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Changing Rules of Retail
Purchasing inventory is not as simple as it once was
The old story tells about a game. The batter steps up to the plate, and gets a hit on the first pitch. The batter rounds first and heads for second. Before he gets there, the second baseman tackles him. The umpire runs up to the tackled player, raises his hand and proclaims, "Second down!" The moral of the story is that it is a whole new ball game out there. The same is true for our industry. For both good and bad reasons, changes continue to occur.
A hardware retailer from New England tells of the need to adapt. His trade area is very environmentally concerned as selling alkaline batteries in the traditional clam pack is not acceptable. Through his first line wholesaler, an alternative package is not available. The buyer for the wholesaler explains that their arrangement with the manufacturer will not make an alternative package available to stores, even on a direct shipment basis.
The best price through the wholesaler on a direct shipment basis, in any package, is 82 cents per battery. Instead, the retailer travels 23 miles each way to a warehouse store where they do have the batteries in bulk. There he pays, as does every other individual that shops in this store, 62 cents per battery.
Another example from the same store deals with cassette tapes. There is a college in the town, and thus a great demand for this product. Again, the wholesaler explains that their product from the manufacturer is American made and that the cassette in the warehouse store is from China. Yet when the retailer orders the cassette from the wholesaler, he finds that it too is from China. Again, the trip to the warehouse store.
The retailer buys the merchandise, batteries, cassettes, and other various items, with his GM Visa card. He receives a 1% credit which he intends to apply towards purchasing a new delivery vehicle for his business.
If he times the purchase correctly, he can get 55 days of dating using the Visa card. He tells that he makes up funny explanations to the cashier in the warehouse store when he hands her the Visa card to pay a $1,700. tab on a recent trip to the warehouse store.
Of course, he wonders what the warehouse store pays for these products to allow them to sell them at prices below his direct shipment pricing. The credit goes to the dealer because he sees the needs of his customers, and takes the necessary steps to satisfy them. You may think that his wholesaler is wrong in not solving this problem. The retailer has voiced his opinion to the wholesaler, both vocally, and by taking his business to someone else. Years ago, such steps were not necessary, but it is a new ball game.
Recently, my father traveled to Arkansas to attend a family reunion. He took a side trip to Fayetteville to meet an old friend at the Hyatt Hotel. While waiting for the friend, he noticed a sign in the lobby regarding the chain store headquartered in the town nearby. The meeting room was being used to allow vendors see the computer that allows them to retrieve sales history from individual stores regarding their products. The vendor would then be able to write his own orders to ship to each of their stores.
Our experience has been somewhat different in working with vendors. One of the major waterseal vendors had a 20% bonus gallon appearing frequently in the ads of the warehouse stores. Yet, when we attended wholesaler's markets, the same product was not available. The only way we ever found a way to order the product was to register our complaint with the buyer from the wholesaler. Finally a sales rep from the manufacturer made an appearance at our store.
Another story we have experienced, tells of the television set built for a warehouse store according to the store's specifications. One of the major specifications being the cost. The price to this warehouse store from the manufacturer is less than the cost of manufacturing the unit. However, the price to the warehouse store allows the manufacturer to buy down the price of parts for their entire operation, while the manufacturer sells the identical television at a higher cost to all other wholesalers. It appears that we are not all playing by the same set of rules.
Until the day might possibly come that we would be able to overcome this handicap, those of us that are to survive will continue to find the areas where we can tilt the playing field in our favor.
We continue to add services and products that make us unique. Cooking spices, bottled water, cookies, coffees, decorative flags, a wider variety of paints, professional paints, and a wider selection in most every product category, are the leading changes that we have been making.
These items and changes have come for the most part at the suggestion of our team members. It was initially surprising, and definitely most appreciated, to find that our team members are well aware of what the warehouse and chain stores have to offer and how they do it.
By allowing our team members to try their solutions, the results are more successful because a team member will put more effort into their own solution than they will for a solution that is dictated by the boss. They understand that fighting by price is not going to win the war when we see the efforts of the warehouse and chain stores.
When we have had the opportunity to visit with hardware dealers, regardless of the wholesaler affiliation, one of the most agreed upon feelings has been one of disappointment that the pricing is not competitive as compared to the warehouse and chain stores. The aggressive hardware stores have found ways to survive in their market, but frequently at the expense of lower margins.
With the unique products, liberal return policy, customer service, and a pay system that rewards our team members for their efforts, we can provide the customer of the independent hardware store, the opportunity to experience a game that the warehouse and chain stores can not compete with.
This article is copyrighted by Tom Shay and Profits Plus Solutions, who can be reached at: PO Box 1577, St. Petersburg, Fl. 33731. Phone 727-464-2182. It may be printed for an individual to read, but not duplicated or distributed without expressed written consent of the copyright owner.
Profits Plus Solutions, Inc.