As retailers are faced with the changing demands of consumers, merchandisers must analyze their inventory assortments. For this discussion, consider the following scenario:
Ashton is a misses’ sportswear buyer. Two years ago, Ashton and the store’s management agreed that they should create a separate petite sportswear department. Because of its increasing sales, they felt that petite sportswear had outgrown its status as a classification and deserved to become a separate department.
Ashton continued as an enthusiastic, skillful, attentive buyer for the newly created department, and the impressive sales increases continued for the first year. The second year, however, the sales increases were small. Ashton now questioned if the category should remain a separate department or be reincorporated into the misses’ sportswear department. To make an appropriate judgment, Ashton requested the following data for analysis:
The department had an opening inventory of $850,000 at retail that carried a 54% markup.
During this period, the gross purchases of $570,000 at retail were priced with a 56.1% markup.
The freight charges were $8,600.
The merchandise returned to vendors amounted to $16,000 at cost and $30,000 at retail.
Transfers from the misses’ sportswear department were $3,500 at cost and $7,800 at retail.
Transfers to the misses’ sportswear department were $8,000 at retail with an agreed cost of $3,900.
The gross sales were $720,000; customer returns and allowances were $30,000.
The markdowns taken were 13%, and employee discounts were 1%.
Ashton determined that the petite sportswear department’s gross margin and weighed this against the 46.1% gross margin of the misses’ department.
In your initial post, address the following:
Should Ashton tell management that this new department should continue as a separate entity? Why or why not? Justify your decision with a mathematical comparison of the petite sportswear department’s and the misses’ sportswear department’s performance.