Term
| What is profit and what are its characteristics? |
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Definition
| • Profit is the sum of the prices at which all products sold in a company must cover the cost of the merchandise, the operating expenses, and any additional amount. It is often expressed as a percentage of net sales. |
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Term
| What factors affect price? |
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Definition
• Store and company policy
• Customer acceptance: exclusiveness reflective in price, as trendiness increases the demand increases and price decreases as volume of purchases increase
• Competition: comparable prices, offering guest services
• Profit potential: net sales, cost |
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Term
| Know the profit potential formula. |
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Definition
| • Profit potential formula is pricing the product high enough to cover expenses but low enough to generate good sales. |
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Term
| How can a retailer increase profit? |
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Definition
• Increase net sales
• Decrease COGS
• Decrease expenses |
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Term
| What is a six-month plan and what do we use it or? |
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Definition
| • A six-month plan is the financial tool that retailers use to determine the dollar value of an estimated inventory |
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Term
| Understand the relationship of price to product-type. |
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Definition
• High priced products and those difficult to find mean it is hard to find comparisons meaning there is less market comparison and reduced competition
• Lower priced items sold at a high volume can create profit potential |
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Term
| What is an individual markup and what does it need to cover? |
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Definition
| • Individual markup refers to the markup of a single item. An individual markup must be increased/marked up to cover factors such as operating expenses, shortages, and to increase retailer’s income and profit. |
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Term
| Why do we prefer to work with percentages? |
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Definition
| • We prefer to work with percentages so that they can be compared on a scale of 0 to 100%. For example, it would be unrealistic to compare promo costs in dollars for a fifty-store chain and an independent retailer with one store. |
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Term
| What is a keystone markup and why would we use it? |
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Definition
• A keystone markup is a 50% markup.
• Disadvantages:
o If item cost fluctuates, maintaining a keystone markup would result in fluctuating retail price which could be consuming for consumers
o Risky for “trendy” merchandising vs. basic staples
• Advantages:
o Simplicity involved – there are not a variety of markups that need to be applied to the merchandise, limiting confusion. |
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Term
| What is an additional markup and why would we use it? |
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Definition
| • An additional markup applies only to merchandise on hand. It is a revision of the original retail price. It can be caused by inflation, price increases, or fluctuating market conditions. It is the difference between increased retail price and the previous retail price. |
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Term
| What is an average markup? |
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Definition
| • An average markup gives a summary profile of the markup for a group of items rather than focusing on markups for single items. |
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Term
| Why do different items in a retail space have different markups? |
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Definition
| • Different items in a retail space have different markups because different vendors may supply them. The vendor may reduce charges based on quantity purchases or increase prices for certain styles of sizes. |
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Term
| What is an average retail price and why would we use it? |
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Definition
| • Average retail price sets a single retail price on items with differing costs and/or markups. It assists in attaining desired overall markup goal and reduces confusion for customers. It also helps with inventory control. |
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Term
| What is meant by “retail for balance” and when would we use it? |
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Definition
• For any point within a period of time, a buyer can monitor retail prices to achieve markup goals
• What retail price must be set on the balance of the investment to achieve the desired markup goal |
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Term
| What is meant by “cost for balance” and when would we use it? |
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Definition
| • Cost for balance is used for finding retail value for the balance. It would be used to meet markup goals when the buyer either has to settle for fewer items at a higher markup or when the buyer would have to reduce the cost of additional purchases. |
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Term
| What is proportioning and when would it be used? |
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Definition
• It is desirable to have a single retail price on items to avoid customer confusion as well as easier book keeping
• Stores often have a reputation based on a single price line however not all items are offered at the same cost
• Can offset higher costs with lower costs to determine a mix (or average) that meets goals |
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Term
| What is an initial markup? |
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Definition
| • Initial markup is the difference between the first retail price placed on an article and the cost of the item. It can either include or not include cash discounts. |
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Term
| What is maintained markup? |
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Definition
| • A maintained markup occurs due to adjustments in initial markups, such as markdowns, shortages, employee discounts, and initial markups. |
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Term
| What is the difference between initial and maintained markup and which one should buyer be most concerned with and why? |
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Definition
• Initial markups are a preliminary planning tool whereas maintained markups are attained over time.
• A buyer should be more concerned about maintained markups because they are a better way to judge the buyers performance. It is a more accurate reflection of business and a way to measure the success or failure of the buyer. |
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Term
| What is gross margin and what is that number telling us? |
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Definition
| • The gross margin is the difference between net sales and the cost of goods sold or the sum of the operating profit and operating expenses. It must be large enough to cover the expenses in order to provide a profit. |
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Term
| What are ways that retailers can reduce prices and why would we want to do that? |
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Definition
| • For promotional reasons which will attract customers • Operational device to meet competition: to be able to more effectively compete with the competition and not lose customers to better deals they have found elsewhere • Remove shop worn items from inventory: move inventory quicker and allow for new inventory to be brought in and displayed • Correct errors in buying/selling • Employee discounts – to reward their employees, have them be knowledgeable on their merchandise and promote it by wearing it |
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Term
| What is the difference between discounts and markdowns? |
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Definition
| • Discounts reduce the price of merchandise, commonly for employees. A markdown is also a reduction of a retail price of an item, however, it presents a broader scope of reasons for reductions. Markdowns allow for clearing the color with slow moving items that have reached their peak demand or are out of season. Markdowns merchandise to move quicker to make room for fresh stock. They are useful in the consolidation of price lines. |
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Term
| What is a dollar markdown cancellation and when would we use it? |
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Definition
| • A dollar markdown cancellation occurs when the price of an item is raised back to its original retail value. This occurs after a markdown has been cancelled, such as at the end of a sale when merchandise is returned to its original price. |
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Term
| What is net dollar markdown and what is it telling us? |
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Definition
| • The net dollar markdown is the net effect of the markdown. It tells us the end result after a sale. |
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Term
| What are the indicators of an unbalanced inventory? |
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Definition
• Out of stock (stock outs)
• Overstocked
• Shortages
• Excessive markdowns |
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Term
| What is shortage and how is it determined? |
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Definition
• Missing items
o Difference between book inventory and actual inventory
o Reasons
• Inaccurate recording of transfers, receivables, POS, counting
• Damage
• Theft |
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Term
| What is turnover and what can it tell us? |
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Definition
• A measure of how rapidly goods are being sold.
• Tells us how many times during a given period, normally a year, the average retail stock is converted into sales.
• Also a measure of efficiency |
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Term
| What are the ramifications of too high of a turnover? |
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Definition
• Caused by poor ordering habits
o Results in:
• Increased transportation and clerical costs
• Stock outs
• Can lose out on quantity discounts for placing large orders |
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Term
| What is a stock/sales ratio and what is it telling us? |
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Definition
• Stock/Sales ratio = how much stock is needed for sales during a specific period that is usually one month
o BOM ratio shows how much stock is needed during the month
o EOM is used to determined performance during the month or to find a stock figure for the following month |
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Term
| What is merchandising planning and who’s responsible? |
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Definition
• Responsibility of buyer
• Merchandising planning is:
o Balance sales with inventory
o Anticipated sales with inventory on hand and planned purchases |
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Term
| What are the three basic approaches to merchandise planning? |
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Definition
• Top down: management establishes an overall sales goal that is segmented into department goals
• Bottom up: each department establishes a goal and then these departmental plans are merged to establish an overall sales plan
• Combination of both |
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Term
| What are internal factors that effect sales? |
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Definition
• Operational policies
• Procedures controlled by management
o Store expansion
o Promotion
o Change in customer services |
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Term
| What are external factors that effect sales? |
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Definition
• Important events that influences people and alters purchase behavior
• Financially
• Physically
• Psychologically
o Economy
o Weather
o Consumers tastes |
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Term
| What is happening when sales are up and transactions are up? |
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Definition
| • More people are purchasing more goods |
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Term
| What is happening when sales are up and transactions are down? |
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Definition
• Inflation
• Higher dollar figure per trans |
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Term
| What is happening when sales are down and transactions are up? |
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Definition
| • More purchases with a lower dollar per trans |
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Term
| What is happening when sales are down and transactions are down? |
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Definition
| • Sales goals will most likely not be met |
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Term
| What are the four main considerations when planning stock levels? |
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Definition
• How much inventory do you need at the beginning of the period?
• How much will you need to purchase during the period?
• How much will you need on hand at the end of the period? |
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Term
| What are the four methods of planning stock and when is each one appropriate? |
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Definition
• Basic Stock/Average plus Variation: used by retailers with a low turnover to reflect the minimum level of stock to be maintained, regardless of sales volume. Designed to meet sales projections and avoid stock outs
• Percentage Variation: used by retailers with a higher turnover when there is less time between reorders
• Stock/Sales Ratio: most appropriate when the stock and sales are expected to vary proportionately
• Weeks Supply: used on staple merchandise with little fluctuation in sales |
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Term
| What are the three main things that need to be considered when planning your markup? |
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Definition
• Reductions, markdowns, discounts, and shortages
• Operating expenses
• Profit |
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Term
| What is meant by “planning purchases” and what are two main issues that need to be considered? |
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Definition
• The planning purchases figure represents the dollar amount of merchandise that will maintain the balance between stocks and sales
• Needs to cover planned sales and planned reductions
• Also must leave enough stock on the floor for the next selling period |
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Term
| What are the four types of buyer/vendor relationships? |
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Definition
• Solicitation
• Casual-informal/sporadic
• Mutual need
• Confrontational |
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Term
| What are the five main points that mold a buyer/vendor relationship? |
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Definition
• Return policies
• Charge backs
• Terms of payment
• Markdown allowance
• Guaranteed gross margin |
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Term
| Know the nine main causes of friction between buyers and vendors |
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Definition
• Returns and adjustment
• Cancellations
• Shipping problems
• Special orders and minimums
• Advancing seasons
• Substitutions
• Failure to follow instructions |
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