How Do You Know What To Buy?

Or what not to buy?

Best Job I Ever Had….

Buying was the best job I ever had, tough job to get today for the large chains If you “go stores” and want to go

merchandising (buying), make sure a switch is possible.

If they say they start you in the stores (not unusual) but you can “move over” is this really a possibility?

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?

Science or Art? Research or “Gut Feeling/instinct”

Two ways to buy:

Selling Projections & the Power of Information

Two kinds of retailers today The quick And the dead And a third? The quickly dead?

Quant Meets Fashion The quant method, is one way to buy, increasingly the

only way, study selling, only buy what has sold Triumph of quant method in fashion and

fad zones (women’s fashion and toys is the proof)

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

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?

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 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?

I think Wal-Mart

Lead Time What’s the lead time?

Can we test and reorder, or by time know to reorder is it to late (as

in Toys) Cutting lead time is the critical issue today

European retailers are much farther ahead on this then U.S. retailers

Conservative Buying is Part of The Problem With Department Stores

More merchants today are more MD/TO sensitive than lost sales sensitive 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 Or return is a function of risk

Downside of Move to Info System/Quant Based Buying?

All department stores look alike… Breed the creativity right out of the

business, all stores look the same because the buy the same in the same way

Fashion is not dead, what is dead is a fashion vision and commitment by retailers

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)

Only big boys can do business with the big boys (or girls) Often called vendor intensification 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 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 …. Kick a business when it is up, not when it is down Play to your strengths not your weaknesses

Negotiation Understanding what the customer will pay for an item

makes price negotiation easy and non-confrontational Win- win versus win-loose

Getting to Yes In my experience not as formal as book portrays

Buying is Learning Learn from all buys, the ability to learn is the

definition of intelligence Three kinds of buys:

The good The bad And the ugly

And lemonade…

“Chargebacks” Many kinds of “allowances” often called loads

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

Wants low price and wants to be able to buy If you ask for a guaranteed margin you will see

on average lower margins Risk & return function again

Always Negotiable!? 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

Estee Lauder always under shipped us

Rules of Buying1. Know thy customer

What they buy, why they buy, how they use product, etc.

2. Understand their value equation/price elasticity3. Understand substitutions4. Know the competition5. Models or at least the history of selling of this and

similar/dissimilar items6. Know profit goals of the area and profit potential of

the item7. Understand how the merchandise will be

merchandised and sold on selling floors.

Rules of Buying (continued)8. Vendor reliability & ability to reorder

9. Potential for a commodity/multiple sales

10. Downside risk

11. Know your taste level Have/develop some fashion/shopping

sense12. Buying of other divisions/stores/region

13. Don’t fall in love with what you buy

Two of My Biggest Buying Successes Were Fleece and Wallets…

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