Chapter 12 – Buying Merchandise
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ANSWERS TO DISCUSSION QUESTIONS AND PROBLEMS
1. Assume you have been hired to consult with Forever 21 on sourcing decisions for
sportswear. What issues would you consider when deciding whether you should buy from
Mexico or China or find a source within the United States?
Students should consider these issues when consulting Forever 21 on sourcing decisions:
Country of Origin Effect, Foreign Currency Fluctuations, Tariffs, Foreign Trade Zones, Cost of
Carrying Inventory, Transportation Costs, Quality Control, Collaborative supply chain
2. What are the differences among counterfeit, gray-market, and black-market
merchandise? Is the selling of this type of merchandise legal? Do you believe that the
selling of these types of merchandise should be allowed? Provide a rationale for your
position. Would you purchase a counterfeit wallet? What about a counterfeit car part or
prescription medicine?
Counterfeit merchandise includes goods that are made and sold without permission of the
owner of a trademark, a copyright, or a patented invention that is legally protected in the
country where it is marketed. Gray-market merchandise, also known as parallel imports,
Chapter 12 – Buying Merchandise
3. What are the advantages and disadvantages of manufacturer’s brands versus store
brands? Consider both the retailer’s and customer’s perspectives.
National brands are products designed, produced, and marketed by a vendor/manufacturer
and sold to many different retailers. The vendor is responsible for developing the
merchandise and establishing an image for the brand. Retailers carrying national brands
4. Does your favorite clothing store have a store-brand strategy? If yes, how does it build
store loyalty? If no, how could a store brand create loyalty?
Students will think of a store brand that they have purchased. Answers will vary.
When the retailer designs and manages its own store brand, those brands provide the
5. Explain why a grocery store, such as Kroger, offers more than one tier of store brands
within a particular product category.
Different types of store brands offer consumers different advantages. Kroger may choose to
provide more than one store brand within a product category to reach different target
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6. Why have retailers found exclusive store brands to be an appealing branding option?
Choose a department store, a discount store, and a grocery store. What exclusive store
brands do they offer? How are they positioned in relation to their national-brand
counterparts?
In recent years, exclusive store brands have become increasingly prominent in the
marketplace. Before this upswing in popularity, store brands were viewed as representing
lower quality merchandise from the consumer’s perspective. More recently, national-brand
7. When you go shopping in which product categories do you prefer store brands or national
brands? Explain your preference.
Students will likely respond to current marketplace trends here. Clothing (The GAP and
Banana Republic), cosmetics (American Beauty and Good Skin), and home goods (Martha
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8. What are retailers doing to be more socially responsible in buying merchandise? Why are
they becoming more socially responsible? Do you buy products that you believe were
produced in a socially responsible manner, even if they cost more?
In response to significant pressures from the marketplace, retailers have become very
aware of their social responsibilities as part of their global sourcing efforts. They have faced
9. You have decided that you don’t want to take the final in this class. Explain how you
would negotiation this request with the instructor. Consider place, deadlines, past
relationship, possible objections, options for mutual gain, and how to maintain a
professional relationship.
The negotiation session should be planned in advance with a consideration of gathering all
Chapter 12 – Buying Merchandise
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CONNECT ACTIVITIES FOR CHAPTER 12
Activity Title
Activity Type(s)
Topic(s)
Learning Objective(s)
Brand Alternatives
Drag and Drop;
Matching (accessible
version)
Brand Alternatives
and Options
12-1 Identify the
branding options
available to retailers.
12-2 Describe how
retailers buy national
brands.
version)
Issues for Buying
social responsibility
12-6 Indicate the
legal, ethical, and
social responsibility
issues involved in
Chapter 12 – Buying Merchandise
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ANCILLARY LECTURES AND EXERCISES
LECTURE # 12–1: NEGOTIATING WITH THE VENDOR
Introduction
What is negotiation?
Negotiation is a two-way communication designed to reach an agreement when parties
have both shared and conflicting interests.
Three key points:
1. Two-way communication – to have a negotiation there has to be communication being
sent and received.
If we agree that negotiating is simply getting what you want from others, then it stands to
reason that people are involved in the negotiating activity everyday.
Ask students: whom do you negotiate with and for what results?
Responses might include:
1. Spouse – Where to go for dinner.
Everyone negotiates everyday.
Though we all have lots of practice, negotiating is still not easy to do well.
As buyers, the success, i.e., profitability of the business would be greatly affected by how
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Potential results
Today, planning and execution is the method through which obstacles are overcome.
When involved in negotiating, the results you achieve can be any of the following:
1. WIN – WIN (Buyer wins, vendor wins)
WIN – WIN
This is the best situation.
Based on cooperation and collaboration.
Enhances vendor trust in buyer as a professional.
WIN – LOSE
There are some instances where win/lose can be positive — if buyer doesn’t want to
develop a long-term relationship.
It is generally negative because if the vendor feels like a loser, then there is little possibility
of going back to the vendor again.
LOSE – LOSE
Wastes time and energy.
No relationship established.
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Principled Negotiations
The concept of principled negotiating is based on four basic points:
1. People
Let’s talk about them individually.
Separate the people from the problem
Negotiators are people first — all have human aspects.
Relationships between negotiators tend to become entangled with the problem.
Focus on interests, not positions
Position is something you have decided on.
Invent options for mutual gains
Think of a wide range of possible solutions that will benefit both parties.
Consider all options — all sides.
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Chapter 12 – Buying Merchandise
Get the options out in the open.
Look for mutual gain and shared interests.
Insist on using objective criteria
Use fair standards, i.e., market value, cost.
Once agreement is reached, what standards will be used to make sure the deal is carried
out?
Planning
In addition to style and probably even more important is one simple word/action —
PLANNING.
To be effective in the market, to get the success you want, you must plan effectively.
What are the areas that we must look at in order to plan?
1. History – To go forward, you must understand what has happened in the past. Know the
merchandise and its sales history. What is the customer telling you? What is the future
potential?
Setting objectives
Keep in mind that to set goals you must:
1. Know the market: What are the current trends? How is business generally? How are
each of your vendors performing against the overall market?
Chapter 12 – Buying Merchandise
2. Know the vendor: How is his/her business? What inventory position is he/she in? (Did
they make too much this season? Is he/she a manufacturer or an importer? This will
3. Know the numbers: What is a realistic sales plan for this vendor? What is a realistic
margin projection for this vendor? Are you accurately anticipating markdowns? What is
the amount of inventory on hand? What should it be? What is the amount of inventory
on order? Do you need to cancel or buy goods? How much of the merchandise will be
sold on sale? Are you being realistic in the current business environment? If business is
tough, how deep do you need to cut prices to generate sales? Know what you need!
4. Know the competition: Who are they? Other department stores, chains, specialty
stores? What financial condition are they in? What is their inventory position? How
Negotiating tips
There are several tips that one can use while negotiating:
1. Beware of time pressures. Almost everything happens at or just before the deadline. Think of the
last major labor strike. Give and get appropriate deadlines.
5. Know when to use your boss as a partner and source of extra power. The bigger your deal, the
higher you go.
6. Don‘t be afraid to say no to an offer that doesn’t help you get what you need.
7. Don‘t be greedy — don‘t over–negotiate. Know when you‘ve reached the limit and don’t go
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10. Before you go into the negotiation, use a technique that Olympic athletes use: envision how the
meeting will go, and picture yourself being very successful — it will build your self-confidence.
11. Make sure that you plan to meet when you are at your best. Plan your schedule thoroughly — the
negotiating:
1. Planning is critical
2. Knowledge is power!
3. The secret in any negotiation is that the other person will only do what is right for him!
ANCIALLRY EXERCISE : ROLE PLAYING NEGOTIATIONS
————–——–——–——————-
Instructor’s Note: This exercise should be used in conjunction with Chapter 12, but only after the class
has had Lecture 12–1.
————–——–——–——————-
Directions
Get two groups of students to volunteer for this exercise.
One group will represent Drip-Dry; while the other will represent Burdines.
Each group should have three to four people.
Provide the entire class with the following handouts:
1. Dealer letter from Drip-Dry
Chapter 12 – Buying Merchandise
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P.O. BOX 999
NEW YORK, N.Y. 10038
October 12, 2017
DEAR MR DEALER
DRIP-DRY is proud to announce a SUPER MARKET SPECIAL on all orders placed in our showroom the
week of June 10.
Here’s how the promotion actually works. On any purchase of 25 units or more, we will invoice you as
follows:
Regular Wholesale Price
$175.00 ea.
Less 15% Sale Discount
26.25
Promotia1On “sale. Price
$148.75 ea.
Promotion “sale”. Price
ea.
(Adv. Allow)
(Freight Chg.)
(2% Cash Disc.)