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How Do You Know What To Buy? Or what not to buy? How Do You Know What To Buy? Or what not to buy?

Best Job I Ever Had…. l l l Buying was the best job I Best Job I Ever Had…. l l l Buying was the best job I ever had, tough job to get today for the large chains ú If you “go stores” and want to go merchandising (buying), make sure a switch is possible. ú If they say they start you in the stores (not unusual) but you can “move over” is this really a possibility? ú Can they cite examples of it happening recently. The rush…. It’s always the merch, it’s always about the merch…

So, how do you know what to buy? l So, how do you know what to buy? l

Science or Art? Research or “Gut Feeling/instinct” l Two ways to buy: ú Science or Art? Research or “Gut Feeling/instinct” l Two ways to buy: ú

Selling Projections & the Power of Information l Two kinds of retailers today ú Selling Projections & the Power of Information l Two kinds of retailers today ú The quick ú And the dead ú And a third? The quickly dead?

Quant Meets Fashion l l The quant method, is one way to buy, increasingly Quant Meets Fashion l l The quant method, is one way to buy, increasingly the only way, study selling, only buy what has sold ú Triumph of quant method in fashion and fad zones (women’s fashion and toys is the proof) ú Apply past history of same or similar items High-Tech Inventory System But what has happened to fashion? To Toys R Us?

A Very Simplistic Example of Quant Modeling l l l l In August and A Very Simplistic Example of Quant Modeling l l l l In August and September sold 1, 134 blouses. Have on hand 1, 432 Do we need to reorder? August and September historically represent 15. 6% of total fall sales (August – January) So, can estimate total sales as 1, 134/. 156 = 7, 269 (total season sales Want 90% “sell through” 7, 269/. 90 = 8, 077 Order 8, 077 -1, 432 = 6, 645

What Could Be More Simple? l l l l What if the economy goes What Could Be More Simple? l l l l What if the economy goes south? What if we go to war with Iran? What if the weather turns unseasonably warm or cool What if Martha Stewart (or Oprah or however) decides this is not the year for sweaters? What if we have a “long” supply line and have to place orders three months out? What if we can’t get back into the item? What if we don’t even know the what ifs?

Still Problems Arise l l l Key beepers (example danger of projections) We often Still Problems Arise l l l Key beepers (example danger of projections) We often tested potential Christmas items at Mothers Day & Fathers Day Who benefits most from JIT, Wal-Mart or Toys R Us? ú I think Wal-Mart

Lead Time l l What’s the lead time? ú Can we test and reorder, Lead Time l l What’s the lead time? ú Can we test and reorder, ú or by time know to reorder is it to late (as in Toys) Cutting lead time is the critical issue today ú European retailers are much farther ahead on this then U. S. retailers

Conservative Buying is Part of The Problem With Department Stores l l l More Conservative Buying is Part of The Problem With Department Stores l l l More merchants today are more MD/TO sensitive than lost sales sensitive ú Rather not have key item than wrong item, risk adverse, very conservative way of buying Retailers today live on being safe, max the Operations side business. Minimize MD, Max TO, Min. Expenses. No guts no glory ú Or return is a function of risk

Downside of Move to Info System/Quant Based Buying? l l All department stores look Downside of Move to Info System/Quant Based Buying? l l All department stores look alike… ú Breed the creativity right out of the business, all stores look the same because the buy the same in the same way ú Fashion is not dead, what is dead is a fashion vision and commitment by retailers ú Consolidation and lack of understanding of the Qual side and local tastes by national buyers No fashion/No local tailored goods

Downside of Move to Info System Based Buying? (cont) l l Only big boys Downside of Move to Info System Based Buying? (cont) l l Only big boys can do business with the big boys (or girls) ú Often called vendor intensification ú Very, very smart or very, very dumb? ? ? Current systems today often eliminate superior merchandising (buying) as an issue/SCA Requirement to be linked electronically to retailer However, small mom and pops can do this – Quant buying and don’t….

JIT and Shuffling Inventory Costs l l l What if you look at JIT JIT and Shuffling Inventory Costs l l l What if you look at JIT as a way to shift the risk of holding inventory to the mfg? We must knock inventory out of total chain, (not just shift from retailer to mfg. ) or no gain to value system If not, hold inventory as close to point of demand as practical Store = storage Remember, one thing retailers are “paid” to do by the consumer is hold inventory

When to Kick a Little …. l l Kick a business when it is When to Kick a Little …. l l Kick a business when it is up, not when it is down Play to your strengths not your weaknesses

Negotiation l l l Understanding what the customer will pay for an item makes Negotiation l l l Understanding what the customer will pay for an item makes price negotiation easy and non-confrontational Win- win versus win-loose ú Getting to Yes In my experience not as formal as book portrays

Buying is Learning l l Learn from all buys, the ability to learn is Buying is Learning l l Learn from all buys, the ability to learn is the definition of intelligence Three kinds of buys: ú The good ú The bad ú And the ugly ú And lemonade…

“Chargebacks” l l l Many kinds of “allowances” often called loads ú Advertising, Markdowns, “Chargebacks” l l l Many kinds of “allowances” often called loads ú Advertising, Markdowns, returns, etc. Know your customers better then the vendor Should not have to ask for lots of markdown money You can make your money off the wrong things, such as squeezing suppliers. In long run you can do no better than suppliers (relationship mktg) Wal-Mart does little charging back ú Wants low price and wants to be able to buy ú If you ask for a guaranteed margin you will see on average lower margins ú Risk & return function again

Always Negotiable!? l l l We were never successful charging back Levi and Jockey Always Negotiable!? l l l We were never successful charging back Levi and Jockey the way we were with some small, weak, vendors Porter’s Fiver forces and buyer vs. vendor power Some of them were as bad as us ú Estee Lauder always under shipped us

Rules of Buying 1. 2. 3. 4. 5. 6. 7. Know thy customer ú Rules of Buying 1. 2. 3. 4. 5. 6. 7. Know thy customer ú What they buy, why they buy, how they use product, etc. Understand their value equation/price elasticity Understand substitutions Know the competition Models or at least the history of selling of this and similar/dissimilar items Know profit goals of the area and profit potential of the item Understand how the merchandise will be merchandised and sold on selling floors.

Rules of Buying (continued) 8. 9. 10. 11. 12. 13. Vendor reliability & ability Rules of Buying (continued) 8. 9. 10. 11. 12. 13. Vendor reliability & ability to reorder Potential for a commodity/multiple sales Downside risk Know your taste level ú Have/develop some fashion/shopping sense Buying of other divisions/stores/region Don’t fall in love with what you buy

Two of My Biggest Buying Successes Were Fleece and Wallets… l l l l Two of My Biggest Buying Successes Were Fleece and Wallets… l l l l Wallets we kicked a business that was up right through the roof Fleece was great example of buying rules Owned and marked This buy unfolded over 3 + years & 3 buyers Role of private label and imports here Talk to your customers and selling associates, go “branching” Observe customers Buy in strength, buy with confidence