How Do You Know What To Buy?

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

2. 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…

3. So, how do you know what to buy?

4. Science or Art? Research or “Gut Feeling/instinct” • Two ways to buy:

5. Selling Projections & the Power of Information • Two kinds of retailers today • The quick • And the dead • And a third? The quickly dead?

6. 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?

7. 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

8. 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?

9. 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

10. 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

11. 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

12. 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

13. 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….

14. 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

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

16. 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

17. 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…

18. “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

19. 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

20. Rules of Buying • Know thy customer • 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.

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

22. 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