Subject:
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Re: Help me understand retail sales...
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Newsgroups:
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lugnet.market.theory
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Date:
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Sat, 12 Feb 2000 00:35:19 GMT
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Viewed:
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531 times
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Richard Marchetti wrote in message ...
> Hey y'all:
>
> I have read where some people here on Lugnet claim not to get excited about
> anything less than a full 40% off sale. And I don't doubt that people do
> occasionally get sales of even up to 75% off original price on Lego sets.
Actually, up to at least 95% off (the adventurer's blimp set which went for
$1 at some Wal-Marts).
> Here is what I don't get: how does a store manage to afford such a sale?
>
> Up to this point it would have been my understanding and expectation that a
> retail store paid between %35-50 of suggested retail price for everything • they
> sell. If this isn't the case, what is my mistaken assumption and what is • the
> truth of it instead? Are stores actually clearancing at a loss because • they
> make up for it by selling in quantity beforehand at full retail price?
> Alternatively, does a chainstore like TRU actually buy at less than 25% • full
> retail on a given toy?
>
> I should probably know how this works already, but I happen never to have
> worked at any kind of retail so I lack any kind of insider information on • the
> subject. Nor have I taken any marketing courses, ever!
There are several costs to a store for product on the shelf.
- The wholesale cost (like you say, generally on the order of 35-50% of
MSRP)
- The cost of the shelf space
- The earnings potential of the shelf space
- Taxes on the inventory value
- Stock Market effects of the inventory value
- The cost of the labor to maintain the product on the shelf
All but the first of these suggest that at some point it is worth the store
removing the item from inventory. There are essentially four options here:
- return the item to the manufacturer/distributor for partial or full credit
- destroy the item
- sell the item to a liquidator
- mark the item down and hope a customer buys it
Each of these has a cost to implement, and a return. Stores which have a lot
of excess goods may find it worthwhile to return the unsold goods if the
return credit is good enough. Stores which can't afford the space or labor
cost of putting the item on clearance may destroy the item, or sell the item
to a liquidator. This doesn't happen very often (however, distributors and
manufacturers do this all the time, kbkids.com and KB Toys have been selling
a bunch of older sets for low prices, they have bought these sets from TLC
or a distributor on liquidation terms, Big Lots and Value City are other
chains which I have seen liquidated LEGO sets at). In the end, the best
choice usually ends up being to mark the item down.
The big US store chains like Target and Wal-Mart have such a high turnover
of product in general that the one of the biggest costs of inventory is the
earning potential of their shelf space. They may also close their fiscal
year early in the calendar year, which means they need to clear out the
Christmas surplus quicker (K-Mart should have comparable turnover, but
doesn't tend to clearance much compared to Wal-Mart, but does constant sales
during the early months of the year, I assume that part of this is when they
do their year end close out).
The big sales come right after Christmas because the huge jump in sales of
certain goods (especially toys) during Christmas means that they may be left
with several normal months worth of left over goods. In addition, the
madhouse of Christmas usually means that much of the product left on the
shelf looks like it went through a war.
I'm sure someone else can explain it even better.
Frank
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Message is in Reply To:
 | | Help me understand retail sales...
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| Hey y'all: I have read where some people here on Lugnet claim not to get excited about anything less than a full 40% off sale. And I don't doubt that people do occasionally get sales of even up to 75% off original price on Lego sets. Here is what I (...) (25 years ago, 11-Feb-00, to lugnet.market.theory)
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