (less cash discounts)
- Expenses and net profit
- Markdowns
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Factors that drive initial markup
- Markdowns
- Transportation costs
- Workroom costs
- Direct expenses
*In general, high figures in the numerator of the initial markup formula will yield a high initial markup percentage
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Promotional pricing
- Generate customer traffic
- Stimulate sales during a slow selling period
- Induce the sale of related nonpromotional merchandise
- Engage in competitive pricing with other retailers
- Establish an image as a value-oriented retailer
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Everyday low pricing
A value-oriented pricing strategy involving continuous promotional pricing without the support of advertised events
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Deceptive pricing
- Regular price comparisons (stated reduction from an original or regular price)
- Comparisons to competitors' prices
- Lowest price
- Free merchandise (BOGO)
- Going out of business
- Bait and switch
- The raincheck rule (allows customers to buy the advertised merchandise at a later date at the sale price)
- Predatory pricing
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Resale price maintenance
Producers enforce the sale of their products at a prescribed manufacturer's suggested retail price
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Planning
- Involved establishing an organization's goals or objectives and strategies to achieve them
- Includes forecasting
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Long-range plan ("strategic")
- Covers a 3 to 5 year period or longer
- Developed by top management
- Iclude strategies for expansion, market position, and major capital expenditures
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Short-term plan
- Covers periods shorter than a year
- Developed by lower-level managers
- Includes schedules and budgets
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4-5-4 calendar
- An accounting calendar universally adopted by retailers
- Each month has exactly four weeks or five weeks, so months are chronologically arranged in a 4-5-4 sequence
- Has two six-month seasons: Spring (Feb-July), and Fall (Aug-Jan)
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Related groups of merchandise as manageable business units
- Divisions
- Departments
- Classifications
- Subclasses
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Business unit hierarchies
- Create manageable business units
- Used as a basis for planning and tracking sales and inventory
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Planning sales
- Based on history and current trends
- Look at seasons, economy, trends, demographic shifts, competitors, etc.
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Planning inventory
- Cruial to the attainment of sales objectives
- Methods are based on plan sales and a desired turnover objective
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Stock-to-sales ratio
BOM = Plan sales x Desired stock-to-sales ratio
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Open to buy
- The amount of merchandise that a buyer needs to order to support plan sales for a period
- Derived from plan purchases
- EOM - (BOM - sales - MD - On Order)
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Plan purchases
- Plan sales for month
- + plan markdowns
- + plan EOM
- - plan BOM
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Assortment planning
- Price (opening to ending price-point)
- Brand
- Size
- Color
- Fabrication
- Style
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Computerized planning systems
- Facilitates the planning of assortments by individual SKU and store
- Integrates plans from various organizational levelst o ensure a match between all plans
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80/20 rule
Keep 80% of stock on floor, 20% in backstock
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Category management
Involves managing a product category as if it were a separate business entity, such as a store or department
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Planning information
Can be INTERNAL (past sales records, planned sales, etc) or EXTERNAL (consumer/trade publications, forecasting services, etc)
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