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McFadden's department store has been a profitable family-owned retail business (consisting of several stores in the Pacific Coast region) since its beginning in 1910. The

McFadden's department store has been a profitable family-owned retail business (consisting of several stores in the Pacific Coast region) since its beginning in 1910. The last five years have been rough due to the economy, and McFadden's has been losing ground to national department and discount stores moving into the area.

The executive team is hopeful that a turnaround is finally occurring. Last year's sales volume for the entire retail store chain was $50 million. The National Retail Federation (NRF) predicts an increase in retail sales due to positive economic projections being felt throughout the country (e.g., unemployment has been dropping, the stock market is up, so investors have more money in their pockets, working hours have been steadily increasing, and there is an expectation of pent-up consumer demand after a number of years of lower sales and belt-tightening in households). Overall, retailers are expecting one of the best holiday seasons in a long time!

The NRF estimates a 5.5% increase in sales during the July to December 2019 season for the Pacific Coast, where McFadden's operates. Upper management believes that this increase in sales will be felt throughout all of its departments.

You are the buyer for Department 121, which sells young men's clothing. This department has been one of the more profitable departments for the company. Last year (2018), sales from Department 121 for the July-December season reached $750,000. Your sales forecast for this year (2019) must take into consideration the NRF's prediction for an increase in sales this period, and be based on an initial markup percentage of 52%.

Reductions for this period in 2018 totaled $105,000. Management expects the dollar amount of reductions to increase this season by 2% in an attempt to spur additional sales. The following reduction percentages are planned for November and December:

November December
21% 35%

Relying on information from the last three years, you forecast that 28% of seasonal sales will occur in November and 38% in December:

November December
28% 38%

You have the following additional information on the historical stock-to-sales ratio for this type of department:

July August September October November December
3.0 1.9 2.1 2.2 3.0 3.2

Today is November 11, 2019. Your inventory database has record of an additional merchandise order valued at $300,000 that has yet to be delivered. It's on a container ship arriving at one of the Pacific ports in five days. Also, the distribution center just notified you via the in-house inventory alert system that another large shipment has just arrived on the loading docks for Department 121. This shipment contains merchandise valued at $190,000 and has yet to be scanned into the computer system.

Finally, your reports show that your desired beginning-of-the-month stock (BOM) for December is $962,160.

please develop a merchandise budget for Department 121 and calculate open-to-buy as of today.

  1. Given the NRF's retail trend forecast for 2014, you need to project planned seasonal sales (July-December) for Department 121 for 2015
  2. Calculate Department 121's projected monthly sales for November
  3. Calculate Department 121's existing inventory or BOM inventory for November.
  4. Calculate Department 121's desired ending inventory or EOM inventory for November
  5. Notice that Department 121 allocates the highest percentage of reductions in the months of November and December. Explain these higher percentages.
  6. List and explain three types of reductions

Open-to-Buy Problems

As the buyer for Department 121, it is your responsibility to assess your current open-to-buy (OTB) based on the information above. You would like to bring in some new merchandise to go along with the remaining fall merchandise but are not sure if there is any money available. Your job is to calculate open-to-buy as of November 11th:

  1. What is the dollar amount of reductions accounted for in November (2 points)?
  2. Are there commitments that need to be taken into consideration? If so, state the dollar amounts
  3. What are the planned purchases at retail? Show your work; no credit will be given without work shown
  4. What is OTB at retail? Give the dollar amount and show your work .
  5. Are planned purchases equal to open-to-buy? Why or why not ?
  6. What is the cost complement percentage
  7. What is OTB at cost? Give the dollar amount and show your work
  8. Why is OTB important to retailers? Discuss its importance from a strategic perspective

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