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Build Your Shopping List
Before heading off to a merchandise show, you probably have an idea of how many new items you need. But do you know the types of products you need to maximize your sales? If not, it's time to create next season's merchandise plan.
The plan becomes your shopping list, allowing you to concentrate your efforts where needed and ensuring that you don't overlook important areas. Your merchandising team can use its time at shows more efficiently, and you can reduce sampling.
When devising your merchandise plan, you'll rely on intuition as well as an objective analysis of past product performance. The easiest way to simplify the process is a four-step approach:
Classify Your Products
First, design a merchandise classification scheme appropriate to your catalog. Base your categories on how customers use the products or on the products' function -- for instance, "kitchen appliances" or "swimwear." Avoid basing a category on the material or source of the products such as "ceramic" or "Italian." Such titles are of little use in merchandise planning.Don't create too many or too few categories. In a catalog of 200 product groups, each should have no fewer than five or more than 20 products.
Rank The Products By Performance
In my column in the January 1996 issue of CATALOG AGE ("Picking the Repeats," page 81), I discussed choosing repeat product by evaluating each item for unit volume, gross dollar demand, gross profit and profit contribution. In creating a merchandise plan, you can again use demand and profit contribution figures to compare the success rates of your product categories.A recap: To calculate profit contribution for a product, take the product's gross dollar demand and subtract returns, the cost of merchandise (including freight), above-average outbound shipping costs and the advertising cost. (To determine an item's advertising cost, multiply the total cost of producing the catalog by the percentage of catalog space taken up by this particular product.)
Then create demand and contribution index numbers for each product. Assign "1.0" to the average, and rank each product as a percentage above or below the average by both indicies.
After calculating the demand and profit contribution indicies for each product, create average indicies for each category. Separately average the demand and contribution for all products in each category.
Since averages can be deceiving, with one runaway product covering up the generally poor performance of other products in a category, it pays to also calculate the percentage of products that were profitable in each category. You can then display all this data in an easy-to-read table like the one below.
$ |
"The
All-in-One General Store" Holiday Merchandise Plan |
||||||
Holiday
Actual for Last Year |
Holiday
Proposed for This Year |
||||||
Items |
Demand |
Contribution Index |
Items
Profitable |
Total
Items |
Pickup
Items |
New
Items |
|
Ornaments |
18 |
1.20 |
1.50 |
83% |
20 |
12 |
8 |
Food |
6 |
1.30 |
1.50 |
100% |
8 |
5 |
3 |
Wall
Decor |
12 |
0.90 |
0.70 |
50% |
8 |
5 |
3 |
Vases/Urns |
8 |
0.60 |
0.65 |
25% |
5 |
2 |
3 |
Jewelry |
16 |
2.30 |
1.80 |
94% |
21 |
13 |
8 |
Apparel |
14 |
1.10 |
1.20 |
71% |
14 |
7 |
7 |
Furniture |
8 |
0.70 |
0.50 |
25% |
4 |
1 |
3 |
Wild
Cards |
2 |
2 |
|||||
TOTAL |
82 |
82 |
45 |
37 |
|||
Apply the Rankings
The next step is simple. If a category performed exceptionally well, with most of the products in the group profitable, increase the number of products you offer in the category. Conversely, if the category did poorly, reduce the number of products within it -- or even eliminate it altogether.After determining how many products you will carry in each category, you must decide how many items will be continuation products and how many will be new to your catalog. Continuations are easy to spot; typically, 30% to 40% of your products account for 60% to 70% of your demand, with a smaller proportion contributing the bulk of profits. Select only these strong, profitable continuation products at this point, and leave the marginal products to compete against any potential new items you and your buyers find.
Make Your Selections
Only after your merchants return from the road should you make your final product selections. When choosing items, don't rely on the opinions of just one or two people, Instead, opt for a highly visual approach that easily accommodates team participation: Divide a large wall into sections, one for each category. At the top of each section, write the target number of products included in the plan. Pin up pictures of the probable continuation product and candidates for new product in each section -- and always be sure to have more items than you'll be able to fit in the catalog.The chief merchant, buyers, purchasing manager, quality assurance manager and analysts then discuss each category in an effort to reach consensus -- through the chief merchant makes the final decision. Try to stick to the target number for each category, but allow yourself "wild cards" to accommodate exceptional finds.
When making the final selection, be sensitive to these issues:
- the themes of the colors of your catalog or of particular spreads;
- multiple price points, moving toward price points demanded by the customer;
- existing inventory, commitments and back-order exposure;
- customer service and fulfillment challenges intrinsic to certain products.
I've found that selection is not really final until a catalog goes to film. As the chief merchant and the creative director paginate the catalog, they may find that some products simply do not fit, due to either space constraints or creative presentation. You may also find yourself dropping products as the purchasing staff discovers new realities when negotiating final terms or as samples miss photo deadlines.
In the end, product selection is a blend of the intuitive and the analytical, tempered by reality. A merchandising plan ensures that your catalog does not suffer from impressionistic, opportunistic or individualistic choices that neglect the needs of your customers.
