Comprehensive Guide to Merchandising Company Operations and Strategies
A merchandising company is an enterprise that buys and sells goods to earn a profit. A merchandiser’s primary source of revenue is sales, and these companies generally operate within two main categories:
- Wholesalers sell to retailers
- Retailers sell to consumers
Measuring Net Income and Financial Performance
For these enterprises, the process of measuring success is specific. Expenses for a merchandising company are divided into two groups: 1 cost of goods sold and 2 operating expenses. Cost of goods sold is the total cost of merchandise sold during the period, while operating expenses are expenses incurred in the process of earning sales revenue. Examples are sales salaries and insurance expense. Gross profit is equal to sales revenue less cost of goods sold.
The following summary outlines the income measurement process for a merchandising company:
- Sales Revenue
- Less: Cost of Goods Sold
- Equals: Gross Profit
- Less: Operating Expenses
- Equals: Net Income (Loss)
Inventory Systems and Operating Cycles
To manage their stock, merchandising entities may use either of the following inventory systems:
- Perpetual: Detailed records of the cost of each item are maintained, and the cost of each item sold is determined from records when the sale occurs.
- Periodic: Cost of goods sold is determined only at the end of an accounting period.
Under the periodic method, cost of inventory on hand is determined from a physical inventory requiring counting the units on hand for each inventory item and applying unit costs to the total units on hand.
The operating cycles differ significantly between business types. While a Service Company performs services to receive cash, a Merchandising Company must buy inventory and sell inventory to receive cash.
Recording Purchases and Transactions
When merchandise is purchased for resale to customers, the temporary account, Purchases, is debited for the cost of goods. Like sales, purchases may be made for cash or on account (credit). The purchase is normally recorded by the purchaser when the goods are received from the seller, and each credit purchase should be supported by a purchase invoice.
Furthermore, a sales return and allowance on the seller’s books is recorded as a purchase return and allowance on the books of the purchaser. Purchase Returns and Allowances is a contra account to Purchases and has a normal credit balance.
The Strategic Role of Merchandising Companies
Choosing the right in-store merchandising company can make the difference between your retail store's success and failure. This is due to the merchandiser's ability to assist you in launching a new store, effectively displaying and organizing your products in a way that attracts clients. Making the best strategic merchandising decisions is the key to growing your business. RDTS, for example, is Canada's leading merchandising company, with over 25 years of retail expertise. RDTS has supported its customers, manufacturers, and banners by developing its brands and programs and inspiring innovative strategies to maximize ROI.
Corporate Merchandising and Branding Solutions
Corporate merchandising is a strategy for business owners to increase and improve their advertising programs. It is a cost-effective way of expanding your company's reach. Everyone who wants to expand the distribution of their products or services should consider corporate merchandising.
An example of this is seen with FundLoans, which required a small but impressive collection of branded corporate merchandising to beef up their marketing and staff apparel needs. This collection included:
- Branded tablet stylus pens
- Elegant designer coffee mugs
- Men’s embroidered and branded polo shirts
- Ladies’ tailored woven shirts
- Embroidered Flexfit snapback caps
Our scalable, customized solutions ensure that your brand image is strategically promoted to your consumers, utilizing people, technology, and innovation at the service of customer challenges.
