Case 23

DEVELOPING AN ASSORTMENT PLAN FOR HUGHES

A well-established, medium-sized department store in the Midwest, Hughes satisfies consumers needs by featuring popular names in fashion for the individual consumer, family, and home. It tries to offer a distinctive, wide assortment of quality merchandise with personalized customer service. The customer services include personal shoppers; credit through in-house charge, American Express, and Visa; and an interior design studio. Hughess pricing policy permits it to draw customers from several income brackets. Moderate-income consumers seeking value and fashion-predictable soft goods are target customers, as are upscale customers with a special interest in fashion.

The department store is implementing new marketing strategies to prepare for continuing growth and expansion. Hughess merchandising philosophy is to attract the discerning middle-market customers, who make up 70 percent of the population, as well as sophisticated, fashion-conscious consumers who expect to buy high-quality, brand-name merchandise at competitive prices.

One portion of Hughess buying staff is responsible for the Oriental rug department within home furnishings. The open-to-buy figure for this classification within the home furnishings division will be based on last years sales history (Exhibit 1).

EXHIBIT 1 Previous Years Fall/Winter Sales Results for Oriental Rugs

Sales Volume Markup	$120,000 51.5% Size	Percentage of Sales	Fabrication	Percentage of Sales
	3 5	20%	Silk	15%
	4 6	40	Cotton	25
	6 9	15	Wool	60
	8 10	10
	9 12	15

It has been projected that a 15 percent increase over last years sales volume can be attained due to Oriental rugs continued popularity. This years open-to-buy for fall/winter will be $66,200.Page 517

The buying staff will be making its purchases for fall/winter in Amritsar, India, a city known for top-quality carpets. Ghuman Export Private Ltd. of Amritsar, Punjab, India, is the manufacturer the buyers will contact. Exhibit 2 shows information about Ghuman to use in the decision-making process.

EXHIBIT 2 Ghumans Wholesale Price List

		FABRICATION
Size	Silk	Wool	Cotton
3 5	$ 400	$ 250
4 6	700	500	$200
6 9	850	700	275
8 10	1,200	1,000	350
9 12	1,400	1,300	500
Colors: Background colors available are navy, burgundy, black, and cream.
Quantities required for purchase: No minimum orders required.
Payment plan: Payment can be made in American dollars or Indian rupees. Letter of credit needs to be established prior to market trip.
Delivery: Air freight10 to 14 days delivery time; cost is usually 25 percent of total order.
Ocean freight39 days plus inland time is necessary; cost is usually 810 percent of total order.
Customer loyalty: Loyalty to customers is exceptional. Damaged shipments can be returned. Ghumans philosophy is to help the retailers obtain a profit on their product lines. How should Hughes distribute the allocated open-to-buy dollars among the available sizes, colors, and fabrics from Ghuman? Assume freight costs paid by Hughes are an additional 10% on top of Ghuman's Wholesale Price list and that Ghuman's will pay for any duties. Please determine the number of rugs that you can purchase by each size and type of material with your open to buy a budget of $66,200. You cannot buy a partial rug so the number of rugs you plan to purchase for each size and material must be a whole number. You would like to sell as many rugs as possible so sometimes you may want to round up and sometimes you may want to round down. Your total costs should be +/- $2,000 of the fall/winter budget of $66,200. Also Cotton rugs of size 3' by 5' are not available from Ghuman and will be purchased from a different supplier. A MS Excel template is attached to help you get started with this case.

From: Exhibit 1 Size 3X5 4X6 % Total Sales by Size 20.00% 40.00% 15.00% 10.00% 15.00% 100% Percent by Size and Material Silk Wool Cotton 15% 60% 25% 3.00% 12.00% 5.00% 6.00% 24.00% 10.00% 2.25% 9.00% 3.75% 1.50% 6.00% 2.50% 2.25% 9.00% 3.75% 15% 60% 25% Total by Rug Size 20.00% 40.00% 15.00% 10.00% 15.00% 100.00% Cell entries in Yellow are the percentages of total sales for each combination of rug size and type of material. Use these to allocate the budget dollars. For example 3x5 Silk rugs are 3% of total sales (20% of total sales X 15% made of Silk = 3%) and should receive 3% of the total budget of $66,200. 6X9 8X10 9X12 Totals Ocean freight charge 8-10%. Assume: 10% Rug Size 3X5 4X6 F.O.B. Cost per Rug 10% Ocean Freight Cost Added Silk Wool Cotton SILK WOOL COTTON $400.00 $250.00 NA $440.00 $275.00 NA $700.00 $500.00 $200.00 $770.00 $550.00 $220.00 $850.00 $700.00 $275.00 $935.00 $770.00 $302.50 $1,200.00 $1,000.00 $350.00 $1,320.00 $1,100.00 $385.00 $1,400.00 $1,300.00 $500.00 $1,540.00 $1,430.00 $550.00 6X9 8X10 9X12 From: Exhibit 1 Size 3X5 4X6 % Total Sales by Size 20.00% 40.00% 15.00% 10.00% 15.00% 100% Percent by Size and Material Silk Wool Cotton 15% 60% 25% 3.00% 12.00% 5.00% 6.00% 24.00% 10.00% 2.25% 9.00% 3.75% 1.50% 6.00% 2.50% 2.25% 9.00% 3.75% 15% 60% 25% Total by Rug Size 20.00% 40.00% 15.00% 10.00% 15.00% 100.00% Cell entries in Yellow are the percentages of total sales for each combination of rug size and type of material. Use these to allocate the budget dollars. For example 3x5 Silk rugs are 3% of total sales (20% of total sales X 15% made of Silk = 3%) and should receive 3% of the total budget of $66,200. 6X9 8X10 9X12 Totals Ocean freight charge 8-10%. Assume: 10% Rug Size 3X5 4X6 F.O.B. Cost per Rug 10% Ocean Freight Cost Added Silk Wool Cotton SILK WOOL COTTON $400.00 $250.00 NA $440.00 $275.00 NA $700.00 $500.00 $200.00 $770.00 $550.00 $220.00 $850.00 $700.00 $275.00 $935.00 $770.00 $302.50 $1,200.00 $1,000.00 $350.00 $1,320.00 $1,100.00 $385.00 $1,400.00 $1,300.00 $500.00 $1,540.00 $1,430.00 $550.00 6X9 8X10 9X12