RETAIL MANAGEMENT

SALES FORECAST
 FORECAST
• TO BUY MERCHANDISE ONE MUST
KNOW WHAT THE FORECAST IS
• IT CAN BE FORECAST OF A STOCK IN
THE SHARE MARKET, IT CAN BE
MUTUAL FUNDS, IT CAN BE A
CATEGORY OF MERCHANDISE
 SALES FORECAST
• TO FORECAST ABOUT THE
PERFORMANCE OF A PRODUCT WE
MUST FIRST KNOW ABOUT THE
PRODUCT
• ITS LIFE CYCLE
• THEN DEVELOP A FORECAST
 CATEGORY LIFE CYCLE
• SALES PATTERN

MATURITY
DECLINE

GROWTH

INTRODUCTION
 CATEGORY LIFE CYCLE
• WHAT IS THE MERCHANDISE WE ARE
DEALING IN?
• APPAREL, ELECTRONICS, FOOD….
• FASHION, FAD, STAPLE, SEASONAL
• WHICH STAGE OF THE LIFE CYCLE, A
CATEGORY OR AM ITEM IN A CATEGORY IS
IN?
• FOR EXAMPLE – PERSONAL PAGERS WERE
A SHORT LIVED FAD; COMPARE A SLEEK
MOBILE WHICH IS A FASHION
 CATEGORY LIFE CYCLE
• AN EXAMPLE FROM THE COMPUTER
WORLD –
DESK TOP PC
LAP TOP
PALM PILOT

IBM 1401

ENIAC
 AN EXAMPLE FROM THE
COMPUTER WORLD –
• AS A RETAILER THE CATEGORY –
PALM PILOTS HAVE TAKEN OVER LAP
TOPS. THIS CATEGORY WILL EXIST IN
THE MARKET FOR ANOTHER 4 OR 5
YEARS
• SO AMONG COMPUTERS YOU WILL
BUDGET MORE FOR PALM PILOTS
FOLLWED BY LAP TOPS AND PCs.
 THE TV WORLD
• B&W TV – CTV –LCD --- PLASMA
• AN ELECTRONIC RETAILER WILL
STOCK MORE LCD TVs THAN PLASMA
& CTV.
• LCD TV IS LESS ENERGY CONSUMING,
LESS EXPENSIVE, LASTS LONGER
 DISTRIBUTION
• MORE RETAILERS OFFER LCD TVs THAN
PLASMA TVs
• NO RETAILER OFFERS B&W TV
• PLASMA TV BEING HIGH END & IN THE
INTRODUCTORY PHASE IS PRICED HIGH.
FEW RETAILER OFFER. SHORT SUPPLY.
HENCE SKIMMING
• LCD TV IS A MID RANGE PRODUCT WITH
PRICES FALLING EVERY DAY. GAINING
PENETRATION IN THE MARKET. HENCE
LOWER PRICES
 OTHER CATEGORY LIFE CYCLE
FAD FASHION STAPLE SEASONAL
EX: HARRY EX: REEBOK EX: DOUBLE EX: WOOLEN
POTTER PINK GIRLS PLEATED SHAWLS
WALKING PANTS
SHOES

SALES OVER NO YES YES YES

MANY SEASONS

SPECIFIC STYLE NO NO YES YES

SALES OVER
MANY SEASONS

DRAMATIC NO YES NO YES

GROWTH OF
SALES FROM
SEASON TO
SEASON

LIFE CYCLE
 DEVELOPING FORECAST
• PAST HISTORY OF A CATEGORY –
AVAILABLE FROM BRAND
MANUFACTURERS, INDEPENDENT
RETAIL PUBLICATIONS, CUSTOMER
INFORMATION AT P-O-S,
COMPETITION, VENDORS
 Customer Data
1. Purchase history
2. Product preference
3. Demographic profile
4. Frequency of
purchase
5. POS Data

Category
Management

Product Data
1. Assortment ,
Location Data 2. Forecast
1. Demographic data of 3. Sales history by
week
immediate market 4. Size Profile
2. Buy frequency of 5. Fabrics
customers by location 6. Price & Markdowns
3. Competition 7. POS Data
 ASSORTMENT PLANNING
• VARIETY IS THE DIFFERENT
CATEGORIES IN A STORE – LARGE
VARIETY GREATER BREADTH
• ASSORTMENT IS THE NUMBER OF
SKUs IN A CATEGORY – IF A STORE
CARRIES LARGE ASSORTMENTS, IT
HAS MORE DEPTH
 VARIETY & ASSORTMENT
• PROFITABILITY OF MERCHANDISE MIX
DUE TO FUNDS, VENDOR DISCOUNTS
• CORPORATE PHILOSOPHY
MORE BREADTH VS MORE DEPTH
• CHARACTERISTICS OF STORE
ABILITY TO GENERATE BUSINESS
• COMPLEMENTARY MERCHANDISE
SHIRTS & TIES, SUIT & SHIRT
 ASSORTMENT STRATEGY
• IT IS BASED ON THE TARGET
CUSTOMERS NEEDS, DESIRES &
OTHER SUCH FACTORS WHICH
INFLUENCE THEIR BUYING DECISIONS
TO SELECT THE ASSORTMENTS
• THE STRATEGY NEEDS TO BE
REVISED & REVIEWD ANNUALLY
ASSORTMENT FRAMEWORK
• IT IS THE GUIDE FOR SELECTION OF
THE ASSORTMENTS
• THE FRAMEWORK HELPS TO MAP
VISUALISE THE ASSORTMENT
CLUSTERS IN A STORE, ALLOCATE
SPACE TO EACH CLUSTER ON THE
BASIS OF ITS BREADTH
 ASSORTMENT SELECTION
• IT IS THE ACTUAL PROCESS OF
SELECTION OF THE PRODUCT BY
COLOR/SIZE TO FILL AN ASSORTMENT
BASED ON THE DATA COLECTED ON
CUSTOMERS PREFERENCES
ASSORTMENT QUANTIFICATION
• TO QUANTIFY THE PRODUCT BY SIZE
& COLOR FOR THE STORE. IF MORE
THAN ONE STORE, DISTRIBUTION
BASED ON PAST HISTORY OF SALE IN
EACH STORE.
 SOME METHODS TO
ASSORTMENT BUYS
• FOCUS ON THE ADDRESSING
CUSTOMER NEEDS BY

DESTINATION CATEGORIES
ROUTINE CATEGORIES
SEASONAL CATEGORIES
CONVENIENCE CATEGORIES
ASSORTMENT CLASSFICATIONS
• SOME OF THE ASSORTMENTS CAN BE
USED AS
TRAFFIC BUILDERS
TRANSACTION BUILDERS
CASH GENERATORS
IMAGE CREATORS
EXCITEMENT CREATORS
 PRODUCT AVAILABILITY
DEMAND FOR A PRODUCT AS
PERCENTAGE OF DEMAND FOR SKU

BACKUP OR SAFETY STOCK

CYCLE STOCK
 PRODUCT AVAILABILITY
Graph I

INITIAL ORDER 100 Cycle & Backup Stock

120

SKU 100
Order
qty

BACKUP 25% 80
Cycle
stock
60

CYCLE 75% 40 Back

up
stock
REPLENISHMENT 20

TIME 2 WEEKS 1 2 3 4 5
Weeks
6 7 8

SHORT LEAD TIME

LOW BACKUP
 PRODUCT AVAILABILITY
• DEMAND & LEAD TIMES ARE G raph II
ERRATIC Cycle & Back up Stock

• LARGER BACKUP & 120 Order

LOW CYCLE STOCK 100 qty

IN INTIAL ORDER 80
C ycle
60 sto ck
• REPETE ORDERS WILL 40
CARRY PROPORTIONATELY 20
B ackup
sto ck
SMALLER CYCLE STOCKS 0
1 2 3 4 5 6 7 8
• IF THE SALES CLOSE We e k s
BEFORE 7 WEEKS, THERE
WILL BE EXCESS BACKUP
STOCK LEFT OVER AT END
OF SEASON
 PRODUCT AVAILABILITY
G raph III
BUT IF THE SALES C ycle & Back u p Sto ck

ARE BETTER THAN 120

ESTIMATED, 100
Order qty

80
BACKUP STOCK IS 60 C ycle stock

USED 40

20
B ackup stock
0
1 2 3 4 5 6 7 8 9

We e k s
 INVENTORY TURNOVER
2

SALES-TO-STOCK RATIO
4.44

10.9
96000

57600

NET SALES
ASSORTMENT BUY

AVERAGE INVENTORY COST

21600

5280

GMROI
2.44

4.91

MONTHS COVER
2

6
GROSS MARGIN %
55%

45%
GROSS MARGIN

7.2
11

COST OF GOODS

8.8
SALE PRICE RS 9
20

16
INVENTORY

4800

3600
SIZE

38

38
STYLE L /S BUTTON DOWN L /S NO BUTTON DOWN
FABRIC

COTTON

COTTON
STYLE NO

2
 PRODUCT AVAILABILITY
• IN CASE OF STAPLE ITEMS
QUANTITITES ARE DISTRIBUTED
AMONG SIZES ON PAST DATA
• FOR FASHION ITEMS, QUANTITIES
ARE EVENLY DISTRIBUTED AMONG
ALL SIZES
 MAKING A SEASON BUDGET
PLAN
• PLAN TO DISTIRUBUTE SALES FOR
THE SEASON
BUDGETIG JAN FEB MAR APR MAY JUN SPRING

MONTHLY 21% 12% 12% 19% 21% 15% 100%

SALES %
DISTRIBUTION
TO SEASON
 MAKING A SEASON BUDGET
PLAN
• DISTRIBUTE MONTHLY SALE
FORECAST IN RUPEES
Budgeting JAN FEB MAR APR MAY JUN SPRING

Monthly sales 21% 12% 12% 19% 21% 15% 100%

%
distribution to
season
Monthly sales 21168 12,096 12,096 19,152 21,168 15,120 100,800
 MAKING A SEASON BUDGET
PLAN
DISTRIBUTE REDUCTION AS %AGE
MARKDOWNS, DISCOUNTS & SHRINKAGES
Budgeting JAN FEB MAR APR MAY JUN SPRING
Monthly sales 21% 12% 12% 19% 21% 15% 100%
% distribution
to season

Monthly sales 21168 12,096 12,096 19,152 21,168 15,120 100,800

Monthly 40% 14% 16% 12% 10% 8% 100%

reductions
%distribution
to season
 MAKING A SEASON BUDGET PLAN
CALCULATE REDUCTIONS FOR SEASON ON PAST DATA IN
RUPEES
Budgeting JAN FEB MAR APR MAY JUN SPRING
Monthly sales 21% 12% 12% 19% 21% 15% 100%
% distribution
to season

Monthly sales 21168 12,096 12,096 19,152 21,168 15,120 100,800

Monthly 40% 14% 16% 12% 10% 8% 100%

reductions
%distribution
to season

Monthly 6048 2117 2419 1814 1512 1210 15120

reductions
 MAKING A SEASON BUDGET PLAN
• INVENTORY NEEDED AS RATIO OF SALE AT MONTH
BEGINNING TO SUPPORT SALE FORECAST. (BOM RATIO)

Budgeting JAN FEB MAR APR MAY JUN SPRING

Monthly sales 21% 12% 12% 19% 21% 15% 100%

% distribution
to season

Monthly sales 21168 12,096 12,096 19,152 21,168 15,120 100,800

Monthly 40% 14% 16% 12% 10% 8% 100%

reductions
%distribution to
season

Monthly 6048 2117 2419 1814 1512 1210 15120

reductions
BOM Stock to 1.8 2.2 2.2 2 1.8 2 2
sales ratio
 MAKING A SEASON BUDGET PLAN
• BOM STOCK IN RUPEES
Budgeting JAN FEB MAR APR MAY JUN SPRING

Monthly sales 21% 12% 12% 19% 21% 15% 100%

% distribution
to season

Monthly sales 21168 12,096 12,096 19,152 21,168 15,120 100,800

Monthly 40% 14% 16% 12% 10% 8% 100%

reductions
%distribution
to season
Monthly 6048 2117 2419 1814 1512 1210 15120
reductions
BOM Stock to 1.8 2.2 2.2 2 1.8 2 2
sales ratio

BOM Stock 38102 26611 26611 38304 38102 30240 38102

 MAKING A SEASON BUDGET PLAN
• END-OF-MONTH STOCK OF CURRENT MONTH IS BEGINNING-OF-
MONTH STOCK FOR NEXT MONTH (BOM+CURRNET MONTH ADDITION-
MONTH’S SALES-MONTH’S REDUCTION)
Budgeting JAN FEB MAR APR MAY JUN SPRING
Monthly sales % 21% 12% 12% 19% 21% 15% 100%
distribution to
season
Monthly sales 21168 12,096 12,096 19,152 21,168 15,120 100,800
Monthly 40% 14% 16% 12% 10% 8% 100%
reductions
%distribution to
season
Monthly 6048 2117 2419 1814 1512 1210 15120
reductions
BOM Stock to 1.8 2.2 2.2 2 1.8 2 2
sales ratio
BOM Stock 38102 26611 26611 38304 38102 30240 38102
EOM Stock 26611 26611 38304 38102 30240 25500 65600
 MAKING A SEASON BUDGET PLAN
MONTHLY ADDITION = (MONTHLY SALES+REDUCTIONS+EOM)-BOM
Budgeting JAN FEB MAR APR MAY JUN SPRING
Monthly sales % 21% 12% 12% 19% 21% 15% 100%
distribution to
season
Monthly sales 21168 12,096 12,096 19,152 21,168 15,120 100,800
Monthly 40% 14% 16% 12% 10% 8% 100%
reductions
%distribution to
season
Monthly 6048 2117 2419 1814 1512 1210 15120
reductions
BOM Stock to 1.8 2.2 2.2 2 1.8 2 2
sales ratio
BOM Stock 38102 26611 26611 38304 38102 30240 38102
EOM Stock 26611 26611 38304 38102 30240 25500 65600
Monthly 15725 14213 26208 20765 14818 11590 113820
additions to
stock
 OPEN TO BUY
ONCE THE MERCHANDISE BUDGET
PLAN IS COMPLETED, IT IS
IMPLEMENTED AND MONITORED. THIS
PROCESS IS TERMED AS OPEN-TO-
BUY
 INVENTORY MANAGEMENT
REPORT
• ACTUAL VS PLANNED INVENTORY
SKU DESCRIPTION QTY ON SALES TURN- PRODUCT ORDER
No. HAND PAST 12 OVER AVAILABILI POINT
(ON WKS ACTUAL TY (BACKUP (ORDER
ORDER) LAST 4 (PLAN) STOCK) QTY.)
WKS)

#1125 BLUE DENIM 8 (100) 225 (84) 8 (10) 90 (25) 167 = [(7 ) X
JEANS (14+7)]+
{20 )

FORECAST = OLD FORECAST+ ά X (ACTUAL DEMAND-OLD FORECAST) WHERE ά

IS A CONSTANT BETWEEN 0 & 1 WHICH DETERMINES THE INFLUENCE OF
ACTUAL DEMAND ON THE NEW FORECAST

ORDER POINT = {(DEMAND (UNITS /DAY) X LEADTIME+ REVIEW TIME)] +

(BACKUP STOCK)