3-29-11 - Unit V Dollar Planning and Control Objectives •...

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Unformatted text preview: Unit V Dollar Planning and Control Objectives • Understanding and recognition of the elements of a sixmonth merchandise plan • Knowledge and ability to plan sales • Calculation of changes in sales as percentages • Facility to plan stock levels, using: - Stock-sales ratio method • Calculation of GMROI - Week’s supply method • Proficiency to plan - Basic stock method markdowns • Skill to plan purchases at retail and at cost • Calculation of open-tobuy figures Key Terms • • • • Average retail stock Basic stock method BOM stock Dollar merchandise plan • EOM stock • GMROI • On order • Open-to-buy (OTB) • Planned purchases/receipts • Six-month seasonal dollar merchandise plan • Stock-sales ratio • Turnover • Weeks supply method Part I Six-Month Seasonal Dollar Merchandise Plan 1. Six-Month Seasonal Dollar Merchandise Plan The objectives of a dollar plan are: 1. To procure a net profit by providing an instrument that plans, forecasts, and controls the purchase and sales of merchandise 2. To research previous results to repeat and improve prior success and to avoid failures 3. To integrate the various merchandising activities involved in determining the purchases necessary to achieve the estimated planned sales 1. Six-Month Seasonal Dollar Merchandise Plan A. THE PROCEDURE OF DOLLAR PLANNING BY ELEMENT 1. Planning Sales • The planning of this figure is most significant because it is the basis for establishing the stock, markdown, and purchase figures—thus it should be calculated first 1. Six-Month Seasonal Dollar Merchandise Plan STEP 1: Carefully forecast future dollar sales volume for the entire period by: (a) Reviewing and analyzing past sales performance for the same period. (b) Considering factors that may cause a change in sales – – – – – – Current sales trend Previous rate of growth patterns Economic conditions Local business conditions Fashion factors Influencing conditions within and from outside the store or department, (e.g., changes in store concepts, market direction, competition, etc.) ©2009 Fairchild Books, A Division of Condé Nast Publications. 7 1. Six-Month Seasonal Dollar Merchandise Plan (c) Establishing, for the season, a percentage of estimated sales change after analyzing the sales performance and current conditions that cause sales changes and then calculating the total dollar sales volume for the period 1. Six-Month Seasonal Dollar Merchandise Plan Concept: Percentage sales increase = TY planned sales - LY actual sales = Sales increase = Sales increase - LY actual sales = % Sales increase • See page 206 1. Six-Month Seasonal Dollar Merchandise Plan B. CALCULATING A TOTAL PLANNED SEASONAL SALES FIGURE WHEN LAST YEAR’S SALES AND THE PLANNED PERCENTAGE OF INCREASE ARE KNOWN CONCEPT: Seasonal planned sales = LY sales X Planned increase % = Dollar increase = LY sales + Dollar Increase 1. Six-Month Seasonal Dollar Merchandise Plan STEP 2: • To set the individual monthly sales goals, use the seasonal distribution of the previous year’s sales for the same period as a guideline • When adjusting the planned monthly sales increase or decrease, the three essential processes that influence a buyer’s judgment are: – the department’s past experience with respect to the normal percentage distribution of sales for the planning period – the monthly percentage distribution compared with industry performance (Figure 33) – Adjusting monthly sales figures to account for holidays, planned special promotions, and other merchandising strategies (Figure 34) ©2009 Fairchild Books, A Division of Condé Nast Publications. 11 1. Six-Month Seasonal Dollar Merchandise Plan Planning Stocks • There is no absolute formula for developing the variety of stock assortment • The planning phase of stock investment is accomplished through the dollar plan • In planning and control of dollar stocks, every merchandiser’s objective is to: – Maintain adequate assortments – Regulate the dollar investment of stocks in relation to sales ©2009 Fairchild Books, A Division of Condé Nast Publications. 12 1. Six-Month Seasonal Dollar Merchandise Plan Key Stock Facts: • After planned monthly sales are established, the amount of dollar stock that is required on hand at the beginning of the month (BOM stock) and/or the end of each month (EOM stock) must be determined • The EOM stock for a particular month is the same as the BOM stock for the following month 1. Six-Month Seasonal Dollar Merchandise Plan • Determining the Turnover Figure – Turnover is important to a merchandising operation because it: • Stimulates sales by presenting fresh merchandise to the consumer • Reduces markdowns by keeping the flow of new goods constant, thereby curbing the accumulation of large amounts of older stock • Lowers cost of goods sold because the “open-to-buy” position permits the buyer to take advantage of special prices and offerings • Decreases interest, merchandise taxes, and other operating expenses as a percentage of net sales ©2009 Fairchild Books, A Division of Condé Nast Publications. 14 1. Six-Month Seasonal Dollar Merchandise Plan (A) CALCULATING TURNOVER WHEN AVERAGE RETAIL STOCK AND SALES FOR THE PERIOD ARE KNOWN Concept: Turnover = Net sales for period Average retail stock for same period 1. Six-Month Seasonal Dollar Merchandise Plan Problem: For the year, the infant’s department had net sales of $2,000,000. The average retail stock during this period was $500,000. What was the rate of stock turn? Solution: Turnover for the period = $2,000,000 Net Sales $ 500, 000 Average Retail Stk. Turnover = 4 1. Six-Month Seasonal Dollar Merchandise Plan B. CALCULATING AVERAGE RETAIL STOCK WHEN PLANNED SALES AND TURNOVER ARE KNOWN Concept: Average retail stock = Planned sales for period Turnover rate 1. Six-Month Seasonal Dollar Merchandise Plan Problem: The hosiery department planned sales of $2,000, 000 with a stock turn of 4 as the goal. What should be the average stock carried for the period under consideration? Solution: Average stock for period = $2,000,000 planned sales 4 Turnover rate Average retail stock = $500,000 1. Six-Month Seasonal Dollar Merchandise Plan C. CALCULATING AVERAGE RETAIL STOCK WHEN MONTHLY INVENTORIES ARE KNOWN Concept: Average retail stock = Sum of BOM + EOM for given period Number of inventories • See page 213 1. Six-Month Seasonal Dollar Merchandise Plan D. DETERMINING GROSS MARGIN RETURN BY DOLLAR INVENTORY • The measurement of the efficiency of investment in inventory is referred to as gross margin return per dollar of inventory, which is commonly known as GMROI 1. Six-Month Seasonal Dollar Merchandise Plan Concept: Gross Margin % X Turnover 100% - Markup % Problem: The year-to-date results of the intimate apparel department are: Gross Margin 40% Turnover: 2.5 Markup 50% What is GMROI? 1. Six-Month Seasonal Dollar Merchandise Plan Solution: GMROI = 40% GM X 2.5 TO 100% - 50% MU = .40 X 2.5 1.00 - .50 = 1/.50 = GMROI of 2 1. Six-Month Seasonal Dollar Merchandise Plan E. METHODS OF STOCK PLANNING It is common to plan monthly stock figures for the beginning of the period by a stock-sales ratio method. 1. Setting Individual First Month Stock Figures by Stock-Sales Ratio Method 1. Six-Month Seasonal Dollar Merchandise Plan (A) CALCULATING STOCK-SALES RATIO WHEN RETAIL STOCK AND SALES FOR GIVEN PERIOD ARE KNOWN Concept: Stock-sales ratio = Retail stock at given time in the period Sales for the period • See page 218 1. Six-Month Seasonal Dollar Merchandise Plan B. CALCULATING BOM STOCK WHEN PLANNED SALES AND STOCK-SALES RATIO ARE KNOWN Concept: BOM Stock = Planned monthly sales X Stocksales ratio • See page 218 1. Six-Month Seasonal Dollar Merchandise Plan 2. Setting Stock Figures by the Weeks Supply Method (A) CALCULATING THE NUMBER OF WEEKS SUPPLY Concept: Number of week supply = Weeks ÷ Desired Turnover • See page 219 1. Six-Month Seasonal Dollar Merchandise Plan (B) FINDING PLANNED STOCK, GIVEN TURNOVER, AND WEEKLY RATE OF SALES Concept: Planned stock = Average weekly sales X Number of weeks supply • See page 219 1. Six-Month Seasonal Dollar Merchandise Plan 3. Setting Beginning of Month Stock Figures by Basic Stock Method (A) CALCULATING THE AVERAGE MONTHLY SALES (B) FINDING A BASIC STOCK GIVEN THE AVERAGE MONTHLY SALES AND THE AVERAGE INVENTORY (C) FINDING A BOM STOCK WHEN A BASIC STOCK AND PLANNED SALES FOR THE MONTH ARE KNOWN Concept: BOM Stock = Basic Stock + Planned sales for the 1. Six-Month Seasonal Dollar Merchandise Plan 3. Planning Markdowns Step 1 = Set the total markdown amount (stated as a percentage of total season’s sales) for the entire period by: (a) Reviewing and analyzing past markdown performance for the same period and for the entire period under consideration. (b) Considering factors that may effect a change in markdowns. Concept: Total seasonal markdown % = LY Total Markdowns ÷ Last Year’s Total Sales 1. Six-Month Seasonal Dollar Merchandise Plan • Step 2 = Convert the planned markdowns percentage of sales to a total dollar figure for the season Concept: Planned total seasonal dollar markdowns = Planned total seasonal sales X Total seasonal markdown % • Step 3 = Apportion total dollar planned markdowns by month. Note that the distribution of monthly markdown goals does not mean necessarily that markdowns and sales will be the same proportion during each month of the season 1. Six-Month Seasonal Dollar Merchandise Plan 4. Planning Markups Buyers may have to markup merchandise after they have set the original price and the product is already on the sales floor. See page 223 for an extensive example of planning markups. 1. Six-Month Seasonal Dollar Merchandise Plan 5. Planned Purchases – Planned Receipts Planned purchases or more accurately referred to as planned receipts is the dollar amount of merchandise that be brought into stock during a given period. 1. Six-Month Seasonal Dollar Merchandise Plan (A) CALCULATING PLANNED MONTHLY PURCHASES AT RETAIL Concept: Planned monthly purchases at retail • See page 225 amount = Planned EOM stock + Planned sales for month + Plan markdwns for month = Total merch. requirements - Planned BOM stock = Planned purchase 1. Six-Month Seasonal Dollar Merchandise Plan B. CONVERTING RETAIL PLANNED PURCHASES TO COST Concept: Planned purchase at cost = Planned retail purchases X (100% - Planned markup MU%) • See page 225-226 1. Six-Month Seasonal Dollar Merchandise Plan C. ADJUSTING THE PLANNED PURCHASES During the season, a buyer may have to make periodical changes to planned purchases based upon sales and market trends. Why? ...
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3-29-11 - Unit V Dollar Planning and Control Objectives •...

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