Chapter 13: Buying Merchandise

Question 1

National Brands (manufacturer)

Answer 1

designed, made, and marketed by the vendor and sold by many retailers (ex: Nike)

Question 2

Private-Label Brands (Store, House, or Own)

Answer 2

Developed by the retailer themselves to be sold only by them (ex: Macy’s has Martha Stewart brand only in their stores or could be Costco’s Kirkland/Walmart’s Great Value {generic brands})

Question 3

Family Brands

Answer 3

All of the private label merchandise is associated with their name
(ex: Gap, Gap kids, baby Gap.)

Question 4

Portfolio Brands

Answer 4

Private label brands with different types of merchandise

ex: Amazon branched brands that are sold on its online outlet

Question 5

4 types of Private Label brands:

Answer 5

1-Premium Brands: most times superior to manufacturer’s regular brands (ex: Alfani dresses at Macy’s)
2-Copycat Brands: imitate manufacturer’s brand in appearance/packaging but perceived as lower quality or a knock off (ex: You Butter Believe It knockoff of I Can’t Believe It’s Not Butter)
3- Exclusive Brands: developed by national brand vendor and sold exclusively to retailer (ex: Martha Steward Home Collection brand)
4-Generic Brands: target a price-sensitive segment by offering no frills, just the product desired yet cheaper (ex: Costco’s “Kirkland Signature” or Walmart’s “Great Value” )

Question 6

National (Manufacturer) Brands Pros/Cons

Answer 6

Pros/Advantages:

• helps retailer who is selling that brand (ex: Nike) build their image
• reduces the selling/promotion expenses because Nike already does that with it’s marketing
• Most desired/more desired by customers
• Customers find that merchandise in your store, looking for it
• Financial risk is somewhat pushed onto vendor (can sell remainder of shoes not sold back to Nike and they will take care of it)

Cons/Disadvantages:

• lower margins
• vulnerable to competitive pressures
• Limit retailers flexibility

Question 7

Private Label (Store) Bands Pros/Cons

Answer 7

Pros/Advantages:

• unique merchandise not available elsewhere
• boosts store loyalty (you have a brand no one else has)
• difficult for customers to compare price with competitors
• higher margins

Cons/Disadvantages:

• requires a lot of time/effort/money in design and sourcing
• need to develop expertise before promoting it
• unable to sell excess because it is yours and only yours
• typically less desirable for customers because seen as lesser

Question 8

Buying decisions for fashion apparel vs staple merchandise

Answer 8

Fashion apparel:
5-6 times a year because changing trends
Must decide a few seasons beforehand to get it in time

Staple merchandise:
Less often ordering
Can always/continuously be replenished

Question 9

How to find out/met national brands?

Answer 9

• Wholesale market centers (think fashion oriented places like Paris, Milan, London, NY)
• Trade Shows (think State Fair convention centers or Las Vegas conventions, people come from all over)
• Internet Exchanges
• Meeting vendors at your company

Question 10

National Brand Buying Process [5 steps]

If you were to want to get Nike into your store what would you do?

Answer 10

1-Meet with vendors
2-Discuss performance of vendor’s merchandise the previous season
3-Reveiw vendor’s offering for coming season
4-MAY place orders right then and there
5-Sometimes they may not place orders at step #4: they go back to their offices, discuss, and negotiate before ordering

Question 11

What is a reverse auction?

Answer 11

When sellers compete to do obtain business from the buyer by offering cheaper prices.
-a single buyer hosts it and multiple sellers give the cheapest prices so buyer picks to have them in their store

Question 12

What is commercial bribery?

Answer 12

Vendor gives/pays retail buyer “something of value” to influence purchasing decisions.
(fine line between free lunch and an elaborate FREE vacation.)

-Dependent on retailer themselves what they will tolerate/receive as a token.

Question 13

Chargebacks

Answer 13

Practice used by retailers in which they deduct money from amount they owe a vendor without getting approval. (Basically the store says, you made a mistake or what you gave me is not selling so therefore I am paying YOU less.)
-Disrupts vendor relationships.

Question 14

2 Reasons for chargebacks.

Answer 14

1-Merchandise is not selling

2-Vendor made mistakes

Question 15

2 Scenarios for Buybacks

Answer 15

1-Retailer tells someone else with OTHER merchandise that if they buy the “bad merchandise” off the shelves from you they can have that now open space
2-Retailer/store forces a vendor to buyback slow-moving merchandise

Question 16

Counterfeit Merchandise

Answer 16

Fake goods. Goods made without permission to use the trademark/copyright/patent that IS legally protected.
(Ex: Fake Luis Vuitons or Ugg boots)

Question 17

Gray Market

Answer 17

Parallel imports. Not counterfeit, but legal.
Has a valid US trademark but is made by a foreign manufacturer and is fake. Imported to US without permission of US trademark owner.
(ex: Omega watches were made with their logo/trademark then sold to Costco for dirt cheap)

Question 18

Diverted Merchandise

Answer 18

Diverted merchandise is same as gray market but happens in same country, not over international borders.

Question 19

Black Market

Answer 19

Happens when consumer goods are scarce (like gas or water) and people are able to charge outrageous prices.
(ex: people wanted to get out of city during natural disaster so the gas stations charged highly expensive and ridiculous gas prices)

Question 20

Define exclusive dealings agreements.

Answer 20

Occurs when manufacturers/wholesalers restrict retailer into only carrying THEIR products.
Ex: Coca-Cola and McDonald’s
*illegal when you restrict competition

Question 21

Tying Contracts

Answer 21

Agreement requires retailer to take a product they don’t want (and sell it) in order to have one that they desire (the tying product)