DotActiv Team Feb 7, 2017 2:23:23 PM 11 min read

The Ultimate Merchandise Cheat Sheet

 

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“Hey, hands off the merchandise.”

Merchandise is a common word in the retail industry, but sometimes it isn’t known by its actual definition. Popularly, it’s known as illegal goods – mostly in movies where there is an exchange of money for “the merchandise”. In the case of retail, merchandise is a product which retailers purchase with the intention of selling at a profit. As simple as it sounds, buying merchandise is not as simple as exchanging money for product – the nuances are far more detailed. To help you get started, today’s post is a cheat sheet on all things merchandise and what retailers ought to know.

The 4 Types of Merchandise

Merchandise in Retail usually falls into one of these four categories:

Convenience Goods

Products like food and personal hygiene are classified as convenience goods. They are items which are widely available, regularly bought, and essential to our daily lives. If a choice brand is not available, customers have no problem choosing an alternative. Because they are often purchased, customers don’t go through a rigorous decision-making process. For retailers, the key to maximising profit with convenience goods is to sell large volumes goods at a fast pace - hence the term FMCG which stands for fast moving consumer goods.

Impulse Goods

A favourite of retailers, impulse goods are goods which are purchased instantaneously without significant thought process. Impulse goods require attractive displays and strategic placement in-store to generate profit. You may have seen impulse products when you were at a till or checkout point. They include magazines, candy, or complimentary products.

Shopping Goods

Shopping goods are often what comes to mind when customers think about brands. They are goods which customers expect to have sufficient information and time to analyse and compare brands and find a perfect fit. Because there are psychological aspects to purchasing shopping goods, such as association or affiliation, customers will compare a number of alternative brands based on price, quality, content and other various factors before making a final decision. Examples of shopping products include clothing, electronics and furniture.

Specialty Goods

Speciality goods are goods which motivate customers to make a special effort to get. When it comes to speciality products, customers are willing to do as much research as needed, pay a higher cost and travel as far as necessary. Because speciality goods are often expensive, consumers are very selective and will not accept an alternative offering. Speciality goods can either be products like art, antiques and luxury cars or services like salons, spas, or medical specialists.

1. Choosing Your Merchandise

In the retail industry, the process of selecting the selection of products which will be on offer based on location and season is known as assortment planning. Product selection has significant financial implications, ultimately deciding whether or not a store will be profitable. Selecting the right merchandise is vital for your store, and it requires some strategic decision making. Here are some factors retailers should consider:

Merchandise Philosophy

A good selection of merchandise for customers to choose from has always been a hallmark of successful retailers. But how do you find a balance between how many different products to carry and how much of each product you should stock? This will be dependent on your merchandise philosophy, a standard which takes into account multiple factors. For example, if you are a speciality store your merchandise philosophy is most likely deep and narrow – meaning you have a narrow selection of merchandise because of your niche but a deeper or larger selection of styles.

Supplier Reliability

The relationship between retailer and supplier requires not just professionalism and accountability but transparency as well. Elements of retail operations such as days of supply and space planning rely on a mutual understanding of operational processes such as inventory management. For example, what is the process for reordering merchandise from your supplier? What can you expect regarding availability and lead times? The answer to these questions will help you better plan your operations.

Pricing

Ensuring sufficient markup on merchandise is a priority which retailers constantly think about – it’s how they remain profitable. But how do you determine the selling price of your merchandise yet make sure you stock products which customers want? The first thing you may want to do is look at your relationship with suppliers. There will be merchandise you can only place minimal markup on but have to carry as part of your localised assortment because of low levels of transferable demand. Setting your initial markup then becomes a bit of art as well as science, with the goal being to maximise your profit with the highest possible markup while maintaining sufficient sales volume.

2. How to Buy Merchandise

Now that you know which type of merchandise you would like to carry, it’s time to move on to the next step: buying merchandise. Here’s what you need to know to get started:

Competitive analysis

Before entering and competing in any industry, identifying your competitors and evaluating their strategic approach to business is vital to determining not only their strengths and weaknesses but also what is working in the industry. In retail, there are several ways to conduct research on your competitors such as googling them, reading their marketing material or making a site visit. For example, Wal-Mart founder Sam Walton would visit his largest competitors to learn what was and wasn’t working in their stores. He would then strategise accordingly. Visiting your competition will allow you to find out information such as what they stock, how they operate, and how they sell.

Types of Suppliers

Once you’ve analysed your competition and set your benchmarks, selecting your suppliers is the next step. Here are four common types:

Manufacturers

Manufacturers are suppliers who make and produce goods on-site from raw materials. There are numerous kinds of manufacturers, each with a different sales process. When considering a manufacturer, find out if they sell their products at wholesale prices directly to retailers or through third party dealers and at what quantity. This has a direct impact on your markup so choose carefully.

Importers

Importers bring in goods and products which are not readily available or locally manufactured for sale to retailers. Technology has made the process of purchasing globally much easier, but it is still important to do your research on the process you will undergo to get merchandise. Areas to pay attention to include legal requirements, lead times and shipping as well as the total cost to get the product to you.

Distributors

Distributors, also known as wholesalers or brokers, supply retailers with merchandise from several manufacturers. The wonderful thing about distributors is you can purchase smaller quantities of merchandise from multiple manufacturers at a higher price. Purchasing from distributors can lower your logistical costs and ensure a faster delivery time depending on their location.

Liquidators

Liquidators are suppliers who have bought leftover inventory from other suppliers at a cost less than the retail value. Liquidators either resell the merchandise in their own stores or sell the merchandise to retailers by the truckload. It’s important to find out what condition the merchandise is in, its price, and what the terms of the sale are.

Selecting Suppliers

Now that you have the landscape of the various types of suppliers, understanding which will fit best in your operations is the next task. Here is a list to use when evaluating which supplier you would like to go with:

  • Quality of products offered
  • Reliability of delivery
  • Customer service
  • Price
  • Location
  • Shipping Options
  • Shipping Costs
  • Terms of Sale
  • Business Hours
  • Merchandise Return Policy

This may seem time-consuming, but in the end making sure your customers get the best merchandise will lead to maximised profits and customer satisfaction.

3. Merchandise Mix

Your customers will judge you on several criteria, but the characteristic with the most impact on your bottom line is the merchandise you carry and the assortment on offer. Strategic retail buying starts with buying merchandise which caters to your customers’ needs and wants. Your merchandise mix, the assortment of merchandise your store offers, will ultimately define how customers identify your store. It is not enough to have attractive and localised assortments – they must also be optimised for revenue and profit.

To maximise profit from your merchandise mix, it is critical you know your customers. What do they expect you to carry? Which holidays and seasons do they observe the most? What local products do they expect you to have as part of your assortment? Analysing data will let you know what your customers are purchasing and what they value – allowing you to optimise your merchandise mix for greater profit and customer satisfaction.

Conclusion

If you are looking to take your merchandise management to the next level feel free to book an exploratory call with one of our Account Advisors here.

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DotActiv Team

The DotActiv team comprises of multiple category management experts, all lending their years of retail experience and knowledge to create well-researched and in-depth articles that inform readers of DotActiv’s retail blog.