Dick Smith in store decline

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Networkn
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#1465152 7-Jan-2016 14:07

because they have to keep their cash flow up, if every customer kept their gift card for 2 -3 years and then they were all used m at once the store is basically giving their stock away .

Err nope. They got the funds up front, in an ideal world they would get used in a spread out fashion but most companies know there is a risk some months it will be heavier than others, which is why cashflow is important.

dafman

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#1465181 7-Jan-2016 14:26

mattwnz:
vexxxboy:

because they have to keep their cash flow up, if every customer kept their gift card for 2 -3 years and then they were all used m at once the store is basically giving their stock away .

That is why they shouldn't be using them as a form of cash flow, as they actually haven't provided that service/product yet. They should really only be treated as an accounts receivable, until the card is actually used. If a store is using it for cash flow (which is essentially like being given free money) then that is going to cause problems when the card is honoured. But stores that sell gift cards know that a significant amount of them will never be used, so they are win win for retailers.

But that's the value proposition for retailers in selling gift cards - they generate/stimulate cash flow!

Remove the value proposition, retailers would just stop selling them as gift cards would offer no advantage to over the counter sales.

In fact, there would be a disadvantage under your scenario as retailers would have to pay overhead costs for maintaining gift card trust accounts, being additional costs not incurred with over the counter sales.

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#1465212 7-Jan-2016 15:08

jpoc:
You must have noticed that there are certain brands that hardly ever get significant discounts. Apple for one, but they are not alone. DSE could not drop their prices for top brand products by a large amount because of contractual clauses in their relationships with those suppliers.

I've noticed that whenever large chain stores have sales (i.e. "50% of everything!") they very often have some fine print that says "Excludes Apple and game consoles". I've often wondered why this was so, do Apple and gaming consoles usually sell so well that they never need to discount them? Or does Apple, Playstation, etc have contracts in place that say retailers aren't allowed to discount their products?

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#1465214 7-Jan-2016 15:10

MurrayM:
jpoc:
You must have noticed that there are certain brands that hardly ever get significant discounts. Apple for one, but they are not alone. DSE could not drop their prices for top brand products by a large amount because of contractual clauses in their relationships with those suppliers.

I've noticed that whenever large chain stores have sales (i.e. "50% of everything!") they very often have some fine print that says "Excludes Apple and game consoles". I've often wondered why this was so, do Apple and gaming consoles usually sell so well that they never need to discount them? Or does Apple, Playstation, etc have contracts in place that say retailers aren't allowed to discount their products?

Apple gives very low margins. There is barely any wiggle room.

For gaming - companies make the consoles at a loss (usually the cost of a console is higher than the selling price). The company makes the money off the games that are sold.

mattwnz

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#1465218 7-Jan-2016 15:19

dafman:
mattwnz:
vexxxboy:

because they have to keep their cash flow up, if every customer kept their gift card for 2 -3 years and then they were all used m at once the store is basically giving their stock away .

That is why they shouldn't be using them as a form of cash flow, as they actually haven't provided that service/product yet. They should really only be treated as an accounts receivable, until the card is actually used. If a store is using it for cash flow (which is essentially like being given free money) then that is going to cause problems when the card is honoured. But stores that sell gift cards know that a significant amount of them will never be used, so they are win win for retailers.

But that's the value proposition for retailers in selling gift cards - they generate/stimulate cash flow!

Remove the value proposition, retailers would just stop selling them as gift cards would offer no advantage to over the counter sales.

In fact, there would be a disadvantage under your scenario as retailers would have to pay overhead costs for maintaining gift card trust accounts, being additional costs not incurred with over the counter sales.

They do, but it isn't really a sustainable business model to be generating cashflow, by not providing any service or product at all. All that needs to happen is regulation of gift cards which makes them unaffordable to sell, and it could drive businesses to the wall. Also stories like DS may totally turn people off buying gift cards, which could badly affect those businesses to rely on gift cards for cash flow. I would never buy a gift card now. Seen this probably with gift cards not being accepted after the business encounters problems too many times. It actually happens a lot more than you think, especially in the fickle retail sector.

trig42

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#1465220 7-Jan-2016 15:22

MurrayM:
jpoc:
You must have noticed that there are certain brands that hardly ever get significant discounts. Apple for one, but they are not alone. DSE could not drop their prices for top brand products by a large amount because of contractual clauses in their relationships with those suppliers.

I've noticed that whenever large chain stores have sales (i.e. "50% of everything!") they very often have some fine print that says "Excludes Apple and game consoles". I've often wondered why this was so, do Apple and gaming consoles usually sell so well that they never need to discount them? Or does Apple, Playstation, etc have contracts in place that say retailers aren't allowed to discount their products?

I think the retailer can sell at whatever price they want. If they go out and cut the guts out of a brand though, they may find it difficult to buy any more of that brand, or get any traction on negotiating for rebates etc.
In the case of Apple, they give the retailer very little margin to move, the same with consoles - they are sold with little or no margin attached. You will often see in those same adverts that it also excludes 'house' brands (like Veon, Soniq. Konka) as the retailer has brought them in themselves and there is not manufacturer support for the discount (ie., no rebates).

mattwnz

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#1465227 7-Jan-2016 15:28

trig42:
In the case of Apple, they give the retailer very little margin to move, the same with consoles - they are sold with little or no margin attached. You will often see in those same adverts that it also excludes 'house' brands (like Veon, Soniq. Konka) as the retailer has brought them in themselves and there is not manufacturer support for the discount (ie., no rebates).

It is interesting because some retailers can sometimes sell some apple products really cheaply at certain times. For example I purchased a new ipod (a current model) from HN for about $180, yet it retailed for over $350 ish. So whether they offer some retailers discounts at certain times, for selling a large quantity?

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trig42

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#1465229 7-Jan-2016 15:37

No, Harvey's will have been doing it as a 'loss leader' I'd say. Apple don't need to discount (that is their belief). Quite often the iPod touch is sold at less than cost. I suppose it is possible they were bought at a discount, but I'd be surprised. More likely they are either refurbished (which you'd hope they told you), or parallel imported (since they do not come with a power adaptor, you'd never know - and they have a worldwide warranty).

gzt

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#1465230 7-Jan-2016 15:38

dafman:
mattwnz:
vexxxboy:

because they have to keep their cash flow up, if every customer kept their gift card for 2 -3 years and then they were all used m at once the store is basically giving their stock away .

That is why they shouldn't be using them as a form of cash flow, as they actually haven't provided that service/product yet. They should really only be treated as an accounts receivable, until the card is actually used. If a store is using it for cash flow (which is essentially like being given free money) then that is going to cause problems when the card is honoured. But stores that sell gift cards know that a significant amount of them will never be used, so they are win win for retailers.

But that's the value proposition for retailers in selling gift cards - they generate/stimulate cash flow!

Remove the value proposition, retailers would just stop selling them as gift cards would offer no advantage to over the counter sales.

In fact, there would be a disadvantage under your scenario as retailers would have to pay overhead costs for maintaining gift card trust accounts, being additional costs not incurred with over the counter sales.

The value proposition is that a significant proportion expire before use or are never used. The other factor around Xmas & birthdays etc is givers seek retailers that sell gift cards and avoid those that do not. So if you want that customer you provide a gift card service.

Finch

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#1465232 7-Jan-2016 15:44

Might be slightly off topic, still has to do with the fall of DS though...

Harvey Norman getting some good press...

mattwnz

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#1465244 7-Jan-2016 16:04

trig42: No, Harvey's will have been doing it as a 'loss leader' I'd say. Apple don't need to discount (that is their belief). Quite often the iPod touch is sold at less than cost. I suppose it is possible they were bought at a discount, but I'd be surprised. More likely they are either refurbished (which you'd hope they told you), or parallel imported (since they do not come with a power adaptor, you'd never know - and they have a worldwide warranty).

It was definitely sold new. Whether it was parallel imported I don't know as it doesn't have a power adapter, just a usb cable, but it wasn't advertised as imported. I actually got the warehouse to price match it, as the warehouse is only a few kms away. I had the advert and it wasn't limited quantities, so they did price match it without any problems.

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#1465251 7-Jan-2016 16:15

dafman:

But that's the value proposition for retailers in selling gift cards - they generate/stimulate cash flow!

Remove the value proposition, retailers would just stop selling them as gift cards would offer no advantage to over the counter sales.

In fact, there would be a disadvantage under your scenario as retailers would have to pay overhead costs for maintaining gift card trust accounts, being additional costs not incurred with over the counter sales.

There are other reasons for selling gift cards aside from the cashflow benefits.

As previously stated, a proportion of giftcards do not get redeemed - free money!

But I would say the biggest advantage for gift cards is it brings people into the store who want to buy things with them - not just browsing, they are there to spend.

My son, likes his gaming. For Christmas and birthday's someone always gives him an EB gift card. EB is generally overpriced and prefer to shop elsewhere however with an EB giftcard my son has no choice but to find something to buy there. e.g. he wanted Fallout 4 (Xbone)when it came out - $119 from EB or $76 from nzgameshop.

Tell a lie, he found some mug (me!) to take the card off him for cash. Anyone know the best way to use an EB card without losing too much value? (I would say itunes cards but they are often 25% off elsewhere).

richms

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#1465260 7-Jan-2016 16:29

Branded accessories that are the same price prettymuch anywhere is about all I would get from EB.

Do they still do steam money? That's the only other thing.

Do they sell prepay phone topups?

Richard rich.ms

Dunnersfella

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#1465270 7-Jan-2016 16:49

mattwnz:
trig42:
In the case of Apple, they give the retailer very little margin to move, the same with consoles - they are sold with little or no margin attached. You will often see in those same adverts that it also excludes 'house' brands (like Veon, Soniq. Konka) as the retailer has brought them in themselves and there is not manufacturer support for the discount (ie., no rebates).

It is interesting because some retailers can sometimes sell some apple products really cheaply at certain times. For example I purchased a new ipod (a current model) from HN for about $180, yet it retailed for over $350 ish. So whether they offer some retailers discounts at certain times, for selling a large quantity?

Apple will offer deals from time-to-time, but the retailer would like to keep the whole 'never any deals on Apple' belief system going.
However, in the past stores had to hit their Apple quota, if they didn't they'd lose the laptops / iPads all together. Hence stores would have 10% off Apple.
Other brands won't have discounts (Soniq comes to mind) as it's imported by the retailer, Konka is not, however - they have someone in Auckland bringing them in.
There are brands like Miele who do not allow the likes of Harvey's or Kitchen Things to hold stock, it's all on consignment... so the retailer has no ability to discount as it's not theirs in the first place! With Miele, the price, is the price.

dafman

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#1465305 7-Jan-2016 18:17

mattwnz:
dafman:
mattwnz:
vexxxboy:

because they have to keep their cash flow up, if every customer kept their gift card for 2 -3 years and then they were all used m at once the store is basically giving their stock away .

That is why they shouldn't be using them as a form of cash flow, as they actually haven't provided that service/product yet. They should really only be treated as an accounts receivable, until the card is actually used. If a store is using it for cash flow (which is essentially like being given free money) then that is going to cause problems when the card is honoured. But stores that sell gift cards know that a significant amount of them will never be used, so they are win win for retailers.

But that's the value proposition for retailers in selling gift cards - they generate/stimulate cash flow!

Remove the value proposition, retailers would just stop selling them as gift cards would offer no advantage to over the counter sales.

In fact, there would be a disadvantage under your scenario as retailers would have to pay overhead costs for maintaining gift card trust accounts, being additional costs not incurred with over the counter sales.

They do, but it isn't really a sustainable business model to be generating cashflow, by not providing any service or product at all. All that needs to happen is regulation of gift cards which makes them unaffordable to sell, and it could drive businesses to the wall. Also stories like DS may totally turn people off buying gift cards, which could badly affect those businesses to rely on gift cards for cash flow. I would never buy a gift card now. Seen this probably with gift cards not being accepted after the business encounters problems too many times. It actually happens a lot more than you think, especially in the fickle retail sector.

I'm happy to keep buying gift cards as they make such practical gifts - easy to buy and post. I understand the risk and will accept my loss in the unlikely event of the retailers demise. For those not prepared to take the risk, like yourself, the best decision is not to buy, which is the decision you have made.

Win win.

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