Tag: Terms

The Day Manufacturers Killed Retail

The Day Manufacturers Killed Retail

We’ve dealt with them all.  Some manufacturers are willing to work well with retailers and some are not.  Everyone wants a piece of the business pie and manufacturers are at the top of that heap.  Are they killing business for retailers?  I believe they are.  Here are a few reasons why product manufacturers are killing retail businesses one by one.

Sell On Their Own Sites/Stores – Business is about percentages and retail focuses on profit margins.  A common question is what are your sales and what are your margins?  Since the entire retail industry is based on margins, manufacturers want the best possible margins they can get.  How can they get great margins?  By selling their products themselves on their own site or at their own brick and mortar stores.  Let’s say I’m interested in purchasing some t-shirts from Acme T-Shirt Co.  The t-shirts have a list price or MSRP of $20 each.  If the manufacturer is selling to you at keystone pricing level (MSRP divided by 2), you would pay $10 for each t-shirt.  That means you can sell that t-shirt for $20 or whatever price you would like providing they don’t have rules or MAP pricing (see my next reason “Extreme Rules For Retailers” below for a better explanation).  The very big downside is there is a very strong chance that manufacturer is selling that same t-shirt on their website.  Since they manufactured the product and they are selling at MSRP prices, their margins went from 50% to 75%, possibly higher depending on how low they can get their cost down.  What this means is they have far more play in margin than you do in terms of the price they want to sell at.  Most likely they are selling those same t-shirts at MSRP, however, if they wanted to clear the product out and include on a sale, they can mark the product down 25-30% and still have great margins.  What does that mean to you?  It’s no fun, I’ll tell you as I’ve experienced this many many times before.  You buy a bunch of t-shirts and wonder why your stock isn’t moving.  After some investigating, you realize the manufacturer is selling the same t-shirts for a 40% sale and still making money in the process.  You would not be making a profit if you marked down those same shirts at 40% off.  How can you compete?  You can be creative to combat this or many times the manufacturer will sell out of a product and will have the advantage if you still have that product available.  Manufacturers that sell on their own websites or have their own brick and mortar stores are a big reason why they are killing off retailers one by one.

Extreme Rules For Retailers – MAP pricing is a killer.  I call it the “Apple Syndrome”.  MAP stands for Minimum Advertised Price.  This has been argued by many for many years.  A retailer should be able to sell the item at any price they want, right?  Not so fast.  When you create an account with a manufacturer to buy and sell their goods, they include contracts, and many of those contracts will have a MAP policy.  The only way they will do business with you is if you abide by their contract and agree to sell at MAP prices.  How strict are they to enforce this policy?  Most are very strict.  Where does this apply, online or in-store?  My experiences with manufacturers is their concern for online selling.  They want their prices to be the same across the entire internet for any retailer that is registered by them to sell their products online and you will have signed a contract and policy agreement before they allow you to sell their products.  You have to abide their rules or they simply won’t give you an account.  What if you agree to their policies but decide later that you will sell at any price you feel is necessary?  Wrong again.  Many of the bigger companies have people or software that scours the internet to make sure every authorized retailer is selling at MAP prices.  If not, they will notify you quick.  What about brick and mortar stores?  I have not had an issue with manufacturers monitoring prices at which we sell our products at.  Their main concern is online.  This is where brick and mortar stores win!  Why do I call this the “Apple Syndrome”?  Around the time the first iPhone was launched, Apple sold their products themselves.  They sold them in their stores or on their own website.  They felt they wanted to control everything they were doing including their prices.  When the iPhone took off, Apple decided to open it up to more retailers other than themselves.  They carefully chose electronic and computer stores and allowed them to sell as long as they abided by their rules.  Apple would not and still does not budge much from their list prices.  They believe any dip in product pricing is compromising their brand integrity.  I say, make a great product, the best you can possibly make and that is your brand’s integrity.  The price will hold strongly if you make a great product.  Just another reason manufacturers are killing retailers one by one.

Make You Pay In 30 Days – My job as a retailer was to move product and to move it fast.  The longer a product sat on the shelf, the more dead cash sits there.  You need to move that product out the door and turn it into cash.  When you place a stock order with a manufacturer, you are given (2) choices to pay.  They will offer you to pay in full with a credit card or they can put your account on “terms”, which means they will ship the merchandise to you and you pay them in full at a later date.  That date is usually 30 days.  So, that means you have 30 days to pay that invoice in full.  To me, that means I have 30 days to sell all the products from that order, turn a profit and pay off that invoice.  I’m not going to say, “sounds easy?”, simply because it’s not and most people will agree whether they’ve had retail experience or not.  If you go with terms, you can negotiate a better payment term such as 60 days or 90 days.  This helps and you can pay the balance little by little by check until you’ve paid off the balance entirely.  The other route is to pay by credit card.  This is extremely tough.  Why?  For a number of reasons.  Paying by credit card is the same as paying with terms, however, at the end of the credit card’s billing cycle, you will need to pay the balance in full or the credit card/bank will charge you interest.  This is how it can get very messy.  If you aren’t able to come up with paying off the entire balance, you will accrue a bigger balance which will make it even harder to pay off entirely.  Some retail buyers are enticed by reward points as most credit card companies/banks offer credit cards with some sort of reward point offerings.  I would refrain as much as possible from using credit cards to purchase your inventory unless you are way cash positive.  The best way, if you can, is to negotiate the longest term service you can with the manufacturer and make smaller payments every week or every other week to pay off your balance.  Most manufacturers won’t penalize you if not paid in full by the end of the term length.  Most are just happy to be paid in full!  Another painful knock to retailers killing them off one by one.

What I do not understand is why a manufacturer would want to kill off retailers.  Retailers are their biggest fan.  They know the product well and usually help in advertising those brands in their stores and on their sites proudly displaying signs and banners, etc.  It’s FREE advertising for those manufacturers!  Why would you want to kill that?