Hold the line or take the money and run?

By Rich Lindblom and Gordon Hecht

It’s been awhile since YSN columnists Gordon Hecht and Rich Lindblom butted heads over commissioned sales, the merits of mattresses vs. appliances and staying open on Sundays.

Well, the boys are at it again, this time wrangling over the old “bird in the hand” saw. Should dealers do what it takes to close the sale or stick to their guns on price? Let’s listen in as each makes their case …

Claim No 1: Profit is King

Rich Lindblom: There was an old saying I heard when I first started out in the appliance business in the late 1970s: “Margins don’t pay the bills, dollars do.” And it has stuck with me all this time because it just makes sense.

You can’t deposit margins in the bank, nor can you use them to pay for groceries. You need money to do that, and you make money by selling merchandise.

Put a different way, would you rather have 20% of $1,000 or 50% of $0? I know which one I’d choose.  Sometimes you must take a low-margin sale because it’s better than a no-margin sale.

I don’t care what you’re selling, not every deal is going to be hugely profitable.

Gordon Hecht: I hear ya, Rich. Business is difficult these days. Foot traffic is down for brick-and-mortar stores. Advertising costs hover between $35 and $75 or more just to bring one guest into your shop. 

Your sales team makes their best presentation to the shopper, then they conclude by asking for the sale. It seems inevitable that the shopper will insist on “your best price.” 

With the time and money invested in getting to the precipice of creating revenue, you may be tempted to shave the price a bit, just to close the deal today.

Want my advice? Don’t! I learned early in my retail career that the best way to make money … is to make money.

Rebuttal: Is Any Sale Better than No Sale?

Lindblom: Every business owner knows that one of the keys to running a successful business is to turn your inventory, which is why you need to take every deal you can. You need to keep churning the dollars to pay your bills, and the way to do that is to sell as much product as you can. Occasionally that means sacrificing margins to make the sale.

Hecht: Most retailers don’t fail because of lack of sales. They fail because of lack of profitable sales.

The history of retailing is scattered with mighty giants of retail that are now gone from the marketplace. You know the names. Circuit City, Builder’s Square, Heilig Myers, Rhodes, and Sears. Dozens more in your local area too.

Traditional retail margins are in place because of the need to have margin dollars cover the fixed and variable costs of running a business. Expenses such as rent or mortgage, insurance, vehicle and equipment costs don’t change month to month.

Your business model is compelled to generate adequate margin dollars to cover those costs. When you discount the retail price you are effectively slicing into that margin. It will have a huge impact on your bottom line.

Do the math: home furnishings typically have a 50% margin.  Buy something for $500 and sell it for $1,000 and you earn $500 margin dollars.  If you offer a 10% discount of $100, your margin dollars are now $400. That’s a 20% drop in your ability to cover costs. You simply can’t afford that. 

Counterclaim: Customers Will Love You

Lindblom: There is a hidden upside to my approach, and it’s that customers tend to have short memories.  If you take a short margin deal today, the next time that customer needs something they’re only going to remember that you had the lowest price — and odds are they will come back to you a second time. 

And with any luck, this time they are less likely to try to beat you down on the price, giving you a second chance to make that higher margin sale.

Argument: Is It Better to be Flexible or Firm?

Hecht: Au contraire, mon frère. Using discounted pricing has a long-lasting detrimental effect on your business. Social media means the word spreads fast that your tagged pricing is soft and flexible. Soon every shopper is asking for a schneid.

And the discounts never end. Cave once on a price and your shopper is looking for extra reductions. The delivery is 10 minutes late and they want the charge refunded. There’s a tiny nick on the bottom of a range and they want another couple of hundred off. 

As they taught us in sixth grade, “Give them a centimeter and they’ll want a kilometer.”

Lindblom: Look, if a customer comes to you with a lowball price from a competitor and is willing to buy from you if you’ll match it, they’re doing you a favor if you ask me.

First, as a BrandSource member with over $20 billion of buying power behind you, the price you’re paying for goods is pretty much the same as any of your competition. So, if your competitor is willing to take the deal at that price, so should you.

And second, do you really want to give your competition the profit (albeit not a large profit) on the deal, and also give them a chance to steal away your customer? I sure hope that I know the answer to that question.

Conclusion: What Does the Customer Really Want?

Hecht: Being prepared for the discounting request doesn’t mean you have to honor it. Talk with your shopper not only about their budget, but also their price range. That shopper hoping for a $999 mattress or fridge already knows they may have to stretch to $1,599 or more to get what they want. When you build value into your sales pitch you build margin dollars into your bank account.

Explain to your shopper all the services that you offer at low or no cost — those same things the big box guys charge beaucoup bucks for. Let your shopper know what you offer to the community — supporting the Little League or soccer team, donating to local charities, keeping five to 50 of their neighbors employed. And the fact that you have merchandise in stock, quick turnaround times and are willing to special order an item to fit their needs. 

Asked to match a price? Know this: If the other store had such a great deal on fabulous merchandise, why didn’t the shopper buy it? They want to buy from you because they know you and trust that you’ll take care of them. Especially if something goes wrong.  That has value and you need to be paid for it. 

Lindblom: I’m not convinced. Holding out for top dollar on a deal just doesn’t make sense when it ends up costing you the sale entirely.

Hecht: In that case, let’s agree to disagree.

Lindblom: Agreed!

Rich Lindblom (left) was a longtime BrandSource member and Maytag Leadership Council officer who later joined AVB and designed its SYNC point-of-sale system. His debate partner Gordon Hecht is a business growth and development consultant to the retail home furnishings industry. Write them at rich.lindblom@avb.net and Gordon.Hecht@aol.com.

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