This is an excerpt from Sport Finance 4th Edition With Web Resource by Gil Fried,Timothy DeSchriver & Michael Mondello.
E-Commerce Buyer and Planner at Reebok
I graduated from Miami University in Ohio in 2000 with a bachelor of science degree in business and a major in finance. My first job out of school was working as a fund administration analyst at JP Morgan Chase, and while I enjoyed the planning and numbers side of corporate finance, my interests always lay in the sports arena. After obtaining my masters in sport management at the University of New Haven, I decided the best way to combine my love for sport and finance would be to ultimately work for a sports apparel company.
I got my first job after obtaining my master's degree at the TJX companies and completed their merchandising development program. This program provided a solid foundation and understanding of the retail industry. I gained experience in the allocation of product from distribution centers to stores based on analysis and inventory management, financial planning, and how it relates to sales targets as well as buying strategy based on trends and forecasting. What I loved most about working in merchandising at TJX was the role I played in owning a business category and the continuous performance data reviewed in weekly sales reports that demonstrated our progress throughout the season. My first business category as an allocation analyst was in men's outerwear, and every Monday I would get excited to come in to work to review my jacket sales from the prior week. Seeing these numbers each week felt akin to receiving a report card with incentive to continually adjust plans to optimize category forecasts. I discovered I enjoyed working closely with tangible products, which solidified my career direction in merchandising. After developing as a planner, I jumped on the opportunity to work at Reebok to combine my passion for finance, merchandising, and sport.
Reebok is named after the grey rhebok, a very fast African mammal similar to an antelope—a fitting name for a company with a long history in athletic footwear where speed is valued. The founder, Joseph William Foster, was one of the first designers of the spiked running shoe in 1895. Building brand equity with consumers is instrumental for any profitable organization, and Reebok's rich history in footwear and apparel made it one of the biggest names in sport. Athletes like Shaquille O'Neal, Allen Iverson, and Sidney Crosby are a few names that helped shape the Reebok brand. Today, Reebok has rebranded the company and strives to become the leader in fitness, running, and CrossFit apparel and footwear.
As an associate buyer of men's apparel, it is my responsibility to manage inventory and cost for all men's clothing that best fits the needs of the U.S. customer for three direct-to-consumer channels. These omnichannels are broken down among factory outlets, full price stores, and our e-commerce business; and I need to ensure that the right product is in the right stores at the correct time. Buyers work in conjunction with allocation, planning, purchasing, marketing, branding, and product development to help manage this process to drive sales.
That process starts with a sales and receipt plan (where we analyze all sales and order receipts) passed down by the finance team, which follows the company's overall fiscal plan for the year. Each year is divided into two selling seasons—spring and fall—with new global assortments created for both by the product development teams. Once these assortments are passed off to merchandising, we work to identify the products that best suit the needs of the U.S. consumer. Once our seasonal assortment has been determined, we then work closely with the planning team to forecast sales and receipts. There are several planning tools and key performance indicators that are used when forecasting sales for a season.
The first planning matrix utilized to forecast sales is sell-through. Sell-through is the rate at which a product will sell compared to the amount of total product that is bought. For example, if I buy 1,000 units of receipts in a men's short but I only plan on selling 800, my sell-through rate would be planned at 80%. Both my sales of 800 units and my receipts of 1,000 units need to be accounted for in the financial plan. Another important planning matrix used is rate of sale, which is defined by the number of units you plan on selling per store per week. This analysis is pulled from sales history of the prior year or season from similar styles based on the total stores and the number of weeks on the sales floor. If we have sold 800 units of a men's short after 10 weeks across 50 total stores, the rate of sale would be 1.6 units per week.
Inventory management is the practice of overseeing and controlling the ordering, storage, and use of components that a company uses in the production of the items it sells. From a buying perspective, it is my responsibility to purchase the appropriate amount of product to achieve the overall sales plan without creating an excess of goods. Overbuying product creates a financial liability for the company by exceeding capacity at the distribution centers, which prohibits their ability to process and ship goods in a timely fashion, which can negatively affect sales. An abundance of excess inventory decreases the freshness and turn of the product as well as forcing the liquidation of stock by promotions and discounts, which reduces the gross margin.
Companies evaluate their overall effectiveness by the inventory turnover ratio. This is defined by the number of times a company's inventory is sold and replaced in a year's time. At Reebok, our inventory turnover ratio is planned at four times per year, meaning we want to sell and have brand new assortments per quarter. There are a few factors that are used to help achieve inventory turn. The first matrix used is length of life (LOL), or the number of weeks planned for a product. Retail is a seasonal business, and certain products need to be planned accordingly. For example, I buy more layering products (fleece, jackets, sweatpants) in the fall with an October introduction date and a planned LOL of 13 weeks for the fourth quarter. After the allotted period of time, promotions will be applied to accelerate sell-through and liquidate inventory. As a result of these discounts, we also need to factor in a point of sale rate. This is the planned discount rate applied to the total retail price. For example, a men's jogger is priced at $70, and it sells at full price for 13 weeks (planned LOL) and then is marked down 40% ($42) until the product is liquidated. Therefore, my planned point of sale rate for the season needs to account for both full price and markdown sales for that jogger.
Discounts and promotions need to be accounted for when managing costs as well as pricing goods at the correct value to sell. Cost management is an essential component of profitability for any company and something that I'm held accountable for as a buyer. Cost starts at the product level where sourcing works closely with the product teams on cost of goods based on materials. Factory location and the transportation of product from overseas including taxes and tariffs all need to be factored into the total cost of a product. This requires a close working relationship with the product teams to ensure that they are optimizing costs that fit into my pricing strategy. Initial markup (IMU) and the overall gross margin are two financial matrices that need to be accounted for when pricing goods to fit into the value strategy. IMU is based on the starting prices of the product, and the planned gross margin is the overall profitability of selling merchandise. An IMU of at least 70 basis points is the starting target retail price at Reebok. This means that the initial retail value needs to be 70% greater than the cost of the product. While the IMU is the starting target, the gross margin reflects the actual profits gained by a company after sell-through, LOL, and point-of-sale rates. I need to ensure my seasonal forecasts are meeting the margin requirements set by finance to optimize returns.
Merchandising has been referred to as more of an art than a science. All companies are affected by external factors such as natural disasters, social and economic influences, and an ever-changing retail landscape with a constant influx of innovation, products, and trend. Buying the correct assortment of product at the optimal stock quantities will always be like aiming at a moving target, which is why financial strategy and the planning tools utilized by historical data and research are imperative to the overall profitability of any business.