Question about retail margins

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#1711424 29-Jan-2017 18:30

You wait until they tell you about their stretch target scheme and rebates on sell-through...

Plus store visits that are considered mandatory through out the country.

It's all super easy.

mattwnz

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#1711438 29-Jan-2017 18:40

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Ouch - so they want you to drop your price from $19.99 to $12.17?

A 60% margin isn't unusual in retail.

That sounds really high. I presume that is in stores that use the price rotation discount. So often the price is a lot higher at their white sticker price, than stores that don't use this rotation discount model, so they can afford to give the product a big discount. The problem is that because of this model, many people will only buy if they are getting a discount, so stores that don't use this model probably don't sell as much. I would like to see an end to the rotation discount model, because they are now using it in supermarkets a lot more, where there isn't a lot of competition.

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#1711443 29-Jan-2017 18:44

Looks like a good book for a beginner? (I was googling what a 'stretch target' is )

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#1712473 29-Jan-2017 20:47

The supermarkets are the worst. Some of the shadiest things I've ever seen with some customers who supply them. True horror stories.

If you think that's bad, try renting retail space in a Westfield mall.

Was interesting I know someone who worked as a buyer at the warehouse for quite a number of years. The change was quite significant. Initially she had stories and was depressed at how badly they treated sellers. 10 Years later, so much more mercenary.

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#1712556 30-Jan-2017 07:20

Supermarkets are a high turnover low margin game that's made far worse in NZ by the consumer mentality driven by Broscies and Kathmandu of not wanting to buy anything unless it's on special.

timmmay

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#1712557 30-Jan-2017 07:30

sbiddle:

Supermarkets are a high turnover low margin game that's made far worse in NZ by the consumer mentality driven by Broscies and Kathmandu of not wanting to buy anything unless it's on special.

Not sure supermarkets that low margin. Compare with food in the UK and food here is rather expensive, even though a lot of food in the UK is flown in from other countries. Cheese varies from $9 to $15 depending on the whim of the supermarkets, I suspect.

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#1712560 30-Jan-2017 07:48

timmmay:

sbiddle:

Supermarkets are a high turnover low margin game that's made far worse in NZ by the consumer mentality driven by Broscies and Kathmandu of not wanting to buy anything unless it's on special.

Not sure supermarkets that low margin. Compare with food in the UK and food here is rather expensive, even though a lot of food in the UK is flown in from other countries. Cheese varies from $9 to $15 depending on the whim of the supermarkets, I suspect.

I spent the first 30 years of my life in the supermarket industry so do know a thing or two..

Most specials in supermarket on grocery and liquor are still scanback/rebate type deals where the store pays a similar price for the product but simply receives a rebate from the manufacturer once it's sold, so when prices do vary it's not suddenly a case of the store making more money.

timmmay

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#1712561 30-Jan-2017 07:56

Ah ok. Still, many things seem to be a lot more expensive than in Tesco in the UK. If supermarket margins are thin I guess someone else is making some money.

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#1712564 30-Jan-2017 08:05

timmmay:

Ah ok. Still, many things seem to be a lot more expensive than in Tesco in the UK. If supermarket margins are thin I guess someone else is making some money.

You can't directly compare NZ with the UK in a number of ways - many are the reasons we may a lot more for lots of goods. A manufacturer or distributor in NZ doesn't have the same economies of scale to work with and still needs to pay many fixed costs. When you look at the costs of then servicing customers you've got a split between products being serviced from a distribution centre (ie DB delivers 100 pallets of beer to a supermarket DC which is then send to stores) vs some products which are then delivered directly to stores. Transport costs are higher, and the cost of then servicing supermarkets with field staff and reps are higher.

There are then many things that are pretty unique about the NZ market with some perishable products (bread being a classic example) that are sale or return quite simply because they've always been that way. Ultimately this leads to higher costs from the manufacturer as they're carrying this burdon not the supermarkets.

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#1712589 30-Jan-2017 08:20

Sure smaller market, NZ is further from some suppliers, and we have a low density population, they're all factors. Other countries will have their own challenges though. I think comparing prices between countries is quite fair.

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#1714187 1-Feb-2017 21:21

mattwnz:

Have you thought of selling direct to the customer. eg Website, trademe, facebook, a stall/shop, markets etc. One issue you may find with some retailers, is that they want exclusivity, and won't allow you to sell via other means. Also some retailers may want to on it on sale or return which is usually not a good idea. It probably all depends on the product, and whether you know how well it will sell, because if it is a good seller, then you will make the money from it on quantity, and you will be able to get economies of scale in manufacturing.

Have considered it but I don't think it would work. My product is a wall calendar - quite a large one with RRP $34.99 - and I don't think anyone would purchase it without seeing it in person. I just don't think calendars are things you would buy without picking it up in a store and looking at the photos on the back. I currently produce calendars in Australia, and sell them online and in stores, and of my approx 1250 sales per year only 20 or so are online sales.

Have read Whitcoulls' sales agreement document and doesn't mention exclusivity.

They do want a sale or return agreement though. I am ok with this as this is what I do in Australia and it works fine. 6 years down the track and I can estimate pretty well the sales numbers in each store so don't have too many returns.

Whitcoulls also want a 5% discount on my annual invoice as they have to deliver my products to selected stores after I deliver to one Auckland Depot, then they want to be able to mark down my products and pay me less as a result, and they want a 1.5% discount for marketing my products...stocking with them seeming less and less appealing...

I am also planning on trying to get into Paper Plus stores. Unlike Whitcoulls, they are all individually owned. So I have to approach each store individually to show them my product. I am hoping I am come across some nice store owners who won't try to screw me down on price so much...or is this delusional thinking??

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#1714188 1-Feb-2017 21:23

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Ouch - so they want you to drop your price from $19.99 to $12.17?

A 60% margin isn't unusual in retail.

I calculated 60% margin to be sale price of $11.90?

Where am I going wrong?

They said they aim to make 60% on calendar and diary items. I assume the margin is less for year-round items.

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#1727486 28-Feb-2017 09:56

GST is irrelevant since it's claimed back by the retailer.

RedMoose

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#1771983 28-Apr-2017 15:44

As a small retailer ourselves, we can understand both yours and there sides, they will have a set cost formula that will encompass a not just the purchase cost, but import/freight cost, and administration costs associated with the item (remembering every new item has to be added to there POS system, website, accounting system and other stock systems etc...), as part of this formula they have to budget and plan for a % of lost stock (stock that they have to sell at reduced rate to clear it out).

For us personally we have items that we stock that appear at face value as having a decent mark up between purchase cost and sell price. However once all these factors are taken into consideration the profit is often actually between 15-30%.

Some ways to help sweeten you sale of stock to them without changing your price could be having flexible payment terms free freight to them and a stock credit scheme/ them returning the stock back to you if it doesn't sell.

Hope this helps :)

kornflake

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#1790396 27-May-2017 20:32

Interesting read, reminds me of the little known fact (shady as) that fontera command a till discount (kidd you not) on their products not like there any other way to get things out of the supermarket! well legally that is.

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