Newsagents selling the Junior MasterChef range have had a lesson this week in banking dollars and not margin thanks to the Big W pricing policy on this range.
Some newsagents are obsessed about the percentage they make on each item they sell. Too often they lose sight of the margin dollars they can bank with a smaller mark-up and a higher volume of sales for a higher than newsagency average priced item.
The suggested retail price of some items in the Junior MasterChef range was $39.95. Big W had these items at $21.95. We made a decision to go with a smaller mark-up which got us to a price for these items of $24.95. At this price they are selling at a good rate, certainly faster than if we went with the suggested retail price. We are banking more dollars on the sale of one of these than on three greeting cards.
Further, shoppers do not come to us expecting to purchase a Junior MasterChef item so the dollars banked are impulse purchase margin dollars – the very best kind as they boost our sales efficiency.
So, what is better, a higher margin on products or more margin dollars banked through considerably higher sales? The latter in my view. I can bank dollars. I cannot bank a percentage.
Our approach to pricing was taken on the basis of goal sell through. We would like to have the space back within 30 days. This would definitely not be achieved if we went with the suggested prices. It should be comfortably achieved with our Big W style approach to pricing.
Big W is all about volume. They pursue banking margin dollars rather than margin percentage. When you think about it, newsagencies are too. We have excellent traffic every day. Considerably more traffic than many other retailers.
Too many newsagents obsess about margin percentage. As I noted above: I can bank dollars. I cannot bank a percentage.
I wonder what would happen if we paid our employees Big W wages or paid Big W rent on space.
Big W also does not have strict 30 day trading terms with suppliers.
I do not have a fixed margin for goods if I have the choice ie stationery, gifts cigs instead I offer it at a price that the customer will pay, and you soon find out if you are charging too much and back off a bit.
The problem within newsagencies is that a huge % of our stock is pre-priced these include mags, papers, lotto, cards, wrap. An example is with the royal engagement set to get huge interest we should be allowed to charge a premium for the special edition not what the publisher insist we charge. We are locked to offering it at the same price no m,atter what happens. Look what happens to petrol around holidays, the price goes up, eat out on public holidays pay extra, get in a taxi after a certain time or at the airport and pay a premium on top of the regular price..
It would be a brave newsagent that charges above the rrp, on pre priced products but if they removed the rrp off all our stock we could compete better. What in Big W has a pre printed price?
For some years now we have worked on a sell through policy for seasons such as Valentines and Easter. Working on as little as 50%M/U which gives 33.3% margin, we concentrate on moving more product at around our minimum prefered daily margin. This counters our low margin on papers and magazines and helps drive sales and has assited in lifting our margin north of 36%. It’s certainly a balancing act but dead stock loses money even if the margin is 50% or more.
I have read many times in business books that turnover feeds the ego, profit feeds the family. Discounting can increase your turnover significantly, but may not have the same effect on your profit.
The problem with selling items at severely discounted prices means you need to sell significantly higher numbers than at non-discounted prices. Assuming you paid $19.95 for the items with a RRP of $39.95, if you drop your selling price to $24.95, you then need to sell at least four times as much stock just to make the same profit.
From what I am told, Big W receive their stock at somewhat better prices and terms than we do, so trying to match them on price will just end up sending us broke.
I recently saw a newsagent not far from me discounting Xmas stock from GNS to a price where he would need to sell at least 10 times the number of items that I sell just to make the same profit (and I have sold quite a reasonable number of these same items at what my customers thought was a quite reasonable price).
Discounting is a dangerous practice (see the recent stories on Myers foray into discounting that has been disastrous for them) that should only be embarked on with very clear objectives in sight.
Marketing on price is an extremely competitive field. You need very deep pockets to make money and once you dip your toe in the discounting water, it’s difficult to go back.
John I think that we need to be thoughtful about discounting.
Right now, I am discounting the Junior MasterChef products and will easily sell out in a couple of weeks based on what I have seen in my newsagencies today.
I am not discounting Christmas, calendars, diaries or boxed Christmas cards.
While your calculations are acccurate, there is the assumption of speed of sales which needs to be considered.
In this instance, the most is serving my needs perfectly.
I wrote the post to illustrate that there can be occasions where margin dollars and more valuable than margin percentage.
John, what you forget about is customers only get ripped off once, if you are selling an item for $39.95 that is selling for $24.95 elsewhere that customer will not return and this is the problem that myer is having at the moment. As soon as they stopped discounting their sales dropped and foot trafic was down. if people stopped walking in the door your margins are not going to matter
Scott you are spot on, so we need to be careful not to buy from suppliers that also serve Big retailers at a lower cost then us and make us look bad.
We are an ABC centre and every now and again Big W hijacks one of our titles and sells it for less then we pay for it, and the ABC sets our rrp not us so we cannot price match but they do not have depth of range or knowledge about a title to compete long term so we take that title off the shelf until they move on like the locust they are and then get back to business.
I feel sorry for the newsagents that bought the masterchef products in good faith about the rrp and margins and now see it go up in smoke as they are seen as expensive by customers.
I bought the Junior MasterChef products knnowing that one of the national retailers would discount on price. I bought knowing that I would come close to their price. This, for me, is all about showing that my newsagency is not your average newsagency and that I am not as expensive as shoppers often think a newsagency is.
They say the best price for an item is where both the buyer and seller are unhappy. i.e., the buyer paid more than he wanted and the seller sold it too cheaply. Conversely, if there is margin in it, both can be happy where the seller thinks he made a killing and the buyer thought it was a bargain.
Just saw the Junior Masterchef kits for $19.95 at Woolworths. Looks like we’re going to have to drop our price dramatically.
Shayne this is why we went out with a lower markup from the outset. The key is to sell to shoppers in your store for other products.
They don’t have the Apron & hat packs so I think we’ll drop the price and go with an additional discounted offer on those similar to what you have done with the Hallmark bears Mark, see how they go.