Retail and offering discounts to customers

adsw

I see McGuirks golf are offering 20% discount today off most products in their stores and online. Looks to be a great offer, but wondering how they can afford to do this?

I guess profit margins in the likes in golf clothing can be good but some other products would only offer a margin of 20% or under. I presume overall they are still making a good profit on this sale and will cover their costs with the higher margin products - but from someone with a non-retail background who would like to get in to retail, can anyone explain a bit more about offering discounts etc. or maybe share a link to an article online.

I know it's probably slow season for them at the moment and McGuirks are probably looking at this longterm and want to get new customers who will become repeat customers. But won't these customers either be only looking for discounts or expect further discounts in the future and never want to pay full retail price??

Any theories welcome

traprunner

They have stock that is paid for and want money to pay wages and bills. Therefore they have a sale and while the profit margin per item may be small it's partially covered by previous stock they have.

pedronomix

Retailers are often supported by the brand owners/wholesalers in clearing last seasons equipment/styles to clear the decks for new season ranges. The retailer will also blow out slow moving stock. With typically 60% margin on list prices, offering 20%+ off is no big deal.

delahuntv

new season is starting, new products are coming through, a retailer wants to clear older stock.

Its all built into the overall margin. - You aim to sell 60%-70% of stock at full margin and the balance at reduced margin at specific times of year when it would otherwise be quiet.

delahuntv

pedronomix wrote: »

With typically 60% margin on list prices, offering 20%+ off is no big deal.

There is nothing like 60% margin on golf equipment. 60% mark-up possibly.

ScouseMouse

It may not even be McGuirks financing this deal, it could be the wholesaler or manufacturer.

I am currently selling stock at half price. The manufacturer is trying to clear their warehouse as its perishable, so sold it to me as buy a case, get a case free. Same principle though, get rid of it, for whatever reason, to clear out.

drunkmonkey

If your putting it on Sale is must have been at the higer price for at least 28 days previously.
It's quite possible that the items on sale were exactly the same price in October as they are now in the sale. The price may have risen for November and December and now it can be offered at 20% off even though that was the original price a few months ago.

Rules are here http://corporate.nca.ie/eng/Business_Zone/Consumer_Protection_Act_and_the_Retail_Sector/NCA-guidelines-price-promotions-and-related-matters.doc

jimmii

Its not just B2C that have January sales all our bigger suppliers are having a January sale looking to clear the remaining end of line stuff they have sitting around some of the discounts can be huge. Unless there is someone here with their own golf shop dealing with the same suppliers they're unlikely to know the exact numbers and how well they are doing running a 20% sale but in general most retailers aren't overly concerned with making a profit in January its more about trying to clear out last years left overs to make space for this years new lines.

They may as also be using the 20% purely as marketing tool to get people into the shop while its quiet knowing that while people may buy the discounted stuff a lot of people will also pick up a good few other things at the same time where the margin is a lot better for them.

delahuntv

drunkmonkey wrote: »

If your putting it on Sale is must have been at the higer price for at least 28 days previously.


Rules are here http://corporate.nca.ie/eng/Business_Zone/Consumer_Protection_Act_and_the_Retail_Sector/NCA-guidelines-price-promotions-and-related-matters.doc

Incorrect and the link is not to "rules", but to "guidelines". In the Uk there is a 28 day rule, but not in Ireland. The guidelines say it must not be misleading.

TheCostumeShop.ie: Ronan

delahuntv wrote: »

Incorrect and the link is not to "rules", but to "guidelines". In the Uk there is a 28 day rule, but not in Ireland. The guidelines say it must not be misleading.

Yeah thats just not true when it comes to bricks and mortar shops.

Ref: "Your rights are exactly the same when you buy items or services in a sale as at any other time. If a reduction is displayed on an item, the previous price must have been valid for 28 days over the previous three months."

http://www.citizensinformation.ie/en/consumer_affairs/consumer_protection/pricing/pricing_of_goods_and_services.html

Basically OP, the reason retailers discount stock is because you need churn rate and to clear slow moving stock to make room for fresh new ranges, otherwise customers get bored. Jan is a quiet month for some retail, people have less cash after Christmas.



Also depending on when their financial year ends, retailers like to manage their books so that investors dont see high amounts of cash tied up in inventory. Cash is king in retail.


Sometimes passing on discounts is better marketing than paying for advertising.

adsw

Thanks guys for all of the responses!! I've learned something new today

All makes a bit more sense now.

Cheers

IpreDictDeatH

I run a retail business and i do a discount in January which works out to me getting what i paid for it back, no profit. I'm just realising cash. It's better in the bank where i can re-invest in new stock rather than depreciating on the shelves. You can actually create more profit with discounts strangely enough, by turning over more units. Pricing is a very interesting subject, if i find any articles i will post here for you.

collegeme

IpreDictDeatH wrote: »

I run a retail business and i do a discount in January which works out to me getting what i paid for it back, no profit. I'm just realising cash. It's better in the bank where i can re-invest in new stock rather than depreciating on the shelves. You can actually create more profit with discounts strangely enough, by turning over more units. Pricing is a very interesting subject, if i find any articles i will post here for you.

Please do. It's a subject that I am hugely interested in. I sigh when I hear people say but "I'll only make x" or "I can't just give it away" when starting in business, they don't seem to have any notion of supply , demand , pricing etc

IpreDictDeatH

I found this concept profound when i realised it.

https://hbr.org/2009/11/so-you-think-you-know-how-to-g


There really is so much more to pricing/profit than you think. I'm focusing my energy in trying to master pricing for profit as opposed to my marketing strategy or any other business growing tool. It's the key to a successful business.

Business owners have emotional attachments to their stock sometimes which can cloud their judgement. I try to picture the stock as unrealised cash when i purchase as opposed to something i own. If i have to sell it at cost price so be it, I've lost nothing and I've continued to trade.

That said, i don't aim to sell at discount, i actually have a strongly focused price strategy that is profit driven which sees me try to emphasis value to customers as opposed to bargain pricing (which i believe is a race to the bottom). I don't believe the bargain/discount & continuous offer strategy is correct for all businesses but it seems every business and their brother is going this way. Its fine if you are a discount store but not if you're a small business without the buying power of the big guys.

Pricing, volume turn over & profit do play a vital roll in most retailing businesses however and i think a snooty attitude against lowering prices or doing the odd promotion is counterproductive and must be overcome if you ever want to increase profit.

jimmii

Thats a good starter article to read alright. Your aim of pricing should always be to maximise your profit whether the margin is 1% or 100% is irrelevant I remember covering it 5th year business but seems to be something that is quickly forgotten!

Other problem with discounting something you are going to continue to stock is its easy to lower a price but raising a price often results in a much bigger drop in demand and you can often end up making a lot less money than if you had never discounted it at all.

collegeme

jimmii wrote: »

Other problem with discounting something you are going to continue to stock is its easy to lower a price but raising a price often results in a much bigger drop in demand and you can often end up making a lot less money than if you had never discounted it at all.

Very true. I'm no expert but I believe the "groupon" has harmed some businesses more than helped.
If you discount something, people remember and will wait for the next time it's discounted before buying (a %of people).
I know I've often hoped the cream cakes would be discounted at them end of the day but then remembered sure then a lot will wait and say , sure i'll head down about 5.50pm and grab some reduced ones rather than buy now at full price.

jimmii

collegeme wrote: »

Very true. I'm no expert but I believe the "groupon" has harmed some businesses more than helped.
If you discount something, people remember and will wait for the next time it's discounted before buying (a %of people).
I know I've often hoped the cream cakes would be discounted at them end of the day but then remembered sure then a lot will wait and say , sure i'll head down about 5.50pm and grab some reduced ones rather than buy now at full price.

Yeh absolutely. People will think I got that before for €5 no way am I paying €10 for it now. I don't look at those sites much but it looks like the products on there now have massively inflated "prices" that are then discounted so that people are keeping there margin.

IpreDictDeatH

Agree on above. If discounts revolve around end of season or two for one type deals that seems to help curtail shooting yourself in the foot. Also depends on the type of business you're in obviously. New stock for me for the first few weeks is value driven with maximum achievable profit. Then if it is still hanging around ill look to clearing with discounts if customer buys higher volume. Then if it just isnt selling and is a loosing line i will even give them away as gifts to good customers, the best marketing ever.