The Buck Stops Here

I love new products. My favorite part of every NAMM Show is scouring the convention floor for first-time presenters. I’m looking for items that are unique and offer businesses like mine a good margin, as well as the new, unusual and inventive things that will make my store different.

But recently, and especially at this past Winter NAMM Show, I have noticed a trend that threatens to put an end to this wonderful, almost idyllic relationship. More and more, new product manufacturers (NPMs) are offering margins that, quite frankly, would put me out of business.

More and more, new product manufacturers are offering margins that quite frankly would put me out of business.

You’re probably saying to yourself, this can’t be true, it sounds too silly, and that I must be making a mistake or even imagining this, but no – a majority of the new product manufacturers that I spoke with in January did not have even a 50% margin for retailers. Here is how one conversation with an NPM went:

Me: “What a great new product you have. Congratulations. It’s very inventive and useful. I would love to stock it in my store. How can we make that happen?

NPM: “Sure, our margins are 30% to you because we don’t want to price too high for the customer.”

Me: “Why are you pricing it that way? Please understand, I am not suggesting that you lower your price. Make your price whatever you think is fair and good for you, but build in at least a 50% margin for the retailer. In order to pay shipping, display your product in my store and pay someone to sell it, I must have a margin of at least 50%.”

NPM: “Sure, you can charge whatever you want, but we think the customer will be more likely to buy it at…” And so it went. Needless to say, I didn’t buy that product or any of the other ones with similar pricing.

It’s our job, as independent retailers, to educate new product manufacturers about the realities of our business. The first reality is that these products are entirely discretionary. We don’t need them, it would be nice to have them, but we can all live without them. Second, profit for the retailer is an essential part of the retail cycle.

Of course, customer cost is important, but not more important than retailer profit. I actually believe the three elements are equal.

Manufacturer/Distributor-Retailer/Customer

It’s a beautiful thing. Each is equally important, and in the brick-and-mortar retail model, none can succeed without the other.

We retailers know this all too well. Most products that we have to stock in our stores have prices which we have very little, or no, control.

The reality is that for small retailers, a 30 to 40% margin is not enough to succeed. It may work for online or big box stores, but it won’t work for us.

The one place where we can make some profit is with new products from small independent manufacturers. Or at least it should be. We must put these manufacturers on notice that we will not buy products that don’t have sufficient margins for us. Actually, one manufacturer was grateful when I brought this to her attention. She said she didn’t really know about pricing and asked if I would advise her, which I emphatically did. Actually, it’s quite a simple solution: The buck stops here. I simply won’t support new manufacturers who do not appreciate the importance of my store in the cycle.

I hope other retailers will do the same.

Our message is this: We honor your new product and applaud your ingenuity. We will work hard to present your product to our customers so they will buy your product. But you must understand that to do this for you, we must make at least a 50% margin on
your product. MI