Page 124 - DMGT554_RETAIL_BUYING

Unit 9: Buying Decisions

9.1 Merchandise Source to Retailer Notes

Retailers can source their merchandise from manufacturers or produce their own store brands
(referred to as private labels). Both manufacturer’s brands and private labels have their own
advantages. Selecting brands and choosing a branding strategy are components of a retailer’s
process of merchandise assortment planning. The most complex task for a retailer is to decide
whether to source the merchandise from within the country or to source it from global sources.
The merchandise purchasing process consists of five steps: identifying the sources of supply,
contacting the sources of supply, evaluating the sources of supply, negotiating with the sources
of supply, and purchasing from the sources of supply. The first step in the merchandise purchasing
process deals with determining the type of channel to be used for purchasing each line of
merchandise. The retailer can consider different sources of supply: raw-resource producers,
manufacturers, wholesalers and resident purchasing offices.
The second step in the merchandise purchasing process involves contacting the various sources
of supply. Both the vendor and the retailer can initiate the contact process. Contacts initiated by
vendors involve store visits by vendors’ sales personnel or mail or telephone inquiries. Contacts
initiated by retailer include visiting central markets, resident purchasing offices, and merchandise
trade shows, and making telephone and mail inquiries.
The third step in the merchandise purchasing process deals with the evaluation of several
prospective vendors. Retailers evaluate vendors on the basis of (a) suitability, availability and
the adaptability of the merchandise being offered, (b) the exclusiveness of the merchandise
offered and the vendor’s distribution policies, (c) the appropriateness of the vendor’s price,
(d) the type and amount of promotional support offered by the vendor, and (e) the type and
amount of additional services provided by the vendor. Retailers can use a weighted rating
method to evaluate vendors.
The fourth step in the merchandise purchasing process involves negotiating with the sources of
supply. Retailers usually negotiate on price and service issues. Retailers should also consider
the various transportation and handling issues that influence the cost of sourcing new
merchandise.
In the fifth and final step of the merchandise purchasing process, the actual purchasing takes
place. Retailers can purchase all the merchandise from a few vendors or from a number of
different suppliers. They can also choose from different purchasing methods like regular,
consignment, memorandum, approval or specification.
The merchandise handling process is as important as the merchandise purchasing process. This
process involves developing a plan to get the merchandise carefully into the store and place it
on the shelves for sale. Merchandise handling includes processing, receiving and storing
merchandise, pricing and marking the inventory, arranging displays and on-floor assortments,
customer transactions, delivering the goods, handling the goods that are returned by customers,
taking decisions regarding damaged merchandise, and finally, controlling and monitoring
losses due to merchandise pilferage.
Once a retailer develops a strategy for handling merchandise, a reorder procedure must be
developed. This procedure depends on various factors like the time taken by the retailer to
process the order, the time taken by the vendor to fulfill the order, the inventory turnover rate,
the financial expenditure and the cost of holding inventory versus the cost of ordering
merchandise. The retailer should reevaluate the complete merchandising process periodically.

The hundreds of transactions that take place between retailers and vendors can give rise to a
number of ethical and legal issues. These issues must be addressed by both retailers and vendors.

LOVELY PROFESSIONAL UNIVERSITY 119