1701368 CW2 Report - Financial Merchandising for Fashion PDF

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Report BS3193: Financial Merchandising for Fashion Word Count: 2169 Student ID: 1701368 School of Creative and Cultural Business

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Executive Summary: ARKET is the newest edition to the H&M Group and is described as a “modern-day market offering essential products for men, women, children and the home” (ARKET, 2019). They have a mission to democratise quality through durable, wellmade products designed with a sense of style and longevity. The brand opened its first store on Regent Street in London, 2017 and launched online the same year. The brand now has over 18 stores worldwide with the UK home to six, all of which are in England (H&M Group, 2019).

ARKET appeals to the style-conscious shopper and is best known for their own deigns as well as complimentary brands stocked in their stores such as Adidas and Veja. The stores utilise a modern market layout, creating an easy and efficient overview of an archive collection with a café for customers to unwind. The brands Nordic-inspired fashion focuses on durability and sustainability for example, the brands ‘recycle with ARKET’ eco-friendly initiative is aimed at recycling unwanted clothing and offers a 10% off voucher for any contribution. Furthermore, to encourage shoppers to repurchase each product has a specific 9-digit code to allow customers to find and re-purchase products both online and instore (ARKET, 2019).

ARKET plans to open three new stores in Scotland throughout 2020, their Head of Merchandising has tasked their Assistant Merchandiser to produce a store grading and merchandising report to identify the new store locations in line with their storegrading system, furthermore, based on the store grades merchandise recommendations for the new mid-grade store will be outlined.

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Table of Contents: 1.0 Title Page page 1 1.1 Executive Summary page 2 1.2 Introduction page 5

2.0 ARKET’s Store Grading System as a Tool to enable Effective Stock Allocation page 5-7

3.0 New Store Openings page 7-9

4.0 Factors Influencing ARKET’s Assortment page 9-10

5.0 Merchandise Recommendations for the New Mid-Grade Scottish Store page 11

6.0 How to Measure Sales Performance of ARKET’s New Mid-Range Scottish Store page 11-12

7.0 Conclusion page 13

8.0 References page 14-16

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List of Tables and Figures: 1.0

Figure 1: ARKET’s Store Grading System page

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Figure 2: Edinburgh Population Profile: (National Records of Scotland, 2018) page 8

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Figure 3: Glasgow City Population by Group and Sex: (National Records of Scotland, 2018) page 9

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Figure 4: Standard Distribution Curve (Jackson and Shaw, 2001 p.141) page 10

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1.2 Introduction: This report will explain the use of ARKET’s store grading system as a tool to ensure effective stock allocation and make recommendations on additional store segmentation characteristics. Additionally, based on the brand’s store grading system, three new store locations to open ARKET stores in Scotland in 2020 will be proposed. With one top, mid and low-grade store. Furthermore, in preparation for the Scottish expansion factors influencing ARKET’s current product range and assortment plan will be identified. Merchandise recommendations for the new midgrade store will also be made as well as recommendations on how to measure the sales performance of ARKET’s mid-range Scottish store.

2.0 ARKET’s Store Grading System as a Tool to enable Effective Stock Allocation: According to Levy and Weitz (2012) stock allocation decisions have a significantly bigger impact on profitability than decisions regarding the quantity of merchandise to buy. Therefore, it is essential that mistakes in stock allocation are avoided at all cost (Levy and Weitz, 2012). Merchandisers must take into account the issue of variable store size when considering stock allocation, with different sized stores in different countries no one store is likely to be the same as another (Jackson and Shaw, 2001).

Furthermore, Jackson and Shaw (2001) state “the difference between the size of the smallest and the largest shop or store in a fashion chain can be immense” (p.140). For example, large stores (A and B stores) require at least ten times more space than the smallest stores however, this does not mean the large stores need ten times as many products. In comparison, smaller shops (G and H stores) have to hold a smaller range by depth and width of stock in order to display as much stock as possible on the shop floor without appearing congested (Jackson and Shaw, 2001). Stock allocation involves three key decisions; “how much merchandise to allocate each store, what type of merchandise to allocate and when” (Levy and Weitz, 2012. p.323).

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Store grading must be used by retailers with more than one store in order to allocate stock efficiently and can be undertaken by analysing the total selling space per store, sales planes and sales per sq. ft. (Jackson and Shaw, 2001). According to Jackson and Shaw (2001) a store grading system will generally follow a standard distribution curve Figure 4 with a small proportion of stores at each extremes of the curve and the greatest majority falling in the middle. ARKET typically classifies their stores on the basis of annual sales. Their grade A flagship store (Regent Street, London) has the largest sales volume but typically receives proportionately less stock for the percentage of sales. For example, the store achieves 12% of total sales but only receives 10% of total stock allocation Figure 1. Furthermore, ARKET’S flagship store is likely to be more spacious than its mid-grade stores as it requires something unique or special to occur in order to provide an experience for customers. According to Manlow and Nobbs (2012) (p.52) “luxury flagships are designed to take into account all the senses and create an emotional response in consumers” furthermore, the environment of flagship stores provides selfadmiration and pleasure in a shopping experience.

While in comparison, their grade E store (Kent, Bluewater) has a significantly lower sales volume but receives proportionately more stock than the percentage of sales. For example, it achieves 3.5% of total sales but receives 4% of total stock allocation Figure 1. This is to ensure smaller stores have a good range of products and high levels of stock in order to help improve its situation and increase sales. ARKET’s store grading system has a relatively wide grading from A-H, with A being their flagship and H being their lowest grade store Figure 1. Their store grading system Figure 1 is an effective tool to enhance stock allocation as it ensures stores receive the correct amount of merchandise according to there grade; top, mid and low.

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Figure 1: ARKET’s Store Grading System:

3.0 New Store Openings: By utilising ARKET’S own store grading system Figure 1 three new store locations have been proposed to open in Scotland throughout 2020; one top-grade, B in Edinburgh, one mid-grade, D in Glasgow and one low-grade store, G in Aberdeen. Edinburgh was selected as the location for ARKET’s new top-grade store (grade B) as according to the National Records of Scotland (2018) the city’s population has increased from 446,240 in 1988 to 518,500 in 2018 and is projected to increase to 546,444 by the year 2026. Furthermore, the population of the City of Edinburgh has increased by an overall, 16.2% in the past ten years and there are more females (51.2%) than males (48.8%) in the city. Moreover, “in terms of overall size, the 25 to 44 age group appeared to be the largest in 2018, with a population of 176,594” (National Records of Scotland, 2018) Figure 2. Therefore, ARKET’s new top-grade is likely to be very successful as the population continues to increase with more women than men and an increase in 25 to 44 years of age; the brands target customer (ARKET, 2019).

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Figure 2: Edinburgh Population Profile: (National Records of Scotland, 2018)

Furthermore, Glasgow was chosen as the location for the brands new mid-grade store (grade D) because, the population of the city has increased by 6.7% from 587,050 in 1998 to 626,410 in 2018 (National Records of Scotland, 2018). The 25 to 44 age group (ARKET’s target customer) has become the largest in 2018, with a population of 211,098 and more females than males appear to be living in Glasgow City in 4 out of 6 age groups Figure 3. This suggests, that Glasgow will be an appropriate location for the brands new mid-grade store as ARKET’s key focus is womenswear (ARKET, 2019).

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Figure 3: Glasgow City Population by Group and Sex: (National Records of Scotland, 2018)

Finally, Aberdeen was selected as the location for the brands new low-grade store (grade G) as according to the National Records of Scotland (2018), the population of the city has increased by 5.5% from 1998-2018. Furthermore, “in terms of overall size, the 25 to 44 age group appeared to be the largest in 2018, with a population of 75,101” (National Records of Scotland, 2018). Therefore, Aberdeen is likely to be an ideal location for ARKET’s new low-grade store as the brand targets consumers within the age range of 25 to 40 (ARKET, 2019).

4.0 Factors Influencing ARKET’s Assortment: Sizing is a key factor influencing ARKET’s assortment as it affects how many items the brand requires in each product category. Furthermore, it is essential enough sizes are available to ensure consumer satisfaction is achieved. According to Jackson and Shaw (2001) sizing decisions are most always made based on historical data. For example, when referring to Figure 4 Clark (2015) states that accurate size curves are essential for effective assortment and range planning and regular updates are required to ensure accuracy. Furthermore, Jackson and Shaw

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(2001, p.141) state that “sizing throughout any population generally follows the standard distribution curve” as seen in Figure 4. In ARKET’s case the left side represents smaller sizes such as XS (extra-small) and the right side represents larger sizes such as L (large) Figure 4 both significantly smaller than size S (small) and M (medium) which appear to be in much higher demand as they are considered average sizes for women. This would be similar to the brands men’s section with high demand for sizes S (small) and M (medium) and lower demands for sizes XS (extra-small), L (large) and XL (extra-large) (ARKET, 2019). Therefore, it is essential that ARKET refers to national size ratios in Scotland before allocating stock as sizes may differ slightly from the rest of the UK.

In addition, colour options are another key factor influencing the brands assortment. Therefore, a similar approach as utilised during sizing allocation would be implemented (Jackson and Shaw, 2001). Furthermore, colourways must be considered as having a variety of colour options will ensure consumer satisfaction is met. Specifically, it is important that ARKET stock various colourways of their most popular products and or key value items (KVIs) such as their women’s ‘alpaca & merino cardigan’ (£79) to ensure sales performance targets are met (ARKET, 2019).

Figure 4: Standard Distribution Curve (Jackson and Shaw, 2001 p.141)

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5.0 Merchandise Recommendations for the New Mid-Grade Scottish Store: A product range “is an assortment of products, most commonly garments and accessories, which is developed under different categories to sell to customers” (Jackson and Shaw, 2001. P.72). Additionally, a range refers to the width and depth of products offered in terms of style, colour, size and price range available. It is essential the correct balance is achieved in order to ensure the best return on investment (Jackson and Shaw, 2001).

ARKET’s new mid-grade store in Glasgow is set to open in Autumn/Winter 2020 and as stated previously it will sell clothing and accessories for women, men, children and babies and will also offer travel and homeware to ensure a versatile range is offered. However, the focus will remain on Key Value Items (KVIs) for example, according to Jackson and Shaw (2001, p.75) “it is not uncommon for some fashion retailers to have 50% of sales coming from 10% of their options” (KVIs). When referring to ARKET’s website there KVIs are easily identified in their ‘most popular’ section (ARKET, 2019). Furthermore, these KVIs can also be identified by analysing historic sales data (Jackson and Shaw, 2001).

“The depth of a range refers to the choice of styles, colours, sizes and price points available to customers” (Jackson and Shaw, 2001 p.72). According to Jackson and Shaw (2001) p.72 “the range width refers to how wide a choice of products is to be offered to customers”. It is essential that both depth and width of the range is considered to ensure ARKET’s new mid-grade Scottish store has a deep and wide range. Furthermore, its important ARKET achieves the balance between both depth and width in order to achieve a profit (Jackson and Shaw, 2001).

6.0 How to Measure the Sales Performance of ARKET’s New Mid-Range Scottish Store: ARKET’s sales performance can be measured by utilising GMROI (Gross Margin Return on Inventory Investment). GMROI is an “inventory profitability evaluation ratio that analyses a firm’s ability to turn inventory into cash above the cost of the inventory” (Investopedia, 2019). According to Levy and Weitz (2012) it effectively

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measures how many gross margin pounds are earned for every pound of inventory investment. This measurement is directly influenced by buyer’s decisions as it is affected by the price they decide upon and negotiate during purchasing merchandise. “GMROI combines gross margin percentage and the sales to stock ratio, which is related to inventory turnover” (Levy and Weitz, 2012, p.305). Furthermore, the gross margin element of GMORI is affected by the prices set and the prices negotiated when purchasing merchandise. In comparison, the stock to sales ratio is affected by the popularity of the merchandise buyers purchase for example, the quicker it sells the higher the sales to stock ratio (Levy and Weitz, 2012). Therefore, it is clear GMORI is an effective measurement of sales performance as used efficiently ARKET will be able to analyse their ability to turn merchandise into sales.

Levy and Weitz (2012) suggest ARKET can also utilise mark-downs (discounts) as a method of measuring sales performance. Specifically, mark-downs as a percentage of sales” “measure the quality of the merchandise buying decisions” (Levy and Weitz, 2012, p.161). For example, if mark-downs appear relatively high this may suggest buyers have been rather unsuccessful in selecting appropriate merchandise or they may have purchased too large a quantity.

However, it can be argued that the most effective measure of sales performance is Return on Investment (ROA). According to Investopedia (2019) “ROA is an indicator of how profitable a company is relative to its total assets”. This consists of net profit margin percentage and asset turnover. However, ROA would not be an effective measure of sales performance when used individually as they are often affected by circumstances (Levy and Weitz, 2012). Therefore, more than one measure of sales performance must be utilised to ensure accuracy.

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7.0 Conclusion: In conclusion, this report outlines the use of ARKET’s store grading system as a tool to ensure effective stock allocation. It was decided that the brand will open three new stores, one top-grade in Edinburgh (B), one mid-grade in Glasgow (D) and one low-grade store in Aberdeen (G) in Scotland in 2020 based on their store grading system. Furthermore, to prepare for the brands expansion into Scotland factors such as size and colour were identified as influencing the current product range and assortment plan. Additionally, merchandise recommendations were made for the mid-grade store in Glasgow and GMROI and ROA were identified as keyways to measure sales performance. Overall, this report identifies three new store locations for the brands expansion into Scotland in line with their store grading system and outlines merchandise recommendations for the brands new mid-grade store.

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8.0 References:

ARKET, 2019. About. [online]. Stockholm: H&M Group. Available from: https://www.arket.com/en_gbp/about.html [Accessed 20 December 2019].

ARKET, 2019. ARKET homepage. [online]. Stockholm: H&M Group. Available from: https://www.arket.com/en_gbp/index.html [Accessed 23 December 2019].

ARKET, 2019. Stores & cafes. [online]. Stockholm: H&M Group. Available from: https://www.arket.com/en_gbp/stores.html [Accessed 22 December 2019].

CLARK, J., 2015. Fashion merchandising: principles and practice. London: Palgave Macmillan.

GUTHRIE, K. M., and STEELE, C. W., 2009. Perry’s department store: a buying simulation for juniors, men’s wear, children’s wear, and home fashion/giftware. 3 rd ed. New York: Fairchild.

H&M Group, 2019. ARKET. [online]. Stockholm: H&M. Available from: https://hmgroup.com/brands/arket.html [Accessed 23 December 2019].

HARGRAVE, M., 2019. Return on assets – ROA. [online]. New York: Investopedia. Available from: https://www.investopedia.com/terms/r/returnonassets.asp [Accessed 3 January 2020].

JACKSON, T., and SHAW, D., 2001. Mastering fashion buying and merchandising management. London: Macmillan Press Ltd.

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KENTON, W., 2019. Gross margin return on investment – GMROI. [online]. New York: Investopedia. Available from: https://www.investopedia.com/terms/g/gmroi.asp [Accessed 3 January 2020].

LEVY, M., WEITZ, B. A. and BEITELSPACHER, L. S., 2012. Retailing management. 8th ed; international ed. New York: McGraw-Hill.

MANLOW, V., and NOBBS, K., 2012. Form and function of luxury flagships. Journal of Fashion Marketing and Management, 17(1), pp. 49-64.

NATIONAL RECORDS OF SCOTLAND, 2019. City of edinburgh council area profile. [online]. Edinburgh: National Record of Scotland. Available from: https://www.nrscotland.gov.uk/files/statistics/council-area-data-sheets/city-ofedinburgh-council-profile.html [Accessed 27 December 2019].

NATIONAL RECORDS OF SCOTLAND, 2019. Glasgow city council area profile. [online]. Edinburgh: National Record of Scotland. Available from: https://www.nrscotland.gov.uk/files/statistics/council-area-data-sheets/glasgowcity-council-profile.html [Accessed 27 December 2019].

NOMIS, 2019. Labour market – aberdeen city. [online]. London: Office for National Statistics. Available from: https://www.nomisweb.co.uk/reports/lmp/la/1946157405/report.aspx? pc=AB11%207TA#tabrespop [Accessed 27 December 2019].

WIGHTMAN-STONE, D., 2017. Inside arket, h&m group’s new store. [online]. Amsterdam: Fashion United. Available from:

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https://fashionunited.uk/news/retail/inside-arket-h-m-group-s-newstore/2017082425594 [Accessed 20 December 2019].

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