And it usually isn’t. Special offers, dating, and incentives tied to minimums appear to be good on the front side but in reality they typically sound better than they are. Vendors make these offers, not because they are good for the retailer, but because they are good for the vendor. That in itself should be a sign of trouble!
Let’s start with invoice dating. In some industries and with some seasonal products dating can be an advantage. However you can be fooled into overbuying knowing that you do not have to pay for these goods for 6 months or more. Here, merchandise planning can make a huge difference, as you will only commit to what you can sell profitably. If you have carry over inventory that is still viable for the next season; are you deducting that inventory against your future open- to-buy? The bigger question is why do you even have carry over inventory?
Dating typically causes retailers to overbuy and then as the season unfolds they have limited or no dollars to spend on new goods. Dating can cause you to over commit to one vendor. If that vendor is not selling and another vendor is selling, you have managed to box yourself into a corner. It is always important to leave yourself open- to- buys, especially in key classifications.
Dating can create a false sense of security. You will eventually have to pay for those goods; if they do not sell it would be a shame to pay those invoices on the profits of other vendors. If you do use dating, especially on seasonal goods that arrive early, it would be prudent to set aside the cost of goods on each item as it is sold and keep it in a separate account, possibly interest bearing. Some banks have great business accounts that allow you to keep an almost zero balance in your checking account and a savings account attached. . When the invoice is due you have the money saved, with interest! Simply sweep the funds necessary to cover the invoice from savings to checking.
Incentives tied to minimums. If the minimums force you to overbuy then don’t do it! The 10 or 15% will not be enough to counter the markdowns you will take to unload an overbuy. When you go to an all you can eat buffet, you eat more than you need and then it is diet time. If you hate dieting then pass on the buffet. However in your store a diet can mean markdowns and thus loss of profit. It also creates a squeeze on cash because those markdown goods will need to be replaced by stock that you can sell at full retail. Incentives tied to minimums must fulfill your needs and not the Vendor’s.
There are other incentives where the vendor offers discounts on reorders based on an upfront commitment. This can work if the open to buy dollars for that vendor match your overall assortment plan. Otherwise take a pass.
If you decide to get involved with Vendor incentives, that does not preclude you from negotiating your own terms, conditions and discounts. Hot vendors do not need to give anything away. Merchandise that is sold with pre season incentives may mean the vendor is in a position to negotiate. Remember, as the buyer, you have great leverage. Do not be afraid to use it. Smaller retailers need to remember that they are important; as they typically are the most profitable business a vendor can write. Small retailers do not beat up vendors for price incentives and discounts like larger companies.
The best incentives you can get are the ones you negotiate on your own terms. The first rule my father taught me in negotiating was, â€œThere are 3 prices: The line price, the incentive price, and the price you pay. Make sure the price you pay is the lowest you can get, then go back and lower it again.
Copyright Management One® 2007 Written by Marc Weiss