Buying Merchandise Final - Martenson

Report
BUYING MERCHANDISE
By Rechinda Bryant and Rick Nunez
QUESTIONS
■ What branding options are available to retailers?
■ How do retailers buy national brands?
■ What issues do retailers consider when buying and
sourcing private-label merchandise internationally?
■ How do retailers prepare for and conduct
negotiations with their vendors?
■ Why are retailers building strategic relationships
with their vendors?
■ What legal and ethical issue s are involved in
buying merchandise?
BRAND ALTERNATIVES
National
Brands(manufacturer)
Designed,
produced, and
marketed by a
vendor and
sold by many
retailers
 Private-Label (Store)
Brands

Developed by a retailer
and only sold

In the retailers outlets
PRIVATE-LABEL BRANDS

Private –Labels
Store Brands
 House Brands
 Own Brands
Premium Brands

Wal-mart’s Sam ‘s
choice
 Generic Brands



No frills
Copycat Brands

Walgreens brand
SPECTRUM OF NATIONAL VS. PRIVATE
LABEL

% Store
Brands
The Gap
Limited
 Marks and
 Spencer
 IKEA


Macy’s
Target
National
Brands
Wal-Mart
 Home Depot

EXCLUSIVE BRANDS
RELATIVE ADVANTAGES OF
MANUFACTURER VERSUS PRIVATE BRANDS
BUYING NATIONAL BRAND MERCHANDISE

Buying decision for fashion apparel/accessories:






5-6 times a year
Many months before delivery
Withhold open-to-buy (OTB) for new items with
fashion change
Buying decision for staple merchandise:
Less frequent
Continuous replenishment
MEETING NATIONAL BRANDS

Wholesale market centers:


Trade Shows


Frankfurt Book Fair, Las Vegas Consumer
Electronics Show
International Exchanges


National markets (New York), Regional Markets
(Dollars, Atlanta, Miami),
Worldwide Retail Exchange
Meeting Vendors at Your Company
DEVELOPING AND SOURCING PRIVATELABEL MERCHANDISE

Larger retailers offer a significant amount of
private-label merchandise:

JCPennys, Macy’s, The Gap
Identifying trends, designing, specifying products
 Selecting Manufacturers
 Monitoring and managing manufacturing conditions and
product quality


Limited Brands acquired Mast Industries
One of the world’s biggest contract manufactures,
importers, distributors of apparel
 Have manufacturing operations and join in 12
countries
 Provides private-label merchandise Lane Bryant New
York & Company

LI AND FUNG’S EVOLUTION OF SUPPLY
CHAIN MANAGEMENT
Product Development
Consumer Needs
Raw Material Sourcing
Product Design
Factory Sourcing
Manufacturing Control
The Supply Chain
Shipping Control
Forwarder Consolidation
Local
Forwarding Consolidation
Consumer Wholesaler/ Retailer
Customs Clearance
SOURCING MERCHANDISE

Reverse Auctions


Only one buyer and the retailer has many potential
sellers the manufacturing firms
Global sourcing

Tariffs taxes placed by government on imports
SUPPORT SERVICE FOR BUYING
MERCHANDISE
Two services available to buyers
 Resident buying offices

Organizations located in major market centers
 Retailers have own buying offices in other countries


Retail exchanges
Provides internet-based solutions and service for
retailer
 Provide a virtual meeting place buyers and vendors
 Soft ware and services to help retailer,
manufacturers, and trading partners

KNOWLEDGE IS POWER
The more you know, the easier it is for you to get
a better deal and the harder it is for someone to
get the better of you.
 Knowing what kinds of deals your competitors
are getting from retailers can be hard to get, but
it can be great leverage.

MARK DOWN MONEY

Mark Down Money

Funds vendors give
retailers to cover lost
gross margin dollars
due to markdowns.
NEGOTIATION ISSUES

Prices and gross margins
Get as much as you can for as
little as possible without
being a complete jerk.
 Margin Guarantees




Retailers want a guarantee
from the vendor that if the
merchandise does not move
they will get markdown
money.
Vendors will work with
retailers on this but they will
want a guarantee that the
retailer will push the product.
Slotting Allowances

A slotting fee is something the
vendor pays the retailer to get
them to try a new and
unproven product. This will
only last for a short amount of
time, normally only a few
months.
NEGOTIATION ISSUES

Additional Markup
Opportunities


Terms of purchase


Your vendor may have extra
inventory they want to unload,
they may offer you a great deal
for it, but you need to make
sure it will work for you.
Are you going to get everything
right now or do you want to
order X amount per month?
Exclusivity

As a retailer you if you can get
a big name item only to be sold
at your chain, you can mark it
high and use the customers
brand loyalty. The trick is
getting the vendor to want to be
exclusive with you.
NEGOTIATION ISSUES

Advertising Allowances


When the vendor helps
you advertise with a coop campaign, or and
advertising budget.
Transportation

Who’s going to pay for
the shipping? You might
be able to get a better
price per unit if you do,
but it all about what
kind of deal you can get.
TIPS FOR EFFECTIVE NEGOTIATING

Have as many
negotiators as the
vendors do.


You don’t want to be out
numbered, take some
friends.
Choose a good place to
negotiate.

I recommend a neutral
location, in your building
you have the advantage
and they know it, pick a
place you will both me
comfortable.
Make an offer that they
cannot refuse.
TIPS FOR EFFECTIVE NEGOTIATING
Aggressive negotiations

Be aware of real deadlines.



Time is money.
Be aware of the other
persons deadlines, if they
can’t get it done in time
with you, they will find
someone who will.
Separate the people from
the problem

If you have a business
problem, and you have
established a friendship
with the vendor rep, don’t
try to get a “because we’re
friends deal.” Its only
going to stress the
relationship.
TIPS FOR EFFECTIVE NEGOTIATING

Insist on objective information.


Invent options for mutual gain.


If you know your vender has provided markdown money to
your competitors and they don’t want to give it to you. You
may need to call them out.
If you are in a deadlock, look for alternative options to
make everyone happy.
Let them do the talking.
When you ask for something and they say no, keep quiet,
the silence will make them uncomfortable.
 The one who breaks the science first will lose.


How far to go

There is a fine line but you need to find it. It’s the line
between pushing to hard and not pushing hard enough.
TIPS FOR EFFECTIVE NEGOTIATING

Don’t burn you
bridges


Don’t be a rude jerk,
remember you want to
do business with your
vendor again, be firm
in negations but don’t
make them mad.
Don’t Assume

Orally review your
outcome, you don’t
want any surprises
and they neither do
they.
STRATEGIC RELATIONSHIPS
A strategic or partnering relationship occurs
when a retailer and a vendor establish a long
term relationship and invest in options that
benefit both companies. This gives the a
competitive advantage over other companies.
 Mutual Trust



If you can trust them and they trust you, you will get
more done because you will not be fighting over
prices as much and there will be a greater
information.
Open Communication

Your venders can be a valuable assets if you let them
know what's going on.
STRATEGIC RELATIONSHIPS

Common goals


When talking with
your vender, let them
know what your goals
are, a good vender will
help you get there.
Credible commitments

A credible
commitment is going
to involve you
spending money to
better your vendor and
vise versa.
BUILDING PARTNERING RELATIONSHIPS


These are the four stages of building a relationship with your
vendor.
Awareness


The process of you finding out about them or them finding out about
you.
Exploration
The process of exploring the potential benefits of a relationship
between retailer and vendor.
 At this stage the retailer will start to make purchase with the vendor
to see if they work good together and see how the products move.


Expansion


The two companies have established that they work well together and
move towards goals of a long term relationship.
Commitment
If the relationship has been working good the companies move into
the commitment stage where they begin to make investment to help
further the other companies. They also will establish long term goals.
 This stage is a little more common in the manufacturer vendor side as
opposed to retailer vendor. The reason being it’s a more complicated
relationship.

TERMS AND CONDITIONS OF PURCHASE



The Robinson-Patman
Act was put in place in
1936 to protect the mom
and pop shops from the
chain stores.
Also known as the anti
chain store act, it
prevents a vendor from
offering a different deal
to a chain store then
other retailers.
They still are allowed to
make deals on shipping.
RESALE PRICE MAINTENANCE




Resale Price Maintenance or RPM is a requirement
from vendors to retailers establishing a bottom line on
merchandise. They cannot mark it down below the
manufacturer’s suggested retail price or MSRP.
RPM has been an on again off again thing since the
Sherman Act was passed almost 100 years ago.
Recently RPM’s where ruled by the Supreme Court to
not be an automatic anti-trust violation.
It was designed to prevent free riding


Free riding is when a company goes to all the work and
expense of demonstrating the quality of the product and
then you go buy it from someone else for less because that
retailer did not have to pay to demonstrate it to you.
This is why no matter where you go Apple products
are always expensive.
COMMERCIAL BRIBERY




Commercial bribery is
exactly what you think of
when you think of doctors
and pharmaceutical
companies. They wine and
dine you, take you on trips
or just pay you money.
As long as the buyers
manger is aware of what's
going on its legal.
* Side note… an A on my
assignment will cost you
$20. please send the
money to my Paypal
account 
KIDDING!
CHARGEBACKS


A chargeback occurs for
a number of reasons.
But the bottom line is
that the vendor messed
up somehow and the
retailer deducts the cost
of the mistake off of the
payment.
Vendors don’t like this
because once the invoice
is stamped paid its hard
to get the rest of the
money.
BUYBACKS
Buybacks, also know as stocklifts or lift-outs
occur when a retailer buys inventory, this can
occur in two ways.
 First the vendor buys back their own slow
moving product.
 Second is they buy there competitors product to
make room for there own, this is illegal but its
hard to prove.

COUNTERFEIT MERCHANDISE
Counterfeit merchandise is anything
trademarked or copyrighted that is made and
sold without permission.
 A trademark is any word, graphic, phrase or logo
that is used to identify a brand.
 A copyright protects original works such as art or
designs.
 Popular counterfeited items would be things like
CD’s, DVD’s, or fashion accessories.

GRAY MARKETS &
DIVERTED MERCHANDISE
Gray market goods are the items that are sold
out of country for a lower price then they are sold
in the US, some retailers might go purchase their
merchandise out of country and bring it back in
to resell.
 Diverted merchandise is when a large store has
access product that they in turn sell to a smaller
store.
 Vendors try to prevent this in a number of ways,
one of them is to sign a contract with the retailer
and with the wholesaler that they will use the
vendor as a supplier, any violation will mean a
permanent loss of business with the vendor.

EXCLUSIVE DEALING AGREEMENTS


Exclusive dealing
agreements are
agreements between a
retailer and a vendor to
not carry any products
offered buy a competing
vendor.
If you violate this
agreement they may
pull their product off
your shelves, raise your
prices, or you may loose
you franchise.
TYING CONTRACT
A tying occurs when a
vendor requires a
retailer to carry an
item even if they do
not desire it.
 They are only illegal
when they
substantially reduce
the competition or
create a monopoly.

REFUSAL TO DEAL
Companies have the
right to pick and
choose who they want
to work with.
 The only time this can
get turned into a legal
issue is if the failure
to sell seems
anticompetitive.

ASSIGNMENT 1
Make a video of power point of National Brand
vendors or Private label chose two and explain
what they are and where you can find them(try
to pick stores in town)
 National brands vendors




Trade shows
Wholesale market
Private label brands





Premium brands
Generic brands
Copycat brands
Exclusive co brands
National brands
ASSIGNMENT 2

Do a quick Video on
describing three or four
of the following Legal
and ethical issues.
Commercial Bribery
Chargebacks
Buybacks
Counterfeit Merchandise
Gray Markets &
Diverted Merchandise
 Exclusive Dealing
Agreements
 Tying contract
 Refusal to deal






Keep it between 4-7
minutes.
THE END

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