Merchandising Mathematics for Retailing

332 Pages·2012·11.295 MB·English

by  Cynthia R. Easterling, Ellen L. Flottman, Marian H. Jernigan, Beth E.S. Wuest

F E
IFTH DITION
Merchandising
Mathematics
for Retailing
Cynthia R. Easterling
The University of Southern Mississippi
Beth E. S. Wuest
Texas State University
Ellen L. Flottman
Previously Affiliated with University of North Texas
Marian H. Jernigan
Previously Affiliated with Texas Woman’s University
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Library of Congress Cataloging-in-Publication Data
Merchandising mathematics for retailing / Cynthia R. Easterling . . . [et al.].—5th ed.
p. cm.
Includes bibliographical references and index.
ISBN-13: 978-0-13-272416-6
ISBN-10: 0-13-272416-2
1. Retail trade—Mathematics. 2. Merchandising. I. Easterling, Cynthia R.
HF5429.E18 2013
381.01’513—dc23
2011042909
10 9 8 7 6 5 4 3 2 1
ISBN 10: 0-13-272416-2
ISBN 13: 978-0-13-272416-6
contents
PREFACE ix
2
ACKNOWLEDGMENTS xi Basic Merchandising Mathematics | 17
DEDICATION xiii
Objectives 17
1
Key Points 17
Introduction | 3
Career Corners
Lawrence William Patterson, Target
Objectives 3
Corporation 18
Key Points 3
Ashley Fairley, D2 Showroom 18
Career Corners
Basic Arithmetic Pretest 19
Kathleen Hayman, Barnes & Noble
Decimals 21
College Booksellers, Inc. 4
Adding and Subtracting
Annette Repasch, Stage Stores,
Decimals 22
Inc. 5
Multiplying Decimals 22
Retailing and Merchandising
Defined 5 Dividing Decimals 22
Five “Rights” of Merchandising 6 Rounding Decimals 23
Merchandising by Manufacturers Practice Problems Exercise 2.1 24
and Wholesalers 6 The Unit Measure 25
Retail Store Organization 6 Practice Problems Exercise 2.2 26
The Merchandising Function 7 Percents 27
Centralized Merchandising 8 Basic Percentage Calculations 28
Organization of the Merchandising Division 8 Practice Problems Exercise 2.3 29
Decentralized Merchandising Organization 10 Using Percents 30
Retail Merchandising by Manufacturers 11 Finding Percentage Amount 30
Relationship of Merchandising to Other Divisions 12 Practice Problems Exercise 2.4 31
Financial Control Division 12 Finding the Percent 31
Operations Division 12 Practice Problems Exercise 2.5 32
Finding the Base 34
Human Resources Division 12
Practice Problems Exercise 2.6 35
Sales Promotion Division 12
Calculating Percent Increase
Importance of Mathematics to Buying and Merchandising 13
or Decrease 36
Measuring the Buyer’s Efficiency 13
Practice Problems Exercise 2.7 37
Importance of Profit 14
Definitions 38
Definitions 14
Summary Problems 39
Student Activity 15
Discussion Questions 15
iii
3 GAIL BAUGH, M.A., SAN FRANCISCO STATE
Profitability | 43 UNIVERSITY AND FASHION INSTITUTE OF DESIGN AND
MERCHANDISING, SAN FRANCISCO
Objectives 43 CONNIE ULASEWICZ, SAN FRANCISCO
Key Points 43 STATE UNIVERSITY 74
Career Corners CASE STUDY 3 CONTEMPLATING NEW DIRECTIONS AT
Merle Mack, Kohl’s Department “THE MAD HATTERAS ”
Stores 44 HOLLY LENTZ, PH.D., WEST VIRGINIA UNIVERSITY 76
David Schwarz, The TJX Companies,
Inc. 44
4
Relationship of Basic Factors 45
Cost of Merchandise Sold | 79
Practice Problems
Exercise 3.1 49
Objectives 79
Basic Profit Factors 50
Key Points 79
Net Sales 50
Career Corner
Practice Problems Exercise 3.2 52
Margaret Bowman, Academy
Cost of Merchandise Sold 54 Sports (cid:2) Outdoors 80
Operating Expenses 54 Negotiations 80
Expense Control 55 Discounts 82
Profit Performance Improvement 55 Quantity (Patronage) Discounts 82
Performance Measures 56 Trade (Functional) Discounts 82
Human Resource Productivity 56 Seasonal Discounts 84
Selling Cost 56 Cash Discounts 84
Units per Transaction 58 Practice Problems Exercise 4.1 86
Sales per Transaction 59 Dating 87
Cash on Delivery (COD) 87
Sales per Employee Hour 59
Regular (Ordinary or Normal) Dating 88
Sales per Full-Time Employee Equivalent 60
Receipt of Goods (ROG) 88
Practice Problems Exercise 3.3 60
End-of-Month (EOM) 88
Space Productivity 63
Extra Dating (X-Dating) 88
Sales per Square Foot 63
Advanced Dating (As Of) 89
Sales per Square Foot as a Planning Measure 64
Practice Problems Exercise 4.2 89
Sales per Linear Foot of Shelf Space 65
Allowances 90
Practice Problems Exercise 3.4 65
Transportation Costs 91
Inventory Productivity 66
Factors and Back Offices 93
Practice Problems Exercise 3.5 67
Negotiation for Other Services 93
Definitions 67
Practice Problems Exercise 4.3 94
Summary Problems 68
Definitions 95
CASE STUDY 1 HOW CAN THE DEPARTMENT INCREASE Summary Problems 96
PROFIT?
CASE STUDY 1 TO BUY OR NOT TO BUY
BOBBIE MOORE, M.B.A., TEXAS STATE JOSHI PREETI, M.S., UNIVERSITY OF KENTUCKY 99
UNIVERSITY-SAN MARCOS 72
CASE STUDY 2 SELECTING THE BEST VENDOR
CASE STUDY 2 MEASURING CORPORATE
EUN JIN HWANG, PH.D., INDIANA UNIVERSITY
SOCIAL RESPONSIBILITY THROUGH
OF PENNSYLVANIA 100
P & L STATEMENT: TENSIONS BETWEEN
PROFITS AND SUSTAINABILITY FOR CASE STUDY 3 NEGOTIATIONS AT THE FOOTWEAR MARKET
ONLINE VS. BRICK-AND-MORTAR BARBARA DAVIS, M.S., THE UNIVERSITY OF
STORES? ALABAMA 101
iv contents
5 6
Markup as a Merchandising Tool | 103 Retail Pricing for Profit | 141
Objectives 103 Objectives 141
Key Points 103 Key Points 141
Career Corner Career Corner
Kasia Romo, Charming Charlie 104 Lauren Rodgers,
Neiman-Marcus, Inc. 142
Markup Defined 104
Markup as a Percent 105 Retail Objectives and Pricing 142
Calculating Markup Percent Pricing Policies and Retail
Based on Retail 105 Image 142
Calculating Markup Percent Factors that Affect Pricing 144
Based on Cost 106 Price Consciousness 145
Comparison of Markup Based on Cost The Right Price for the Consumer 145
with Markup Based on Retail 107
The Right Price for the Retailer 145
Basic Markup Calculations 107
Price Lines and Zones 146
Practice Problems Exercise 5.1 110
Pricing Related to Consumer
Markup Percent on a Group of Items 111
Demand 146
Practice Problems Exercise 5.2 113
Establishing Prices 147
Timing of Markups 114
Price Changes 148
Averaging Markups 115
Sell-Through 148
Practice Problems Exercise 5.3 121
Markdowns 149
Initial Markup 123
Markdowns and Vendor Negotiations 151
Practice Problems Exercise 5.4 126
Practice Problems Exercise 6.1 153
Cumulative Markup 128
Markdown Cancellation and Net Markdowns 155
Practice Problems Exercise 5.5 129
Practice Problems Exercise 6.2 157
Maintained Markup 129
Additional Markup and Markup
Practice Problems Exercise 5.6 131
Cancellations 158
Definitions 132
Discounts 159
Summary Problems 133
Practice Problems Exercise 6.3 160
CASE STUDY 1 HOW CAN THE BUYER DETERMINE
Definitions 162
AVERAGE COST?
Summary Problems 163
MARINE AGHEKYAN, PH.D., CALIFORNIA STATE
UNIVERSITY AT LONG BEACH 136 CASE STUDY 1 PERMANENT VS. POINT-OF-SALE
MARKDOWNS
CASE STUDY 2 CALCULATING INITIAL MARKUP AND
JUDI TOERGE, MFA, ACADEMY OF
AVERAGE MARKUP
ART UNIVERSITY 167
TAMMY ROBINSON, PH.D., AND FARRELL DOSS,
PH.D., RADFORD UNIVERSITY 137 CASE STUDY 2 TWIST OF FATE
LAREE WALTEMYER, THE ART INSTITUTE OF YORK,
CASE STUDY 3 OPERATING A SUCCESSFUL BRIDAL
PENNSYLVANIA 169
BUSINESS
WANDA K. CHEEK, PH.D., MISSISSIPPI CASE STUDY 3 CINDERELLA’S SHOES
STATE UNIVERSITY 138 JAEIL LEE, PH.D., SEATTLE PACIFIC UNIVERSITY 170
contents v
7 8
Inventory Valuation | 173 The Dollar Merchandise Plan | 207
Objectives 173 Objectives 207
Key Points 173 Key Points 207
Career Corner Career Corner
Ashley Malfitano, J. C. Penney Samantha Dornan, Michaels
Company, Inc. 174 Stores, Inc. 208
Calculation of Book Tools of Merchandise
Inventory 175 Planning 208
Total Merchandise The Merchandise
Handled 175 Plan 209
Retail Deductions 176 Format for the Merchandise Plan 209
Practice Problems Planning Sales 211
Exercise 7.1 177 Sales Curves 213
Calculation of Shortage 178 Calculating Sales 217
Practice Problems Exercise 7.2 180
Practice Problems Exercise 8.1 218
Estimated Shortage 181
Planning Stocks 219
Practice Problems Exercise 7.3 182
Stock Turnover 220
Methods of Inventory Valuation 183
Practice Problems Exercise 8.2 222
The Retail Method of Inventory Valuation 183
Weeks’ Supply Method 224
Original-Cost Method of Inventory Valuation 188
Basic Stock Method 225
Advantages and Disadvantages of the Retail
Stock–Sales Ratio 227
Method of Inventory (RIM) 190
End of the Month Stock 230
Suggestions for Working RIM Problems 190
Practice Problems Exercise 8.3 230
Practice Problems Exercise 7.4 193
Planning Markdowns 232
Gross Margin Return on Inventory (GMROI) 195
Planning Purchases 233
Review of Cumulative and Maintained Markup 196
Converting Retail Value to
Practice Problems Exercise 7.5 196
Cost Value 234
Definitions 198
Practice Problems Exercise 8.4 235
Summary Problems 198
Preparation of the Merchandise Plan 235
CASE STUDY 1 DEPARTMENT PRODUCTIVITY RELATED TO
Practice Problems Exercise 8.5 239
INCREASING INVENTORY LEVELS
JEANNE HEITMEYER, PH.D., THE FLORIDA Definitions 243
STATE UNIVERSITY 202 Summary Problems 243
CASE STUDY 2 DOES THE ACCURACY OF PHYSICAL CASE STUDY 1 MARKDOWN MAYHEM
INVENTORY AFFECT PROFIT ESTIMATES? TAMMY KINLEY, PH.D., UNIVERSITY
ANN PAULINS, PH.D., OHIO UNIVERSITY 203 OF NORTH TEXAS 250
CASE STUDY 3 A NALYZING PERFORMANCE WITH RETAIL CASE STUDY 2 KEY SALES AND INVENTORY ANALYSIS
METHOD OF INVENTORY OF A JEWELRY COMPANY
RAYMOND WIMER, PH.D., SYRACUSE GARY WOLF, M.S., FASHION INSTITUTE
UNIVERSITY 204 OF TECHNOLOGY 251
vi contents
CASE STUDY 3 SIX-MONTH MERCHANDISE (DOLLAR) Practice Problems Exercise 9.3 271
PLANNING Definitions 272
LUCY SIMPSON, M.S., THE UNIVERSITY Summary Problems 273
OF TENNESSEE 252
CASE STUDY 1 IMPROVING PERFORMANCE IN CHILDREN’S
ACCESSORIES
9 IRENE FOSTER, PH.D., FRAMINGHAM STATE
Open-to-Buy and Assortment UNIVERSITY 275
Planning | 255
CASE STUDY 2 “ IT TAKES A VILLAGE” (AND MAYBE BETTER
ASSORTMENT PLANNING!)
Objectives 255 ROCHELLE BRUNSON, PH.D.,
Key Points 255 BAYLOR UNIVERSITY 277
Career Corner
CASE STUDY 3 Y OU, AS THE ASSISTANT BUYER! FIRST
Jillian Cleary, Zales Corporation 256
TASK: OPEN-TO-BUY CONTROL
Open-to-Buy 257 JESSICA HURST, PH.D., IOWA STATE UNIVERSITY 279
Increasing Open-to-Buy 258
Figuring Open-to-Buy 258
APPENDIX A REVIEW OF FRACTIONS 281
Practice Problems
APPENDIX B SELECTED FORMULAS 287
Exercise 9.1 261
APPENDIX C ANSWERS TO PRACTICE
Assortment Planning 262
PROBLEMS 291
Preparing the Assortment Plan 264
Practice Problems Exercise 9.2 266 APPENDIX D ANSWERS TO PRETEST 309
Inventory Replenishment 267 INDEX 311
contents vii
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preface
This book is designed to be used as a text in with explicit formulas and solutions. Each topic is Case Studies, written by professors at several
a merchandising mathematics course taken introduced and explained, followed by example colleges and universities, have been added to the
by students majoring in retail management or problems. Solutions for the examples are provided end of each chapter for Chapters 3 through 9. These
merchandising. Such courses are also a ppropriate to demonstrate the mathematical principles. Many case studies are based on the c ontributors’ many
for students majoring in apparel design or problems are also illustrated with solutions on years of experience working in retailing and t eaching
manufacturing, interior design, and marketing. The spreadsheets. Practice problems with workspace merchandise mathematics and are important
textbook was developed to familiarize s tudents are provided to help the student develop skill in additions to the new edition. Solutions to the case
with principles and terminology important to learning the principles presented. studies are provided in the downloadable instructor’s
understanding profitable merchandising. This Answers for the practice problems are manual at www.pearsonhighered.com/irc.
knowledge is important in preparing students for provided at the back of the book to enable s tudents The need to understand profit factors is
entry-level positions in retailing and for eventual to check their own progress. At the end of each stressed throughout the book. The material is
careers as analysts, allocators, buyers, merchandise chapter, there is a summary exercise to r einforce presented in nine chapters:
managers, and upper-level executives. It is also of learning of the entire chapter. Word problems
value to students seeking careers in the apparel and demonstrating practical situations are used. Chapter 1, “Introduction,” defines retail
home furnishings industries and in interior design. Answers to the summary exercises, a dditional merchandising and briefly discusses store
In addition to being used as a textbook in the Word problems, and PowerPoint slides are organization, emphasizing the relation-
college classroom, this workbook can be used in provided to the instructor through the Pearson Web ship of the merchandising division to other
retail executive training programs and as a reference site at http://pearsonhighered.com/irc. divisions within the store.
for the practicing buyer or small-store owner. The To access supplementary materials online, Chapter 2, “Basic Merchandising Mathe-
fundamental principles and techniques of merchan- instructors need to request an instructor access matics,” provides a review of decimals
dising mathematics provided can be applied when code. Go to www.pearsonhighered.com/irc to and percents.
solving specific retail merchandising problems. register for an instructor access code. Within Chapter 3, “Profitability,” presents the major
Many students fear mathematics and have 48 hours of registering, you will receive a c onfirming factors involved in a skeletal profit and
inadequate knowledge of basic arithmetic. A special e-mail including an instructor access code. Once loss statement and emphasizes the impor-
feature of this book is a review of the f undamentals you have received your code, locate your text in the tance of controlling expenses to maximize
of arithmetic, including percents, fractions, and online catalog and click on the Instructor Resources profit. Also presented are concepts that
decimals. Because many students have not worked button on the left side of the catalog product page. calculate productivity or efficiency mea-
with basic arithmetic since junior high school, an Select a supplement, and a login page will appear. sures, including human resource, space,
additional review of arithmetic fundamentals is Once you have logged in, you can access instructor and inventory productivity.
provided in the appendix. material for all Prentice Hall textbooks. If you have Chapter 4, “Cost of Merchandise Sold,”
Additional questions, case studies, and any difficulties accessing the site or downloading emphasizes the importance of n egotiating
supplementary files can be found at the Pearson a supplement, please contact Customer Service at with vendors to assist in improving
Careers Resources for Students website (http:// http://247pearsoned.custhelp.com/. the retailer’s profit margin. Also discussed
www.pearsonhighered.com/careersresources/) by Career Corners provide the students with are discounts, dating, allowances,
searching for the book by title or going to Browse valuable information on a variety of careers and transportation costs, vendor services,
by Discipline and choosing Fashion and Interior the importance of mathematics in r etailing and factors, and back offices.
Design and selecting your title from those listed. merchandising. These interviews with professionals Chapter 5, “Markup as a Merchandising Tool,”
Basic practical problems, which occur in in the fields of retail management and merchandis- emphasizes the importance of markup to
everyday merchandising situations, are presented ing can be found at the beginning of each chapter. profitable merchandising, explaining the
ix