Buying Exam #3/Final

Planning Initial Markup Percentage

As a buyer, how can you plan the most appropriate markup? you must make estimates about the elements of retail price as well as any planned reductions in price. They include sales, expenses, profit, reductions, and cash discounts. Use the following formula: IMU% = Expenses + Profit + Reductions - Cash Discounts) / (Sales + Reductions)

markdown percentage

a control tool used by buyers that is calculated by dividing total dollar markdowns by total sales

Who is the top global retailer?

Walmart

Off-price retail

markdown / original retail price

Drawbacks to purchasing from foreign sources

-Early Purchase Commitment requirement -delivery problems -size discrepancies -funds tied up

What could weaken retailer-vendor partnerships

-being late to appointments -not giving your full attention during presentations -not promptly confirming or cancelling tentative orders you have placed -not keeping the promises you make -making snap judgements

body language involved in negotiations

-experienced negotiators also look for certain body signals and gestures. For example, vendors leaning back in their chairs and folding their arms may mean they object to something you have said.

notify your buying office of your upcoming visit

-inform people there about your specific merchandising needs and vendors you would like to visit -without a buying office, you will need to schedule visits with the vendors yourself -examine market reports, trade journals, and other publications to identify new manufacturers or designers that you may want to visit - when you call for appts, ask about the length of time the sales rep feels is adequate to review the merchandise line.

Prepare a merchandise plan

-prepare facts about your inventory, sales, and customer preferences. This will help you make decisions based on facts and not feelings -vendors can provide you with more concrete assistance when they are provided with such information -have a vendor analysis created for any firm you plan to visit if you previously carried their products -large stores may have a fashion coordinator to advise you on any trends in styles, colors, or silhouettes; otherwise, you will need to research these trends yourself

Reasons for Making a market visit

-to obtain merchandise for the upcoming season -to gain knowledge about trends and new merchandise -to evaluate new resources and merchandise offerings from vendors -to seek out special values for an upcoming promotion; special deals that could be featured in new promotional events or sales -to replenish stock in order to fill in sections of stock that have been selling well -to attend previews of mew vendor lines. fashion designers and manufacturers of such products as automobiles, electronics, and computers typically have special showers for buyers to preview changes in styles and models.

what usually gets recorded in a vendor diary

-total purchases for the year or season, at cost and original retail -returns to the vendor, if any -initial markup percentage -advertising allowances granted, if any -markdowns taken, by dollar value and as a percentage of sales -cash discounts as a percentage -transportation expense as a percentage of purchases

5 steps to making a market trip

1) prepare a merchandise buying plan 2)make certain you have obtained all approvals needed for your buying plan 3)notify your buying office of your upcoming visit 4) determine the number of days needed for your trip 5) establish a work schedule for your staff members while you are away

"Buy American" Campaign

As a reaction to the domestic job losses caused by the increasing number of imports, many businesses and organizations in the U.S. have undertaken "Buy American" promotional campaigns. The most ambitious advertising campaigns come from the apparel and automobile industries, market segments that have been most hurt by imports. -apparel industry originated it

What new countries have entered the world's market place for apparel?

Bangladesh Philippines Sri Lanka Vietnam Turkey

How to calculate MD %

Dollar Markdown / Total Sales

Product categories that the US primarily purchases from foreign sources

Electronics

What is the universal language of trade?

English

Where is the oldest furniture market for the U.S. Located?

High Point, NC

Where is the major apparel market for the US located?

New York City

NAFTA

North American Free Trade Agreement - a trade agreement that the United States signed with Mexico and Canada. It had gradually eliminated trade barriers between the countries. All tariffs between these three countries are scheduled to be eliminated

Highest factory wages

Norway, Switzerland, Belgium

Lowest Factory Wages

Pola, Mexico, Phillipines

Limited Authority

Requires the buyer to say that he or she is authorized to pay up to a certain dollar amount for a particular item, and higher prices would require the approval of the merchandising manager or controller

How to calculate retail price

Retail price = cost + markup

reasons why retailers have turned into private brands?

Retailers wanted to distinguish themselves. Allowed them to avoid direct competition. Offer unique merchandise to their customers

Quantity Discounts

Save money in handling and processing orders in large quantities; manufacturers can benefit from lower production costs.

Leading exporter of apparel and textile products to the US

The far east-southeast asia region

Facts and Data

The individual with the most data can build the best case for his or her position.

What do free trade agreements do for the US?

US consumers have benefitted from less expensive retail prices, but many jobs have been lost in the US

What if?

Uses the questions such as the following: "What if..." ...I increase the purchase quantity? if we combine similar items? I pay the invoice in 10 days instead of 30? we offer to extend the warranty period an additional 6 months? we offer an option to buy an additional unit at 20% discount?

Exclusive Distribution

Vendors sell the product to only one retailer in a trading area. Vendors benefit from an exclusive image that is created for the product. The vendor usually retains some control over how the product is merchandised and promoted in the store

Rack jobbers

a special type of vendor who service client stores themselves; they are chiefly found in the food industry but some department stores use them in areas where special merchandising techniques are needed; retail stores assign them rack or shelf space that they are responsible for keeping stocked with quick turning merchandise.

Manufacturer's representatives/ brokers

acts as an agent for the manufacturer; the manufacturer pays a fee to the representative or broker for bringing the producer and buyer together

anticipation

an extra discount that some manufacturers give buyers for paying an invoice in advance of the cash discount date. anticipation is usually taken only if your store has ready cash available.

Wholesalers

an organization that purchases merchandise from a manufacturer in large quantities and resells the goods in smaller amounts to retailers; also known as merchant middlemen because they take possession of the goods they purchase from manufacturers.

determine the number of days needed for your trip

arrange your hotel and travel reservations . these arrangements may be made for you if your store is a client of a buying office.

preparing to negotiate

before entering into any negotiations, you need to understand the market, and the larger your impending purchase, the greater the need for research. You need to understand: 1) the customer's needs 2) competitive and economic conditions 3) technical aspects of the products you are planning to purchase you will want to frequently visit various types of vendors to make comparisons. you will also want to keep abreast of current trends ( read newspapers, magazines, and trade journals.) Understanding manufacturing costs will enhance your ability to negotiate price concessions.

Make certain you have obtained all approvals needed for your buying plan

both the merchandise manager and the finance officer will be required to approve of plans before buyers go on market visits

Vendor Diary

brief summaries of your detailing with each vendor with whom you do business.

most effective way that small vendors can compete with larger vendors

by being more flexible and customizing their approach to stores (do things for the retailer that larger vendors, due to their size, are not going to be able to do)

But you can do a little better

challenges the vendor to do a little better to finalize the deal

Variable expenses

change in a direct relationship to sales (commissions, delivery expenses, supplies, advertising, etc)

how to calculate cost

cost = retail price - markup

fixed expenses

do not vary regardless of how much merchandise the store sells (mortgage, insurance payments, etc)

Cash Discounts

granted to retailers for early payment of invoices. manufacturers want payments as quickly as possible; can turn a breakeven year into a profitable one, so a store cannot afford to ignore them.

FOB destination (store)

indicated that the manufacturers pay the shipping charges , and the title passes to the buyer when the merchandise is delivered to the retail store; for a buyer, FOB destination terms are ideal

FOB Destination, charges reversed

indicates that the buyer pays the shipping charges but the seller assumes responsibility for the goods while they are in transit

FOB shipping point

indicates that the manufacturer has the title to the goods and will pay shipping costs until the merchandise reaches a distribution point. from that point, the buyer takes title to the goods and pays the transportation charges until they reach the store.

on memorandum

indicates that the merchandise coming into the store has a return privilege with it. the store pays for the merchandise but has the opportunity to return any unsold items at the end of a specified period.

FOB destination, freight prepaid

indicates that the seller will pay the freight charges but the buyer takes the title of the goods as soon as they are shipped.

on consignment

indicates the buyer will take merchandise into the store but will pay for it only when it sells. the buyer can then return any unsold merchandise. allows the store to increase inventory without increasing capital investment, but slow-selling merchandise may occupy valuable selling space.

Take it or Leave it

is used when there is deadlock or no time for further negotiation. There is a risk that no agreement will be reached and the other side may leave it. This tactic produces resentment if not handled carefully

negotiation

it is a process that involves gathering and using information to your advantage. negotiation in business involves give-and-take between two people. it is the process of reaching a mutually satisfying agreement (everyone wins). it is also based on the premise that people are willing to give something up in order to get something else.

benefits to vendor owned stores

manufacturers that open vendor-owned stores feel they can do a better job of selling their products than traditional retailers. vendor-owned stores offer 3 key benefits 1) ability to display the entire line 2)ability to create an environment for the line according to the designer's concept 3) ability to obtain feedback from customers on the entire line, not just pieces of the line.

Manufacturers

may require a minimum order so large that your store is unable to make the purchase directly; buyers of fashion goods tend to make purchases directly because of the rapidity of the change in most fashion goods; can make minor changes in products if the order is large enough

FOB Origin (factory)

most commonly used terms under which merchandise is shipped. title passes to the buyer when the seller delivers goods to the transportation carrier. Transportation changes as well as the other expenses and risks are the responsibility of the buyer.

trade discounts

offered based on the manufacturer's list price; manufacturers may quote trade discounts as a serious of discounts

Seasonal discounts

offered for making purchases in advance of a selling season; manufacturers can plan their production schedules more efficiently and keep skilled employees working throughout the year

Robinson-Patman Act

outlawed price discrimination in interstate commerce. all price reductions must be offered on a "proportionally equal" basis to all buyers. the manufacturer must be able to justify any price reductions given to a buyer that result from differences int he seller's manufacturing costs, selling costs, or delivery costs.

But I cant make up my mind

places the burden of convincing the the buyer on the vendor. often the vendor will assume the buyers role, summarize the issues, and point out the relative strengths and weaknesses. the vendor may be put into the position of assisting the buyer to make up his or her mind by improving the offer.

establish a work schedule for your staff members while you are away

prepare an itinerary of your market visits so you can be reached by your staff or management -while in market, keep them informed of any changes in your plans. establish a regular call-in-time so that nay messages can be easily relayed to you.

Proper percentage for pricing private brands, when it comes to national brands?

private brand should be prices no less than 20% under the national brand. Less than that and the consumer will gravitate to the national brand. But, if there is over a 30% difference, the consumer will be reluctant to purchase the private brand = somewhere in this range

Markdown

reduction in the retail price of merchandise already in stock

Let's Split the difference

requires that both the buyer and the vendor relinquish an equal amount of a disputed difference. Usually the tactic is used when the difference is small and the end of the negotiation is near.

keystoning

simply double cost to determine the retail price. The resulting markup will always be 50% based on retail.

what the buyer should do to determine the vendor's position during a negotiation

talk with buyers from non competing stores to learn about vendors and obtain as much information as possible from those buyers who have negotiated with the vendor in the past know information about the vendors firm

Off-retail percentage

the % used for advertising purposes that is calculated by dividing the amount of markdown by the original retail price

Markup

the amount of money added to the cost of goods to calculate retail price. Markup = retail price - cost

Time pressure

used by both vendors and buyers; designed to make the other person give up something. the vendor my attempt to force you into an immediate decision with any of the following statements. -prices will increase -the offer is only good for a few days -there is only a limited inventory available a buyer may use time pressure tactics too. for example: Im returning home tomorrow and I will need your final offer by the end of the day

Why vendor diaries are they used/important

used to evaluate the vendors that you use; provides you with a good indication of how much a vendor has contributed to your store or departments sales volumes and profit; each vendor can be measured against its own performance from previous years/seasons or against the performance of other vendors, can be measured against their percentage do the store or department's total orders

selective distribution

vendors sell the product to one or more selected retailers in the same trading area. the number of stores is usually determined by the potential sales volume in the area.