People who sell merchandise directly to the public are called “retailers.” Their profitability and survival rests with their knowledge of retailing lore and their ability to efficiently execute good marketing practices.
Retail sales and profits begin to grow when vendors and the vendor sales reps who sell to retailers have a solid understanding of retailing concepts, challenges and solutions. Since all three parties have a vested interest in promoting robust dealer sales, then it is best if all participants view the opportunity through a common prism. The sweet sound of profits is heard when all three parties are humming the same tune.
Sales and profits happen when merchandise is appealing in terms of style, functionality, cosmetics, price points and time frames. Sales increase when a vendor’s policies and actions regarding terms, shipping and promotion serve both the retailer and the vendor. And sales and profits increase when the vendor sales rep is an informed liaison between the vendor and the dealer and can communicate through the common language of retailing.
A retailer who does business with a vendor or vendor sales rep who is woefully lacking in retailing knowledge will face an impediment to full profitability. Vendors are in conflict with their dealer base when and if they:
- Present the dealer with their “new program” and fail to first ask the needs of the retailer consistent with the dealer’s objectives.
- Offer prices such that they missed the obvious consumer-attractive price point or mandate shipping and billing terms that are in conflict with good inventory management principles
- Develop programs dealing with co-op advertising, defective merchandise, rebates, warranties, distribution or incentives without understanding or addressing the retailer’s needs.
- Clearly indicate they do not understand common retailing practices, nor seek the goal of mutual success for both the vendor and the retailer.
Vendors and “Retailing 101” — There Will Be a Quiz
Retailers should regularly ask their vendor reps all types of questions about what and how much they should buy, when to place orders, when to take delivery and the best way to display goods. The validity of the answers given is proportionate to the rep’s knowledge of “Retailing 101.” But what else should vendors and vendor reps know about retailing?
They should know that there is a huge gulf between sales and profits. Sales are just the top line of the equation. Margins must be sufficient to support all expenses and profits (generally understood to be five percent or better). The genesis of profits is the interplay between sales, margins, expenses and inventory velocity.
Vendors and their reps should understand that inventory is the currency of retailing. Losing sales because of key product stock outs is very costly. At the same time, too much inventory causing excess markdowns and poor cash flow is equally costly. The value of a dealer’s inventory is not necessarily its retail value or even what the retailer paid for it. Inventory has value only so long as it can generate margin-rich sales during a reasonable time frame related to the selling season.
They should grasp the fact that markdowns are costly. They represent a direct reduction of potential gross profit dollars. On the other hand, if they are not taken as needed to flush slow inventory, then carrying costs increase significantly, thus, delayed markdowns will ultimately be far more expensive. Poor-selling inventory is not just the retailer’s problem, it is one that also negatively affects the vendor and vendor sales rep. The problem and cost of solving should be shared by all parties.
Vendor policies that push dealer “dated orders” — orders placed well in advance of their season, all delivery taken well in advance of that season, but payment for the inventory happening months later — is inherently damaging to the retailer. On the face they sound like a good deal, but such policies increase the chance of incurring both excessive stock-outs and markdowns. It is more prudent for retailers to schedule their needs via shipments released over a period of time, thus making them more nimble and responsive to changing conditions.
Vendors and vendor reps should also understand gross margin return (how many gross margin dollars are generated per dollar invested in inventory) on invested inventory, how it’s calculated, what the number means and how changes in inventory, margins and turn rates affect these numbers.
I should point out that need-to-know information flows in both directions. Retailers must also appreciate and understand the vendors’ and vendor reps’ needs as well. Want profits to increase? Then start communicating — and in the same language.