The skinny on retail
We’ve had quite a few interesting comments added to Miracle’s postings on sales and marketing. One of our contributors, Julie (aka Dragon Lady) had a lot of interesting and useful advice to offer. Accordingly, I invited her to contribute a guest article which follows.
Kathleen asked me to write a short article recapping and expanding the comments I made a few days ago. As a former retailer, I have a lot of experience dealing with suppliers of all kinds -manufacturers, distributors, sales reps, and jobbers.
The day they open their doors, most retailers figure that something they bought can sit there forever until it sells. They quickly learn that won’t work! When it sunk in for us -about the end of the third month, I divided my total shelf / display space by the amount of the fixed monthly expenses. Every square foot of my shelf space cost $1.10 per DAY. That was just to keep the doors open, and didn’t include one-time expenses or my own paycheck. If I counted those things, it was about $1.80 per day. And every item on the shelf continues to rise in cost every moment it’s there. Every day it sat, the ‘rent’ for the shelf went up. Every time it needed dusting, it cost labor. Every time a tag or sign needed replacing, that counted toward the item’s cost. And every item that became damaged or was stolen added to the cost of the remaining ones. The products were “eating” and the cost to me kept going up. Even if your cost per square foot is very low, dust-catchers are tying up precious money that would be better invested in more profitable items -or even just collecting interest in the savings account. So it can’t stay there long. If it isn’t selling, you must get rid of it, and replace it with something that will sell.
There is never a shortage of stuff to sell, or of sales people to push it. I had -still have- file cabinets full of catalogs and brochures for products of every kind & from all over the world. Beautiful items that I would’ve loved to own myself or just be able to show off. It can be so tempting to buy a lovely piece of art or a nice sculpture -knowing it probably won’t sell- just because it’s so nice to look at or will brighten the place up. But a retailer isn’t in business to show off exquisite finds or demonstrate his great taste to the world! If you want to do that, better start a museum or a funky coffeehouse or something. In retail, the products must sell. They must sell and they must make back their own costs or you will no longer be in business.
It’s vital to choose items that reflect the customer’s tastes and buying habits, even if they’re completely at odds with your own -and that’s hard! It’s hard to spend your money buying things you think are ugly or old-lady-ish or only fit for teeny-boppers or whatever. But if your customers like ugly things, or are old ladies or teenagers, that’s exactly what you have to buy. And you can’t let a salesman or a well-meaning friend convince you to do otherwise.
So to help sift through the mountains of available products, we learned a trick; while the salesman is extolling the virtues and trying to tell us why we should buy, we silently countered the arguments with the reasons we shouldn’t. It’s much easier too, to look through the catalogs and find the reasons an item won’t do well. It’s a much faster and less tiresome way to narrow it down to the ones that are most likely to move.
And sometimes…a vendor or manufacturer made it easy by shooting themselves in the foot. I’ll tell you a few of the things they did that almost guaranteed I would never buy from them:
1) Called me at home at six a.m. This was my favorite. The store opened at ten, and most days I was there all day but they would figure I’d be too busy to listen to them then. So they’d call me at home to give me a 20 minute fast-pitch while I was trying to get breakfast cooked, the kids off to school and the cat fed. I would ask him who he worked for and then make darn sure we never bought so much as a fountain pen from them.
2) Called me on my 800 number with a 35 minute prepared speech about why I should buy from them. These types are trained to keep you talking. And every minute is costing me the long distance charges plus the carrier fees for the toll-free number (.20 cents per minute, I think). Meanwhile, my customers can’t reach me. That was just another vendor’s number that would hit the trash, making my desk a little cleaner.
Another word about 800 numbers…. If my potential business isn’t worth the price of a phone call to you, then either you’re dead broke, have no confidence in your own products, or both. If you aren’t selling enough to be able to afford to reach your potential customers, you are already out of business…you just don’t know it yet. Or if you don’t think your products are worth a damn, then why do you think I want them? I always picture some con man in a suit & tie smiling behind his hand thinking “a sucker every minute”. No, thanks.
The same with catalogs. Many vendors believe the retailer should pay for their catalog. What makes them think I should pay for the privilege of looking at their products or buying from them? It’s not as bad if they will offset the costs with a merchandise credit; but if I don’t choose to buy anything, I’ve just lost money and wasted my time. I came to the conclusion that if a vendor can’t afford to send me their catalog for free, they can’t afford to have a catalog. They need to whack out a few pages, or hire a lower-cost printing company or make it black-n-white or something but don’t ask me to pay for it.
3) Sent me a catalog that is a photocopy of another vendor’s catalog. Believe it or not, I recognize these things! I know when they’ve just whited-out someone else’s prices and typed (or penciled!) in their own. I know what the stuff is and I know where it came from. I hate it even more when they lie and try to tell me they are the original source, or theirs is ‘better’. And don’t bother to send me one of those catalogs that are rubber-stamped with your company name. I used to get 10 or 15 of them every season -same merchandise, same catalog. The only difference was the name on the order form.
4) Large initial minimum orders, and no payment “terms”. They want to sell a truckload to you the first time, then let you make smaller orders to replenish. And they want cash up front. And a restocking fee if you send it back for any reason. And finally, they don’t offer any kind of incentives or sales help. They figure they’ve done their job foisting the stuff on you, and if you can’t sell it that’s your problem. And if you do, well then…. Then they’re happy to let you go right on buying it from them -and that’s the attitude. You aren’t selling for them, but buying from them. They treat you like you’re the end consumer, and they don’t care whether you’re able to sell the stuff or not. They’ve missed a key concept -their success depends on your success. So, they act like they’re doing you a favor by letting you peruse their hallowed catalogs. They get friendlier with every reorder; if you’re willing to take the abuse and buy in the first place.
I like it the other way around. I want a small initial minimum so I can see how the stuff does. If it sells, I’ll reorder -and if all goes well, my orders will get bigger, not smaller. If it doesn’t, I’ll move on. I was never able to afford to buy $1000.00 worth of something I’ve never seen, just “on faith”. My store was not a church, and sales were not “a good thing that happened” (or worse, a miracle) they were a necessity. I can’t tell you how many wonderful products I passed up just because I couldn’t take the chance. So, a small minimum ($50. -$100.), and a 30-day-same-as-cash policy would be a good way to help relieve my doubts. If it’s not going to sell in 30 days, it’s not going to sell. So I might as well box it up and send it back. And they need to lose the restocking fee. I shouldn’t have to pay to send back crappy items (and as a general rule, the higher the restocking fee the crappier the items would turn out to be). Again, if a vendor doesn’t believe in his product enough to take it back (in salable condition), then I don’t believe in it at all. And I won’t spend my time or money on a product I don’t believe in.
To be fair, manufacturer’s aren’t selling on commission or consignment. If they have proven sellers, a small (10 -15 %) restocking fee isn’t unreasonable. But I still think it should be waived for first-time orders. I can’t tell you the heartbreak of opening a box and being utterly disappointed with the stuff in it. Being charged to send it back is infuriating.
5) Sell directly to my customers. This one cost my business. Period. I don’t care who you are, or what you sell. Do not wholesale it to me, then lure my hard-earned customers directly to yourself. Someone asked:
“As long as the brands match retail prices, what’s the problem ?”
I’ll tell you.
Ask yourself, “Who’s customer is it”? I spent $200. per month -every month- or more to advertise my store and the products in it. Those would be your products. My money, your products. I buy the products by the case, I pay the shipping costs, I pay the advertising costs, I pay the upkeep costs. I pay the rent for the storage. I take the product back -often at my own expense- if it breaks. I look at it and provide TLC all day long. All for one purpose; to make the sale that keeps us both in business and buys the groceries. Believe me, once I’ve done all that, I firmly believe the person who walks through my door is my customer.
If I lose that sale to a competitor a mile away, I’ve lost to someone with a competitive advantage. Maybe he has a larger number of items, lower prices, more parking, or nicer ads. Whatever it is, I can identify it and counter it. I can find my own niche by focusing on something my competitor’s don’t have, or offer a different incentive. If I still lose it, there’s no one to blame but me and my poor business skills.
But to lose that customer to my own supplier –the guy I depend on to provide the products I need- that’s a slap in the face. There’s a darn good chance the only reason a consumer even knows your products exist is because of my advertisements or my display window. The only reason he thinks it’s good and thinks he wants it, is because I talked it up and demonstrated its virtues -at my expense.
So in my opinion, the vendor who decides to wholesale to me, then turn right around and retail to my customer, is stealing from me. He’s stealing my advertising dollars, my showroom space, my time and my effort. In a nutshell, he’s stealing my customers! That’s my money and my life’s blood! Even if he is matching my prices…he’s stealing from me.
And many of them have the nerve to rationalize it. “We only sell our own line. You have the advantage of selling many different lines.” That may be. But it still costs me sales & customers. Even if she finds the exact same prices, my customer is very unlikely to purchase the jacket she wants direct, then come back to my store to purchase the blouse she saw there, separately. She’s very likely not to come back to my store at all, simply because she’ll remember she didn’t make a purchase the first time she was there. But if she had bought the blouse from me, there’s a better-than-even chance I would reorder it, and order the jacket, too.
And what happens if the manufacturer sells direct at a discount? Most consumers aren’t stupid. If Mrs. Smith sees her favorite brand of shampoo in my store for $2.00, then discovers she can buy it direct for $1.50; she gets the idea that I’m overcharging her. And if I’m overcharging her on shampoo, I’m probably overcharging her for everything else! Next thing you know, Mrs. Smith is walking through my store with a notebook writing down all the items she likes so she can attempt to purchase them direct at a savings. And I’m on my way out of business.
If a manufacturer can sell his products wholesale for .50 cents each, he’s probably making .25 cents gross profit. That’s just the way business works. So, if he decides to retail his products for .75 cents each, he’s making twice the profit. That’s nice…but he knows his retail accounts can’t possibly match that. He knows that if they buy it for .50 cents, they MUST resell it for at least $1.00 -and they still aren’t making a full .50 cents, because they also have to pay for shipping. And advertising. And shrinkage…all expenses he doesn’t have, thanks to them! Not only is he stealing from them, he’s putting them out of business doing it. That is not competition. That is just pure theft. It’s legal, maybe even “ethical”, but theft nevertheless.
And, as I noted in my comments before, these vendors usually pamper their higher-profit direct customers and the retailers get the leftovers -if there are any. After all we do for them, we don’t appreciate that one bit. And I’ve yet to ever even hear “Thank-you” from one of them -let alone receive a sales commission- for having so cheerfully directed my livelihood their way.
Well, slap me once…shame on you. I won’t let you slap me twice. If you retail, I won’t carry your product. I will spend my resources focusing on exclusive items that can’t be purchased directly.
Let’s see…on to more pleasant things! Here are some of the ways a supplier could tip the scales and make me decide to try his products…even if they are items I’ve never seen before.
1) Send me a free sample (and don’t charge me for shipping it, either). I love samples! I still have a boxful of sample products somewhere -things I think are as great as sliced cheese. And my customers loved them! I could take a sample, put it next to my register, and ask them “Hey, what do you think of this”? “Isn’t this a beautiful color”? “I might order a case of these for spring….” And I’d get their feedback. And you know…overwhelmingly, I’d sell more of them. You see, customers like it when they feel they’ve had a say in what’s available. They love it when they think you’ve taken their advice and love it even more when it’s really true! Often, they will buy one just because you took their word for it. It makes them feel valuable, appreciated, respected…all the wonderful things that motivate people to buy in the first place. And they will come back more often, too.
On top of that, it gives me the chance to see first-hand exactly what I’m getting. I can look at it from every angle, feel it, read it, try it out. I can compare it with similar products, and test it’s limits. What happens if I wash it? What if I drop it? Will it survive an hour in the sun? If it passes muster, I will buy. If three people offer to buy the sample, I know I have a winner, and I will buy more.
2) Guaranteed Sales/Merchandise Exchange Program. This is probably only viable for items that don’t spoil or go out of style but if a supplier will exchange merchandise that is still salable for other items from his line, that is a powerful incentive. If no one likes the blue shirts, I can send them back and get more red ones. The guy in Dallas who can’t keep enough blue ones will be happy to get them and I won’t lose money on a poor choice. Someone mentioned buy back programs and they’re essentially the same thing, except the retailer gets a full refund. Honestly, if a retailer has made such a blunder that nothing a vendor carries will sell, he need to rethink his buying criteria. But it is still a great way to get a store to at least try your item; especially if no one’s ever heard of you. And you can set terms for what you will take back
More on this point: I used to deal with an independent jobber. Every other week, he would make the rounds of various suppliers, and purchase a truckload of goods that he could get for reasonable prices. Sometimes it was branded stuff, sometimes not. It was usually odd lots; broken cases, or the remnants of a batch. And then he would bring it to the stores and we could purchase whatever he had we wanted. It was great -he could bring exactly what was needed, the day it was needed. He would have swimwear in the summer, umbrellas when it was raining, and skis if the weatherman said it would snow. He offered a 50% credit for unsold goods. If I bought an item from him for $1.00, and it didn’t sell, he would give me .50 cents credit toward something else. He was guaranteed at least his cost for the item. But since he only had space on his truck for a limited amount of stuff, he didn’t take the non-sellers back. Rather, I would mark the item down to half my cost -.50 cents- and sell it. He made his money back, I made my money back, and I always had a few deep-discount items on my sale table. It was a great arrangement. And I dealt with him as often as I could -I always bought something, even if I didn’t really need it. I nurtured his business because he was so good for my business.
3) Throw in a free displayer. We’re always at a premium for shelf space. And we simply can’t adorn every shelf with themed promotional stuff. But if a company will throw in an eye-catching “shipper” that holds their items and has signage already attached (with room for me to write in the prices or other information), I was much more likely to buy. However, I would not pay a deposit for a returnable shipper, and I would not buy a custom-fitted shelf system. Shippers take too much damage and too many products are seasonal or short-term. They need to be disposable and free.
4) Offset merchandise. This means that for every case purchased, two or three extra items are included -free- to help offset a retailer’s costs for items that are damaged or stolen. This is an especially good incentive if the items are small (easily pocketed), but expensive. Jewelry, perfume, very delicate or fragile items…these cost a lot in terms of shrinkage, and an offset to help counter that goes a l-o-n-g way toward convincing us to carry them. Otherwise, the losses just become too high.
5) Free promotional ideas, give-away samples or end-user incentives. This can be just about anything…the kitchen sink of incentives that are aimed not at me the retailer, but directly to my customer. It includes everything from cents-off coupons to consumer rebates. One book company used to send out a package full of monthly promotion ideas and merchandise for their products – free recipe cards, free jewelry or buttons, free posters and imprinted items…all with a theme that promoted their products. And some of the ideas were just wonderful: “put on a pet show for stuffed animals” or “give each child a free package of marigold seeds and a free growth chart. Each child who returns the chart in June, receives a free ‘Growing Gardener’ button. And the one who shows the most growth receives a free….” And none of this cost the retailers a cent. They sent everything needed to make their ideas work -the free merchandise, the camera-ready ads, the point-of-sale items. And believe me, it works.
6) Shared advertising. I appreciated this! Every time I placed an ad, I looked through my papers to see if any of the vendors were offering some kind of special offer. Again the book company mentioned earlier was the best -they would pay the entire cost of a quarter-page ad if I set it up the way they wanted; and it included space for items they didn’t sell. I could put four or five of their titles on sale, then include half-price backpacks or other items on the same ad, without having to pay a penny for it. These kinds of partnerships are hard to find, but well worth it. They understand that if they take care of you, they stay in business because you make the sales.
7) Replacement of lost or damaged items (for the customer). This means if you buy a watch from me and it breaks, you bring it back to me. I send it back to my supplier, who either repairs it, or replaces it, and sends it back to me. They don’t ask the customer to return it directly to them (a strong hint they plan to retail more goods directly to him) or require that he ship it to some factory in China. Naturally, this only works for more expensive items. But it’s a great way to convince both me and my customer that the item is good quality, the supplier believes in it and stands behind it, and that it’s not just money gone but an investment in a product that will work for him. This is probably the deciding factor for me when it comes to high-end items that are expected to work flawlessly for a year or more.
A retailer operates on a very low margin. Anything that a supplier can do to help them move the merchandise, lower their costs or raise their profits will result directly in more orders placed. It has to be a close, symbiotic relationship that benefits everybody in the chain -including the end user.
I guess that’s about enough for now. I could probably write a lot more; but this is turning into a book. I lurk here at the site often, and will be more than happy to answer questions or explain anything I’ve been vague or unclear about.
Good luck to all of you, especially if you’re in retail or planning to be. :)