Unit 5: Merchandise Management, Pricing, and Supply Chain

Merchandise Management

Merchandise management is the planning, buying, selecting, pricing, and controlling of merchandise (products) to meet customer demand and achieve retail profits.

It ensures:

• Right product
• Right quantity
• Right price
• Right place
• Right time

Merchandise Planning Process

Merchandise planning involves forecasting and deciding what to sell in a particular season.

Steps in Merchandise Planning

1. Gather Market and Sales Data - Past sales, customer preferences, trends.
2. Forecast Demand - Predict what customers will buy in the future.
3. Set Merchandise Budget - Decide how much money to invest in buying goods.
4. Develop Assortment Plan - Decide product categories, varieties, sizes, colors.
5. Vendor (Supplier) Selection - Choose suppliers based on price, quality, reliability.
6. Merchandise Procurement - Purchasing the required products.
7. Allocate Merchandise to Stores - Distribution across multiple locations.
8. Monitor Performance -Track sales, inventory turnover, profit margins.

Assortment Planning

Assortment planning refers to deciding the types and quantities of products that a retailer will offer.

Key Elements

• Breadth of assortment → number of product categories
• Depth of assortment → number of variations within a category

Examples

• Supermarket: Wide variety (food, dairy, household)
• Specialty store: Deep focus (only electronics, only footwear)

Good assortment planning ensures:

• Product availability
• Customer satisfaction
• Better space utilization

Category Management

Category management treats each product category as a separate business unit.

Purpose

• Optimize product mix
• Increase profitability
• Enhance customer convenience

Category Roles

• Destination category (main reason customers visit the store)
• Routine category (daily use items, regular profit)
• Seasonal category (festivals, winter wear)
• Convenience category (impulse purchases)

Retailers use category captains (like HUL, P&G) who guide decisions on assortment, shelving, and promotions.

Retail Buying Process

Retail buying involves selecting and purchasing goods that match customer needs.

Steps in the Buying Process

1. Identify merchandise needs
2. Prepare buying plan
3. Identify potential suppliers
4. Negotiate terms (price, delivery, credit)
5. Finalize vendor agreements
6. Place purchase order
7. Track delivery & inspect goods
8. Review sales and supplier performance

Retail buyers must constantly analyze market trends, demand patterns, and competitor strategies.

Vendor Selection

Choosing the right vendor is crucial for product quality and reliability.

Vendor Selection Criteria

• Product quality
• Delivery reliability
• Price competitiveness
• Credit terms
• Past performance
• Supply capacity
• Technological capabilities
• After-sales service

Retailers often use vendor scorecards to evaluate suppliers regularly.

Inventory Management

Inventory management ensures that the retailer maintains optimal stock levels—neither too much nor too little.

Objectives

• Avoid stockouts
• Reduce holding costs
• Maintain smooth flow of goods
• Prevent loss/damage/obsolescence

Tools/Techniques

• EOQ (Economic Order Quantity)
• ABC Analysis
• Safety Stock
• Reorder Point (ROP)
• Just-in-time (JIT)
• FIFO/LIFO

Stock Turnover

Stock turnover (inventory turnover) measures how quickly inventory is sold and replaced.

Formula

$$\text{Inventory Turnover}=\frac{CostofGoodsSold}{AverageInventor\mathrm{y}}$$

High Turnover Means

• Goods selling fast
• Better cash flow
• Lower storage cost

Low Turnover Means

• Excess inventory
• High carrying cost
• Weak demand

Retailers aim for higher turnover through promotions, better assortment, and seasonal planning.

Pricing Objectives and Strategies in Retail

Pricing in retail is extremely important because it directly affects demand, margins, and store image.

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Pricing Objectives

1. Profit Maximization
2. Increase Market Share
3. Survival during competition
4. Customer value creation
5. Everyday Low Pricing (EDLP) positioning
6. Clearance/Selling old stock

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Retail Pricing Strategies

1. EDLP (Everyday Low Pricing)

• Low prices throughout the year
• Builds trust and steady sales Example: D-Mart, Walmart

2. High–Low Pricing

• High regular prices
• Deep discounts during sales Example: Lifestyle, Big Bazaar

3. Cost-Plus Pricing

• Price = cost + fixed margin

4. Competitive Pricing

• Set price equal to or lower than competitors.
• Common in FMCG, electronics.

5. Psychological Pricing

• ₹99 instead of ₹100
• “Buy 1 Get 1” Makes price appear cheaper.

6. Value-Based Pricing

• Price based on perceived value rather than cost.
• Common in premium retail stores.

7. Promotional Pricing

• Special discounts, festival sales, seasonal offers.

8. Bundle Pricing

• “Combo Offers” Example: Shampoo + Conditioner set cheaper together.

9. Clearance Pricing

Huge discounts to clear old/unsold inventory.

Conclusion

This topic helps MBA students understand how retailers plan and manage merchandise, build strong supply chains, set pricing strategies, and optimize category performance. This knowledge is essential for careers in retail management, supply chain, and merchandising.

Supply Chain Management (SCM) in Retail

Supply Chain Management in retail refers to the planning, implementation, and control of the flow of goods, services, and information—from suppliers to warehouses to stores—and finally to customers.

Retail SCM ensures:

• Products are available at the right time
• At the right place
• In the right quantity
• With minimum cost and maximum efficiency

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A. Importance of SCM in Retail

Benefit	Explanation
Product Availability	Reduces stockouts and ensures shelves are always full.
Cost Efficiency	Controls warehousing, transportation, and inventory costs.
Faster Delivery	Ensures quick replenishment from suppliers to stores.
Better Customer Satisfaction	Ensures fresh, high-quality products consistently.
Competitive Advantage	Efficient SCM improves speed, accuracy, and profitability.
Supports Omnichannel Retailing	Integrates online and offline inventory systems.

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2. Components of Retail Supply Chain

1. Procurement

• Selecting suppliers
• Negotiating price and terms
• Sourcing raw materials or finished goods

2. Warehousing

• Storing products in distribution centers (DCs)
• Managing inventory levels

3. Transportation

• Movement of goods from supplier → warehouse → store → customer
• Includes third-party logistics (3PL) partners

4. Inventory Management

• Maintaining optimal stock levels
• Avoiding understock and overstock situations

5. Distribution Management

• Allocating products across different store locations
• Using centralized distribution centers for efficiency

6. Reverse Logistics

• Handling returns, damaged products, unsold inventory

Modern Retail Supply Chain Strategies

A. Vendor Managed Inventory (VMI)

Supplier manages retailer’s inventory levels.

B. Just-In-Time (JIT)

Products delivered only when needed; reduces storage costs.

C. Cross-Docking

Goods are transferred directly from inbound to outbound trucks with minimal storage.

D. Omnichannel SCM

Integrates store + warehouse + online inventory to fulfill orders seamlessly (click-and-collect, same-day delivery).

Role of Technology in Retail SCM

Technology plays a major role in making SCM faster, accurate, automated, and customer-friendly.

A. Barcoding

Barcoding involves printing unique product codes (UPC/EAN) on items that can be scanned.

How Barcoding Helps

Benefit	Explanation
Fast Billing	Products scanned instantly at checkout.
Reduces Human Error	Eliminates manual entry mistakes.
Accurate Inventory Tracking	Automatically updates stock when products are sold.
Quick Stock Counting	Handheld scanners speed up inventory audits.
Efficient Reordering	Helps identify slow-moving and fast-moving items.

Barcoding is standard in every modern retail store (supermarkets, hypermarkets, fashion retail).

B. RFID (Radio Frequency Identification)

RFID uses radio waves to identify and track items with RFID tags.

Advantages of RFID

Benefit	Explanation
Real-time Inventory Visibility	Every product can be tracked within the store or warehouse.
Faster Stock Audits	RFID scanners can read thousands of tags in seconds.
Reduces Theft	Alerts can be triggered for unauthorized removal (EAS gates).
Automates Replenishment	System identifies low stock automatically.
Improved Accuracy	99%+ inventory accuracy compared to manual stock counting.

Used in

• Fashion retail (Zara, H&M)
• Electronics stores
• High-value goods

C. POS (Point of Sale) Systems

POS is the system used for billing, inventory updates, and customer data management.

Functions of POS in Retail

1. Billing & Checkout

• Barcode scanning
• Digital receipts
• Multiple payment options (UPI, card, cash)

2. Inventory Management

• Automatically updates stock after every sale
• Helps reorder fast-moving products

3. Sales Reporting

• Daily/weekly/monthly sales reports
• Profitability analysis
• Store performance metrics

4. Customer Relationship Management (CRM)

• Loyalty programs
• Customer purchase history

5. Integration

• Connected with ERP, accounting, e-commerce platforms

How Barcoding, RFID & POS Improve Retail SCM Together

Technology	Improvement in SCM
Barcoding	Faster checkouts, accurate data entry, stock tracking
RFID	Real-time tracking, auto-inventory counting, theft reduction
POS	Sales data integration, automated reordering, CRM

Together they create:

• Higher accuracy
• Lower cost
• Faster operations
• Better customer experience

Conclusion

Effective supply chain management supported by technologies like barcoding, RFID, and POS helps retailers maintain product availability, improve efficiency, reduce costs, and enhance customer satisfaction. These systems form the backbone of modern retail operations.