THE DOLLAR MERCHANDISE PLAN

A fashion buyer is responsible for investing many thousands of the stores dollars in acquiring stock for resale; the objective of buying being: To satisfy the needs and wants of the costumer To make profit for the company And to meet these objectives, is required careful and creative planning. A merchandising plan is a guide towards the objectives of supplying the right merchandising for the customers and meeting the profit projections.
EARNING A PROFIT

The outcome of a careful planning is precisely the profit made for the company. Profit is the amount of money that is left over after all of the merchandise that is offered for sale has been purchased and all of the expenses of running the business have been paid. To calculate the profit, the basic formula is Net sales cost of goods sold expenses = PROFIT Virtually every store calculates profit by using the above formula, but instead of applying the formula, they use a profit and loss statement, which is a summary of the transactions that occurred over a specific period of time. This statement is also called the income statement.
PLANNING FOR PROFIT

To earn the best possible profit both the amount of money neede to finance the purchases and the expected revenue from sales realized,need to be planned. The two basic tools for this planning are The dollar merchandise plan (The specific budget that is used to project both sales goals and the amount of stock that is required to achieve those goals.) The open-to-buy plan (Like a bank checking account, the purchases keep getting subtracted and the sales keep getting added, in a way balancing the account) The major goals of planning in retail merchandising are: To maintain an inventory that is neither too large nor too small for anticipated customer demand. To time the delivery of purchases so that merchandise is available for sale neither too early nor too late for customer demand. To keep purchases in line with the stores ability to pay for them. To have funds available for the purchase of new goods when they may be needed.

THE DOLLAR MERCHANDISE PLAN

-includes a pre-planned specific budget to be utilized for the purchases. -involves checking and rechecking of accounts to see if everything is proceeding as projected. -adjustments are to be made if any expenditure falls out of place and compensated in the next purchase.
PROCEDURES FOR PREPARING THE PLAN

Time period may vary from one month to an year but is usually a span of six months. Two budgets commonly planned -spring (February through July) -fall (august through January) In large stores, separate budgets are first developed for each department. Later, these budgets are incorporated into a master plan at the divisional level or storewide level, or both. The format of plan varies from store to store, but should be presented in the simplest form possible and in a terminology that is familiar to everyone who has to use it. Buyers play an active role in developing merchandising plans. First, the stores accounting department will supply the planning from several months in advance of the start of the actual buying season. On it are the figures from the departments merchandising operation during the corresponding season of last year. The plan may also include last years actual sales and this years projected goals. These projected figures include the gross margins desired, certain department operating expenses, and the no. of stock turns desired. The projected goals are established by store management, not by departmental buyers. Using the planning form and the buyers specialized knowledge of market conditions, trends, and demand cycles, is then prepared figures on anticipated sales , stock, markdowns, and purchase of the department for the upcoming six months. When the buyer has completed work on the plan, it is reviewed by the divisional merchandise manager, who makes revisions before approving it. Next, the merchandise manager consolidates the plan and plans from other buyers into the division into a divisional plan and submits it to a general merchandise manager for approval. Finally, all plans are subject to review by both the stores controller and the general manager or president.

THE BUYERS ROLE

MANAGEMENTS ROLE

When approved, departmental plans are combined into a master plan for the whole store.

ELEMENTS OF THE PLAN

The dollar merchandise plan varies from store to store, which have four elements in its plan: sales, stocks, markdowns and purchase. It may also seasonal goal figures and planned expense figures, which will include mark-up, gross margin stock shortage reserves, and cash discounts turnover, selling salaries and advertising expenses.
PLANNING SALES

basic cover initial stock

The very first step in the preparation of a merchandise plan is to make a realistic estimate of prospective sales during the upcoming season. For which we need to view the past sales figures, examine both external and internal factors which may affect sales and study general fashion trends that may influence the departments sales.
SALES FIGURES

The estimate is made reviewing the sales figures of the store as a whole. The previous years sales figures are important. one can also review the sales records of the previous few years and calculate the amount your department has contributed to the total sales effort each year. For example that the sales have been increasing at the rate of 7 percent every year, we can assume that they will probably continue to increase at that rate. Or lets assume that the sales in your department have generally accounted for about 9 percent of the stores total sales but last year they accounted for full 12 percent. With the aid of your merchandise manager, this information can be used to determine the reason for increase and capitalise on it for this years sale. Smart buyers always press for continued growth in sales. This sales growth also boosts the buyers salary or bonus. Optimum pays off for the aggressive buyer. A good merchandise plan is both specific and flexible. As the plan is an attempt to forecast customer demand and develop strategies far in advance of the period covered, the plan cannot be completely rigid. As the season actually gets under way, we want to review are figures frequently, both in relation to the actual result and a relation to more current information about the balance of the season. for example if you are buying hand bags and learn that the supply of the one particular type of popular bag will probably be threatened by a lengthy strike, u might decide to increase your stocks of these bags immediately, rather than waiting for the previously planned purchase time . All plans are subject to changes that may occur for variety of reasons. After you have made your best estimate of the sales for the season on the basis of past sales record, you will want to check both external and internal factors that

might affect that estimate , as well as general fashion trend that could either increase or decrease sales in your department.

EXTERNAL FACTORS

External factors are those outside of the store or its control, such as the pending strike that would affect hand bag deliveries. They also include employment prospectus, general economic conditions, population changes and the competitive situation. For example opening of a new plant in an area is likely to increase its pending power in the community. Conversely, possibility of strikes or shut downs among local employers means a potential loss of spending powers in the trading area. Optimism about the future courages consumer spending where as threat of new taxes, higher interest rates or declines in economic activities tend to discourage spending or delivery of goods of ordered from these firms. The sales prospects will be affected by the growth or lack of growth in an area population .they will be affected by changes in the proportion of higher income to low income families and by changes in the age composition of a population. We should also evaluate the competitive effect of new or expanded stores and shopping centers in the trading area. Stores in other communities within easy traveling distance may be gaining or losing power to draw off some of the retail business.
INTERNAL FACTORS

Internal factors are those within the store or it control. They include physical changes within the store that either enhance or diminish the sales prospects of individual departments. They also include the opening of new branches, the general trend in store sales, and the number and extent of promotions the store management expects to undertake during the season being planned. Physical changes within a store can affect the sales prospects of various departments within the store. Relocation, expansion or contraction of the departments selling space isnt the only physical changes that affect the sales. The acquisition or elimination of display fixtures, a change of dcor, and any change in the departments proximity to other departments carrying related merchandise can also affect sales. If a new branch of the store is to be opened nearby within the planning period, it is probable that some of the customers will transfer their patronage to the new branch, thus affecting the branch adversely. The department sales will also be affected by the amount of promotion the stores plans in its behalf. Its sales opportunities will be enhanced if the store as a whole plans increased promotional effort, since this usually will bring increased customer traffic.

The store may also plan a special promotion aimed at a specific group of customers, such as career women, young mothers, or teenagers. It may expect significant sales benefits.
FASHION TRENDS

This is the most important factor influencing sales. They usually affect the sales of several departments at one time, pushing up the sales potential of some and depressing the sales prospects of others. Exampleif the trend is towards dressier apparel, dress departments can budget optimistically. But departments selling sportswear and other casual attire will plan more cautiously. Monthly sales goals As we plan sales for the season, we will look at each month within the season separately. Its just that we will be required to come up with the sales figure for the whole season. The very affective tool is the ability to work with percentages. Through the use of percentages, we will also be able to look at the amount each months sales have contributed to the annual sales for the department. Consideration should be given to the previous years sales for the same month, to the percentage each month has contributed to the total annual sales, and to any other factors influencing a departments sales potential. The fact that the consumers demand varies both seasonally and monthly. If there were no such variations, each month would contribute an equal number of dollars to the years total sales volume. Another consideration is the fact that the number of business days changes from month to month. Monthly sales volume, as a percentage of the total years sales also fluctuates from department to department. It is explained by the seasonality of the merchandise that each handles as well as the curve of customer demand for the merchandise. Example, the toy department and the fur departments do the bulk of their annual business in just a few months of the year. Holidays and other special days such as Valentines Day etc also give rise to variations in demand. The extent to which each influences monthly sales planning depends upon the nature of the merchandise and the extent of the departments promotional plans.

PLANNING STOCK

Since sales during any month can be realized only if there is stock to sell, the next step in dollar merchandising planning is to estimate the amount of stock that will be needed to support the planned monthly sales. For each Second consideration is the anticipated sales. The planning must be such that the desired seasonal stock turnover may be realized, markdowns minimized, and a steady flow of new, interesting merchandise assured throughout the month. Variations in monthly stock goalsMonth in six-month plan, estimation of he BOM (beginning-of-the-month) stocks is needed to support planned sales. Two major considerations influencing planning of BOM stocks There must be an adequate opening assortment on hand, in sufficient quantity, to meet anticipated customer demand until stock replacements for goods sold can be secured. In planning monthly stock goals, stocks should be brought to a peak just prior to the time when sale are expected to reach their peak. By peaking stocks before consumer demand reaches its crest, maximum assortments in needed styles, sizes, and ,colors will be presented when the public is in the mood to buy. Similarly, the-beginning-of-the-month(BOM)stock plans should be reduced as a selling season approaches its close and demand decreases. Two other factors which helps in reducing inventory as the season endsmarkdown unsold seasonal goods and bring in new goods that are offered as manufacturers closeouts. These are usually purchased and resold at prices lower than earlier in the season.

STOCK-SALES relationshipsStores are guided in their stock planning by two stock-sales relationships: monthly stock-sales ratios and a desired ratio of seasonal stock turnover. The monthly stock-sales ratio uses the number of months that would be required to dispose of a beginning-of-the-month inventory at the planned ate of sales for that month. Stock-sales ratio=BOM stock/sales for month

This ratio is an important tool in stock planning since it directly relates stock requirements to planned sales. It facilitates comparison of the stock-sales ratios of your store in the past as well as sales-stock ratios experienced by other stores Second stock-sales relationship that helps in the planning of stocks is stock turnover. Stock turnover refers to the number of times that an average stock of merchandise has been turned into sales during a given period of time. Stock turnover = net sales/average inventory

Stock turnover means, bringing goods in, turning them into cash, and going out to buy more goods. Rate of stock turnover varies widely from one department to another within a given store. The rate depends upon the type of merchandise handled, its price ranges, and the depth and breadth of assortments carried.

PLANNING MARKDOWNS

After planning monthly sales and beginning-of-the-month (BOM) inventories one is required to plan one of the most important tools for realizing a profit markdowns. Markdowns are difference between the cost of the merchandise and the price at which it is finally sold. A wise buyer will always plan markdowns and spend them to recapture money that has been invested and at the same time earn money. Markdowns are an efficient way of meeting price competitions, adjusting retail prices to Declining market values, and speeding the sale of slow-moving damaged, and out-of-season goods to make room for new merchandise. Markdowns can be expressed as both a dollar amount and a percent. The dollar amount refers to the difference between the previous selling price of an item and the reduced selling price. Markdown percentage is the amount of dollar markdowns taken during a given period expressed as a percentage of the net sales. Markdown% = $markdown/ $net sales Factors in planning markdown Since markdowns result in lowered gross margin, one should plan and control them carefully. Buyers of fashion goods must be ready to take deep markdowns while goods are still salable or lose their profit. Markdowns are usually planned as a percentage of each seasons planned sales. They may then be allotted to individual months The chief factors to be considered in establishing seasonal markdown goals are: The past experience of the store or department. Trend in wholesale price(WP) Markdowns tend to increase during periods of falling WP and vice-versa. Comparative figures of similar stores. Amount of old stock on hand at the beginning of a new season.

Large stores tend to take markdowns while there is still sufficient customer demand. Small stores tend to postpone taking markdowns, preferring to clear their stocks only at the end of the season.

Planning Purchases Planned purchases is the term used to indicate the amount of money one can spend on merchandise during a given period without exceeding the value of the inventory planned at the end of that period. In most large stores purchases are planned on a monthly basis. However some smaller fashion merchants purchase on a seasonal or market-trip basis. Planned purchases are derived from planned sales, stocks and markdowns Planned purchases = total needs for the month BOM stock = planned EOM stock + planned sales + planned markdowns.
MARK UP

Markup is the difference between the cost price and the retail price of merchandise. Retail markup% = ($ retail - $ cost)/ $ retail Some smaller stores and most manufacturers, however, calculate markup percentage on the basis of cost Cost markup % = ($ retail - $ cost)/$ cost The dollar difference between the delivered cost of merchandise and the retail price placed on it when it is first brought into stock is called the initial markup. Retail stores plan initial markup percentages to insure that the income derived from sales will be adequate to covers: All expenses incurred in the operation of the business. Anticipated reductions in the retail value of the inventory, such markdowns, stock shortages and employee discounts. A reasonable margin of profit for the store.

Some purchases may yield a higher or lower percentage of markup than is planned. But the aim throughout the season should be to maintain an average markup on purchases that is no less than the goal figure indicated on the dollar merchandise plan.

Gross Margin In addition to initial markup percentage, some stores plan a desired percentage of gross margin. $ gross margin = $ net sales - $ net cost of merchandise sold $ gross margin = $ gross margin/ $ net sales Gross margin represents the amount of money available to pay all operating expenses and taxes with a reasonable profit leftover. Cash Discounts Cash discounts are the percentages or premiums allowed by manufacturers off their invoices if the payment of the invoice is made within a certain specified period of time. Such discounts are allowed to encourage the prompt payment of invoices. Cash discounts earned are an important source of additional income for a store or department. Cash discounts increase gross margin, because they reduce the actual cost of merchandise purchases. Term of sale The combination of allowable discounts on purchases and the time allowed for taking such discounts is referred to as terms of sale. Anticipation An additional discount granted by some vendors for the payment of their invoices before the end of the cash discount period is called anticipation. This is an accounting transaction determined by the accounts payable department. Because anticipation further reduces the cost of purchases, retail stores can make profitable use of their capital by taking anticipation whenever bills are paid before the cash discount period expires. Stock Shortages and Overages Stock shortages or overages represent the dollar difference between the book inventory (The value of inventory on hand as indicated by the stores accounting records) and the physical inventory (the value determined by taking a physical count). When the book inventory is greater than the physical inventory there is said to be a stock shortage. When the physical inventory is greater than the book inventory

there is said to be a stock overage. Stock shortages are experienced with consistent regularity by retail stores. Stock overages occur rather seldom. Stock shortages decrease a departments gross margin and ultimate profit and are essentially the responsibility of the buyer. For these reasons, many stores include seasonal shortage reserve figures in their dollar merchandise plan. Operating Expenses Two kinds of expenses are incurred in the operation of a selling department: Direct and Indirect. Direct expenses are those that occur as a direct result of the operation of a specific department. These are the types of the expenses that would cease if the department itself was closed. Examples are salespeoples salaries, buyers and assistants compensations, expenses incurred in connection with buying trips, advertising expenses and delivery charges. Indirect expenses are those that do not directly result from the operation of an individual department but are shared by all departments of the store. Examples are compensation of top management executives , utilities, maintenance, insurance, and receiving and marking expenses