Retl 366 Test 3
What is keystoning?
used to establish price. double cost to determine the retail price. the resulting markup will always be 50% based on retail. can result in higher prices than the competition generating less sales
exclusive distribution
vendor sells the product to only ONE retailer in the trading area
markdowns
reductions in original retail price markdown %= markdown in $ / total sales
calculate cost of item
retail price - markup
What could weaken retailer/vendor partnerships?
By not doing the following - being prompt and keeping appointments - visiting with manufacturer reps - giving full attention to presentations - promptly confirming or canceling tentative orders - keeping promises - provide feedback to vendor on how merchandise has done -not making snap judgements to change vendors
What is negotiation?
- A process that involves gathering and using information to your advantage - You should develop a negotiation plan in addition to your merchandise buying plan.
When can price reductions be granted?
- All price reductions must be offered on a "proportionately equal" basis to all buyers.
Receipt of Goods (ROG) Dating Terms
- Allows the buyer to calculate the discount period from the day the merchandise was RECEIVED in the store rather than from the invoice date. written as 2/10 net 30 ROG
Anticipation
- An extra discount that some manufacturers give buyers for paying an invoice in advance of the cash discount date - Usually taken if store has cash readily available
Trade Discounts
- Based on manufacturers list price - Manufacturers may quote trade discounts as a series of discounts. - Each discount is computed on the amount that remains after the preceding discount has been taken -- Ex: An $1,000 item is offered with 40% and 10% discounts The 40% discount ($400) is subtracted from the list price: $1,000 - $400 = $600 The 10% discount on the $600 ($60) is subtracted from the discounted price to arrive at the final cost to the buyer: $600 - $60 = $540
Vendor Diary
- Brief Summaries of your dealing with each vendor with whom you do business - Help to keep track of different vendors whom comparing to find the best one.
"Time pressure" Negotiation Tactic
- Designed to make the other person give up something - Vendor may attempt to force you into an immediate decision by saying things like "the price will increase next month" - Buyer can use time pressure tactics to by saying "I am returning home tomorrow and will need your final offer by the end of the day"
Fixed Expenses
- Do not vary regardless of how much merchandise the store sells. - Ex: mortgage and insurance payments
Drawbacks to purchasing from foreign sources
- Early purchase commitment required - Delivery problems - Size discrepancies - Added expense and time involved - Funds tied up
What do free trade agreements do for the U.S?
- Eliminate all tariffs between the countries on trade
Extra Dating terms
- Give the buyer a specified number of additional days in which to pay the invoice and earn the cash discount - For terms are expressed as "2/10 net 30 60X." ", the buyer would have 10 days from the invoice plus an additional 60 days to take advantage of a 2% discount
Advance Dating Terms
- Indicate that the invoice is dated for some specified time in the future - For terms expressed as "2/10 net 30 as of May 1 ", the buyer would have 10 days from the date given (May 1) to take advantage of a 2% discount
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 the period
On Consignment
- Indicates the buyer will take merchandise into the store but will pay for it only when it sells. - The buyer can return any unsold merchandise. - Allows the store to increase inventory without increasing capital investment; but slow selling merchandise may occupy valuable selling space
Seasonal Discounts
- Manufacturers are able to plan their production schedules more efficiently and keep skilled employees working throughout the year - Seasonal discounts are attractive, but be certain that only the newest styles or models are shipped - Entice buyers to make purchase in advance of selling season
"Facts and data" Negotiation Tactic
- May determine the outcome of a negotiation - The individual with the most data can build the best case for his/her decision
body language involved in negotiation
- Negotiators look for certain body signals and gestures - Vendors leaning back in their chair with their arms crossed may mean they object to something you said - Remain still during negotiations, sit with your shoulders squared and look the vendor in the eye
What is NAFTA?
- North American Free Trade Agreement - Affects trade with foreign markets - Eliminated trade barriers between U.S., Mexico, and Canada
End of Month Dating Terms
- Offered for early payments based on the invoice - For terms are expressed as "2/10 net 30 EOM", a 2% discount will be granted if the buyer pays the invoice within 10 days of the end of the month in which the invoice was written
Problems of Vendor Owned Stores
- Products sold in vendor-owned stores are being dropped by some traditional retailers - Relying on a single manufacturer may create a poor product mix -Buyers may become lazy in their search for new ideas and styles because their choices are limited
Types of discounts
- Quantity Discounts - Seasonal Discounts - Cash Discounts - Trade Discounts
"Limited Authority" negotiation tactic
- Requires buyer to say that he or she is authorized to pay up to $20 for a particular item and higher prices would require the approval of merchandising manager or controller
"Lets split the difference" Negotiation Tactic
- Requires that both the buyer and vendor replenish an equal amount of a disputed difference
What should the buyer do to determine the vendors position during a negotiation?
- Research the vendors decision through the buying office - Talk with buyers from non competing stores - Know information about vendor's firm
How long are market visits usually planned for?
- Season of the year - Market week in Spring/ Summer of Fall/ Winter - Planned around seasons, about a week or less - There are more shows for some product lines and fewer for others. - large firms will require more market visits. - Stores that want to maintain a fashion leadership position will make more frequent market trips.
What is the most effective way that small vendors can compete with large retailers?
- Small vendors need to increase their efforts by learning how to offset technological advances of size by being more flexible and by customizing their approach to stores. - Find a way to do things for the retailer that the large vendors can't do because of their size
Five Steps of Planning the Market Trip
- Step 1: Bring your merchandise buying plan and any vendor analysis form - Step 2: Make certain you have obtained all approvals that you need for your buying plan. - Step 3: Schedule visits with vendors. If you have one, notify your buying office of your upcoming visit. Examine market reports, trade journals and other publication to identify new vendor. - Step 4: Arrange hotel and travel reservations. - Step 5: Establish a work schedule for you staff while away.
Ordinary Dating Terms
- The most common type of cash discounts. - The amount of time to take advantage of a discount is calculated from the invoice date
"What if" Negotiation Tactic
- Uses what if questions to persuade vendor
Quantity Discounts
- Vendors o save money in handling and processing orders in large quantities - Completing the order forms for a large order takes about the same amount of time as for a small order - Entice Buyers to buy more merchandise
How to determine objectives with negotiations with vendors
- What is the minimum that I can accept? - What is the maximum I can ask for? - What is the maximum I can give up? - What is the least I can offer?
Why have many retailers turned to private brands?
- allows retailers to avoid direct competition - exclusivity - add value
rack jobbers
- special type of vendor who services client stores themselves - mostly found in food industries, but some department - - stores use them in areas where special merch techniques are needed
Reasons for making Market Visits
- to obtain merchandise for upcoming season - to gain knowledge about trends and merchandise - evaluate resources and merchandise offers from vendors - seek out special values for upcoming promotions - replenish stock - attend previews of new vendor lines
What gets recorded in a vendor diary?
- total purchases - returns - initial markup % - advertising allowances granted - markdowns - cash discounts as a % - transportation expense as a percentage of purchases - customer opinions - delivery reliability - reliability of quality - promptness of correcting complaints - services provided
Reason the U.S. purchases from foreign sources
- unavailability of merchandise - low cost - quality - uniqueness - fashion trends
"Buy America" Campaign and its product category
-A reaction to the domestic job losses caused by the increasing use of imported products and materials - Many businesses and organizations have undertaken this campaign. - The most ambitious "Buy American" campaign come from the apparel and automobile industries, market segments most hurt by imports. - Started during 1984 Olympics
What product categories does the US purchases from Foreign markets?
-Automobiles - Cameras -TV - DVD - Apparel
Variable Expenses
-Change in a direct relationship to sales. - Normally increase or decrease as sales increase or decrease. - Ex: commissions, delivery expenses, supplies, and advertising
What new countries have entered the worlds market place for apparel?
Bangladesh, Phillippines, Sri Lanka, and Turkey
What benefits do vendor owned stores have?
1.) The ability to display the entire line 2.) The ability to create an environment for the line according to the designer's concept. 3.) The ability to obtain feedback from customers on the entire line, not just pieces
Robinson Pactman Act, and when price reductions can be granted
1936: outlawed price discrimination in interstate commerce.
What is a central Market?
A city where a large number of key suppliers are located -Ex: Apparel: New York and Hong Kong
Where is the major apparel market for the U.S. located?
The Garment District in NY
"But you can do a little better" Negotiation Tactic
Challenges vendor to do a little better to finish deal
Which country has the lowest average factory wages?
China- Lowest Mexico, Taiwan, South Korea
What is the universal/international language for trade/business?
English
What area is the leading exporter/importer of textile and apparel in the U.S?
Far East Southeast Asia region
Which countries have the highest average factory wages?
Germany- Highest US, France, Japan, Canada, UK
Where is the oldest furniture market for the U.S. located?
High Point NC
Cash Discounts
Manufacturers grant cash discounts to retailers for early payment of invoices. - Expressed in form 2/10 net 30 which means that a 2% discount will be granted if the buyer pays the invoice within 10 days of the invoice date. - If the invoice is not paid within the period, the total amount is due in 30 days
What is the proper percentage for pricing private brands, when it comes to national brands?
No less than 20% under the national brand
"But I can't make up my mind" Negotiation Tactic
Places burden of convincing the buyer on the vendor
What is anticipation?
an extra discount that some manufacturers give buyers for paying an invoice in advance of the cash discount date. it is usually taken only if your store has ready cash available
"Take it or leave it" Negotiation tactics
Used when there is a deadlock or no time for further negotiation
selective distribution
Vendor sells the product to SUM retailers in the trading area
What is the top global retailer?
Walmart
wholesaler
a vendor that is an organization that purchases merchandise from a manufacturer in large quantities and resells the goods in smaller amounts to retailers (merchant middlemen)
manufacturers' representatives/brokers
acts as an agent for the manufacturer (nonmerchant middlemen) because they do not take possession of the merchandise before they sell it to retailers
markup
added to the cost of goods to determine retail price
manufacturer
buyers of fashion goods typically purchase directly from manufacturers orders usually need to be large retailers who want to establish their own private label brand order through manufacturers
retail price =
cost + markup
FOB destination charges reserved
indicates that the buyer pays shipping charges but the seller assumes responsibility for the goods while they are in transit
IMU% =
expenses + profit + reductions - cash discounts / sales + reductions to plan most appropriate markup, make estimates about the elements of retail price as well as any planned reductions in price
FOB shipping point
indicates that the manufacturer has 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 transportation charges until they reach the store
FOB destination, freight prepaid
indicates that the seller will pay the freight charges but the buyer takes title to the goods as soon as they are shipped
off-retail percentages =
markdown / original retail price used for advertising purposes
markup %=
markup in dollars / retail price
FOB origin (factory)
most common, title passes to the buyer when the seller delivers goods to the transportation carrier. transportation charges as well as other expenses and risks are the responsibility of the buyer
FOB destination (store)
the term that indicates that the manufacturer pays the shipping charges and title passes to the buyers when the merchandise is delivered to the retailers store. ideal for a buyer