Page 129 - DMGT554_RETAIL_BUYING

Retail Buying

Notes The important items to be considered monthly when developing your six-month Merchandise
Plan are:

 Net Sales: This figure represents a realistic dollar estimate of your monthly merchandise
sales. These sales estimates are based on past experience and on future considerations
including; business conditions, competition, inflation, promotional plans, merchandising
opportunities, and merchandise availability.
 Stock: In order to achieve your estimated (planned) sales figure you must provide sufficient
stock to permit a satisfactory selection for your customers. This stock figure can be
determined by calculating your inventory turnover rate or your sales-stock ratio, or by
estimating the maximum quantity for each item or the stock requirements based on
expected weekly sales.
 Reductions: Reductions refer to the lowering of retail value of your inventory and are
caused by planned markdowns, shrinkage (stock shortage) and discounts to employees or
other special groups. Since, these are the only three things that can cause the retail value of
the inventory at the end of a period to have a lower valuation than it had at the beginning
of the period, they are to be included in the plan.

 Purchases: This figure represents the dollar value of merchandise the buyer must purchase
to replenish the stock likely to be sold to your retail customers. It is calculated by
subtracting the dollar value of the stock-on-hand at the beginning of the month from the
total dollar value of the planned net sales, shrinkage, and reduction for the month. The
result is the planned purchases for the month.
 Open-to-Buy: To arrive at the open-to-buy figure for the month, it is necessary to subtract
(from the above planned purchases figure) the dollar value of the commitments already
placed for delivery during the same month. Since each month is an entity by itself, it is not
possible to carry any unspent open-to-buy commitments over to the next month.
Knowledgeable buyers generally commit about 50 percent of the planned purchase figure
in order to allow funds for reorders, fill-ins, and to take advantage of unexpected marketing
opportunities.

Notes In addition to the above items and depending upon the retail operation, the following
elements may also be included in your six-month plan: turnover, markon, payroll,
advertising, gross margin, number of transactions, and average sale.
It should be noted that the six-month plan is flexible and can be adjusted at any time to meet
changing business conditions.

9.3.3 Stock Plan

After determining the broad categories of merchandise the store is to stock, the retailer divides
the broad categories into smaller categories called classifications. In turn, the classifications are
divided into subclassification.

Example: Stock such as men’s clothing, stationary, costume jewelry, etc. is divided into
men’s suits, tuxedos, raincoats, etc. which is further divided into single-breasted, double-breasted,
etc.)
A unit stock plan of the number of items to be stocked in each by price, style, color and size is
then prepared. The purpose of this approach is to ensure that the stock will present an assortment

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