Products and Merchandise Strategy

Jump to section

• Overview & contents
• i. Important Notice and Basis of Preparation
• 1. Executive Summary
• 2. The Business
• 3. Market Analysis
• 4. Location Strategy
• 5. Products and Merchandise Strategy
• 6. SWOT and Competitive Position
• 7. Marketing and Sales
• 8. Operations
• 9. People, Compliance and Controls
• 10. Implementation Plan
• 11. Financial Plan
• 12. Break-Even
• 13. Working Capital and Debt Service
• 14. Returns
• 15. Sensitivity and Scenarios
• 16. Risk Management
• 17. Trigger Points and Management Response
• 18. Key Performance Indicators
• 19. Key Assumptions
• 20. Conclusion
• A. Appendix A: Consolidated Financial Summary
• B. Appendix B: Capital and Pre-Opening Schedules
• C. Appendix C: Funding and Debt Schedules
• D. Appendix D: Risk Register
• E. Appendix E: Glossary

5.1 Range architecture

The store opens with approximately 1 450 units at a cost of R225 000, across roughly 55 style options. Each style is bought in a full size curve from 30 to 46, weighted to 36–42. This produces an average cost per unit of about R155 and an average unit retail of about R270.

Range discipline is the operating philosophy. A 55 m² store that tries to carry breadth ends up with one of everything, no size depth, and a customer who cannot find her size in the item she wants. The plan buys fewer styles in greater depth, accepting that some customers will not find what they want on any given visit.

5.2 Merchandise mix

5.3 Sourcing and supply

New retail accounts are usually opened on a cash basis. The model reflects this: creditor days start at 24 days and only reach 40 days by Year 5. Every additional day of supplier credit obtained in Year 1 releases roughly R2 925 of cash — which, given the Year 1 cash trough of R116 922, is not a trivial sum. Supplier terms negotiation should be treated as a funding activity, not a procurement one.

5.4 Open-to-buy discipline

The single most common cause of failure in independent fashion retail is buying more stock than the store can sell at full price. The controls are simple and must be non-negotiable.

• A written open-to-buy budget per category per month, calculated as planned sales at cost plus planned closing stock less opening stock less stock on order.
• No purchase order issued without available open-to-buy in that category. Overspend in one category must be funded by an explicit reduction in another.
• Forward cover held between four and five months of cost of sales in Year 1, tightening as stock turn improves from 2.6 to 3.8 times.
• A weekly best-seller and worst-seller report. Reorder the top decile within seven days where the supplier allows; mark down the bottom decile at week six, not week twelve.
• A hard rule that no style enters a third season. Terminal stock is cleared, written off, or donated.

5.5 Markdown and clearance policy

The store buys at an initial mark-on of about 55.6 per cent — roughly a 2.25 times cost multiple. It does not achieve that. Markdown and clearance take 5.5 points in Year 1 and shrinkage a further 1.6 points, leaving an achieved margin of 48.5 per cent.

The improvement to 52.2 per cent by Year 5 is not assumed to come from raising prices. It comes from three specific operational gains: better buying accuracy reducing the markdown drag from 5.5 to 3.4 points; tighter shrinkage control from 1.6 to 0.9 per cent of sales; and a modest lift in intake margin from direct sourcing. If those operational gains do not materialise, the margin does not improve — and Section 15 shows that a three-point margin miss costs R76 056 of Year 3 EBITDA, which is nearly half of it.