Braintrust Query: Managing Retail Price-Point and Margin Pressures
Hurlbut & Associates
challenge independent retailers are struggling with right now, even more
so than with depressed traffic counts, is getting full margins for their
goods. While the consumer may be demanding discounts, the real issue is not
the retail selling price, it’s margins.
And the immediate
response has to be on the cost side. Retailers can’t continue to short
themselves on margin. Whether your preferred strategy is to establish lower
everyday price points (which is what I would recommend), or to build in
margin to cover your discounting, there are two approaches, both of which
should be pursued: (1) shift the mix of goods you buy into lower price
points, with lower costs, and; (2) insist on lower unit costs from your
Let’s take each
in turn. Moderating retail price points by shifting the mix toward goods
with lower costs can only do so much. You still have high priced inventory.
If you take an everyday price-point strategy, it increases the spread between
the higher price points and the average price point, which further pressures
the higher price points. On the other hand, if you build in margin on the
lower priced goods to cover discounting, you narrow the spread between
the higher price points and the average price point, making your full retails
look overpriced. Nevertheless, shifting the mix of goods toward more moderate
price points needs to be part of your response.
solution is to insist on lower unit costs from your vendors, on every item
you buy, across every price-point. Just as customers are driving down retail
prices, you must insist on lower unit costs from your vendors. Deflationary
pressure on retail prices requires that the unit costs that you pay come
down, and that costs at every stage of the supply chain come down as well.
In many cases, your vendors have already demanded and obtained pricing
concessions from their suppliers. You must insist that they pass it on
to you. They’ll comply, if they can. It’s not in their interest to weaken
their customers (you!) if they can help it. They need you right now just
as much as you need them, if not more.
must recognize that they are ultimately part of the supply chain themselves.
The end of the chain is your customers. If they are forcing selling prices
down, you can’t bear the brunt of that all by yourself.
How can independent retailers better preserve margins amid the downturn?
What leverage do they have with vendors in pushing for lower prices?
What other advice would you have for independents looking to survive