Merchandising
Merchandising is deciding what to buy, how much, where to place it and when to mark it down. The exam tests assortment breadth and depth, category roles, planogram compliance, markdowns and GMROI - usually as a short calculation.
Core rules
- Five rights: right product, right place, right time, right quantity, right price.
- Breadth = number of categories carried; depth = number of SKUs or variants within a category.
- Category roles: destination (pulls customers in), routine (bought regularly), seasonal, convenience.
- Space elasticity: more facings generally produce more sales, so space must follow contribution.
- ABC analysis by sales value: A items are roughly the top 70–80% of value from about 10% of SKUs and get tight control; C items are many SKUs with low value and can be ordered in bulk.
- Open-to-buy = planned purchases for the period minus stock already on hand and on order.
- Markdown is a planned reduction to clear stock, not a surprise discovered at month end.
Worked example
Annual sales ₹24,00,000 at a gross margin of 25% gives ₹6,00,000 gross margin. Average inventory at cost is ₹2,00,000. GMROI = 6,00,000 ÷ 2,00,000 = 3.0, meaning every ₹1 tied up in inventory returns ₹3 of gross margin. If the same inventory had been valued at retail (₹8,00,000), the answer 0.75 would be wrong - the denominator must be at cost.
Traps that cost marks
- Reversing breadth and depth.
- Confusing markup with margin: margin is calculated on selling price, markup on cost.
- Judging merchandising by sales alone; high sales with heavy inventory can still give poor GMROI.
- Forgetting open-to-buy must subtract stock already on order, not just stock on the shelf.
- Marking down without checking the remaining margin.