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CASE 17 – Active Endeavors: Contemplating its Customer Database
Synopsis: Active Endeavors is an outdoor apparel and accessory retailer. The store has a database
of its customers’ transaction records including their name and address, transaction date,
products and the quantity purchased, and purchase price. The store owner is thinking of
using the transactional database to target a direct mail campaign designed to increase the
store traffic.
Use:
Chapter 11 Describe the customers’ past purchase behavior and develop CRM programs
Discussion Questions
1. Describe the type of customers in each group. What would you recommend Active
Endeavors do to get more business from each group?
The students need to understand what recency, frequency, and monetary values mean. Recency
is a measure of how recent the last purchase is. When the recency value is low, the likelihood of
making a purchase is expected to be high. Frequency is a measure of long-run purchase
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42
3. Since the recency value is not too bad, it is important for the store to entice them to come
back before they lose them altogether. The store should contact these customers with a special
offer to entice them to come back. But if they do not respond, it may not be worthwhile to
spend any more time and effort on them.
Group 5:
These customers used to be a frequent and big spenders but for some reason their most recent
Case Synopsis, Uses, Discussion Questions, and Answers
Case 18- Mel’s Department Store
Mel’s Department Store Under New Management Beth Gallant, Lehigh
University
Working for Mel’s, a mid-sized department store chain, Elise Wickstrom recently was promoted to
Department Manager of the Children’s Department. Elise was excited about the opportunity, but
knew it would be a challenge since this department was not just apparel but included toys and shoes,
each having very different sales plans and margins. She was eager to show management that she was
the right person for the job!
History:
Mel’s Department Stores had struggled under previous management as the proliferation of larger
Children’s Department
Under this new plan, Elise has been asked to adhere to the following guidelines:
Initial Markup % Maintained Markup %
Soft goods/apparel 60% 34%
Shoes 54% 33%
Toys 45% 25%
Elise just received her first shipment from FUNWEAR, her largest girls’ vendor of unique jeans for
kids. Its hand painted designs and jeweled enhancements were adorable and were a real traffic driver
in the department. This vendor pre-marks all items for Mel’s allowing Elise to get them from receipt
to selling floor quickly. At first glance, Elise wanted to insure that the tags were correct. Here is how
the invoice read:
Item Description Retail (on tag) Cost
200 units prewashed jeans $30.50 $16.00
100 units jeans jeweled $43.75 $17.50
1) Given the soft goods targets are these marked correctly? If not, what should the retail be
to obtain her 60% minimum initial markup percentage?
2) What should the retail price be, given her markup target?
Case Synopsis, Uses, Discussion Questions, and Answers
3) The cost of the T’s were $2.25 and were on the floor at a 62% mark up. If she takes a
33% markdown, what is the new selling price?
After 6 weeks passed, Elise analyzes her sales of the FUNWEAR pre-washed jeans. Of her original
4) What was her average maintained markup %? Did it meet her goals? Explain how this
was possible.
5) Using the information in #4, explain to management possible reasons why multiple
markdowns could have been taken and why we compare to plan.
6) FUNWEAR is a long time vendor of Mel’s. It provides markdown dollars to help defray
the lost gross margin dollars. Why would they provide this money to Elise?
Case Synopsis, Uses, Discussion Questions, and Answers
TEACHING NOTE –Mel’s Department Store Making Your Mark
Synopsis: A new department store manager learns firsthand about markup and markdown in
different departments and how her assortment and overall retailing strategy affect these day to day
tactical decisions.
Use:
Chapter 15
Calculating markup, initial markup and maintained markup, Markdown and vendor relationships,
Delivering value to the consumer and the role of pricing
1) Elise received 200 units at a cost of $16. She also received 100 units costing $17.50.
The first step is to calculate the initial markup based on her plan. The plan asks for a
60% initial mark up on any soft good. Therefore:
2) For shoes her initial markup target is 54%. She uses a similar formula to the above:
3) The first step is to find out the price they were initially. The information in the
problem gives you the cost of $2.25 and the initial markup % of 62%. Using the
formula:
4) Maintained Markup is the actual sales realized for the merchandise, minus its costs.
a. First calculate what all of her sales were.
50 units sold for $40 (remember from question #1, the tag needed to
Case Synopsis, Uses, Discussion Questions, and Answers
46
5) Multiple markdowns are taken for many reasons in retail. One reason is a bad buy.
As the store manager, you brought in the merchandise your buyer thought would
sell, but due to color, style or even price this was not selling. Your job is to move the
merchandise through to make room for hopefully better selling merchandise. This
can mean multiple attempts at price reductions until the price makes the bad buy
enticing to the consumer.
A second reason for making multiple markdowns could be competition.
Price pressure from competition can create the need for a store manager to
take an additional markdown to stay competitive. This could especially be the
6) Markdown dollars are one way that a vendor communicates that they are a partner
with the retailer. They then take on some of the responsibility to deliver undamaged
goods and assortments and colors that sell, knowing that if they don’t, they too will
need to pay money. The better the merchandise sells through, the less money they
need to spend in markdown money.
7) Cost of the toy trains were $3.50 and retailed at $10. Her targeted maintained mark
up % is 25%. The question then is what can she drop the price to so that (new retail
8) These strategies allow you to better markups as it differentiates you in the
marketplace. The increased customer service and personal contact is worth
something to the consumer vs just a competitive price on the Internet. The unique
CASE 19 – Developing an assortment plan for Hughe’s
Synopsis: A department store needs to develop an assortment plan for imported merchandise.
Use:
Chapter 12 This case gives students an excellent chance to experience how a buyer must break
down an open-to-buy allocation into SKU’s, specifically sizes and fabrics of oriental
rugs. The students should be divided into teams of retailers representing Hughe’s
Department Store and manufacturers representing Ghuman Export. The retail teams
would develop an assortment plan based on figures given. The manufacturing teams
would compile purchase policies and style lists using information given. Retail teams
would negotiate with foreign manufacturer teams to achieve predetermined buying
goals.
Discussion Questions
Work up a buying plan to use when buying from Ghuman’s. Decide how to distribute the allotted
open-to-buy dollars among the available sizes, colors, and fabrications. Since it’s an overseas
manufacturer, consider additional costs such as duty and shipping, which also need to be covered by
the allocated open-to-buy dollars.
Exhibits 2,3, and 4 are sample assortment plans for silk, wool, and cotton, respectively. They were
developed from one large spreadsheet. For purposes of illustration, we will examine the assumptions
and calculations for Exhibit 2:
• Column 2 is taken directly from Exhibit I in the case.
Case Synopsis, Uses, Discussion Questions, and Answers
• The total open-to-buy used was $66,326.50, which is slightly above, but certainly within a
reasonable range of the estimate of $66,200.
Exhibit 1 – Cost Information
SILK
COST
WOOL
COST
COTTON
COST
SILK
COST
ADJUSTED
WOOL
COST
ADJUSTED
COTTON
COST
ADJUSTED
250
500
200
700
275
1000
350
1308
1300
500
1526
Exhibit 2 – Assortment Plan for Silk Rugs
SIZES
% OF
SALES
SILK
UNITS
SILK UNITS
ADJUSTED
SILK $
ADJUSTE
D
3 by 5’
0.2
4.56
5
2180
4 by 6’
0.4
5.21
5
3815
6 by 9’
0.15
1.61
2
1853
8 by 10’
0.1
0.76
1
1308
9 by 12’
0.15
0.98
1
1526
10682
Exhibit 3 – Assortment Plan for Wool Rugs
SIZES
% OF
SALES
WOOL $
WOOL
UNITS
WOOL
UNITS
ADJUSTED
WOOL $
ADJUSTE
D
3 by 5’
0.2
7944
29.15
30
8175
4 by 6’
0.4
29.15
30
6 by 9’
0.15
5958
7.81
8
6104
8 by 10’
0.1
3972
3.64
4
4360
9 by 12’
0.15
5958
4.20
5
7085
Exhibit 4 – Assortment Plan for Cotton Rugs
SIZES
% OF
SALES
COTTO
N $
COTTON
UNITS
COTTON
UNITS
ADJUSTED
COTTON
$
ADJUSTE
D
3 by 5’
0.2
0
0.00
0
0
4 by 6’
0.4
6620
30.37
30
6540
6 by 9’
0.15
2482.5
8.28
8
2398
8 by 10’
0.1
1655
4.34
5
1907.5
9 by 12’
0.15
2482.5
4.56
5
2725
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CASE 20 – Preparing a merchandise budget plan -BG Case Teaching Note
Synopsis: This is a difficult case for students to grasp, but we think it is well-worth the trouble
because it illustrates the relationship between the sales forecast, the seasonality pattern,
inventory turnover, and the stock-to-sales ratios. We find it beneficial to walk the
students through the case line by line during the class period preceding the class in which
it is due.
Use:
Chapter 12 Managing the Merchandise Planning Process
I. Sales forecast
The sales forecast is simply last year’s sales X 1.19 to account for the 19 percent increase in sales
II. Adjustments to percentage distribution of sales by month
Students shouldn’t take a simple average of the past three years because it assumes that all years are
equally important in forecasting next year. They also might want to use the most current year, which
III. Stock-to-Sales ratios
Given the GMROI and gross margin plans, the projected average stock-to-sales ratio is 1.58.
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51
The industry averages from the NRF are given, but each month needs to be adjusted so that they
average 1.58. First, we must make the adjustment to the March, April, and May stock–to-sales ratio.
Since we have a sales increase in March which wouldn’t be reflected in the NRF figures, the stock–
Case Synopsis, Uses, Discussion Questions, and Answers
CASE 21- KROGER AND FRED MEYER: SOURCING IN A GLOCAL MARKETPLACE
Discussion Questions
1. What factors would you list than need to be evaluated in making a decision to source
products overseas? Make a list of pros and cons and explain what the pressures are that
impel manufacturers and retailers to not source products domestically.
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CASE 22- Target and its New Generation of Partnerships
1. Assess the role of consumer expectations in Target’s success as a major discount retailer.
Customers who shop at Target understand that Target will offer limited time partnership with top designers. This
2. What differentiates Target’s new retail partnership model from its longstanding partnerships
with top designers? What are the relative strengths of each?
Target’s new retail partnership with Apple is different from its relationship with other designers. Apple is building
3. What explains Target’s ability to attract top designers and high-end specialty shops as retail
partners?
Target is able to attract top designers because of its previous success promoting and selling high-end brands. Target
Case Synopsis, Uses, Discussion Questions, and Answers
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CASE 23 – American Furniture Warehouse
American Furniture Warehouse:
Keeping Costs Down and Passing Along the Savings
Primary Chapter: 14
Supplemental Chapter: 5
LEARNING OBJECTIVES:
1. Show how retailers can reflect and respond to values expressed by their consumer base
through the merchandise they buy.
2. Enumerate ways that the buying process can be modified to trim costs without
compromising quality.
Discussion Questions
1. Factories in many developing nations have lower cost structures, but that is often
attributable to fewer benefits and lower wages for workers. What are the ethical trade-
offs for retailers and shoppers when merchandise is sourced from countries where labor
practices fall short of standards Americans deem acceptable? Do shoppers really care
about workers halfway across the globe or are they more concerned about how many
dollars are flowing out of their own pockets?
Ethical trade-offs include:
• Sending jobs and business to another country
Case Synopsis, Uses, Discussion Questions, and Answers
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2. The world is our marketplace. AFW employs global sourcing, uses many negotiating
tactics and shifts channel tasks in order to keep its costs as low as possible. Enumerate
the tactics AFW uses to keep its prices low. What other strategies and tactics could a
furniture retailer use to hold the line on retail prices?
Tactics AFW uses to keep prices low:
• No highly paid executives
3. What criteria should AFW use when deciding whether or not to see a new vendor? How
might it replicate some of its best practices with its biggest vendors to new, smaller
vendors? What strategies or innovations could it employ to stretch the productivity of its
buying staff?
Criteria for seeing a new vendor:
• The vendor appears to offer merchandise that suits their target market—its taste level,
design aesthetic, price point, etc.
Case Synopsis, Uses, Discussion Questions, and Answers
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Case Synopsis, Uses, Discussion Questions, and Answers
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CASE 23 – Merchandise Exclusively for JCPenney
Synopsis: This case explores a Buyer’s product assortment decision regarding the use of co–
branding with an outside designer. Using department store retailer JCPenney as the
company, the Buyer must weigh the positives and negatives to such a strategy in terms of
his own area of responsibility and the overall company strategy.
Use:
Chapter 4 Customer Buying Behavior
Chapter 12 Managing Merchandise Assortments
Chapter 13 Buying Merchandise
Discussion Questions
1. What are the key financial considerations to developing exclusive co-brands? How does
the current economic environment benefit or hinder this strategy?
Co-brands can be an expensive strategic decision for companies. Often times the designers
require up front fees or annual licensing agreements to include their name or image on any label.
2. What effect does an exclusive co-brand have on customer perceptions of the retailer or
designer? Does this perception change if the co-brand is discontinued?
The co-brand can create both positive and negative perceptions of both the retailer and designer.
On the one hand, upscale designers who are looking to sell “to the masses” may offer a less
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3. Describe the basic difference between a private brand, co-brand, and national brand.
What are the benefits of each, and how do they affect one another?
Private label – Owned by the retailer, they control design and manufacturing specifications and
naming of brand (although most manufacturing is done by a different company).
4. How is Jason’s target market more or less attractive than other markets JCPenney
serves?
The Juniors’ customer (Age 13–22) is often particular in product “wants” with respect to trend
and fashion, and is also highly influenced by referent groups such as friends. Therefore, retailers
59
5. What do you think Jason should do concerning his decision? Defend your answer?
Each student’s answer will vary. Some of the key points to consider are: 1) the balancing of
Case Synopsis, Uses, Discussion Questions, and Answers
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CASE 24- JCPenney: Are Customers Addicted to Sales?
Synopsis:
In 2011, the JC Penney (JCP) board of directors hired Ron Johnson away from Apple to be JCP’s
new CEO. Johnson’s charge was clear: invigorate the JCP brand that had been eroding in the mid–
market department store segment. In early 2012, Johnson unveiled, with the help of Michael
Learning Objectives
This case can be used as either a retail pricing case or, secondarily, as a retail market strategy case.
As a pricing case, this case provides an excellent opportunity for discussion and analysis of the
comparable strengths and weaknesses of different pricing strategies, and in particular, hi-low vs.
EDLP. It provides students an opportunity to relate various external factors, e.g., economic
1. To identify the key environmental factors that influenced J C Penney’s decision to adopt an
EDLP strategy.
2. To analyze the potential advantages and disadvantages for J C Penney in adopting an EDLP
pricing strategy.