Chapter 12 – Buying Merchandise
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CHAPTER 12
BUYING MERCHANDISE
ANNOTATED OUTLINE
INSTRUCTOR NOTES
I. Introduction
• After creating an assortment plan for the category,
forecasting sales, and developing a plan outlining the flow
of merchandise, the next step in the merchandise
management process is to buy the merchandise.
II. Brand Alternatives
• Retailers and their buyers face a strategic decision about
the mix of national and private-label brands sold
LO 12-1 Identify the branding
options available to retailers.
See PPT 12–3
A. National Brands
• National brands, also known as manufacturer’s brands,
Ask students which brands on
their “list of favorite brands” are
national brands.
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program to establish an appealing brand image.
B. Store Brands
• Store brands (also called private-label brands, house
brands or own brands) are products developed by
retailers.
• In recent years, as the size of retail firms has increased
through growth and consolidation, more retailers have the
economies of scale to develop store-brand merchandise
and to use this merchandise to establish a distinctive
identity. Also, manufacturers and national-brand suppliers
See PPT 12–5
Ask students which brands on
their “list of favorite brands” are
store brands.
private labels vis-à-vis
manufacturer brands in some
items, e.g., jeans (Gap versus
Levi’s), shoes (Nike versus
Payless), and cheese (Kraft versus
local supermarket brand). What
1. Premium Store Brands
• Premium store brands offer the consumer a product that is
comparable to a manufacturer’s brand quality, sometimes
Chapter 12 – Buying Merchandise
2. Exclusive Brands
• An exclusive brand is a brand developed by a national-
brand vendor, often in conjunction with a retailer, and sold
3. Copycat Brands
• Copycat brands imitate the manufacturer’s brand in
appearance and packaging, generally are perceived as
B. Generic Brands
• Generic brands are labeled with the name of the
commodity and thus actually have no brand name
C. National Brands or Store Brands?
• When determining the mix between national versus store
brands, retailers consider the effect on their overall
assortment, profitability, and flexibility.
• Buying from vendors of national brands can help retailers
build their image and traffic flow and reduce their
See PPT 12–7 and 12–8
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1. Store Brands Enhance and Expand Assortments
• Retailers examine their assortments to make sure they are
providing what their customers want. They may introduce
2. Profitability
• Stocking national brands is a double-edged sword for
retailers. Many customers have developed loyalty to
specific national brands. If a retailer does not offer the
national brands, customers might view its assortment as
3. Flexibility
III. Buying National-Brand Merchandise
LO 12-2 Describe how retailers
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A. Meeting National-Brand Vendors
• A wholesale market for retail buyers is a concentration of
See PPT 12–10
1. Wholesale Market Centers
• For many types of merchandise, particularly fashion
apparel and accessories, buyers regularly visit with vendors
2. Trade Shows
• Trade shows provide an opportunity for buyers to see the
latest products and styles and to interact with vendors.
• Trade shows are typically staged at convention centers not
B. National–Brand Buying Process
• When attending market weeks or trade shows, buyers and
See PPT 12–11
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their superiors typically make a series of appointments
with key vendors.
IV. Developing and Sourcing Store-Brand Merchandise
• Retailers use a variety of different processes to develop
and buy store brands.
LO 12-3 List the issues retailers
consider when developing and
sourcing store-branded
merchandise internationally.
A. Developing Store Brands Larger retailers that offer a significant
amount of store-brand merchandise, like Kroger, J.Crew, H&M,
and IKEA have large divisions dedicated to managing their
See PPT 12–12, 12–13
B. Sourcing Store-Brand Merchandise
• Once the decision has been made about which and how
much store-brand merchandise will be acquired, the
See PPT 12–14
1. Costs Associated with Global Sourcing Decisions
• Retailers use production facilities located in developing
economies for much of their private-label merchandise
because of the very low labor costs in these countries.
Chapter 12 – Buying Merchandise
2. Managerial Issues Associated with Global Sourcing
Decisions
• Whereas the cost factors associated with global sourcing
are easy to quantify, some more subjective issues include
quality control, time to market, and sociopolitical risks.
Ask students to discuss barriers to
the development of global
collaborative supply chain
relationships.
3. Resident Buying Offices
• Many retailers purchasing private-label merchandise use
resident buying offices, which are organizations located in
1. Reverse Auctions
• Rather than negotiating with a specific manufacturer to
produce their store-brand merchandise, some retailers use
Ask students to consider the costs
and benefits of the reverse auction
from both retailer’s and vendor’s
sides.
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manufacturing firms.
• In reverse auctions, retail buyers provide specifications for
what they want a group of potential vendors to bid on. The
V. Negotiating with Vendors
• When buying national brands or sourcing store-brand
LO 12-4 Understand how
retailers prepare for and
conduct negotiations with their
A. Knowledge Is Power
• The more the buyer knows about the retailer’s and
vendor’s situations, as well as trends in the marketplace,
the more effective he or she will be in negotiations.
B. Negotiation Issues
• Buyers should be prepared to cover a variety of issues in
Ask students to consider the
1. Price and Gross Margin
• The retail buyer wants to buy the merchandise at a low
See PPT 12–19
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• Faced with this uncertainty, the buyer may seek a margin
guarantee, the vendors promise to provide markdown
money if necessary.
• In addition to negotiating the wholesale price, supermarket
buyers often negotiate slotting fees, or slotting
allowances. Slotting allowancesare charges imposed by a
retailer to stock a new item.
2. Additional Markup Opportunities
• As part of the negotiation, the vendor may offer the buyer
discounted prices to take excess merchandise.
3. Terms of Purchase
• The buyer hopes to negotiate for a long period in which to
pay for the merchandise to improve cash flow, lower
4. Exclusivity
• Retailers often negotiate with vendors for an exclusive
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arrangement so that no other retailer can sell the same
item or brand. This helps the retailer differentiate from
5. Advertising Allowances
• Retailers often share the cost of advertising through a
6. Transportation
• The question of who pays for shipping merchandise from
C. Tips for Effective Negotiatiating
See PPT 12–20
1. Have at Least as Many Negotiators as the Vendor
• Retailers have a psychological advantage at the negotiating
2. Choose a Good Place to Negotiate
• From a psychological perspective, people generally feel
more comfortable and confident in familiar surroundings.
Ask students to suggest some
locations for the negotiation that
would be comfortable for the
buyer and for the vendor.
3. Be Aware of Real Deadlines
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5. Insist on Objective Information
• The best way to separate people from business
information is to rely on objective information.
6. Invent Options for Mutual Gain
7. Let Them Do the Talking
• There’s a natural tendency for one person to continue to
8. Know How Far to Go
• Recognize the fine line between negotiating too hard and
walking away from the table with less than necessary.
9. Don’t Burn Bridges
10. Don’t Assume
• To be certain there are no misunderstandings, participants
VI. Strategic Relationships
• Maintaining strong vendor relationships is an important
method of developing a sustainable competitive
advantage.
LO 12-5 Determine why retailers
build strategic relationships
with their vendors.
See PPT 12–21
A. Defining Strategic Relationships
• Relationships between retailers and vendors are often
See PPT 12–21
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party’s welfare.
• A strategic relationship, also called a partnering
relationship, is when a retailer and a vendor are
committed to maintaining the relationship over the long
term and investing in opportunities that are mutually
beneficial to the parties.
• A strategic relationship is a win-win relationship. Both
partnering relationships. The
costs of transactions,
negotiations, as well as some
obvious costs of dealing with
partners who have only their own
interests at heart can be
uncovered. By contrast, the
partnering relationship admits
mutual goals, a commitment to
B. Building Partnering Relationships
• The development of strategic partnerships tends to go
through a series of phases characterized by increasing
See PPT 12–22
Ask students for examples of
manufacturers who sell direct over
1. Awareness
• In the awareness stage, no transactions have taken place.
2. Exploration
• During the exploration phase, the buyer and vendor begin
to explore the potential benefits and costs.
3. Expansion
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4. Commitment
• If both parties continue to find the relationship mutually
beneficial, it moves to the commitment stage and becomes
C. Maintaining Strategic Relationships
• The four foundations of successful strategic relationships
are (1) mutual trust, (2) common goals, (3) open
communication, and (4) credible commitments.
See PPT 12–23
1. Mutual Trust
• The glue in strategic relationships is trust.
If the retailer doesn’t trust their
vendors, they won’t be willing to
2. Common Goals
• Shared goals give both members of the relationship
Retailer and vendor must have the
3. Open Communication
• Buyers and vendors in a relationship need to understand
12–
4. Credible Commitments
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VII. Legal, Ethical, and Social Responsibility Issues for Buying
Merchandise
• Indicate the legal, ethical, and social responsibility issues
involved in buying merchandise.
LO 12-6 Indicate the legal,
ethical, and social responsibility
issues involved in buying
merchandise.
A. Legal and Ethical Issues
• Some practices that arise in buyer–vendor negotiations
that may have legal and/or ethical implications are
12–
1. Counterfeit Merchandise
• Counterfeit merchandise includes goods that are made
and sold without permission of the owner of a trademark
or copyright. Trademarks and copyrights are intellectual
property.
• Also, there is a thriving business in counterfeit information
See PPT 12–26
Ask students what products they
have seen that they think are
counterfeit.
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2. Gray-Market, Diverted, and Black-Market Merchandise
• Gray-market goods, also known as parallel imports,
involve the flow of merchandise through distribution
channels, usually across international borders, other than
• Some discount store operators argue that customers
benefit from the lack of restriction on gray-market and
diverted goods because it lowers prices.
• Traditional retailers claim gray-market and diverted
merchandise has a negative impact on the public. After
sale service will be unavailable and trademark images may
be hurt.
It is important to note that gray-
market merchandise is not
counterfeit! It is imported and
See PPT 12–33
Ask students to discuss the
difference between gray-market
and diverted merchandise.
3. Terms and Conditions of Purchase
• The Robinson-Patman Act, passed by the U.S. Congress in
1936, potentially restricts the prices and terms that
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vendors can offer to retailers.
• The act makes it illegal for vendors to offer different terms
4. Commercial Bribery
• Commercial bribery occurs when a vendor or its agent
5. Chargebacks
• A chargeback is a practice used by retailers in which they
deduct money from the amount they owe a vendor.
6. Buybacks
• The buyback (also known as stocklift or lift-out) is a
strategy vendors and retailers use to get products into
retail stores.
• A buyback can occur under two scenarios. First, and most
ethically troubling, is when a retailer allows a vendor to
See PPT 12–32
Ask students “how bad” an ethical
situation this practice seems to
them.
7. Exclusive Dealing Agreements
• Exclusive dealing agreements occur when a manufacturer
or wholesaler restricts a retailer into carrying only its
See PPT 12–34
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8. Tying Contract
• A tying contract exists when a vendor and a retailer enter
into an agreement that requires the retailer to take a
See PPT 12–35
Ask students to give an example of
9. Refusal to Deal
• Generally, both a supplier and a retailer have the right to
deal or refuse to deal with anyone they choose. There are
exceptions to this general rule when there is evidence of
See PPT 12–36
The issue again is whether the
vendor is large enough to restrict
B. Corporate Social Responsibility
• Corporate social responsibility (CSR) describes the voluntary
actions taken by a company to address the ethical, social, and
environmental impacts of its business operations.
• Retailers act socially responsibly in many ways, from giving to
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VIII. Summary
• Retailers can purchase either national brands or store
(private-label) and generic brands.
• Buyers of manufacturer’s brands attend trade shows and
wholesale market centers to meet with vendors, view new
merchandise, and place orders.
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ANSWERS TO SELECTED “GET OUT AND DO ITS”
2. Go to the home page for the Private Label Manufacturer’s Association (PLMA), and read
the “What are Store Brands?” page, which can be found at
store brands? Who makes store brands? What store brands are you purchasing on a regular
basis?
What are store brands?
According to the website:
Store brands: “have come to represent better selection, value and savings. Simply put, they are
Retail chains of all sizes develop and market store brands in various ways. They may create a
whole line of products around a particular feature — such as Safeway’s O Organics and Eating
Right offerings, or Kroger’s Private Selection and Albertsons Wild Harvest organic lines. In other
cases, a majority of the store brand items in a chain may carry the same name — such as
Costco’s Kirkland, Wal-Mart’s Great Value or Whole Foods’ 365 Everyday Value products.”
Who purchases store brands?
Last year, American shoppers who reached for the store brand version of their favorite food and
store brands over national brands.
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Who makes store brands?
More and more store brands are appearing on the shelves of stores throughout the country. But
how do they get there, why are they there and who makes them? For many consumers, store
Store brand manufacturers who meet those high standards come in all sizes and many are listed
on stock exchanges. There are thousands of companies in hundreds of categories that produce
the products in partnership with retailers.
Manufacturers of store brand products fall into four general classifications:
• They are large national brand manufacturers that utilize their expertise and excess plant
capacity to supply store brands.
• They are small, quality manufacturers that specialize in particular product lines and
What store brands are you purchasing on a regular basis?